With Democrats taking control of the House of Representatives, drug stocks could dip initially as investors ponder the impact of the midterm election results on drug pricing, but analysts said they do not expect a divided Congress to advance significant legislation on pricing and reimbursement.
"There could be a knee-jerk negative reaction," said B. Riley FBR Inc. analyst Madhu Kumar. That's because of investors' perception that Democrats might do more than what the Trump administration has done so far on drug pricing, Kumar said.
Kumar, however, said he doesn't see longer-term risks for drug stocks.
"It's hard to imagine a divided government would aggressively pursue a more progressive agenda than they would otherwise," he said.
Similarly, Wedbush PacGrow Healthcare managing director and head of healthcare equity research David Nierengarten said there could be an initial negative reaction by investors in drug stocks following Democrats' winning control of the House. But then markets could settle down as it becomes more apparent that a divided Congress "cannot advance more significant or more radical legislation regarding drug pricing and reimbursement."
Any drug pricing initiatives could be stymied by a Republican-controlled Senate, Nierengarten added.
A wild card negative scenario for drug stocks is if the Democrat-controlled House comes to an agreement with President Trump on allowing Medicare to negotiate drug pricing, and the measure gets through the Republican-controlled Senate, Nierengarten said.