Wall Street isn't worried about Hillary Clinton's plan to cap drug prices

Biotech analysts are calling Hillary Clinton’s bluff.

On Tuesday, the Democratic presidential frontrunner will announce her plans to take on pharmaceutical companies.

Her proposals, already released, include a required investment in research and development for companies that receive grants, and imposing a cap on out-of-pocket insurance costs for drugs.

Clinton had hinted in a tweet on Monday that she would announce plans to take on price gouging in the pharma industry.

Biotech stocks sold off after Clinton’s tweet, with the iShares Nasdaq Biotechnology ETF falling more than 4%.

In a note to clients on Tuesday, analysts at Raymond James took down Clinton’s proposals point-by-point. For example, they don’t see how the government can legislate how companies reinvest their profits.

Overall, the analysts remain “largely bullish” on biotech.

“We see little potential this proposal passes Congress in its entirety. Indeed, there exists a substantial body of data explaining why many of these measures simply won’t work. As such, while we can’t deny the proposals seem grim, we do think favourable buying opportunities may be seen as the space continues to sell off.”

Clinton’s tweet on Monday linked to news that Turing Pharmaceuticals hiked the price of Daraprim, a drug that fights parasitic infections, from $US13.50 to $US750 per pill (5,000%) overnight.

CEO Martin Shkreli told CBS News the drug was unprofitable at its old price.

The analysts’ message is that Daraprim is an outlier in the industry. They also that this is not a new issue, recalling that there was similar outcry when Gilead Sciences priced its hepatitis C drug, Sovaldi, at about $US1,000 a day in the US.

Ultimately, Raymond James thinks it’s probably just another talking point that a presidential candidate has seized on. And not only are her proposals impractical, they won’t hurt the industry.

“Given that the vast majority of specialty biologics or therapeutics that provide the underpinnings to the sector provide significant therapeutic benefit with extremely defensible pharmacoeconomics, we do think the industry will fare just fine – regardless of who attacks it,” they wrote.

Raymond James published this chart on Monday showing that spending on drugs as a percentage of total healthcare spending has been on the decline though this tells us little about individual drug pricing.

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