US biotech stocks suffer sharp slide on Congress letter over the price of a hepatitis C drug treatment from Gilead Sciences

Last updated: March 22, 2014 1:03 am

US biotech stocks suffer sharp slide on Congress letter

By Arash Massoudi and Alan Rappeport in New York

Biotechnology stocks, the standout asset class of the soaring US equity market, suffered their sharpest decline since October 2011 on Friday after US congressional representatives raised concerns over the price of a hepatitis C drug treatment from Gilead Sciences.

The sell-off was triggered by a letter from the House Energy and Commerce committee to the chief executive of Gilead questioning its plans to sell the 12-week treatment, Sovaldi, for $84,000 per dose.

The lawmakers wrote: “These costs are likely to be too high for many patients, both those with public insurance and those with private insurance,” in a letter dated March 20. They also argued that because Hepatitis C is most prevalent among low-income, minority patients, the expense of the drug will saddle state Medicaid programmes with steep costs.

The Nasdaq Biotechnology Index fell 4.4 per cent and Gilead Sciences tumbled by 4.6 per cent to $72.07. The day’s losses extended across the large-cap biotech sector as Biogen Idec fell 8.2 per cent to $318.53, Celgene dropped 3.7 per cent to $144.40 and Amgen lost 3.2 per cent to $122.93.

The share losses came as investors have questioned how much higher biotechnology stocks could run after climbing 110 per cent over the past two years.

The sector index hit a record high last month in part due to frequent upward revisions to estimates of sales at the largest biotechnology companies such as Gilead, which has a market capitalisation of $107bn.

Larger biotechnology companies have generated huge sales from new treatments that target rare or orphan diseases as they charge large sums for the drugs. That in turn has fed a cycle of new medical research and experimentation with many small laboratories gaining funds in an attempt to come up with the next big medical breakthrough.

Analysts at Nomura expect Sovaldi to generate more than $4bn in sales this year for Gilead. Several state Medicaid programmes have limited the access to Sovaldi to “only the sickest” patients, because of its expense. And pharmacy benefits managers such as Express Scripts have been encouraging doctors to delay prescribing the drug, according to the letter.

This letter is a ‘bank shot’ that gets things going, with the goal of getting Gilead to significantly lower the price of Sovaldi

– Analysts at ISI, the hedge fund research company

The California Technology Assessment Forum, a group affiliated with insurers that has been evaluating the drug, warned that at $1,000 per pill Sovaldi could cost the state nearly $30bn a year.

The committee has asked Gilead to provide a briefing on the drug’s pricing by April 3. Gilead could not be reached for comment.

Analysts at ISI, the hedge fund research company, said: “This letter is a ‘bank shot’ that gets things going, with the goal of getting Gilead to significantly lower the price of Sovaldi.”

There are nearly 4m chronic cases of Hepatitis C in the US, according to the Centers for Disease Control. In 2010, the illness was responsible for more than 16,000 deaths.

The disease is even more prevalent globally, infecting an estimated 170m people. It can be transmitted through blood transfusions, from syringes shared by drug users and from mothers to their children.