Why Drug Pricing Could Bring Volatility To The Biotech Sector This Year

Over the last two years, biotechnology companies have been on the forefront of technological breakthroughs. The emergence of gene therapy and personalized medicine have begun to show that many drugs have the potential to be curative instead of therapeutic. Bringing a drug through all the stages of clinical trials is not only extremely expensive, but not probable. However, if a drug does make it to the market, it has the potential to be incredibly profitable. This dynamic has made drug pricing very important to investors. There was much debate over Gilead's

pricing of its HCV drug Sovaldi, which costs about $1000 per pill. Without any competition, Gilead had the most successful drug launch in history. Another example is Uniqure

, which set its price tag at $1.4 Million for its gene therapy treatment Glybera. Growing competition, pricing push back from payers like Express Scripts

, or new regulatory measures could be something to watch. A change in this pricing dynamic could quickly cause a revaluation of biotech stocks. Bluebird Bio

CEO Nick Leschly spoke at the J.P. Morgan Healthcare conference about the pricing issues. Given Bluebird has the potential to produce curative therapies, pricing could be set quite high, as well. For curative therapies, Leschly proposed the best solution could be a "pay for performance" structure. For now, drug pricing and biotech valuations remain high, but this will be a topic to keep an eye on as Johnson & Johnson

, Bristol-Myers Squibb

, Pfizer

, AbbVie

, and Eli Lilly

give guidance over the next month.