Biotechs/Pharma and Economic Slumps
Remarks by Democratic Party presidential hopeful Hilary Clinton that she would change drug pricing if elected in 2016 caused a major sell off wave by biotech companies in the last half of 2015. Though prices of stocks went up towards the end of the year, it raised concern over the ability of the biotech sector to hold up during a market slump.
Funds which invested in biotech firms were some of the hardest hit by the sell off, one of them being Woodford Patient Capital Trust. It lost 6.2% in net asset value in the month ending October of 2015. Their stakes were in Prothena and Northwest Therapeutics which chose to do away with many of their shares.
In the past, biotech firms have been some of the hardest hit by market recessions. To stay afloat, they have typically coped up by major restructuring, job cuts and cutting back on research and development budgets. Biogen (BIIB) and Bristol Myers-Squibb Co (BMY) were some of the biotechs which sent home many of its employees last year.
Despite this, some companies still do relatively well during recessions. In 2013 for example, the Seattle biotech industry, which hosts about 190 biotech and pharmaceutical companies was reported to be growing. Dendreon, known for Provenge, a prostate cancer drug, is now being weighed down by major debt-upward of $500 million, and, one of the highest in the biotech sector. Back during the recession of December 2007 to June 2009, it was one of the best performing. The company is now being floated for sale.
Other biotech companies were predictably hard hit by the two year slump. Thousands of people were retrenched, and to date, not many have been restored. Employment statistics still reveal much lower figures than those at the end of 2007 before the recession. The Battelle Memorial Institute were commissioned by the Biotechnology Industry Organization to conduct a research and reported that between 2001 and 2010, the industry created 96000 jobs, making the total number of employees in the sector in the US to be approximately 1,605,500. There was a 1.4% reduction in the number of jobs by 2007. When the economy began to pick up in 2010, companies were still not too enthusiastic in hiring
Despite the somewhat gloomy figures, many biotech journals and organizations recorded that the loss was not as bad as compared to say IT and the private sector generally. That would be encouraging for prospective investors and current stock traders. It could also be adduced that the sudden offloading of shares was viewed by some major pharmaceutical firms as fertile ground for acquisition. The mergers and acquisitions trend is expected to continue in 2016.
Currently, a section of American citizens are worrying that there could be yet another recession coming. A survey done by CNN money economists reports that the US has an 18% chance of falling into a full blown recession. The Federal Reserve reported at the end of last year that the chances were at 10% at least. That rise is worrying.
Even so, on the positive side and a piece of news that could spur on prospective investors, the NASDAQ Biotechnology Index at the start of 2016 was up 10.6%, and that compares quite favorably to other stocks in the market.