Will FDA And Tax Reform Occur And Help Biotech Stocks?

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Summary

Biotech stocks bounced Monday on comments from President Trump suggesting efficiencies in drug development could be on the way.

The administration's point of view is related and discussed in some detail.

Possible and proposed changes at FDA are reviewed, as well.

Analysis and commentary of whether any of this political talk should now be of interest to biotech and pharma stock investors is presented.

I continue to tend to "fade" the knee-jerk response of traders and instead focus on fundamentals, and like the large-cap biotechs for the intermediate and long term.

Introduction

President Trump met with pharmaceutical company leaders Tuesday and made some broad, consequential statements that catalyzed a sharp jump up in biotech stocks, both large caps (NASDAQ:IBB) and small caps (NYSEARCA:XBI). The possibility of procedural and other reforms at the FDA was cited as the cause for this move. In view of this, I'd like to make some comments about what might happen and what it might do for, or to, biotech investors as well investors in other sectors of the pharmaceutical industry.

Background - A brief review of FDA-related legislation signed by Barack Obama

It may be valuable for readers to take a minute before or after perusing this article to look at this or some other description of the 21st Century Cures bill, which addresses certain FDA-related topics. Congress passed this legislation late last year and President Obama signed it into law. I've already made the most important point, though, namely that a Republican Congress has worked on FDA issues for some time and enacted much of what it wanted.

That legislation passed Congress in 2016. In 2012, an important law relating to FDA was passed, FDASIA. This led to FDA's implementing a variety of programs that help get important drugs to market faster:

  • Fast Track
  • Breakthrough Therapy,
  • Accelerated Approval, and
  • Priority Review.

It's not as though Congress has been idle on regulatory matters. In addition, a section of the Affordable Care Act (Obamacare bill) authorized FDA to begin the process of authorizing biosimilars to proteins, a long process that only now is beginning to affect drug costs.

So the question I ask is whether Congress has much of an appetite for major FDA-related legislation.

With that noted, here's what the President had to say.

The administration wants to trade faster, less costly drug approvals for lower prices and more US-based manufacturing

Let's look at a transcript of the President's statement from RealClearPolitics:

TRUMP: I think you know most of my team and you folks have done a terrific job over the years, but we have to get prices down for a lot of reasons. We have no choice. Medicare, Medicaid we have to get the prices way down so that's what we're going to talk about.

We need to streamline the process, so that, from your standpoint, when you have a drug, you can actually get it approved if it works, instead of waiting for many, many years.

The U.S. drug companies have produced extraordinary results for our country but the pricing has been astronomical for our country. We need to do better. New drugs have led to longer, healthier lives, we all know that but we have to do better accelerating cures, we've been focused on accelerating FDA. We'll get the approval process much faster.

One thing that has always disturbed me, they come up with a new drug for a patient who is terminal and the FDA says, 'we can't have this drug used on the patient.'

But they say that the patient within four weeks will be dead. They say, 'Well, we still can't approve the drug. And we don't know if the drug works or if it doesn't work, but we can't approve the drug because we don't want to hurt the patient.' But the patient is not gonna live more than four weeks!

So we'll be changing a lot of the rules -- a lot.

We're going to be ending global free loading. Foreign price controls reduce the resources of American drug companies to finance drug and R&D innovation. I think you people know that very well. Very unfair to this country.

Our trade policy will prioritize that foreign countries pay their fair share for U.S.-manufactured drugs so our drug companies have greater financial resources to accelerate the development of new cures. And I think it's so important. But right now, it's very unfair what other countries are doing to us.

One thing I really want you to do a lot of -- I've seen this over the years, but a lot of the companies have moved out. They don't make the drugs in our country anymore. A lot of that has to do with regulation. A lot of it has to do with the fact that other countries take advantage of us with their money and their money supply and devaluation because we don't know anything -- our country has been run so badly, we know nothing about devaluation. Every other country lives on devaluation.

