Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Stop me if you've heard this one before: The Nasdaq Biotech Index took a dive on Tuesday, likely driven -- yet again -- by fears of lower drug prices.

The latest delivery system for these fears was a late-arriving feature of Obamacare: According to the law, rising Medicare spending can trigger the creation of something called the Independent Payment Advisory Board (IPAB) -- a group of 15 people tasked with figuring out ways to cut spending in the program (including drug costs).

There was a chance that trigger would be announced by Medicare's Board of Trustees on Wednesday, inspiring the drop in the NBI. But the industry got a reprieve. The trustees said IPAB is a no-go until next year, at least, and biotechs regained some of Tuesday's losses. 

But the fact that such a selloff could be provoked by mere portents of IPAB --  a panel that likely wouldn't have impacted prices until at least 2019, if at all -- says a lot about how scared biotech investors remain. There's a sense of relief on Wednesday, but lasting cheer will take something meatier.

Biotech stocks sold off Tuesday on worries a federal panel might cut Medicare reimbursement. A reprieve Wednesday sent them spiking
Source: Bloomberg

To date, most of the market's drug-pricing scares have been just that: scares.

The infamous (in health-care circles, anyway) Hillary Clinton drug-pricing tweet that crushed biotech shares last September was about attitude, not policy. Her actual stated proposals -- which include letting Medicare negotiate drug prices with manufacturers -- wouldn't be great for the industry. But campaign promises have a way of being softened or erased by the reality of governing.

Presumptive GOP nominee Donald Trump is surprisingly tough on drug prices. But his plans are mathematically incoherent and increasingly unlikely to get within bloviating distance of the White House.

Cost-cutting experiments in Medicare Part B proposed earlier this year scare the industry, but may never be implemented in their strongest form. 

It's easy, especially after Wednesday's news, to look at the IPAB threat through a similarly skeptical lens. Any future panel would likely have a hard time making real policy changes. In a research note, RBC analyst Michael Yee predicted the panel's actions likely wouldn't have much more than a 1 to 2 percent negative impact on large-cap biotech revenues.  

But such reassurances haven't resonated with investors. Forward P/E ratios in biotech remain deeply depressed. Mature companies such as Amgen, Biogen, and Gilead have been hit particularly hard. 

Forward P/E ratios for biotech firms are near seven year lows.
Bloomberg Intelligence
Blended 12 month forward P/E

Tuesday's selloff wasn't just about a few hundred million in lost revenue in 2019 and beyond. It was also a collective complaint about the constant scrutiny drug prices face. It was about public and private efforts to cut drug spending. And it was about the potential for sluggish launches of expensive new drugs -- with sales crimped by finicky insurers and other payers -- to become a new and unpleasant norm. A year's delay of one avenue for pricing pressure doesn't mean bad pricing news is off the table. 

A sustained biotech rally will take the industry delivering positive news on innovative drugs (in short supply lately), good earnings results, and some M&A. Without that, it will be easy for every bit of pricing news to keep whipsawing the entire sector. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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