Biotech investors live on their nerves these days and it doesn't take much for them to head for the hills on any negative news. Recall a tweet last September from presidential candidate Hillary Clinton, which essentially said she would take on the issue of rising drug prices. That served to tank the biotech sector, which lost more than 5 percent in value in one day. Although it took a couple of months, the industry did recover and get back to its original pre-tweet level.

Well, it was déjà vu all over again, and this time it was President-elect Donald Trump causing the sector to swoon. At his press conference earlier this month he singled out drug developers as "getting away with murder." He was referencing the fact that drugs aren't manufactured here, and he said that the drug industry has to return to the U.S. "Our drug industry has been disastrous. They're leaving left and right. They supply our drugs, but they don't make them here."

Sure enough, those words were enough to put the industry into freefall and add further clouds over the ongoing 35th annual J.P. Morgan Healthcare conference in a windy and wet San Francisco.

However, despite sensitivity over drug pricing, it didn't take the industry as long this time to begin to show signs of recovery from Trump's statement, which caused a one-day 3 percent and 4 percent drop in value of the BioWorld Biopharmaceutical Index and the BioWorld Drug Developers Index, respectively. (See the BioWorld Biopharmaceutical Index and BioWorld Drug Developers Index, below.)

The slump was short-lived due in part to the fact that "informed" investors are still sticking with the sector and believe that the fundamentals of the group remain strong. The generalist investors, by and large, have been sitting on the sidelines for some time now due to biopharma's terrible performance in 2016, and so there wasn't a mass exodus from the space this time as we saw last time.

Weathering the storm

Although delegates to the JPM and Biotech Showcase meetings had to protect themselves from the relentless rain each day, the miserable conditions didn't serve to sour their overall mood, which was, in the main, pensive and hopeful that 2017 would turn out to be much better than last year. The sector still has a steep hill to climb and needs to grow about 20 percent in value just to recover the losses it sustained on the markets last year.

Biotech executives and analysts alike are not expecting such a significant uptick in the industry's fortunes but believe they will have a slightly better year. Uncertainty still pervades the sector. On one hand, the hope is that the new administration will implement corporate tax reform, including the ability for biopharma companies to repatriate their offshore cash. If that transpires, the consensus is that we will see M&A transactions increase and it will help attract investors back into biotech. The positive scenario is tempered by lingering drug pricing issues, which, judging from Trump's comments, will not be resolved anytime soon.

J.P. Morgan analyst Cory Kasimov in a review on the prospects for the sector this year said, "We are cautiously optimistic about the group heading into 2017." He said he believes there will be "a gradual shift back to company fundamentals, which remain strong overall, and a stable (potentially improving) regulatory environment."

In its Biopharmaceutical Industry Outlook for 2017, Rodman & Renshaw, a unit of H.C. Wainwright & Co., also sees a comeback for the biopharmaceutical sector but cautions investors over the legislative agenda of the incoming administration, which could have unforeseen consequences for the drug industry, and on perspectives for pharmaceutical M&A. In their view, "the valuations of potential M&A targets may prove too rich for many of these transactions to be consummated. In addition, pharma M&A activity has been at all-time highs for several years, and the emergence of various external factors (e.g., anti-inversion rules by the Treasury Department, uncertainty over the fate of the Affordable Care Act) may cause some companies to place their expansion plans on hold for now." That could obviously change if tax changes do come into being.

The report notes that the passage of the 21st Century Cures Act will provide "a much-needed shot in the arm for the biopharmaceutical industry."

Moving the needle

At the JPM meeting, biopharma's elite companies had a chance to impress investors as they outlined their plans for 2017. At the start of the event, it looked as though this would happen with Celgene Corp. setting the right tone, as the Summit, N.J.-based company raised revenue forecasts for this year. (See BioWorld Today, Jan. 10, 2017.)

The company also released preliminary revenue and financial guidance, maintaining its 2020 revenue target of exceeding $21 billion.

However, the buzz didn't materialize. The presentations from the top two companies by market cap, Amgen Inc. and Gilead Sciences Inc., didn't move the excitement needle as far as delegates were concerned, even though Amgen did announce a potential $1 billion deal with Immatics Biotechnologies GmbH, which is getting $30 million up front and could earn more than $1 billion in development, regulatory and commercial milestones from an immuno-oncology alliance focused on developing two bispecific T-cell engager molecules that target intracellular tumor-associated peptide (Tumap) antigens. (See BioWorld Today, Jan. 10, 2017.)

The aim of the alliance is to develop bispecific Bite molecules comprising an affinity matured TCR and a CD3 binder, which direct a T-cell response against defined Tumaps presented in complex with a human leukocyte antigen.

Reflective of the low-key presentations by most of biotech's blue chip companies, their overall share price performances for the JPM week wasn't great: Amgen (NASDAQ:AMGN) -1.7 percent; Gilead (NASDAQ:GILD) -3.6 percent; Celgene (NASDAQ:CELG) -2.2 percent; Biogen Inc. (NASDAQ:BIIB) -4.8 percent; and Regeneron Pharmaceuticals Inc. (NASDAQ:REGN) 3.7 percent. As a result, the BioWorld Biopharmaceutical Index closed out the five-day trading period on Jan. 13 down 1.5 percent.

Despite the underwhelming effect on stock values from JPM, the biopharma sector has started out the year on a strong note and YTD the index is up 5 percent, well ahead of the general markets with the Nasdaq Composite index up just 2 percent and the Dow Jones Industrial average in negative territory, down almost 0.5 percent.

Certainly a good start, given the Trump turbulence and market uncertainties that have transpired in January. Most analysts seem to agree that to maintain that momentum large biopharmas will need to engage in M&A to support their growth. In addition, innovation is also key to getting the sector back on track. Bringing new medicines across the goal line will go a long way in that respect.

Investors appear to be bullish on drug developers and they will be closely watching for news about the clinical progress of their lead products going forward. That enthusiasm has pushed up the YTD value of the BioWorld Drug Developers Index by 8.2 percent.

RBC Capital Markets analyst Michael Yee said he expects the first half of year to be "choppy" for biotech. Investors will no doubt be watching for how the new administration deals with health care and, in particular, its opening stance on drug pricing. Those policies and rhetoric will set the tone for the sector's prospects for the rest of the year.