I did have to laugh at the comment at the end that the US knows "nothing about devaluation." I would disagree. It's just that since the Great Recession, the US economy, faltering though it has been, has outperformed most of the rest of the world.

That aside, I think it's always good to go to the source to get a full sense of the points a president has prioritized to discuss publicly. While he mentioned forex advantages to performing drug development and manufacturing out of the US, certainly an important advantage of operating in Ireland is the tax situation.

The tax situation is important for biotech and pharma investors.

How corporate tax reductions will, and will not help biotech investors

This applies generally to intellectual property-heavy industries including all pharma except generics and information technology stocks.

Here's an example that shows the special status of these companies as opposed to the standard multinational corporate strategy of earning money ex-US from operations and then advising the IRS at tax time that the profits are being permanently stored ex-US. Under current law, there is no US corporate tax on those profits unless returned to the US, and those funds cannot be used for dividends or share buybacks. Since almost all other countries have lower corporate tax rates than the US, this is standard multinational behavior.

However, if there is a biotech company with sales only in the US, that company might have certain operations in Ireland, a notably low-tax country. If it makes its intellectual property domiciled, as it were, in Ireland, typically with a manufacturing plant there, then it can engage in pricing transfer schemes that may be, shall we say, aggressive. The effect is to put as much of the profits in Ireland and argue that the distribution/sales effort in the US is only break-even, or close to that.

So, changes in the US tax laws, and perhaps other laws relating to how easy it is to place IP out of the US if it was really, fundamentally, generated in the US, could have significant effects just as the President said. It could take away a double incentive to locate, or relocate, or expand, into Ireland or other tax havens with educated work forces and be located in, or expand in, the US.

So far, that's neutral to investors.

What would also be neutral is that under this scenario, depending on the details of tax reform legislation, reported tax rates, which are already in the 20% range for most large, profitable pharmaceutical companies, may not change much, and might increase a little when considering state taxes in the US.

However, in the practical sense, shareholders would benefit in that companies could and probably would be able to distribute their profits in a straightforward way to shareholders. What happens now usually involves debt issuance to generate domestic funds while offsetting cash is stored ex-US (often in a US-domiciled bank). Cleaner balance sheets and perhaps enhanced shareholder returns may result from implementation of the Trump proposals.

Next, a discussion of possibilities for changed regulation.

What might Congress do to get more drugs to market, faster?

Proposals to focus on safety to save time and money

There has much discussion of several leading candidates for FDA Commissioner and the libertarian views of some of them. Two associates of Peter Thiel, the venture capitalist who was one of the very few Silicon Valley business leaders to support Donald Trump for president, favor the FDA focusing on safety and letting the companies and doctors decide on efficacy.

I'm not going to represent anyone's position in detail, but these concepts have begun floating around.

There are problems with this thinking.

One is that no drug is 100% safe. Safety considerations are all relative to what potential good a drug does. So a regulator has no idea whether a drug for frontline use in cancer has side effects that are acceptable unless it knows whether the drug is effective, in which patients, and to what extent. The Accelerated Approval pathway actually does a good job of meeting the "4 weeks to live" example of the President, but allowing drugs for terminal cancer patients to market based on limited evidence that they are helpful. But the FDA already has some sense of side effects, so it can guide doctors, patients, and insurers as to something that begins to approach the full story.

Another problem is that a drug's safety can best be tested in most cases with people with the condition(s) for which it is proposed to be used. So, if one is going to look at side effects in a patient population, it becomes illogical not to measure efficacy.

The concept of focusing only, or heavily, on safety and not efficacy is going nowhere in my humble opinion.

However, other efficiencies may exist.

Can the drug development process be streamlined, and can FDA participate in that?

Before getting to human testing, extensive lab testing of a compound occurs. It may be tested virtually via computer models of the molecule and potential interaction with a target in the body, then in bacteria and then more complex animals. The process takes years. One needs to know if the drug is carcinogenic and generally whether it looks safe and effective in non-humans with some model of the disease. If the drug is simply toxic, it can be dropped and no human be exposed to it.

