Dplo

Source: Diplomat Pharmacy

What: The potential for price wrangling on specialty drugs that could slow the pace of their development led to shares in Diplomat Pharmacy (NYSE:DPLO) slipping by 13.5% earlier today.

Take Long View

So what: Diplomat may not be the biggest market share player in specialty pharmacy (Express Scripts and CVS Health are far bigger), but it does have a fast-growing business that is posting 30% annualized growth.

That business, however, has benefited from an explosion in the development of high-price specialty biologics, complex medicines that are created within living cells and that usually require a fair amount of patient education and oversight in terms of dosing.

Because Diplomat's bread-and-butter business depends on the ongoing expansion of the specialty drug market, recent comments by Presidential-hopeful Hillary Clinton regarding her plans to rein in drug costs is having a ripple effect on Diplomat's shares.

Specifically, investors appear worried that policies designed to limit the costs of medicine would have an unintended consequence of reducing the number of specialty drugs in research pipelines, ultimately leading to fewer drugs that Diplomat can distribute.

Now what: Political whims and whispers are likely to pick up as we move into 2016, and drug pricing is a hot-button topic that is likely to capture a significant amount of media attention. However, before investors press the sell button on Diplomat, they might want to remember that most of the drugs that Diplomat distributes treat rare or life-threatening conditions and that in some cases, the alternative therapies to these specialty medications don't work as well or have more side effects.

Because specialty drugs often mark significant advances in patient treatment, there's far less of an incentive for policy makers to risk stifling their development, than to rein in costs associated with prior generation therapies that are being rebranded with nose-bleed inspiring price tags.

Overall, there's no telling where the political winds will blow or what any specific policy may look like if it ever makes its way through Congress, so it may be best to stick with the long term reasons for owning Diplomat, rather than get hung-up on short-term political machinations. 

 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns and recommends Express Scripts. The Motley Fool recommends CVS Health and Diplomat Pharmacy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.