Biotech Bear Market Rally is Fading but Traders Are Favored
Long Term Concerns on Drug Pricing Remain
The biotech sector is still lagging other sectors in 2016 down 20.93% with the IBB compared to the S&P 500 (SPY) down only 2.19%. The IBB rallied over the past week in what looked like a major move up but Monday’s IBB high at 270 quickly got taken out resulting in a 4.1% loss over 5 days. The XBI also surged on Friday with unusual speculative activity in the small caps but the momentum peaked on Monday.
Some large cap biopharma stocks were hard hit today presumably on concerns about drug pricing and Medicare Drug Payments. A test program from the Obama administration was reported in a Wall Street Journal article might cut payments for expensive drugs that have lower-cost but are equally effective .Healthcare costs have become a major political issue and drug spending is expected to hit $535B in 2018 which is almost 17% of all personal healthcare spending. The pharmaceutical industry has pushed back on any government involvement in Medicare pricing because this action could manipulate the choice of treatment and deprive some patients of the best drugs in cancer, infectious diseases and autoimmune disorders. Blockbuster specialty drugs for oncology, rheumatoid arthritis and macular degeneration have been the growth engine for the biopharmaceutical industry.
A Press Release from CMS.org announcing the test of Medicare Part D prescription drug models is found here. The proposed rule (under review with open comment until 5/9/16) is designed to do two things: drive the prescribing of the most effective drugs and test new payment approaches to reward positive patent outcomes.
Large cap biopharmaceuticals were weak Wednesday possibly reacting to the news and should be watched for potential pricing impact: AMGN down 2.58%, BIIB down 2.15%, CELG down 1.54% and REGN down 5.08%. Stocks in our new large cap portfolio were mixed: Abbvie (ABBV) up 1.92%, Bristol-Myers Squibb (BMY) down 1.09% and Gilead (GILD) down 0.94%. However many of these stocks have already been crushed since Hillary Clinton first raised the drug pricing issue in a September 2015 tweet when the bear market began.
