Earnings Whiffs Push Biotech to Worst Slump Since 2015 Meltdown

(Bloomberg) -- Biotech stocks, the main culprits in a market selloff two years ago, are testing investors’ nerves again.

Down seven days in a row, the biggest exchange-traded fund tracking the industry is headed toward its longest losing streak since September 2015. The $9.5 billion iShares Nasdaq Biotechnology ETF tumbled as much as 2.9 percent Thursday as Celgene Corp. and Amgen Inc. joined Biogen Inc. in reporting disappointing results.

The slump came just days after President Donald Trump again called out drugmakers for “getting away with murder” with their prices. And it’s adding to the anxiety in a bull market where the risk of a meltdown is investors’ chief concern. The last time biotech suffered such a prolonged decline, it fueled a broad selloff that sent the S&P 500 Index to its biggest decline in four years.

The poor biotech earnings give traders another thing to worry about as they’re already on edge waiting for earnings from tech giants such as Amazon.com Inc. and Microsoft Corp. Not to mention Trump’s pending decision on the head of the Federal Reserve, with candidates including current Fed chair Janet Yellen to John Taylor, viewed as the most hawkish of all.

“People are anxious, you can’t deny it,” Donald Selkin, New York-based chief market strategist at Newbridge Securities Corp., said by phone. The firm oversees $2 billion. “To me, the bigger warning signs would be that interest rates are creeping up and Trump nominates Taylor,” he said. “Earnings so far have been good and the weakness is unique to biotech.”

This earnings season has shown resilience consistent with past quarters. Among S&P 500 companies that have reported, 80 percent exceeded analyst estimates, data compiled by Bloomberg show. The favorable backdrop is in stark contrast with two years ago, when corporate America was mired in a profit contraction that eventually dragged on for five quarters.

Biotech has stood out this week with disappointing results piling up. Celgene slashed its long-term profit target while sales from Amgen’s top-selling drug and a key new cholesterol treatment both missed expectations, echoing a slowdown flagged by Biogen earlier.

Half of the stocks in the Nasdaq Biotech Index fell on Thursday. Celgene plunged as much as 20 percent heading for the biggest drop since 1998.

The selloff came after a four-month rally lifted the biotech gauge to the highest level in almost two years. Investors had hoped that newer treatments would ease some of the pressure on mature biotech companies whose older drugs are facing competition from copycats. Key sales fell short of estimates across the board, leaving investors wondering what’s next.

“Growth projections from investors don’t appear to be holding up across large-cap therapeutics,” said Brian Skorney, an analyst with Robert W Baird & Co. “It doesn’t seem like the drug companies are quite doing enough to satisfy investors. On top of that, you have a major expectation reset by a consensus long like Celgene and we are seeing a lot of capital come out of the sector right now.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net, Tatiana Darie in New York at tdarie1@bloomberg.net, Cristin Flanagan in New York at cflanagan1@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Richard Richtmyer, Morwenna Coniam

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