The fallout from Valeant ($VRX) is radiating into the biotech sphere as the industry's stock continues to burn.
This is according to the latest figures from the Nasdaq Biotechnology Index (NBI), which has fallen by 23% in the first quarter--the worst quarterly percentage loss since 2002 when the loud pop of the internet bubble was heard around the world.
The index, which includes such big hitters as Amgen ($AMGN) and Celgene ($CELG), has been caught in a perfect storm that has seen blustery headwinds blowing in from a turbulent global financial market, and a typhoon from Valeant that is threatening to flatten those with similarly shaky foundations.
We are all well versed in the financial markets situation: China slowdown; low oil prices; concerns over a global recession--all making would-be investors very nervous.
But what has Valeant, a Canadian pharmaceutical firm, got to do with biotech stocks? Well a lot according to Michael O'Rourke, chief market strategist at JonesTrading, who told the WSJ: "Valeant just has a lot of healthcare investors worried and it has them re-evaluating [specialty pharma] valuations."
This is because a number of the 190 biotech firms in the index have used the same now politically damaged model as Valeant: go low on R&D, buy up products through smaller firms with much debt and sell the older drugs at a high price and watch the money roll in. But the fallout from Valeant and from similar companies, such as Martin Shkreli's Turing Pharmaceuticals, has put this model under the spotlight in the current Presidential candidate nominations.
Shares of Valeant have fallen more than 70% this quarter with much of the concerns focused on the fact that it may very well default on its debt--and these worries are spilling over into the specialty biotech space as well.
Just look at Endo International ($ENDP) and Horizon Pharma ($HZNP), both of which are known as "specialty pharma firms"--this has proven to be the mark of Cain this quarter as investors have punished their shares, sending them tumbling 54% and 24%, respectively.
In fact, O'Rourke said that Endo's tumble alone was responsible for about 1 percentage point of the index' 23% slide.
Of the 190 companies, a staggering 174 are down so far in 2016, according to his data. And 28 of those are down by at least 50%, with the majority of biotech's sell off happening in the first 5 weeks of the year. "We're moving through somewhat of a 'bust in the biotech space,' and it has people re-evaluating their investments," O'Rourke told the Journal.
Meanwhile, drug pricing was the big talking point for MA governor Charlie Baker, who told the annual Massachusetts Biotechnology Council in Cambridge yesterday that: "The price of drugs has gone up pretty significantly," and that many Americans believed the costs of healthcare were rising too high.
Baker, the former CEO of health insurer Harvard Pilgrim Health Care, told the Boston Globe that he wanted to be part of an emerging public dialogue about how to price medicines that are expensive, but often save the healthcare system money in the long term. "There's a value-based conversation to be had," he told the newspaper.
But the MassBio president Robert Coughlin was more bullish, telling the Globe: "The headwinds create opportunities" for the biotech industry to explain itself to the public. "Bring it on. We can't lose this argument, so let's get together and kick some butt."
- see WSJ's take (sub. req.)
- check out the Boston Globe's piece