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Biotechs under pressure

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Biotech stocks are under some selling pressure this morning as depicted by the Biotech Index (BTK.X) 368 -3.4% and the Biotech HOLDRS (AMEX:BBH) $86.41 -3.29% after the Wall Street Journal reported that generic drug makers plan to lobby Congress to instruct the FDA to establish an approval process for generic biologics. Currently, generic makers can't market knockoffs of biotech products in the U.S. because there isn't any specific regulatory process under which the generics can be approved. Company's such as Schering Plough (NYSE:SGP) $23.61 -3%, Biogen (NASDAQ:BGEN) $36.19 -2.58%, Amgen (NASDAQ:AMGN) $46.00 -2.68% and Johnson & Johnson (NYSE:JNJ) $54.48 -0.6% all have biotech "blockbusters" coming off patent protection in the next 4-years.

This type of "lobbying" creates a new twist to some past scenarios we have heard regarding the relationship between "drug companies" and "biotech companies."

Earlier this year, it was thought that drug companies might begin buying up some biotech stocks to further increase their drug pipelines with an acquisition strategy. However, today's Wall Street Journal report hints that some generic drug makers may not necessarily be looking at acquisition, but legislation.

According to Biogen (NASDAQ:BGEN), the company did say that today's Wall Street Journal article incorrectly stated that the patent expiration date for its "blockbuster" drug Avonex was not in 2003, which in fact is when the seven-year Orphan Drug exclusivity granted to Avonex upon approval in 1996 is set to expire, but not the drug's broader patent extending past the Orphan Drug status.

Adding to sector weakness was Alkermes (NASDAQ:ALKS) $9.27 -7.4% news that it will cut 23% of its workforce to reduce its cost structure. The company expects to realize expense savings of about $20-$25 million in FY03, excluding a Q2 restructuring charge of $3.5-$4.0 million in FY04. The company did say, "We are adjusting our staffing levels to align with near-term revenues which we anticipate will be lower than expected due to regulatory delays."

Jeff Bailey
Senior Market Technician
Option Investor

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