What a turn of events! Now that Donald Trump has been given the keys to the White House following what turned out to be a close presidential election race – combined with the return of another Republican-controlled congress – the results of the presidential race have turned out to be a much needed tonic for an ailing biopharmaceutical sector that was expecting a much different outcome in Washington last week.
The industry uttered a collective sigh of relief because they now believe the thorny issue of drug price scrutiny, which has depressed the valuations of biotech companies for most of the year, will likely fade into a distant memory for the time being.
While president-elect Trump certainly has the issue of drug pricing on his agenda, it is not high on his list of priorities as it was for Hillary Clinton; a factor not lost on investors who were quick to get back on board the biopharma train. Consequently, the day after the election result the BioWorld Biopharmaceutical index shot up 9 percent in value while the Dow Jones Industrial Average and the Nasdaq Composite index, in comparison, only eked out a 1 percent gain, respectively. (See BioWorld Biopharmaceutical Index 2016, below.)
All of the group members experienced significant gains. Amgen Inc. (NASDAQ:AMGEN) and Gilead Sciences Inc. (NADAQ:GILD) saw their shares grow over 5 percent in just one day, and this was enough for Gilead to regain its membership in the exclusive $100 billion market cap club. Also, the company reported that Vemlidy (tenofovir alafenamide) had received FDA approval for the treatment of adults with chronic hepatitis B virus (HBV) infection with compensated liver disease. (See BioWorld Today, Nov. 11, 2016.)
Summit, N.J.-based Celgene Corp. is also closing in on becoming a third member of the $100 billion market cap club, thanks to an almost 11 percent hike in its share value. At the close of the trading session on Thursday they stood at $121.06 representing a market cap of approximately $94 billion.
Another big gainer on the day was Regeneron Pharmaceuticals Inc. whose shares (NASDAQ:REGN) jumped about 14 percent in heavy volume with 3 million shares being traded – 4 times greater than the three-month average for this equity. The bump in value was enough to regain the value they had lost during a tough October for the company.
Earlier in November it had reported an overall positive third quarter with sales of Eylea (aflibercept) for age-related macular degeneration, macular edema following retinal vein occlusion, and diabetic macular edema, increasing by 16 percent.
Investors also piled on big pharma companies with Pfizer Inc. leading the way with its shares seeing a 6 percent increase in value reversing the same magnitude of decline they experienced in October.
One day wonder
The question for the sector is whether this return to favor with investors will last? Consensus is that it will. J.P. Morgan Securities LLC analyst Cory Kasimov noted, for example, that, "On paper, this appears to be a favorable outcome for the biotech sector – a view expressed by a number of analysts.
In fact, there is certainly cause for optimism as the stated policies, although thin on actual details, such reforms to the health care system (Obamacare in particular), rewriting the tax codes, and a business friendly administration all point to better times ahead for the biopharma sector.
Certainly, Republican policies on tax reforms if implemented will certainly boost the potential fortunes of the sector. In particular, repatriation of funds held offshore. The thought of companies being allowed to repatriate their foreign-based cash at favorable taxation rates has been a taboo subject for many years, but it is now back on the political agenda.
Such a tax holiday could do wonders for the biopharmaceutical sector, which was similarly buoyed by a repatriation holiday back in 2004, where companies were allowed to bring cash back into the U.S. at an effective tax rate of 5.25 percent. This time around Mr. Trump has indicated that he supports a 10 percent tax rate for a repatriation of off-shore cash.
According to Jefferies analyst Tom Tarrant, the potential tax repatriation could bring M&A back "into focus and benefit biotech and would increase large-cap company flexibility and facilitate U.S. small/mid-cap biotech acquisitions."
It has been estimated that biopharmaceutical companies are sitting on a combined total of close to $100 billion that they could potentially bring home and put to work. In a recent research note Piper Jaffray's Joshua Schimmer indicated that Amgen and Gilead hold the most cash overseas with over $30 billion and $20 billion, respectively.
Investors have been vocal in their concerns that Gilead has been slow to pull the deal-making trigger; access to offshore cash may change their thinking. It is not a secret that, like Gilead, a number of other blue-chip biopharma companies are looking to drive new top-line growth. Their access to cash at reasonable rates will certainly spark an increased wave of pipeline acquisitions.
Biotech executives will no doubt be busy in the next few months as they contemplate their next moves given the unfolding new political environment. Expect to see an uptick in M&A activity pre- and post J.P. Morgan healthcare conference in January.
The mood at the rapidly approaching annual San Francisco event will now be positive and it will be interesting to gauge how the sector looks at their prospects for 2017.
While there are still some unknowns, the year ahead will be smooth sailing compared to the rough waters that the sector has had to experience in 2016.