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10/06/15 03:15:07 PM

S&P Market Commentary

... NEW YORK (AP) Biotech stocks slipped Tuesday on continued scrutiny of the cost of some medications. Analysts are wondering if drug prices will be reined in and how much it will hurt the industry if they are. The S&P 500's biotech index slid almost 4 percent in afternoon trading, with big names including Gilead Sciences Inc., Amgen Inc. and Celgene Corp. all moving lower. Cystic fibrosis drugmaker Vertex Pharmaceuticals Inc. sank 7 percent. That was the largest loss on the S&P 500. Other drug stocks also slipped, with the S&P's pharmaceutical index losing 3 percent. The S&P 500 itself fell about 0.5 percent. In a research note published Monday, Morgan Stanley analyst Matthew Harrison said biotech stocks have been feeling the pain this year as investors worry that the government will take action to keep drug prices down. But Harrison thinks the sector will continue to do well and said drug prices are not a major source of overall growth for biotech companies. The biggest source, he wrote, is drug innovation. Jefferies & Co. analyst Anthony Petrone took a different viewpoint Tuesday, saying the 2016 election cycle and ongoing political gridlock may prevent the government from taking action to curb drug prices at all. "Price headlines ... ultimately may prove to be fleeting at least from a legislative standpoint considering timing on the Presidential race and a still divided Congress," he wrote. Over the last few weeks, a steady drumbeat of stories about costly drugs has only grown louder. In September there were uproars over proposed large price increases in two older drugs: the tuberculosis treatment cycloserine, and Daraprim, which treats a rare parasitic infection. This summer saw the launch of two new cholesterol treatments that will each cost around $14,000 a year, and in recent years new biotech drugs for cancer and hepatitis C have reached the market with price tags in the range of $80,000 a year, while drugs for very rare diseases can be even more expensive. Harrison said some biotech drugmakers do get large portions of their growth from price increases or get a lot of revenue from the government's Medicare program, meaning they are vulnerable to legislation that affects drug prices or to reduced payments from Medicare. He said Amgen, the world's largest biotechnology company, will get half its revenue growth from price increases this year, including an increase for its psoriasis drug Enbrel, while multiple sclerosis drugmaker Biogen Inc. will get more than a third of its growth from higher prices for its product Avonex and others. Harrison said Biogen and Amgen also have high exposure to Medicare, as do Celgene and Regeneron Pharmaceuticals Inc.


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