New approvals from the Food and Drug Administration (FDA) are continuing to put downward pressure on the share prices of drug developers, indicating a growing skepticism among investors towards the biopharma sector.
In late June, Sarepta Therapeutics (ticker: SRPT) experienced a significant 16% drop in its share price over the course of a few days, following the FDA’s approval of its new gene therapy for Duchenne muscular dystrophy. On June 29, BioMarin Pharmaceutical (BMRN) also faced a decline in its share price, with a 3.6% decrease, after the FDA approved its gene therapy for hemophilia A. The following day, BioMarin shares fell an additional 2.5%.
Last week saw a similar trend as both Biogen (BIIB) and Eisai (ESAIY) experienced drops in their share prices following the FDA’s full approval of Leqembi, their new Alzheimer’s disease treatment. The treatment had initially received conditional approval through the FDA’s accelerated approval pathway. On Friday, Biogen shares fell by 3.5%, while Eisai’s American depositary receipt witnessed a 3.3% decrease.
This recent pattern of selling off shares in response to positive news highlights a persistent lack of interest from investors in large-cap biopharma stocks.
Lingering Doubts Surrounding Newly Approved Drugs
Commercializing newly approved drugs comes with its fair share of uncertainty and caution from investors. Recently, the approval of Sarepta, BioMarin, Biogen, and Eisai drugs has been overshadowed by doubts that have dampened investor enthusiasm.
The approval for Sarepta, in particular, was narrower than expected. Furthermore, the FDA issued a warning, stating that they might reverse their decision based on the results of an upcoming trial, expected to conclude later this year. On the other hand, sales of the BioMarin drug could potentially take years to gain traction in the market. Additionally, the launch of Biogen and Eisai’s drug faces multiple challenges that need to be overcome.
This growing sense of uncertainty has affected the pharmaceutical sector as a whole. The S&P 500 Pharmaceuticals index has experienced a decline of 5.1% this year, in stark contrast to the broader S&P 500, which has seen a 15% climb. Last year, the pharmaceutical and biotech industry outperformed the overall market due to investors seeking safety in higher dividends.
However, the defensive strategy of investing in pharmaceuticals is losing its appeal. The current environment of higher interest rates has made the sector’s dividends less attractive. Additionally, concerns regarding Medicare drug price negotiations and the Federal Trade Commission’s scrutiny of mergers have further soured investor sentiment towards large-cap biotech and pharmaceutical stocks.
There may be a glimmer of hope on the horizon as some of these worries appear to be easing. On Monday, Biogen shares rose by 2.5%, while Sarepta and BioMarin saw increases of 0.8% and 0.2% respectively. Furthermore, the S&P 500 Pharmaceuticals Industry index experienced a modest uptick of 0.3%, and the SPDR S&P Biotech ETF (XBI), which tracks the biotech sector, was up by 2.8%.
*Originally written by Josh Nathan-Kazis.
