Most investors would agree that the key drivers for the performance of healthcare stocks are revenues, earnings, cash flow, and (in some cases) dividends. Furthermore, a company’s portfolio of existing products and their pipeline of potential new products weigh heavily on future revenues and earnings. With big pharma and biotech, portfolio and pipeline are critical. Management too, is a key driver, as good management decisions lead to more successful business ventures.
However, one entity that can have a particularly significant impact on the stocks in the healthcare sector is the nation’s regulatory system. And the primary distinction in this area is the U.S. Food and Drug Administration—the FDA. An adverse ruling on a drug or pulling a drug off the shelf has the ability to wreak havoc on healthcare companies. However, over the years, the FDA has become more willing to approve additional drugs, with impetus for shorter timelines prompted by demand for solutions to multiple-drug resistant organisms, for novel viruses, and with immuno-therapies. Many drugs have been given fast track designations to further usher them through the FDA clinical trial process.
However, the Trump administration, in an effort to further reduce government regulation, has nominated Dr. Scott Gottlieb to head up the FDA. Some believe that less regulation will not only reduce the exorbitant price of bringing medicine to market, but will also allow greater innovation and R&D among the healthcare industry. This all sounds like a win-win situation for Americans and for the companies involved in bringing healthcare to market… but also a controversial decision impacting the FDA’s role, not only for regulatory oversight, but with discussions and guidance surrounding the ethics of genetic editing.
Dr. Gottlieb has some strong ties to the pharmaceutical industry (he is on a product board for Glaxo SmithKline and some members in the Senate have cried foul as the situation smacks of conflict of interest). Moreover, they want someone who will get tough on the Opioid addiction crises in the U.S. and they have concluded that the nominee is not the best candidate.
Now, Gottlieb has offered to divest himself of all investments in the healthcare industry within 90 days of confirmation. But this still isn’t enough according to some: The nominee “is entangled in an unprecedented web of close financial and business ties to the pharmaceutical industry and was no doubt chosen because he is well-suited to carry out the President’s reckless, ill-informed vision for deregulating the FDA’s review and approval process for prescription medications, including opioids,” Dr. Michael Carrome, director of Public Citizen’s Health Research Group, said at the press conference.
It will be interesting to see how Gottlieb’s nomination process proceeds. We at In Sickness and Wealth will be watching closely. As owners of publicly traded healthcare companies, any changes at the FDA could have a major impact on the long-term future of the sector, and thus our portfolio.
Dave Lerman / Jodie Warner