Update-1… 9/22/15 ...Biotech Stocks Trade Down Another Day
Biotech stocks were weak tracking NASDAQ which was down 1.5%. The IBB was down 1.49% to $335.40 flat over one month and up 10.57% YTD. The August low was $325 and the IBB is 16% off July 20 highs. The small cap weighted XBI was down 2.29% slightly up 1.49% over one month and up 18.17% YTD.The August low was $68.55 after a 3:1 split.
The XLV healthcare ETF was more stable down only 0.61% today and 3% over one month. The healthcare sector fared much better than many others with materials down 2.87% and energy down 1.52%.
Three Rayno Life Science stocks were green: BIIB, GILD and REGN.
Technically we need to hold August 24 lows for the drug and biotech sector.
The current political environment poses some risk to market sentiment as Hilary Clinton outlined her drug plan today to deal with rising drug prices. Some elements of the plan are: cap out of pocket spending for drugs to $3k/year, stipulate minimum spending for R&D by drugmakers, and bar tax deductions for drug ad spending. Clinton would also have Medicare negotiate prices using government purchasing power to get additional discounts, an old idea that failed during Affordable Care Act legislative discussions. Patent exclusivity is currently 12 years and would be reduced to 7 according to the Clinton plan.
While few analysts see near term risk that any of these proposals could be implemented until after the next Presidential election, the rhetoric does create political uncertainty for the biopharma space. But assuming the Republicans control Congress in 2017 they will support the free market with less government intervention in pricing. With all the bubble talk recently because of the meteoric rise of many of these stocks the momentum will certainly be curbed. However Q3 earnings and clinical news will drive the market over the coming months.
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Drug Pricing Issue Raises Concerns About Biotech Business Model
Turing Pharmaceuticals Astronomical Price Hike Gives Hilary A Campaign Issue
Major ETFs Down 4-5%-Red Screen Across the Board
We have written many times before about the biotech bull market and how drug pricing weakness could be the major issue to derail stocks. Many rare or orphan drugs are the most expensive, upwards of $100k per year per patient. Specialty drugs consume over 30% of the total Medicare budget. Hilary now has drug pricing as a major campaign issue to leverage.
Clinton Tweeted in response to the Turing ~5000% hike, “Price gouging like this in the specialty drug market is outrageous”.
Healthcare leadership in the market has waned recently so this could be the turning point.
Update and follow-up tomorrow.