It’s been a particularly good week for companies developing new drugs.
While other parts of the healthcare industry are down amid Obamacare uncertainty, the biotechnology index is up 13.3% the week of the election. Biotech investors had been skittish about what a Clinton presidency would mean for regulation of drug development and pricing, and she often sent drugmakers’ stocks falling with her comments.
The biotech and pharma rally benefitted John Paulson, one of Trump’s economic advisers. On Wednesday, Paulson’s hedge fund Paulson & Co. made $463 million, largely due to the fund’s pharmaceutical investments.
Over the week, the drug industry has gotten clues about what President-elect Donald Trump’s administration would be like, namely that there could be an emphasis on reforming the Food and Drug Administration to get more new drugs approved, at a faster pace.
Here’s what Trump’s transition team has said about drug development and regulation:
- “Advance research and development in healthcare
- Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products”
It’s not much to go off of — two of just six bullet points under the healthcare agenda — but it noticeably doesn’t bring up drug pricing, which was central to former Democratic presidential candidate Hillary Clinton’s platform. And a push to get more drugs approved is good news for biotech investors that want to see their investments get approved and on the market.
Beyond drug-pricing pressure being removed, analysts seem to be anticipating more mergers and acquisitions in the pharma industry. Corporate tax reform, another part of Trump’s platform, could free up more cash to spend on deals.
“Given that many BioPharma companies are looking for inorganic growth to drive new topline growth, the increased access to cash could potentially drive a new wave of pipeline acquisitions,” Morgan Stanley analysts wrote in a note Thursday.
But, to be sure, the drug-pricing pressure won’t entirely go away, as Morgan Stanley also noted Thursday. Competition among drugs that have come under pricing criticism — such as diabetes medications, multiple sclerosis drugs, and drugs to treat autoimmune diseases — still has the potential to drive down prices.
“We highlight these trends not to throw cold water on the relief rally for the sector, but rather to highlight that there remains a balance with respect to pricing power and investor expectations.”