Biotech fund posts worst single-day drop in 4 years

29 Sep 2015 | Author: | No comments yet »

Biotech fund posts worst single-day drop in 4 years.

Biotechnology and specialty pharmaceutical stocks lead the way down during Monday’s broad stock selloff. A Monday slide by biotech shares pushed the iShares Nasdaq Biotechnology exchange-traded fund IBB, -6.33% to its worst single-session performance in more than four years.

The folks at Bespoke Investment Group note that if the S&P 500 Biotech group is down 20% from its high on July 20, which would market the end of this great biotech bull market that began in 2010. On Monday, selling accelerated after Democratic lawmakers distributed a letter calling for a subpoena to force Valeant Pharmaceuticals (VRX) to fork over more documents related to price increases for two heart drugs. The latest bout of selling appeared triggered by a Twitter TWTR -0.12 % comment from Hillary Clinton last week that raised concerns about drug-price limits.

The downdraft in biotech stocks comes fresh on the heels of the sector’s worst weekly performance in seven years and places the biotech fund, which hit its peak in mid July, squarely in bear-market territory, which is a decline of at least 20% from a recent peak. The news flow has been relatively light since the comments, but the selling has gained momentum. “Anything that is or was up for the year is being sold,” said Christian O’Brien, who trades biotech and other health-care stocks for Raymond James in New York. Of the 18 prior bear markets, the average length was about three months (92 days) over which time the index dropped an average of 29.3% (median: -26.7%). Last week the biotech sector’s IBB suffered a more than 13% drop as presidential hopeful Hillary Clinton criticized drug prices and laid out a plan to curb costs.

Based on these prior declines, if the current bear market follows the ‘average’ path, it would imply further downside of about 10% over the course of the next three weeks. O’Brien said much of the recent selling appears driven by short-term investors, given the heavy volumes in major biotechnology exchange-traded funds. The biotech industry has been one of the highest-flying sectors during the stock market’s bull run, and as a result has been the target of bubble calls by industry watchers and analysts.

Larger, institutional investors appear to be mostly staying put, he said. “The ETFs are still driving the boat,” he said. “The volume is not in the underlying stocks,” he added. One trader said that the selling “feels heavily index driven,” meaning that investors are bailing on index-tracking exchange-traded funds — and fast. Marshall Gordon, a research analyst who follows the health-care sector for ClearBridge Investments, said drug prices are often a point of focus, but the rate of new drug development and underlying fundamental trends in the sector are still in good shape. “We all know that it corrects from time to time—it’s a momentum sector,” Mr.

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