Biotech, Health Care ETFs Fall for Third Straight Day

Biotech stocks continued a rough week on Wednesday, with the iShares Nasdaq Biotechnology Fund ($IBB) down more than 2.5 percent in early trading, and off by almost 9 percent since Monday. This dip comes a very strong year, with the iShares fund up almost 55 percent prior to Monday.

Health Care Stocks Falling

It’s possible that the plunging ETF is a sign that investors are profit-taking from one of the best performing segments of the health care industry ahead of the potential sell-off coming because of the government shut-down and debt-ceiling fight. It’s also possible that investors watching the across-the-board spike in biotech stocks this year are concerned that the industry as a whole is currently over-valued. On the whole, the market is entering a risk-off environment that appears to be hurting biotech companies.

Among Wednesday’s big biotech losers were Ariad Pharmaceuticals (ARIA) losing over 65 percent, Puma Biotechnology (PBYI) plunging over 15 percent, and Acadia Pharmaceuticals (ACAD) dropping almost 11 percent.

Biotech, Health Care ETFs Follow

Regardless of why, ETFs tracking biotech stocks are falling this week, and appear to be dragging down health care ETFs with them. The SPDR S&P Biotech Fund ($XBI) plunged almost 5.5 percent Wednesday, putting it down almost 13 percent this week. The First Trust NYSE Arca Biotchnlgy Index Fund ($FBT) lost over 2.5 percent Wednesday and is down amost 9.5 percent on the week, and the Merrill Lynch Biotech HOLDRS ETF ($BBH) dropped almost 3.5 percent Wednesday and almost 10 percent this week.

Losses among the health care sector were more modest, but still present. Health Care SPDR ($XLV) lost almost 0.25 Wednesday and about 2.75 percent this week, the First Trust Health Care AlphaDEX Fund ($FXH) fell over 1 percent Wednesday and 4.25 percent this week, and the iShares Dow Jones US Healthcare ($IYH) gave back over 0.5 percent Wednesday and 3 percent this week.

Time to Panic?

While the risk-off environment clearly has some biotech investors nervous, Berstein Research’s Geoffrey Porges urged a more measured approach, writing: “While this volatility was alarming for many investors, and reminds us of the traditionally high beta of our sector, there are several reasons why we do not expect this sell-off to mark the end of the near two-year rally in the group.”

He continued, “[The] sell-off in recent days was broad based and…affecting stocks in direct relationship to their volatility and expected duration of negative cash flow. Small and mid cap stocks were most affected (especially post-IPO stocks), and those with major uncertain events looming [Medivation (MDVN) ] or with significant revenue upside already built into valuation [Pharmacyclics (PCYC) ] were among the most severely affected. However, nothing changed in the environment to suggest that those events were any more or less likely to have positive outcomes yesterday, or to suggest that revenue potential was any more or less likely to be achieved than was previously expected."