Will biotech die from ObamaCare? Last week, investors reacted to President Barack Obama's proposals for health care reform as if the biotech group had been diagnosed with terminal illness. Large-cap, profitable biotechs, a group that had been a relative source of strength in this raging bear market, were among the most affected by the wave of selling. Celgene ( CELG) shares fell 17% last week, while Amgen ( AMGN) dropped 14%. Genzyme ( GENZ) was off 10%, Gilead Sciences ( GILD) slid 10%, and Biogen Idec ( BIIB) fell 9%. Only Genentech ( DNA) seemed immune as its shares were flat for the week. The broader biotech sector fared no better. The Amex Biotechnology and the Nasdaq Biotechnology indices slid 9.5% and 10% last week, respectively, compared with a 4.5% decline in the S&P 500. Biotech investors are worried that Obama's prescription for health care reform will squeeze the sector's growth by imposing lower drug prices through Medicare and Medicaid, allow the re-importation of prescription drugs from outside the U.S., accelerate the approval of generic version of biotech drugs and alter the tax code to limit the ability of U.S. companies to protect overseas profits from taxation.
How any of these proposals in Obama's 2010 budget actually affect the biotech sector, if at all, are far from clear. And there are many reasons why biotech's niche of developing life-saving drugs for serious diseases with unmet treatment needs won't suffer significant price or profit erosion. Right now, however, uncertainty given the lack of details in Obama's health care reform plans, coupled with outright fear, seem to be more powerful than whatever reality lies down the road.