Biotech and Pharma

Biotech: The next big breakout?

2016 a lull for health care: Pro

The Nasdaq biotechnology index is up 8 percent this month while the iShares Nasdaq biotechnology ETF (IBB) enjoyed its highest day on Wednesday since September. Is this space the next big breakout? According to experts Matt Maley and Ian Somaiya, 2016 might be actually be a lull for the industry.

Brent Saunders, president and CEO of Allergan.
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"A lot of this had to do with the Allergan-Pfizer deal falling down and the Allergan CEO talking about other purchases they might make," Maley, an equity strategist at Miller Tabak, said Thursday on CNBC's "Power Lunch."

Analysts also have been looking at the effect the past five election cycles have had on biotech, according to Somaiya, an analyst at BMO.

"If you go back to the 2008 election cycle when health-care reform was such a hot topic and, obviously the follow-through was Obamacare, the group did underperform and it was probably the worst period for the Nasdaq biotech index," he said on "Power Lunch."

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Now, Somaiya says biotech is even underperforming more than it was in 2008.

"The reason for that is the focus is no longer health-care reform, it's on pricing reform and that is specific to the drug and biotech industry," he said. "We do expect the group to continue to be volatile."

However, he also said that the rate of innovation in small, mid-cap biotech companies hasn't changed. It's the slowing pace of new product approvals, especially in 2016. However, as we move into 2017, data from clinical trials that will preview new product launches in the next two years.

Kenneth Frazier, CEO of Merck.
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"Let's face it," Maley said, "the overall market's done nothing for 18 months so it's a stock picker's and a group picker's market. If that looks like it's breaking out, it'll attract a lot of money from the sidelines."