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Biotech stocks are soaring, but here’s one risk to the rally

  • Biotech stocks are on a tear, on pace for their best weekly performance of 2017.
  • Sources told CNBC this week the administration may be holding off until the Senate calls a vote on health reform.
  • But executive order drafts could actually have the opposite effect, prompting an impulsive president to react with policies more in line with his campaign promises.

Biotech stocks are on a tear, on pace for their best weekly performance of 2017, as word from Washington indicates President Donald Trump's expected action on drug prices may not be as onerous as investors feared.

But hold on. Trump hasn't yet publicly acted on drug prices — sources told CNBC this week the administration may be holding off until the Senate calls a vote on health reform — and plans could change. And multiple reports of industry-friendly executive order drafts could actually have the opposite effect, prompting an impulsive president to react with policies more in line with his campaign promises.

Democratic representatives Elijah Cummings and Peter Welch are encouraging just that, sending a letter to the president Wednesday condemning reports that his executive order is essentially the pharmaceutical industry's wish list.

"Before you were sworn in as president, you railed against the pharmaceutical industry's abuses, accusing them of 'getting away with murder,'" the congressmen wrote. "Your statements and your promises gave many of us hope, but your planned executive actions suggest that you have abandoned these promises in favor of the very pharmaceutical lobby you warned of."

The Nasdaq Biotechnology Index was up about 2.7 percent midday Wednesday. To be sure, drug pricing isn't the only issue affecting stocks: analysts and investors say progressive moves from the new Food and Drug Administration commissioner, positive clinical trial data, and hopes for tax reform and a return to mergers and acquisitions are all driving biotech higher.

But concerns over government regulation of prescription drug prices have been depressing the sector for the last two years. And Trump has yet, definitively, to act.