Democracy is bad for biotech stocks

With a presidential election on the horizon, televised discussions about the rising cost of medicine are only getting more frequent. And, if past campaigns are any indication, biotech indices are in for a rough cycle.

EvercoreISI analyst Josh Schimmer took a look at stock performance during the 2012 and 2016 cycles and found an ominous trend: Biotech slumps when stump speeches abound, and the decline usually begins 18 months before election day and doesn't reverse until after the ballots are counted.

That's an annoyance for major drug makers, but, as Schimmer points out, it can be debilitating for upstart companies years away from marketing their drugs. Sector-wide downturns lead to investors pulling their money out of the sector, and that can starve small-cap biotech companies with no choice but to raise cash on an unfriendly market.