Last week, the NASDAQ Biotech Index (NBI) declined more than 10 percent compared to an approximate 4.5 percent decline for the S&P 500. Since the NBI has been outperforming the broader market since mid-2008, last week’s relative underperformance came as quite a shock to many investors.
Trying to explain the decline, most industry pundits pointed to budget plans outlined by the Obama administration during the week, which focused on healthcare reform. In fact, there were many comparisons to the sector’s decline during the Clinton administration's health care reform initiative.
I’m not buying it.
President Barack Obama made healthcare reform a major campaign topic, so this is certainly not “new” information. In addition, it appears that money for cancer research would actually increase under the proposed budget; including a 15 percent increase in National Cancer Institute (NCI) spending that is in line with his pledge to double research funding over five years.
Instead, I propose a different catalyst for the biotechnology bloodbath last week: the recent spate of high profile clinical setbacks and regulatory delays. Consider the following, several of which occurred during the past week:
- February 12 - La Jolla Pharmaceutical (NASDAQ:LJPC) announced that the Independent Data Monitoring Board for its Riquent® Phase 3 study completed the first interim efficacy analysis and determined that continuing the study is futile.
- February 18 - Hemispherx Biopharma (NYSEMKT:HEB) announced that the originally scheduled Prescription Drug User Fee Act (PDUFA) date on its Ampligen® New Drug Application (NDA) would be extended by three months.
- February 23 - Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) announced that the PDUFA date on its Zevalin® sBLA would be extended by three months to July 2, 2009.
- February 23 - MAP Pharmaceuticals, Inc. (NASDAQ:MAPP) announced that its Phase 3 clinical trial of Unit Dose Budesonide (UDB) for the potential treatment of children with asthma did not meet its co-primary endpoints in either of the doses evaluated.
- February 26 - Synta Pharmaceuticals Corp (NASDAQ:SNTA) announced that based on an analysis by an independent Data Monitoring Committee (DMC), it has suspended a Phase 3 clinical study comparing elesclomol in combination with paclitaxel to paclitaxel alone in chemo-naïve patients with stage IV metastatic melanoma. The decision to suspend the trial was based on the results of an analysis by the independent DMC which identified safety concerns.
- February 27 - Amicus Therapeutics (NASDAQ:FOLD) announced that it suspended enrollment for the Phase 2 clinical trial of its investigational drug AT2220 for the treatment of Pompe Disease and that it has received verbal notice from the U.S. Food and Drug Administration (FDA) that the trial is on clinical hold.
At the start of the year I provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions.
Many of these fundamental and technical characteristics remain intact, as does my bullish thesis for biotechnology in 2009. However, there is no discounting the negative impact of continued clinical and regulatory setbacks on the psyche of biotechnology investors, which is definitely a chink in the biotechnology armor.