By: Adam Feuerstein | 03/24/14 - 11:21 AM EDT
Update: At 11:15 am EDT, the Nasdaq Biotechnology Index is down 5%. To answer my own question below, it seems like investors woke up Monday ready to sell. Those scary-looking charts will need to be updated after the close.
Friday's 4%-plus drop in biotech stocks was fun. Ready for Monday?
I've remarked that drug pricing concerns could trigger end of #biotech run. That's why responsible observers need to take Fri seriously. Mark Schoenebaum (@MarkSchoenebaum) March 22, 2014
On a micro level Fri's Waxman letter will lead to nothing. Question is what does it do to (generalist) semtiment/confidence. Mark Schoenebaum (@MarkSchoenebaum) March 22, 2014J.P. Morgan analyst Geoff Meacham doesn't believe in the biotech bubble and is holding a conference call for investor clients Monday morning at 10:15 am EDT to offer reasons why the sector still has room to grow:
We believe that the sector remains broadly attractive from a valuation/pipeline/growth perspective, particularly in large cap. Notably, the average 3-year revenue and EPS CAGR for the top 10 biotechs (market cap) is 4.5X and 3X that of the S&P500, yet the P/E/G on 2015-2016 forecasts for biotech is ~0.7 versus the S&P at ~1.4. Regarding the industry pipeline, product cycles are very long in biotech (>10 years) and dozens of major launches are occurring or are about to occur (Sovaldi, Tecfidera, Imbruvica, Pomalyst, Otezla, Eylea, Kalydeco, Xtandi, Linzess asfotase alfa, Vimizim, idelalisib, evolocumab, alirocumab, etc.). In addition, we estimate that at least 50+ compounds/label expansions that have some level of de-risking are largely unaccounted for in Street models. Admittedly, companies with earlier-stage pipelines that haven't been fully de-risked are being awarded a higher probability of clinical success, but drug development has become more efficient, particularly for orphan drugs. The recent concern on pricing for Gilead's Sovaldi has caused much anxiety; at the end of the day, the benefit/risk and cost/benefit profile remains quite striking and we doubt that the recent Congressional inquiry would lead to an "innovation tax" (i.e., forced material discounts).
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