Biotech volatility offers opportunities
Lydia Baenziger, portfolio manager at BB Biotech comments on the recent falls in biotech valuations.
Pressure on general equity markets due to turmoil in emerging markets clearly also affected Biotech stocks. Furthermore, there was a recent discussion of drug pricing after presidential candidate Hillary Clinton announced a program to reduce disproportionate drug price hikes. We saw a similar dynamic last year when Gilead generated attention following the pricing of their Hepatitis C drug.
This fear was alleviated after Gilead continued their strong performance even with substantial discounts and maintained most of their market share given their stronger profile. This time around the issue could stick around somewhat longer, since it seems to be integral to Clinton’s campaign. In such conditions, companies strong pharmacoeconomic rationale, meaning that they net save the healthcare system money through better tolerability, less hospitalisation and will likely be the winners on a relative basis.
Drug pricing clearly will be a big concern for sentiment. Picking companies that have a responsible way of dealing with these discussions will be key – again – differentiation and pharmacoeconomic considerations will be the most important levers in price discussions even if prices come under pressure (which is unlikely to happen any time soon).