Biotech stocks lead broad market lower

Biotech stocks began the week under further pressure, with the sector on course for a seventh straight trading day of losses, hurt by lofty valuations and political criticism over excessive drug prices.

The Nasdaq Biotechnology index, which has declined more than 16 per cent since Hillary Clinton, the frontrunner for the Democratic presidential nomination, criticised “price gouging” in the sector a little over a week ago, fell 6 per cent on Monday.

Mrs Clinton has pledged to cap prescription drug bills for chronically ill patients at $250 a month. The high cost of drugs has also been a target for Senator Bernie Sanders, an independent from Vermont who is also competing. The rhetoric has raised concerns that the speciality pharma sector will come under increased scrutiny and that it could create pricing pressures for its companies.

Shares in Gilead Sciences slipped 5 per cent to $94.80, shares of Regeneron Pharmaceuticals fell more than 7 per cent to $453.98 and shares in Biogen dropped 4.4 per cent to $272.28.

But analysts have said that any big reforms would need an act of Congress and are unlikely to be implemented in their current state or in the near term.

“The sell-off in the absence of fundamental change creates an opportunity for an entry point in high quality names,” Cory Kasimov, an analyst at JPMorgan, said. He noted that innovation in biotechs remained at “all-time highs” and that the regulatory environment continued to be “very favourable”.

Verastem shares were the biggest decliners on the Nasdaq biotech sector, falling 67 per cent to $1.85, after the company said it would stop a phase 2 mesothelioma cancer study. The small-cap company saw $135m wiped off its market valuation overnight.

Shares in Cal-Maine Foods declined 12 per cent to $50.63 after the egg producer reported fiscal first-quarter profits that missed forecasts.

The Jackson, Mississippi-based company reported profits of $143m, or $2.95 a share, compared with $27.7m or 57 cents a share in the year-ago period.

Sales jumped more than 70 per cent year on year to $609.9m, as the average selling prices for shell eggs jumped to record levels during the first quarter and were up 65.7 per cent from the year-ago period.

Analysts on Wall Street had forecast earnings of $3.13 a share, on sales of $597.7m.

Egg prices have jumped after an outbreak of avian influenza in the upper Midwest led to a cull of the national laying hen flock. “We believe that egg prices will remain very high until the supply situation returns to more normal levels,” said Dolph Baker, chief executive of Cal-Maine.

Alcoa shares jumped 6 per cent to $9.60 after the aluminium producer announced plans to split into two companies.

Shares in Williams Cos fell 12 per cent to $36.57 after the company said it would merge with Energy Transfer Equity in a $37.7bn deal, including the assumption of debt. Investors were disappointed as the deal was worth less than Energy Transfer’s offer in June. Shares in Energy Transfer fell 12.7 per cent to $20.29.

Lacklustre data from China renewed concerns on the health of the global economy and drove investor aversion on Monday.

The S&P 500 fell 2.6 per cent to 1,881.77, the Dow Jones Industrial Average declined 1.9 per cent to 16,001.89, and the Nasdaq Composite lost 3 per cent to 4,543.97. The S&P is on course for its worst quarterly fall since the third quarter of 2011.

mamta.badkar@ft.com

Twitter: @mamtabadkar