Valeant woes underline problems for pharma

Fri Oct 23, 2015 2:31pm EDT
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By Marc Carnegie

NEW YORK, Oct 23 (IFR) - The pharma sector needs more than medicine to get over its latest malaise.

Shock allegations this week concerning Valeant's business practices poured oil on the fire in the pharmaceuticals sector, which has gone from hero to zero in little more than the blink of an eye.

Pharma enjoyed a long run as a capital markets darling, delivering robust returns - in both bonds and equities - and churning up huge fees for bankers through waves of M&A.

According to data from Bank of America Merrill Lynch, up to this week US high-yield healthcare bonds had returned 2.79% in the year to-date versus 0.023% from BAML's broader high-yield index.

Still, that is small beer: Valeant shares were up an eye-watering tenfold in the five-year period to August.

But the wheels began to come off the wagon the following month, when Martin Shkreli, a former hedge fund executive and the founder of Turing Pharmaceuticals, jacked up the price of an Aids drug Turing had acquired from US$13.50 per pill to US$750. Hillary Clinton, making a White House run, immediately vowed to cap drug costs.

In a flash, the goose that laid the golden returns was cooked.

Biotech stocks have been hammered, losing some 15% since Clinton's announcement. The seven life sciences companies that have gone public in the US since then all did so at valuations below where they were marketed.   Continued...