In this process, the march of science will tend to produce efficiencies that will save time and money, but to what degree and when depends on the science. I would expect that little or no legislation is needed for FDA to go along with improvements in drug screening, and that technology-driven efficiencies will be found.

If so, that would tend to lead to some "good deflation" in drug prices. A bigger deflationary force will come from science, namely more efficient discovery of drugs before testing is begun, or very early in that stage. A higher "hit" rate is what we really and truly need; again, that is not something that Congress or a deregulating administration can make happen.

Within the post-IND (human testing) sphere, there are thinkers who have ideas about shortening the testing process. One who is, or at least was last month, being considered for FDA Commissioner is an M.D.-businessman, Joseph Gulfo, who in an interview with the Regulatory Affairs Professional Society said this (emphasis added):

What I've proposed is getting FDA back to safety and effectiveness…and we can do this one of four ways: with biomarkers, clinical science and symptoms (i.e. blood pressure, tumor size), with disease modification (bouts of migraines per month) and lastly with long-term outcomes.

I don't think I'm calling for a major overhaul...

"I think the FDA has a significant role in drug prices in three ways. If approvals on a calendar basis were shortened, even by just two years, there are models that the contribution of development time to approval would mean less of a need for price increases and more exclusivity…those two years would reduce the development expenses and then with longer exclusivity, companies can recoup their R&D funds easier. Also, more approvals is more competitors which equals lower prices. The third effect is the following: Companies raise prices to meet their quarterly earnings. I know because I've run companies and I would much rather meet my earnings with a steady stream of new approvals than raising prices."

Some combination of legislation and changed FDA procedures might be needed to bring about a two-year shortening of time to get a compound to market. And it would take an inside-the-industry expert to effect some of those changes. Some could occur by brute force, namely putting more people into FDA reviewing submissions and getting them to work harder. That's a money and management issue. A clean submission for a new chemical entity generally takes 12 months to be approved or rejected: two months for the FDA to decide to accept the drug for review, then 10 months to decide to approve it or issue a Complete Response Letter (a form of refusal).

There's no obvious reason for these timelines even though they are shorter in some respects than they used to be. Put more people to work on each section of the submission at the same time, a massively parallel computing effort if you will, and you can slash the time needed to review the application. There are manufacturing plant inspections, supply chain review, etc., which take some time. If there is really a will to cut review time at the FDA, there's a way. But it will take investment, i.e. more funding.

In addition, it's not just the NDA or BLA review that matters, it's the time waiting for FDA to schedule meetings and respond. Time can be saved there, mostly also from greater staffing and longer work hours at the FDA.

Finally, Big Pharma tends to move at a pace that may not be the fastest. So there can be savings there.

So I can see perhaps as much as a year slashed from development time if there is truly the desire to see that happen. How to get beyond that savings is difficult to see.

Basically, the public does not trust profit-seeking drug companies and wants a government agency to give its review of a drug. So, in case anyone is thinking of a proposal to outsource drug applications to an outside entity, I doubt that this will pass muster.

Not only is the public going to be concerned about FDA cutting corners to save drug companies money, but physicians who prescribe the drugs work under the "first, do no harm" dictum. So they (we) want to have confidence that we're not going to make matters worse when recommending a treatment to a patient. Also, prescribing within the limits of a drug's approval is a powerful defense against charges of malpractice.

So there are lots of reasons to think that all in all while the FDA and some pharma companies can move things along faster, massive speed-ups in clinical testing are not likely beyond the changes that have already been made.

Regarding the views of Dr. Gulfo, it's not clear why more drugs on the market will lead to lower health expenditures. I think that can break in either direction.

Now, there are actually real savings that can be effected legislatively. I'll summarize what I've said so far, then more along.

