Biotech and Pharma

Pharma under fire, but firms serious about research will pay off, expert says

New war on drugs: Pharma becoming 'uninvestable'?
New war on drugs: Pharma becoming 'uninvestable'?

Pharmaceutical stocks have been under pressure thanks to the public outcry over drug pricing, but certain companies are doing things right, former Medtronic CEO Bill George told CNBC on Friday.

"The ones that are really serious about research, they are going to pay off big time, very big," he said in an interview with "Power Lunch."

Specifically, Merck has the right game plan and names like Amgen and Gilead Sciences have done well, although they've been hit recently, the Harvard Business School senior fellow and CNBC contributor noted.

The industry has faced sharp criticism about its drug pricing practices. Notably, Mylan has faced Congressional scrutiny over the price hike on its anti-allergy device, EpiPen. Several other companies are under the microscope, as well.

Getty Images

This week, Sen. Bernie Sanders and Rep. Elijah Cummings called on federal antitrust regulators to prove whether Sanofi SA, Eli Lilly, Merck and Novo Nordisk colluded to set prices for insulin and other diabetes drugs.

The request follows a similar letter they sent last fall calling for an investigation into 14 drug companies over prices increases of generic drugs.

The Department of Justice could file charges by the end of the year in its subsequent criminal investigation of generic drugmakers over suspected price collusion, according to Bloomberg.

The uproar has taken its toll on the sector, with the key biotech ETF down more than 25 percent in 2016.

George said the drug companies can't continually jack up prices and are not in business just to serve shareholders. They are in business to serve consumers, he noted. If they do that well, he believes profits will follow.

"The key to making money in pharma is very straightforward," George said. "It is through innovation, through breakthroughs."

David Maris, specialty pharmaceutical analyst with Wells Fargo, believes the pricing debate is only in its early stages.

He agrees that collusion should certainly be addressed, and companies who raise prices too much should be looked at.

However, Maris said the public should not lose sight of the fact that pharma is the best industry in America, employing 4.5 million people.

"The pharmaceutical industry actually spends more in R&D than both the aerospace and the tech industry combined. So you go after these, what might happen is … fewer innovations," he told "Power Lunch."

— Reuters contributed to this report.