(Bloomberg) — The biotechnology sector is having its worst day since April as investors fear health insurers and the pharmacy benefits managers (PBMs) that manage patient's drug benefits will put new pressure on how much the industry can charge for breakthrough treatments.
The selloff, prompted by Express Scripts Holding Co.'s announcement yesterday that it would block its U.S. patients from getting Gilead Sciences Inc.'s $1,100-a-pill hepatitis C medicine, sent the Nasdaq Biotechnology Index down as much as 5.4 percent, the biggest intraday drop since April.
Gilead's drug, which goes by the brand name Harvoni, is the first of a new generation of hepatitis C medicines to offer high cure rates and fewer side effects for 3.2 million Americans with the liver virus. It also costs $94,500 for a 12-week course and is projected to be among the best-selling drugs of all time. Since Express Scripts said it would block the pill, Foster City, Calif.-based Gilead's stock has fallen 18 percent.
Gilead shares "have been a gateway stock for a lot of generalist investors moving into biotech," said Geoffrey Porges, an analyst at Sanford C. Bernstein & Co. "If Gilead is causing pain, it's pain felt across the biotech sector."
Before yesterday, the Nasdaq Biotechnology Index had climbed 40 percent this year. Investors have poured $7.26 billion into health-care exchange traded funds in 2014, second only behind energy funds, according to data compiled by Bloomberg.
Over the same period, the health insurers and PBMs who pay for biotechnology drugs have complained that the prices they're being charged are unsustainable. Express Scripts, based in St. Louis, has waged a campaign against Gilead, culminating with the decision to block Harvoni in favor of a cheaper AbbVie Inc. drug approved this month.
Questioning growth
"The distributors and pharmacy benefit managers are finally putting pressure on these biopharma names," said James Abate, who manages $1 billion as the chief investment officer of Centre Asset Management in New York. "It calls into question the future growth rate of pricing capabilities in these companies." The fund owns Gilead shares, according to data compiled by Bloomberg.
Today's selloff mimics investors' reaction in March, following concerns raised by Rep. Henry Waxman, a California Democrat, about the price of Gilead's related hepatitis C drug, called Sovaldi. The Nasdaq index plunged more than 20 percent then.