Interim summary

Some efficiencies that will take costs out of the system of developing drugs are possible, as the President suggests. Some may come from technology, the most important of which may relate to choosing compounds for testing that have a higher ultimate success rate. Other efficiencies could come from superior workflow processes both at FDA and Big Pharma. We shall see on that topic, and if they occur, some trade-off for somewhat lower drug prices just might occur, but I doubt it would be either a big negative or positive for the industry as a whole. So as an investor, I'm interested, but I'm not changing any present value judgments based on these concepts.

Little or no legislation would be needed for these sorts of changes to occur, so we shall just see what eventuates.

However, just as the deregulatory spirit of the young Reagan administration foundered on trying to reclassify ketchup as a vegetable to save some money spent for school lunches, which died a quick and painful death, the idea of saving money by getting drugs to market with less knowledge of whether they work is also going nowhere. These sorts of ideas to float around these sorts of business-oriented administrations in their first year or two, then they fade away. The reality is that FDA procedures have evolved for a reason. The public and physicians trust the agency much more than they trust politicians or any pharmaceutical company. FDA regulation of safety and efficacy is here to stay. Drug prices are not going to come down by adulterating that situation, no matter what some theorists may think.

Now, there are major savings that actually can occur. Here are some ideas. These would require, or benefit from, legislation. You're welcome to skip to the next Interim summary, as I doubt anything like this is going to make it into law. But some readers may find the thought processes interesting.

Reform of the drug advertising and promotion business

One of the largest drivers of pharmaceutical costs comes from doctors who are easy marks for aggressive, sophisticated marketers. Here's a real world example.

After I retired from medicine and was running a small pharma start-up, one of my former colleagues, a psychiatrist, did some consulting for me. At that time, the antidepressant Celexa was about to go off patent. Its marketer, Forest Labs, had developed a single isomer follow-on, which it was promising would have a better efficacy:side effect ratio than Celexa. This compound came to market as Lexapro, and became a huge success. Yet it did not show it was any better than Celexa. Why did it become so popular when cheap, generic versions of Celexa were widely available? Here's one of the key reasons.

When Lexapro was introduced to the market, I asked this doctor, call him Jordan, what the buzz was. The answer: it's just another Celexa - no need for it.

A year or so later, I asked Jordan the same question. Was he using much if any Lexapro?

Sheepishly, he had to answer yes. Why? Because they brought him samples.

Beyond the sampling, there's no need to send young, attractive sales people to an office of an M.D. No real education on proper use of a drug occurs there. It's almost pure sales. If the Federal government wants to promote proper use of pharmaceuticals, it can authorize the FDA, or some other agency, to make doctors aware of new drug approvals, what they are approved for, and what they are not approved for.

Since there are commercial free speech issues involved, it may or may not be possible to ban or restrict companies from communicating with prescribers, but presumably the government would be free to discourage such contacts via taxation and additional methods.

In addition, the FDA can be authorized to take a much tougher stand on single isomer drugs, such as the Lexapro/Celexa example or the somewhat analogous one between Prilosec and Nexium. Many billions of dollars have gone to waste simply because physicians either knew better (the example given above), but liked the samples (and attention from pretty/handsome drug reps) or simply knew no better.

There are some drugs that are underused, some conditions that are under-treated; utilization should be greater there. That should be communicated to physicians and health systems. There are other drugs that are overused.

Whether it is the FDA, or other agency, the government can help the society move to improved use of pharmaceuticals, but right now there is little organized effort toward that end.

Reform certain FDA approval designations

Periodically, a drug company will bring to market an undifferentiated member of a mature drug class with large numbers of generic drugs that can be prescribed. I used to see this as far back as the 1990s, when all of a sudden, yet another ACE inhibitor would come to market. There were no advantages over the ones on the market, which either were generic or were about to go generic.

This ends up adding to drug costs. However, if the FDA were tasked with opining on whether a new drug (or biologic) had any advantages over existing drugs in the class, these sorts of applications would go away.

More broadly, the entire layout of and information contained in the P.I. (prescribing information, aka label) of a drug should be revamped to be practical. What a doctor really needs are the indications, a black box warning if any for an alert on truly serious side effects, and then an easily readable summary of the evidence for efficacy.

