Exorbitant drug price concerns and a new Trans-Pacific Partnership deal sent biotech stocks and sector exchange traded funds reeling Tuesday.
Biotech sector stocks were among the worst performing areas of the market Tuesday. The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF by assets, dropped 3.4%, First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) declined 4.9%, ALPS Medical Breakthroughs ETF (NYSEArca: SBIO) fell 4.6% and PowerShares DWA Healthcare Momentum Portfolio (NYSEArca: PTH) decreased 5.0%. [Biotech Blues Could Continue]
On the other hand, inverse or bearish ETF options that capitalized off the sector pullback were among the best performing ETFs Tuesday. For instance, the recently launched Direxion Daily S&P Biotech Bear Shares (NYSEArca: LABD), which takes the -3x or -300% daily performance of the biotech sector, surged 12.7%. The ProShares UltraPro Short NASDAQ Biotechnology (NasdaqGM: ZBIO), which also tracks the -3x or -300% daily performance of the Nasdaq Biotechnology Index, jumped 11.0%. The ProShares Ultrashort Nasdaq Biotechnology (NasdaqGM: BIS), which tracks the -2x or -200% daily performance of the biotech space, gained 7.8%.
Biotech stocks were selling off Tuesday as concerns over high drug prices continued to weigh on the industry outlook, reports Dan Strumpf for the Wall Street Journal.
Greater scrutiny over drug prices and potential regulatory action would greatly hinder the industry’s ability to turn a profit, especially as repeated price increases have been a key driver of revenue for biotechs, even as demand has diminished. [Clinton Delivers Poison Pill To Biotech ETFs]
“It’s the same thing concerning [drug]overpricing, and it seems like it’s getting louder,” Christian O’Brien, a health-care stocks trader at Raymond James, told the WSJ. “People are ignoring the fundamentals at this point.”
Moreover, the recent Trans-Pacific Partnership accord is also weighing on the biotech sector outlook. Pharmaceutical Research and Manufacturers of America, or PhRMA, the big drug companies’ main trade group, has shown concern over a provision in the trade pact that only protects biotech drugs from lower-priced competition for at least five-years, but the industry has sought a 12 year grace period for intellectual-property protection, which the U.S. adheres to, the Wall Street Journal reported.
Observers argue that the longer protection period in the U.S. compared to foreign trading partners would lead to greater pressure at home.
“If you see too much of a price discrepancy (between the United States and trade partners), at some point you’re going to see a push back,” Steve Brozak, president of WBB Securities which focuses on smaller biotechs, told Reuters.
iShares Nasdaq Biotechnology ETF
For more information on the biotech sector, visit our biotechnology category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.