Health and Science

Trump isn't a 'worst case scenario' for biotech, analyst says

Analyst: Not 'worst case scenario' for drug industry

Biotech stocks won't be hit with a "worst case scenario," analyst Michael Yee told CNBC, referring to President Donald Trump's latest attack on the sector.

Health care stocks slumped into the red Tuesday, following congressional Republicans' release Monday night of their broad plan to replace Obamacare. Then, Tuesday morning Trump tweeted that he was going to make sure drug prices come "way down."

"I think on one hand you're seeing investors are figuring out that [Trump] is probably gonna come out with some 'scary headlines,' and that ultimately the market seems to wants to brush it off … there's gonna be some compromise," RBC Capital Markets' Yee said in an interview on CNBC's "Power Lunch."

But President Trump's latest comments to Congress, where he mentioned "lower drug pricing immediately," have been unspecific and vague, Yee said. "The markets are going to move higher."

Yee said he believes investors who have been "underweight biotech," coupled with a continued outperformance by biotech stocks, will prompt more investors to start coming back into the space through 2017.

The "bottom line" is that biotech investors are looking at how bad it's been over the past year, but a lot of that movement has already been priced in, Yee said. Trump's policies won't result in a "worst case scenario" for the sector, he reiterated.

For example, Republicans could choose to go a number of routes to slash drug prices, including: cutting the patent life of drugs shorter to increase the pathway to generics, moving Medicare from Part B to Part D or accelerating more drugs to be approved faster, Yee said. All three would increase competition in the market.

Part D is the outpatient prescription drug benefit for anyone with Medicare, and one must have either Part A or Part B to be eligible for Part D.

It remains unclear how Medicare Part D will be impacted by Republican lawmakers, and new bills could bring changes to Part B policies, too. But President Trump has said he's in favor of giving the Centers for Medicare & Medicaid Services the authority to negotiate drug prices under the Medicare Part D pharmacy benefit.

Maryland Rep. Elijah Cummings is scheduled to meet with President Trump on Wednesday to talk about how to lower drug prices, and Yee said the "Medicare option" is definitely on the table.

"And if that's the case [i.e., if the Medicare option is Trump's plan of action], stocks will still move higher."

The financial implications of any of these moves by Republicans isn't so significant, he said.

Maybe it's not time to give up on the biotech sector, just yet.