Biotech Downturn Underscored By Lack Of New Drug Approvals

Following the astronomical gains of the previous several years, the biotech industry was hammered in 2016. Behind the decline was a huge downturn in the approval of new medicines.

The U.S. Food and Drug Administration allowed only 22 new drugs to market last year, less than half of the 45 it approved a year earlier. 2016’s total marked the lowest number since 2010.

The reasons behind the downturn were varied, according to Reuters:

Several factors led to the fall in the approval rate in 2016, John Jenkins, the FDA’s director of the office of new drugs, told a conference last month.

Notably, five new drugs that had been scheduled for approval in 2016 ended up winning an early green light at the end of 2015. There was also a decline in drugs being filed for approval and the FDA rejected or delayed more applications in 2016 than in the previous two years.

It’s becoming more difficult to get regulatory approval for new treatments, and perhaps more importantly, harder for drugmakers to earn a decent return on the sizable investment of developing the drugs. President-elect Donald Trump has vowed to help bring drug prices down, which will further hamper the all-important big margins that pharma companies have traditionally counted on.

While a handful of major drugs seem to be on the verge of approval in 2017, the astronomical gains the industry saw in 2014 and 2015 are probably gone for good. Expect biotechs to see a lot more sideways-to-down action for 2017 as a result.

iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) closed at $265.38 on Friday, down $1.73 (-0.65%). In 2016, IBB declined -21.47%, versus a 10.78% rise in the benchmark S&P 500 index during the same period.

IBB currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #18 of 36 ETFs in the Health & Biotech ETFs category.

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