Biotech, the high-flying sector that came back to earth on Friday when the iShares Nasdaq Biotechnology exchange traded fund plunged 4.7%, is suffering another day of steep losses Monday, as the intensifying sell-off enters its second trading session.
The biotech ETF, which includes innovative drugmakers with well-known names such as Biogen, Gilead Sciences, Amgen, Celgene, Alexion and Vertex Pharmaceuticals, was down another 2.8% in mid-day trading today, pushing it down 13% from its 52-week intraday high of $275.40 on Feb. 25.
That puts the once-high-flying sector, which was up 20.3% for the year at its peak, into correction territory, defined as a drop of 10% or more.
STOCKS MONDAY: How markets are doing
Swooning biotechs have hurt the Nasdaq composite, which fell 1.2%, more than double the 0.5% decline of the broader Standard & Poor's 500 stock index.
What's causing the downdraft:
1. Pricey shares. The iShares Nasdaq Biotechnology ETF was getting very pricey, based on a price-to-earnings basis. The ETF had a P-E of 29, according to Yahoo Finance, which is nearly double the S&P 500's P-E of 15.7, based on expected 2014 earnings.
The froth is coming out of the shares.
2. Pricing worries. One purported catalyst for the selling in the biotech sector came Friday when a powerful Congressional committee sent a letter to Gilead Sciences, asking the drugmaker to explain its pricing policy on its new hepatitis C drug Sovaldi. The drug costs $84,000 in the U.S. for a 12-week treatment, a high price tag that some insurers, including the government's Medicaid program, are balking at.
Gilead shares, which fell almost 6% on Friday, closed up 6 cents, or 0.1%, to $72.13 on Monday.
3. Fears of a top. There has been talk of two different markets on Wall Street: the frothy high-flying sectors, such as biotech and social media, and the rest of th! e market. Recent angst over an impending market top, coupled with triggers that spark selling, has thrust many aggressive investors into profit-taking mode on their big winners.
Also today, Celgene was down 2.1% to $141.42, adding to Friday's nearly 4% drop. Vertex was off 1.9% to $72.44.
Other hot Nasdaq stocks, such as social media darling Facebook and electric car market Tesla, were also down sharply today, declining 4.7% and 3.8%, respectively.
The big question now is whether the selling has played itself out.
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