What the prescriber also should have is the context of the approval in FDA's view, which is respected. Namely, for Lexapro, the FDA could be authorized and required by law to require that the label say something like this when approving Lexapro (if it believed this language was accurate):

  • Lexapro contains the major active agent found in Celexa. It has no known advantages over Celexa.

That's an extreme example, of course - but less so than one might think. That's because FDA does not take price into account. Requiring it to take price into account in approving the label of a drug, sort of the way NICE in the UK evaluates cost versus benefit of a drug, could make a big difference in how doctors and insurers look at expensive drugs.

How FDA, or another body, could enhance better drug utilization

In the setting of a multi-payor system as exists in the US, there is nothing to stop a respected body such as the FDA from commenting on what a drug brings to the table in ways that would be useful to prescribers, insurers, and of course patients.

It is only the FDA, or other impartial body, that can take an unconflicted view of a drug's real value. For example, to stay non-controversial, I'll stick to an old set of drugs. When Genentech's Activase clot-buster for heart attacks came to market, the question was whether it was more effective than streptokinase, a much less expensive, older clot-buster. Until pressure from insurers led Genentech to perform a post-approval study comparing outcomes between Activase and streptokinase, no one knew for sure.

There's no obvious reason that the FDA, which sees the most data, should not have weighed in from the start on this and other drugs. If the P.I. for Activase had specified from the start that FDA could not recommend its use over streptokinase based on a much higher price than streptokinase for no known benefit, then I think that Genentech would have built a comparative study into its Phase 3 program.

Then, when the positive data came in, FDA or some other agency could weigh in with its own cost-benefit analysis. Instead, at most, the FDA would provide notice that Activase proved superior to streptokinase, but would not comment on the value of that superiority. How many years of life were saved by use of one drug versus another? FDA's view of this would be valuable to doctors, hospitals deciding what to stock and what utilization criteria (if any) to apply to Activase use. But we do not receive it.

The problem comes up all the time in many fields. What we end up with is different large insurers and PBMs replicating the same analysis, which is both wasteful and has no transparency to doctors or the public.

We also then get the companies and their expert consultants promoting their own analyses, which always have a certain slant, and which they promote heavily. Yet the public through its government does not weigh in, and there are few experts around who do not consult for the drug companies.

The FDA can be helpful in other ways. It can revamp the P.I. so that instead of its current almost unreadable form, it helps doctors understand the proper use of the drug, including its advantages. For example, the old Pfizer (NYSE:PFE) drug Norvasc was proven to be safe when used in congestive heart failure, a unique benefit. PFE would want to make that clear in the label, but FDA could have done more to help the public. It could have required manufacturers of other calcium-channel blockers to have stated that their drugs were not known to be safe in CHF and to consider Norvasc in that situation.

Remember, from the government's standpoint, a narrow focus on drug costs is unhelpful; total healthcare system costs, of which drugs are only 10-11%, are what affect the budget.

I can go on, but the point is that the FDA or another part of the government can beneficially use the special knowledge and expertise of the FDA to provide information and its informed judgment to all stakeholders. This would be advisory, thus not disruptive to the existing system, and I think it would help things function better and therefore more efficiently.

Get drug companies out of the business of helping to finance the FDA

Even though there is no corruption that I'm aware of, the fact is that for a quarter of a century, Big Pharma has helped to finance the FDA's review of its marketing applications per the PDUFA.

Once an industry finances part of its regulator, said regulator cannot be viewed as truly independent.

The government has numerous ways via taxation of or fees on the pharma industry, or via even greater discounts to the VA/Tricare/Medicaid etc., to make up the loss of income generated by PDUFA-related revenues. It should do so or just forego the money entirely and keep the FDA from being funded by the industry it regulates.

Interim summary

There are several things that in theory could be done to keep doctors more pure, as it were, in their prescribing habits, as well as better informed via governmental and non-industry sources.

