NEW YORK (TheStreet) -- For biotech companies and their investors, the scariest part of Hillary Clinton's multi-part plan to rein in the escalating cost of prescription drugs is a proposal to reduce the period of sales exclusivity for biotechnology drugs to seven years from 12.
If Clinton's proposal, announced Tuesday, is implemented, biotech companies would have less time to generate big profits from their expensive biologic and specialty drugs before other companies could enter the market with cheaper copies, known as biosimilars.
Clinton, seeking the Democratic nomination for president, also wants to force drugmakers to spend a set portion of their revenue on research and development, or risk losing federal grants or tax credits. Biotech companies already spend a generous portion of their revenue on R&D, so this proposal isn't likely to impact the sector all that much.
The R&D requirement could have a larger, negative effect on specialty pharma companies like Valeant Pharmaceuticals (VRX) , which eschew new drug development but grow instead through acquisitions and raising the prices of older drugs.
A smaller but similar company, Turing Pharma, run by a former hedge fund manager Martin Shkreli, was the target of intense criticism Monday because of a decision to buy an older infectious disease drug and raise its price from $13.50 a pill to $750 a pill.
A tweet from Clinton on Monday calling Turing's plan "outrageous" and promising to rein in high drug prices sent biotech and drug stocks into freefall. Both the iShares Nasdaq Biotechnology ETF (IBB) and the SPDR S&P Biotech ETF (XBI) closed Monday down 5%.
Now that the details of Clinton's drug-pricing plan are public, investors might view Monday's biotech stock freefall as an overreaction. There's little in Clinton's proposals that hasn't been floated before by her election-year rival Bernie Sanders or in previous attempts to legislate some control over prescription drug prices.
Clinton wants to grant Medicare the power to negotiate drug discounts just like private insurance companies can do already. But even this proposal has been pushed by Democrats for years but never implemented due to Republican opposition.
Circling back to Monday's brouhaha over Turing Pharma, its CEO Shkreli and the 5,000% price hike for the infectious disease drug Daraprim. A biotech CEO (he asked I not share his name) had this to say about Shkreli:
Please make the point that Turing is NOT representative of our industry. A CEO that maligns other CEOs, journalists and anyone who opposes him in our industry is a disappointment. What he is doing does not even come close to what our industry is about. He is not a genius, a leader or a visionary. It's disgusting to see what he is doing.
There's a desire to differentiate Shkreli and his business strategy at Turing from the biotech industry as a whole. The CEO quoted above believes the biotech industry works hard to develop drugs to improve the lives of patients (and at prices that can be justified). He doesn't want to be tarred with the same profiteering brush used to vilify Shkreli. I understand his desire to remain anonymous, but his argument would be stronger if he identified himself.