Trans-Pacific Partnership Could Further Depress Biotech Stocks

Up until recently biotech was on a hot streak, with numerous IPOs illustrating investors’ eagerness to support biotechnology companies from their earliest, riskiest stages. However, it seems as though the tides have turned as pricing concerns extend a biotech selloff period.
Reuters reports that the Nasdaq Biotechnology Index has fallen 17% since just before September 21, when presidential hopeful Hillary Clinton vowed to crack down on high drug pricin, should she be elected to office. On Tuesday, iShares NASDAQ Biotechnology Index (NASDAQ:IBB) dropped to a low of $292.55 around noon, ultimately recovering from this dip to close down 3.77% by the end of the day.

High profile concerns about drug pricing

High profile media reports on the topic of drug pricing have heightened investors’ concerns about the future of this industry. For instance, the New York Times’ articles on Turing Pharmaceuticals’ pricing of Daraprim and Valeant Pharmaceuticals International’s (NYSE:VRX) pricing strategy have brought this issue into public view.
RBC Capital Markets biotech analyst Michael Yee told Reuters that “there’s a flurry of things that are coming together to drive a lot of fear and panic. Obviously continued concern in headlines around drug pricing, particularly with an article out in the media about significant price increases even for old drugs that are declining in volume.”

Pacific trade deal could exacerbate industry stressors

However, the problems affecting the biotech industry goes deeper than excessive pricing and bad press. In the longer term, the newly released Pacific trade deal (PTT) could amplify these existing problems, by reducing the period of exclusivity held by new biotech treatments.
The trans-Pacific partnership unites 12 nations to form the world’s largest free-trade zone. According to the Globe and Mail, the combined GDP of these nations is $28.5-trillion, accounting for more than 40% of the world’s economic output. The partnership covers everything from agriculture to heavy industry, including the biotechnology and pharmaceutical sectors.
The deal contains a provision on patent exclusivity for biologics, giving countries the option of eight years of full exclusivity or five years of exclusivity with three years of semi-exclusivity. This provision caused some debate within participating countries, as some (like Australia) fought for a shorter period of exclusivity while others (like the U.S.) campaigned for a longer period. Currently, new biologics in the U.S. have a twelve year period of exclusivity before biosimilars can hit the market.

Push back from industry advocates

The Biotechnology Industry Organization (BIO) issued a statement saying that “BIO strongly believes that 12 years of data exclusivity is a prerequisite to attract the investment required to continue medical innovation and develop new biological cures and therapies. . . While the TPP agreement will not impact the U.S. data protection period, we believe the failure of our Asian-Pacific partners to agree to a similar length of protection is remarkably short-sighted and has the potential to chill global investment and slow development of new breakthrough treatments for suffering patients.”
In addition to slowing investment, this provision could cause the prices of biotech treatments to increase as companies try to recoup their R&D costs in a shorter period of time. Therefore, it seems as though the PTT may have a negative impact on the biotech industry, a sector already struggling against negative public perception and soaring treatment costs.
 
Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.
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