If this were to occur, science-driven companies such as Celgene (NASDAQ:CELG), which is as nerdy as they come, would tend to benefit; marketing-driven companies such as the old Forest Labs would suffer.

But I expect nothing special to actually change any time soon in this regard.

What about the US as the high-priced safety valve for the global pharma industry? Can and will it change?

Per the presidential comments quoted above, the administration's goal is to see other rich countries pay more like what the US public pays for branded, patent-protected drugs. So - we pay less, the EU and Japan pay more per pill or injection. That's a key goal.

How can the US help make that occur, and what might be the effect on biotechs and other pharma companies?

I think it would be possible if in fact the US were doing worse economically and scientifically than the rest of the developing and developed world. In that setting, which is not happening, we would trade some of the burdens of being (or, having been) top dog, meaning helping to pay disproportionately for the entire drug development process while other countries were able to afford more. At the same time, that would inevitably go along with those countries doing more basic and applied research and manufacturing.

But in fact the US has been the strongest major economy, along with Germany, since 2010, and is showing encouraging signs of growth as the manufacturing recession recedes.

So I see no realistic chance of the President getting a "whole loaf" here; rather, his goals are part of opening negotiations to help the US in some ways.

The more that pharma manufacturing may grow in the US, and the more competitive with the rest of the world our corporate tax rates get, the more R&D will be done right here, and relatively less in Ireland and elsewhere.

That brings us right back to the paradigm which came to be today's reality for a reason. The US has the largest, most vibrant biotech and Big Pharma scene for good reason. It's a strong contributor to the balance of payments, provides many jobs paying high salaries, and it's growing. We're all human, flesh and blood subject to unpredictable maladies, no matter political beliefs we may have, so we all favor more and better medications - especially when they may avert surgery, hospitalizations, etc.

So at the end of the day, the wealthier country with more macroeconomic momentum, with the strongest industry, is going to both pay more and have first access to groundbreaking drugs. Whereas, if you want to pay less, as occurs in Australia and New Zealand, for example, you may have to wait 1-2 years for a new drug such as a Vertex (NASDAQ:VRTX) drug for cystic fibrosis to enter your home market.

Where is the overpricing in US drugs?

This is a lot like getting the marbling (fat) out of steak or like one of those modern art pieces that only make visual sense when you stand a distance from the painting, but that are just dots and the like when you look at it up close. First you can point to expensive specialty drugs, but then if you look with an accountant's eyes at the financial statements of the developers and attempted developers of such drugs, you probably still come away with the conclusion that the WSJ reported perhaps in Y2K, namely that this is a money-losing "glamour" business.

Then you can talk about unending price increases on now-mature drugs such as Humira. Yet Humira's marketer, AbbVie (NYSE:ABBV), points to a double-digit growth in the volume of sales. How, it says, can the drug be overpriced if sales volumes grew at a mid-teens rate last year? It argues that Humira is cost effective. Implicitly, what it's also arguing is that Humira was a great bargain when it was new to the market. The reason that could have occurred is that its benefit-risk aspect was not yet shown, and it's proven very favorable over many years of use. So there's a rejoinder there - plus the fact that when a drug goes generic or (eventually) falls to intense biosimilar competition, profits plummet. So isn't a company that gets an important drug to market that stands the test of time entitled to maximize its profit before the price of the product drops precipitously?

You can talk about overpriced generics at retail, with unbelievable percentage mark-ups from CVS (NYSE:CVS) and its ilk; and until the last year or so, rapid price increases imposed by the generic industry. But then they will push back and point to price-cutting in the past, return on equity, etc.

The bottom line for me in response to the President: he's a politician now, already running for re-election. If he can appoint a new commissioner of the FDA who makes the agency run more effectively, then Mr. Trump, and his party, might be able to score some political points by virtue of more/faster drug approvals. But at base, there is nothing much that the FDA or Congress can do to change the basic economics of developing and marketing biotech and other drugs. This is going to have to come from within the industry.

