While the broader US markets managed to rebound yesterday, as Fed officials poured oil on troubled waters and kept the prospect of a US rate rise this year on the table, the biotech sector had a day to forget, slumping to its worst day this year as concerns about valuations prompted a sharp sell-off, which was in part exacerbated by comments in a tweet from Democrat Presidential hopeful Hillary Clinton that she would look to take on speciality pharma and tackle the practice of price gouging. This was prompted by a story that saw a 62 year old drug called Daraprim have its price raised to $750 a tablet from $13.50 a tablet, by its new owners Turing Pharmaceuticals, in a practice that appears to be becoming much more regular in the industry, where prices have gone up sharply for well-established everyday generic medications. Concern about valuations in the biotech sector aren’t anything new, just over a year ago Fed Chief Janet Yellen warned on “stretched valuations” yet since then prices have continued to go higher, but yesterday’s intervention by Mrs Clinton does change things in some respects, given we are in the run-up to a Presidential election. If pharmaceutical companies are increasing revenues and profits at the expense of patients by sharply increasing prices then we could well see a sharper scrutiny on the sector on terms of price transparency, and the sector could become a political football. European pharmaceuticals stocks have been caught in the fall-out of last night’s US sector sell-off with Shire and GlaxoSmithKline shares near the bottom of the FTSE100. The scrutiny of the auto sector looks set to increase with other brands likely to come under the spotlight for their emissions tests, with large losses on shares of Porsche, BMW and Daimler. VW’s woes have also continued as investors focus on the possibility that its problems in the US could well ripple out into the rest of the world. After all if you have emissions cheating devices on your US cars, then there is a distinct probability they are on cars elsewhere, in Asia, Europe and the UK as well. Outright deception never comes across very well as global banks will attest, and VW executives could well find themselves under an increasingly uncomfortable PR and potentially criminal spot light in the coming weeks, something that a number of global bankers can well attest to. It also raises the question as to whether this practice is symptomatic of a wider malpractice in the global auto industry, shining a light on other car manufacturers, while suppliers of the auto industry have also come under pressure today. This morning’s sell-off in European markets is likely to spill over to US markets today, with biotechs likely to remain under pressure. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
US biotechs in focus after Clinton price gouging comments
06:30, 22 September 2015