Stocks opened the second quarter with a broad-based decline on Monday as trade concerns and weakness in tech shares roiled the markets. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) recovered from their lowest points toward the end of the day, but still closed down significantly.
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All sectors lost ground, but consumer and biotech stocks were hit particularly hard. The Consumer Discretionary Select SPDR ETF (NYSEMKT:XLY) fell 2.8% and the iShares NASDAQ Biotechnology ETF (NASDAQ:IBB) dropped 4%.
As for individual stocks, investors digested reports that Humana (NYSE:HUM) and Walmart (NYSE:WMT) were in merger talks, and Alkermes (NASDAQ:ALKS) tumbled after the Food and Drug Administration (FDA) kicked back a drug application.
Investors ponder talks between Humana and Walmart
Shares of Humana jumped 4.4% in the first day of trading since news reports emerged last week that the company was in talks with Walmart that could end in a merger between the companies. Walmart stock tumbled 3.8% on the news.
The Wall Street Journal reported Thursday evening that the two companies were in the early stages of acquisition talks, according to people familiar with the matter. Should a deal emerge from the discussions, the purchase of $39 billion Humana would make the retailer one of the country's biggest health insurers, and could help it expand its pharmacies to provide a range of healthcare services. Such an agreement would be the latest in a series of moves by healthcare companies to consolidate, and would mirror CVS Health's $77 billion deal to acquire Aetna announced last December.
A buyout is not the only possible move that could come from the talks. Bloomberg reported on Friday that the companies are exploring a closer partnership to provide healthcare to consumers at home, and that "an outright combination isn't likely." An acquisition of that size could be a challenge for Walmart, which has been investing in online selling to fend off the competitive challenge from Amazon. Neither company has commented on the reports of talks.
Whatever the eventual outcome, the discussions are further evidence that competitive forces are reshaping the industry, bringing together insurers, pharmacy benefit managers, and retail pharmacy chains that have the physical presence to enable more clinical care options for patients.
Alkermes gets some bad news from the FDA
Shares of mid-cap biotech Alkermes plunged 22% after the company reported that the FDA refused to accept its application for a new depression drug without further clinical data to prove the drug's effectiveness.
The drug in question, ALKS 5461, is a once-daily oral medicine to treat major depressive disorder (MDD) "in patients with an inadequate response to standard antidepressant therapies." Alkermes submitted a New Drug Application (NDA) on Jan. 31, but the FDA has responded that it is unable to complete the review based on the data submitted, and "additional well-controlled clinical trials are needed prior to the resubmission of the NDA."
"We strongly believe that the clinical development program, including data from more than 1,500 patients with MDD, provides substantial evidence of ALKS 5461's consistent antidepressant activity and a favorable benefit-risk profile," said CEO Richard Pops in the press release.
Investors had given up on the drug early in 2016 after it had failed to meet endpoints in two phase 3 clinical trials, but success in a later trial led the company to be very optimistic about approval, planning to increase its sales force by 74% this year in anticipation.* Alkermes will appeal the decision, but the setback will certainly affect 2018 results and may have caused management to lose some credibility with investors.
*Editor's note: A previous version of this article said the sales force would more than double. We regret the error.