Concluding thoughts - Same old, same old

Based on the review I've done of recent and previous comments from Donald Trump, I would guess that what he's most interested in involves incentivizing pharma and other companies to be attracted back to the US by lower taxes and a lighter regulatory hand. However, the nature of such an emotional, life and death issue as novel pharmaceuticals, and the international aspect of them, does not lend itself in a rich country to cutting corners in bringing them to market. Yes, maybe drugs for terminal cancer patients or other terminal patients could get to patients a bit more easily than they now do, but this is an investment article, and this is immaterial to the general topic of investing in biotech or other pharmaceutical stocks.

None of us, nor our doctor(s), nor hospitals, nor health system participants such as insurers and PBMs, are nearly as well positioned to opine on whether a drug or biologic agent is suitable for medical use as the Food and Drug Administration. Congress knows that two of the last three "wave" elections in the House of Representatives turned on healthcare, and with so much on its plate, I believe that it knows that the polling on drastic change at the FDA would be messy for Republicans. So either they may talk big but do little, or do nothing much at all and change the topic to tax cuts.

Since tax cut probabilities are already embodied in stock prices, there's no alpha that can be generated there unless one is very lucky or very well-connected in Washington.

As far where pharma manufactures its wares, that's a small part of the cost equation, and is highly automated, so as an investor, I see no need to care a lot about that.

As far as equalizing US pharma prices with those of the rest of the world, good luck Mr. President! In any case, as a shareholder of multinational pharma companies, it's the aggregate income that matters. If more comes from the EU, Canada and Japan and less from the US, but the total pie is similar, does it matter much if at all?

As some of you know, I'm an older man and have been in or around the pharma industry in one way or another since the 1970s. I've seen countless changes and political rhetoric and action, but as a retiree and professional investor, it's really a "same stuff, different decade" situation right now from an investment, longer-term perspective.

Some companies execute better than others; that's true in all fields. The trick to investing is to figure out things that Mr. Market has missed, and what "he" is focusing on too much. Here, I think he's been focused too much on rhetoric from politicians. Ever since Mrs. Clinton and the NYT made drug pricing a campaign issue in the second half of 2015, biotech stocks have been sensitive to pronouncements first from her and, post-election, from Mr. Trump. But I just don't buy this talk as, in the long term, all that relevant. Rather, I think that traders jump too fast.

What I have done was instead react only to changing fundamentals; have I not seen this movie before? Safe and effective drugs rank extremely high on the public's list of priorities, and any politician who endangers that, or even the perception of that is gambling at best. The FDA has a much more favorable rating than that of the Federal government, which itself ranks better than Congress.

So at the end of the day, biotech investing is growth stock investing, and finding growth at a reasonable price has gotten easier again now that profit-taking and political pronouncements have brought biotech P/Es in many cases well below those of the S&P 500 (NYSEARCA:SPY). I continue to find very good relative value, and reasonable absolute value, in the biotech sector. Since there may be more aftershocks to come, I'm looking at this year and perhaps next as years to rebuild to a larger, potentially much larger allocation to this sector.

I look at Tuesday's move up in IBB and XBI as just noise; short-covering and a relief rally.

My longer-term vision for biotech builds on the successes of so many companies in semiconductors, software, and other information technology and Internet fields. As amazing as they are, changing basic biology of more and more of the ills that flesh is heir to, with safer, more efficacious medicines that are easier to take, is in the final analysis an unbelievable achievement. This process is underway here and now, and exactly when and from which company the next blockbusters and waves of innovation will occur is unclear. The main message I take from the President's comments is that he wants the United States to remain the global leader in this still-immature technology of tomorrow, and that he wants it to run like an efficient large sector of the economy. That makes the sector look investable to me, so I continue to look to buy reasonably priced stocks in the sector, of which CELG has been my favorite since re-entering it at $104 last October.

Thanks for reading. Feel free to weigh in with your views on the Comments thread.

Disclosure: I am/we are long CELG, ABBV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Not investment advice. I am not an investment adviser.