Biotech Analyst Porges Sounds Regulatory Alarm on Drugmakers

Biotech analysts are usually a bullish bunch, anticipating scientific breakthroughs that will send stocks surging. But SVB Leerink’s Geoffrey Porges has broken from the pack, with cautious recommendations outweighing the number of companies he sees as buys.

The reason: potentially tougher regulatory scrutiny under President Joe Biden’s administration.

Porges cut his ratings Tuesday on GlaxoSmithKline Plc, Alexion Pharmaceuticals Inc., MorphoSys AG, Translate Bio Inc., Assembly BioSciences Inc. and Acceleron Pharma Inc., anticipating more restrictions on pharmaceutical pricing, tougher drug reviews, and greater scrutiny of mergers and acquisitions. He lowered all to market perform from outperform.

Biotech Analyst Porges Sounds Regulatory Alarm on Drugmakers

With those six downgrades, Porges has 14 holds and 8 buys on the stocks he covers, according to data compiled by Bloomberg. He is also growing increasingly cautious on AstraZeneca Plc’s $39 billion bid for Alexion. Whereas once he had seen the chance for a higher bid, he now says there’s a chance the Alexion deal may face onerous conditions or even be scuttled by the Federal Trade Commission.

“The industry and its investors will need to adjust to a different regulatory environment to the one they have enjoyed for the last 5 years,” Porges wrote in a note Tuesday. “Given this overall context, we believe it is advisable to be more selective in our outperform ratings and recommendations, and only expect stocks with clear value-creating events and news to outperform the market and the sector in the coming months.”

The Nasdaq Biotech Index had slipped more than 10% from a record high in February, yet it remains up about 58% over the past year. A renewed push from Bernie Sanders, the independent senator from Vermont, to rein in the high cost of prescription drugs helped fuel a slide in drugmakers on Tuesday.

The pullback came as several setbacks on new drug applications ignited speculation that the U.S. Food and Drug Administration is poised to usher in a period of greater regulatory scrutiny. At the same time, a Citigroup Inc. analyst noted the challenges posed by an international collaboration to overhaul M&A reviews and the views of Xavier Becerra, Biden’s choice to run the Department of Health and Human Services, on mergers and drug pricing.

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