Bear Market Rally on Hold Due to Drug Pricing Hangover

It is that time again, the end of August when vacations end, mellow moods subside and reality sets in. We were cruising along nicely with an M&A buzz until the management team at Mylan N.V. (MYL) decided to “get it while they can” and draw from the EpiPen cash cow via aggressive price increases over several years. This of course played into the healthcare issue of our times- healthcare affordability and price gouging. You would think the Mylan PR people would advise their Executive team on the sensitivities of the marketplace, especially with a unique, monopolistic, epinephrine injectable product that is critical to treating life threatening allergies or anaphylaxis. Exacerbating the issue,the CEO also collected $5M from a stock sale on August 9.

Despite the recent excesses of specialty drug pricing and the broader political issues, biopharmaceutical products have been spared from scrutiny and scandal. But the healthcare sector is already a laggard and this latest media outrage could linger for months especially with election talk ahead and a focus on government pricing policies. We attended the BIO International Meeting in June and a major topic was the “trust gap” on affordability in healthcare.  Innovative products that are cost effective may support high drug prices but the EpiPen pricing flap has raised many issues like  corporate inversion deals, monopolies, reimbursement by insurance, fast tracking generics by the FDA etc.

Stocks stabilized a bit on Friday after the downdraft but upward momentum is certainly lost especially and the usually weak September lies ahead with a few macro issues like the FED, free trade deals and healthcare insurance (ACA).

Here is the weekly summary:

IBB down 1.78% at $285.14 after pushing toward the $300 mark on Wednesday. Down 15.7% YTD.

XBI down 1.21% at $61.11 after hitting $64.83 early Wednesday. Down 13% YTD.