Biotech Poised For Growth: 3 Healthy Fund Choices

On Nov 14, major biotech players plummeted more than 5% on average. This pushed the sector to its lowest level in the recent past. Following this decline, iShares Nasdaq Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI) tanked 11.5% in intraday trade, the sharpest fall since October.

However, this decline is momentary as investors have only rotated out of biotech to tech stocks as that seemed prudent. Also, this was more of a correction than a decline and investors should buy this dip.

Further, biotech stocks have rallied throughout 2017, emerging as one of the top performers this year. In fact, the iShares Nasdaq Biotechnology ETF (IBB) has rallied 17.1% year to date. Moreover, biotech majors have demonstrated strength despite challenges like rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs.

Moreover, the drug pricing issue has ebbed and there are high hopes from Trump’s one-time tax repatriation which is slated to improve things further for the sector. Republicans have been trying hard to get the reforms implemented and there is a high possibility that we might find the new tax code by the next year. So there is no reason to shy away from biotech mutual funds.

Drug Pricing Issue Has Ebbed

Healthcare was hit hard before the election on the price-gouging issue which was first raised by Hillary Clinton in September 2015. She had tweeted about “price gouging” and framed a proposal to combat skyrocketing drug prices.

In March, President Donald Trump took this a little further and tweeted about increasing competition and how he wants to lower drug prices himself, sending fresh shockwaves across the industry. He had tweeted that his team was working on a ‘new system’ which would involve competition in the Drug Industry. Since this tweet, Trump has never commented publicly about drug pricing.

Also, Trump’s pledges to reduce FDA regulations, remove taxes and fees on pharmaceutical and medical-device manufacturers, and successful clinical trials for new drugs may prove to be a boon for the space. Meanwhile, some other factors that should continue having a positive impact on pharma and biotech stocks are new product sales ramp up, R&D success and innovation, strong results, a higher number of FDA approvals, and continued strong performance from legacy products.