BOSTON (TheStreet) -- This week's Biotech Stock Mailbag starts off gloomy because the sector's hoped-for back-to-school rebound is sputtering.
Walter R. writes, "I'm growing concerned about my portfolio of biotech stocks. I've listened to [Jim] Cramer and made money with his picks but nothing seems to be working now. I don't think Hillary [Clinton] can do anything about drug prices even if she is elected, so why are the biotech stocks falling like she can?"
My ability to predict the direction of biotech stocks is no better than Walter's, unfortunately. What looked like a decent bounce for the iShares Nasdaq Biotechnology ETF (IBB) off the recent Aug. 24 to 25 low disappeared this week in a nasty stampede of selling.
Investors are spooked by biotech and drug stocks for two reasons -- fear that politicians might finally do something to rein in the rapidly escalating price of prescription drugs; and if drug-price controls are implemented here, the aggressive valuation of biotech and drugs will need to shrink significantly.
Myself and others have pointed out that Hillary Clinton's drug plan doesn't differ much from proposals made by other Democrats, past and present. A majority of Americans believe drug prices are too high, but the odds that Hillary can enact meaningful changes is low if only because of political gridlock in Washington, D.C. Assuming she even wins the presidency, which is uncertain, obviously.
But like it or not, investors are reacting to the negative sentiment about high drug prices and not necessarily the reality of the situation. Everyone is tired of reading about Turing Pharma CEO Martin Shkreli, but as I also said earlier this week, he's become the focal point of populist anger directed at the bio-pharma industry.
"Exploding drug prices have become a bipartisan issue and Martin has conveniently given them the ideal persona to vilify. Now we get to deal with hearing from every presidential candidate over the next year about how they're going to fix drug prices and, optically, that's not good for the sector," R.W. Baird biotech analyst Brian Skorney told me Thursday.