Pharmaceutical Investing

Pharmaceutical stocks are seeing share price declines, but Jim Cramer believes investors should take the long-term picture into account.

It’s an election year in the US, and unsurprisingly one of the hottest topics has been healthcare. And in the wake of 2015’s drug pricing debacle, which saw Turing Pharmaceuticals CEO Martin Shkreli jack up the price of HIV drug Daraprim by 5,000 percent, it’s no wonder that drug pricing in particular has become an issue. 
Other than running for president, Donald Trump, Hilary Clinton and Bernie Sanders don’t agree on many things. Drug pricing, however, is one subject on which all three candidates agree.

What are the candidates saying?

“We have the leading candidates of each political party bashing healthcare,” CNBC’s Jim Cramer said last Thursday on Mad Money.
Indeed, Trump is on record as suggesting that “Medicare could save $300 billion a year by getting discounts as the biggest buyer of prescription drugs.” According to Cramer, that’s “the ultimate anathema to the drug companies: he would allow Medicare to negotiate with the drug companies to save the treasury $300 billion.”
Meanwhile, Clinton has committed to “[h]olding the pharmaceutical industry accountable” by “denying tax breaks for direct-to-consumer advertising and demanding that drug companies invest in R&D — in exchange for taxpayer support.”
Sanders has also added to the mix, stating that he would require pharmaceutical pricing and cost “transparency.” Sanders is looking for figures that report “not only the price information charged to federal payers, such as Medicare, but also the price, profit, and sales information from other countries in which a drug is sold.”

Cramer is not confident in the ability of any candidate to successfully wrangle pharmaceutical firms into better pricing “[g]iven all the friends the drug companies have in Congress.” Still, it’s clear that the presidential front runners favor government negotiation with drug companies for lower prices.
Currently, the US is the only western country that does not use its national healthcare system to bargain with pharmaceutical companies.

What should investors do?

Pharmaceutical stocks, as Cramer highlighted on Thursday, are in “weak hands” — and until the election is over, are likely to remain that way. But while investors are leaning away from healthcare stocks that doesn’t mean it’s the best thing to do. In fact, Cramer believes investors could benefit from looking at a broader timeline.
“I’m not trying to call a bottom in healthcare, but I think it makes sense to take a longer-term view,” Cramer said.

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any of the companies mentioned in this article.


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