Biotech posts weak performance in April, reflecting toll of US health care reform

Despite the pop in the shares of Dendreon on the announcement that its prostate cancer therapy Provenge (sipuleucel-T) had finally been approved by the FDA (The Pharma Letter April 30), the biotech sector failed to build on that event and turned in a lackluster performance for the month with the Burrill Biotech Select Index dropping 2 percent in April.

Not helping the cause was the fact that several companies including Amgen and Gilead Sciences cut their profit forecasts citing the impact of costs from US health care reform in their outlooks. Gilead closed the month down almost 13%. Although the company reported a 45% jump in quarterly profit it lowered its full-year revenue forecast due to the recently passed health care reform legislation. It said its impact will be felt mostly in the company's HIV treatment business. Amgen, whose shares fell 3.6% in April, estimated that going forward, health care reform would trim annual US sales revenue by 5% to 6% and $200 million to $250 million this year.

The new US health care law calls on drug companies to offer higher price rebates for government-funded health plans and will eventually require them to pay a fee based on their market share of the public plans. Some of the changes went into effect at the beginning of the year and all will be phased in by January 1, 2014.