Biotech’s 2015 gains disappear

Analysis

Mark down September 28, 2015, as a date to remember; it was the culmination of three straight days’ heavy selling after which the Nasdaq biotechnology index fell below where it had stood on January 1. Yes, all of this year’s gains have now been wiped out.

It is easy to pinpoint the threat of a congressional subpoena to Valeant as the panic trigger, but in truth there is nothing new about the issue of unfettered US drug price increases. However, with some valuations testing the boundaries of credibility, investors decided that enough was enough, and many speculative biotechs have come off worst.

Some of these have fared especially badly as they also happened to release bad or underwhelming news over the weekend. Since this coincided with the broader market selloff investors’ reaction has been particularly negative.

This is clearly the case for Ignyta and Epizyme, which over the past three days have lost 43% and 33% of their valuations respectively. Ignyta illustrates the point perfectly, having presented a phase I update on entrectinib at the European Cancer Congress, mentioning that two patients had suffered cognitive impairment.

It did not matter that this side effect had already been disclosed at Asco; today’s market mood is at odds with the carefree days of May. Similarly Epizyme presented a phase II trial of tazemetostat at the ECC that, while largely benign, disappointed all the same.

Of the past three days’ top fallers only Verastem truly deserved its fate, disclosure that its mesothelioma trial of defactinib was being stopped for futility confirming that its stumble in August had been the canary in the coalmine.

Nasdaq's biggest biotech fallers*
Company 28 Sep close Change vs 23 Sep
Verastem $1.85 -68%
Ignyta $8.72 -43%
Heron Therapeutics $23.35 -43%
Flexion Therapeutics $16.40 -35%
Vitae Pharmaceuticals $11.00 -33%
Epizyme $13.02 -33%
Marinus Pharmaceuticals $8.89 -32%
Fibrocell Science $4.08 -32%
Intrexon $31.78 -30%
Horizon Pharma $18.01 -30%
Note: *over the past three trading days.

Talking of canaries in coalmines, the drug pricing issue that came to a head with Valeant yesterday had actually been some time in the making. But it only caused general outrage 10 days ago, with Turing Pharmaceuticals’ proposal to hike the price of Daraprim by 4,000%.

Of course, Turing’s actions were an entirely legal use of the US drug pricing system. And, as EP Vantage argued, the group is by no means alone; constant drug price hikes are rife in pharma, and one of the worst culprits is Valeant (After Turing, the industry’s biggest price gougers, September 23, 2015).

It was Valeant that drew the ire of the US House Committee on Oversight and Government Reform’s Democratic members, who yesterday wrote to the committee’s chairman requesting that Valeant be subpoenaed. This would require Valeant to hand over documents relating to the hospital drugs Nitropress and Isuprel, whose prices it apparently hiked in February by 212% and 525% respectively.

“Valeant is using precisely the same business model as Martin Shkreli ... whose company [Turing] recently purchased the life-saving drug Daraprim and increased the price from $13.50 to $750 per pill ‘overnight’,” the Democratic representatives wrote.

Valeant claims that its business does not depend on large US price increases, and that it is not especially exposed to moves to limit US reimbursement. Analysts at Evercore ISI, meanwhile, continue to insist that drug pricing scrutiny will not lead to legislation in a Republican-majority Congress, and say Democrats have no power to force a subpoena on Valeant.

The market, however, has other views: Valeant fell 17% yesterday. That was actually the seventh down day in a row for the Nasdaq biotech index, which is 20% below its close on September 17, and 27% below what currently stands as the index’s all-time high – hit on July 20.

If it is clear that we have seen the end of the beginning of the biotech bull market, the biggest fear might be that we could now be seeing the beginning of the end.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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