Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Last Time This Happened, Biotech Stocks Plunged by 50%

Companies / BioTech Jan 24, 2017 - 12:10 PM GMT

By: John_Mauldin

Companies

BY PATRICK WATSON : “They’re getting away with murder,” said Donald Trump at last week’s epic news conference.

No, he didn’t mean Russian hackers. He was talking about red-blooded American drug companies.

Trump went on: “Pharma has a lot of lobbyists and a lot of power, and there is very little bidding. We’re the largest buyer of drugs in the world, and yet we don’t bid properly, and we’re going to save billions of dollars.”


That last part isn’t quite correct, though.

Trump said there’s “very little bidding” when the government buys drugs. In fact, there’s no bidding at allwhen Medicare buys prescription drugs. The Bush-era legislation that created Medicare Part D bars the government from negotiating lower prices, despite it being the drug industry’s biggest customer by far.

That’s one reason pharmaceutical and biotechnology stocks performed so well in the last decade. And it’s why the prospect of losing that advantage pushed those sectors lower.

However, the Trump-inspired loss is actually minor compared to what another president once did to drug stocks. The dot-com bubble has some lessons we best not forget (I wrote about it extensively in my free publication, Connecting the Dots. Subscribe here)

The power of presidential statements

Remember Y2K Eve? We all partied that December 31 because a) Prince had given us the perfect song for it, and b) we thought civilization might collapse when midnight struck.

Fortunately, the electric grid stayed online, everyone survived, and the stock market continued its steady climb. The Nasdaq Composite Index had risen 86% in 1999, and folks expected more of the same in 2000.

They got it… for a few weeks.

At one point intraday on March 10, 2000, the Nasdaq showed a 26% year-to-date gain. Another double-your-money year seemed possible. Then this happened.

March 2000 turned out to be the Nasdaq’s all-time high and remained so for another 15 years.

That bear market had many causes, but Bill Clinton and the UK’s then-Prime Minister Tony Blair gave it the first push.

Genome sequencing and the biotech sell-off

The Human Genome Project was a big deal in the 1980s and 1990s. Scientists were trying to “sequence” our DNA (i.e., map which genes go where). It was a laborious process, even with that period’s best technology, but it promised to create medical miracles.

There was actually kind of a race underway. Universities and research institutions all over the world cooperated in a government-backed initiative.

Meanwhile, Celera, a private company led by biotech pioneer Craig Venter, was trying to do the same. Celera focused on genes it thought would lead to profitable drug breakthroughs.

Celera needed patent protection for its genome data in order to develop its business. No one was quite sure that was possible, but they invested like it was a sure thing.

Bad idea.

On March 14, 2000, President Clinton and British PM Blair popped the biotech bubble when they said genome data should be free to everyone.

You can see how much investors liked this idea in the Nasdaq Biotechnology Index. It had peaked a few days earlier but collapsed with the Clinton-Blair statement.

In just a few weeks, sellers chopped the biotech index almost in half.

Biotech traders heard that “freely available” line and hit the sell button. That was smart, but even they didn’t know how bad it was going to get.

Did Trump just do the same thing again? We don’t know yet. As they say, history rarely repeats itself, but it often rhymes.

Political favors don’t last forever

Back in that 2000 crash, biotech industry leaders made a key mistake. They thought getting the government to protect their genetic data would be easy: Pay some lawyers, make some campaign contributions, and voilà, you have a legal monopoly. Ka-ching.

It turned out not to be so easy.

Today’s drug companies are making a similar mistake. Because they greased the right palms when Medicare drug coverage passed back in 2003, they think they have a permanent right to set their own prices—which taxpayers must pay.

In both cases, private companies assumed they were permanently entitled to certain government benefits.

Yes, I used that word: entitled.

The “entitlement mentality” you hear about isn’t just for food stamp recipients. It exists within large corporations too, and the amounts are often much greater.

But even if Washington grants you a benefit, today’s Congress can’t tie the hands of a future Congress.

Senators and Representatives can change their minds anytime they want—and they should change their minds, or at least consider it, when voters demand change through the electoral process.

That’s a risk factor investors forget at their peril.

If a business depends on some kind of government favor, don’t assume it will be there forever. Biotech investors found out in 2000 that political privileges are never a sure thing. The Trump era may teach Big Pharma shareholders the same hard lesson.

Will the rest of the market collapse, too, as it did in 2000? Ask me next year.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in