Drug distributor AmerisourceBergen has been one of the most consistent winners in the market during the past few years. Yet, over the course of the past year, Jim Cramer has watched as it transformed into a total house of pain.
"The stock has gone from market darling to dirty dog in almost no time flat," the "Mad Money" host said.
Is there any hope in sight for one of the largest drug distributors in America?
AmerisourceBergen hit an all-time high of $121 a little over a year ago, up from $14 in generational lows of 2009. It has now lost 26 percent since the beginning of 2016. The company is one of the largest pharmaceutical sourcing and distribution services in the world, and handles approximately 20 percent of all drugs sold and distributed throughout the U.S.
When the Affordable Care Act went into effect in 2014, millions more people obtained health insurance. As a result, prescription drug sales surged, especially the expensive specialty drugs space that AmerisourceBergen dominates.
Cramer explained the company's backslide, which began a year ago. Consolidation in the health care industry caused many problems for drug distributors in general. Additionally, the Affordable Health Care Act prompted many health insurers and HMO's to deal with greater government regulation and slowing growth from traditional employer provided insurance plans.
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Many of these companies decided they needed to purchase growth, and began to acquire competitors to gain market share. Health maintenance organizations now have a lot more bargaining power over a drug distributor like AmerisourceBergen. Hospital and pharmacy mergers have caused the same problem.
To combat these worries, AmerisourceBergen decided to consolidate on its own, and purchased PharMEDium.
Another big problem for AmerisourceBergen is drug pricing, especially since it stands to benefit from price inflation on generic drugs. Last summer, both AmerisourceBergen and competitor McKesson confirmed a slowdown in generic drug price inflation, and the stock was slammed.
"The drug pricing issue will likely stay with us at least until the election in November," Cramer said.
He anticipates that if Hillary Clinton wins the presidential election, drug prices could go lower. If Donald Trump wins, he could repeal the Affordable Care Act. Neither outcome is good for drug distributors.
"The truth is, the whole drug distribution industry is being threatened, but ABC is getting hit the hardest and I bet it goes lower before they figure out how to turn things around," Cramer said.