Biotech Tape Limps Out on Medicare Drug Pricing Issue

IBB down 0.4%, XBI down 0.83%

Just as biotech was forming a nice bottom including some big winners YTD, the White House intervened with drug pricing talk through Sean Spicer saying absolutely the government needs to keep those Medicare drug costs down. Negotiation of Medicare drug prices have been in the headlines for over a year through the election campaign by both parties. Still biotech offers good growth prospects with good pipelines for new products so investors are likely to keep coming back so long as concrete action is not imminent on Medicare price negotiation. Moreover stock technicals look good and valuations on mid and large caps are reasonable.

To complicate the already murky politics biotech industry executives signed a letter against Trump’s immigration order.

Gilead Sciences (GILD) earnings yesterday brought more negative news to biotech with disappointing sales and weak guidance of HCV drugs because of fewer patients and more competition, Sales for HCV drugs were forecasted  at $7.5-$9B much lower than the $12B than Wall Street expected.  The stock fell 5% after hours to $69.20. Medicaid pricing for Harvoni is already much lower at $10,000 per bottle compared to a $15, net average price for 2016. Full year product sales for 2016 were $30B  with diluted EPS of $9.94. The company has $32.4B of cash and marketable securities and analysts have been expecting for sometime a major acquisition to boost sales growth. The 2.57% dividend was raised by 10%.

As you can see below the stock has hit multiple bottoms in the $70 area.