Dr Daniel Koller (pictured), lead manager of BB Biotech, writes that Biotech was one of the most widely reported sectors in 2016. Not only did the US election bring turbulence to biotech stocks but 2016 also reminded us of the importance and impact of social media, he says.
When Hilary Clinton tweeted on drug prices being a pillar of her election campaign, big pharma and biotech stocks took a mighty hit, concerned that she would change the way the US prices drugs. Gyrations before and immediately after the US presidential election meant the year closed with large cap biotechnology companies trading near their all-time lows for price/earnings multiples low. Mid-caps and small caps suffered even more. While many broad stockmarket indices extended their 2016 gains in the fourth quarter, the Nasdaq Biotech Index (NBI) lost ground in the same period.
When Donald Trump was revealed as the 45th President of the United States, the sector rallied on relief that drug pricing wasn’t a primary concern of his. But the gains were short lived as Trump went back on his word in an interview with Time magazine where he pledged to cut the cost of prescription drugs. At his first news conference as president-elect Donald Trump accused the pharmaceutical industry of “getting away with murder.” The news caused the iShares NASDAQ Biotechnology Index to close 3 per cent down on the day. Questions regarding the future direction of healthcare policy under the Trump administration are likely to be the greatest factors overhanging the sector.
What is certain is that the healthcare reform introduced by Trump’s predecessor Obama will cease to exist in its current form. Tom Price, the new Health Secretary and an outspoken opponent of Obamacare, will be setting the new agenda for US healthcare policy. Debate is likely to centre on how spending on healthcare is financed in the future. Here it appears that the role of the government will become much smaller, regardless of the shape or form it takes, but policy specifics are still scarce, particularly with regards to drug pricing.
Yet the biotech sector stands to profit from positive signals on the regulatory front. The 21st Century Cures Act passed by Congress in December is a big step in the right direction. Drug payers have been putting more pressure on the prices of newly approved drugs, especially those targeting diseases where the market is big and several products are already available (for example diabetes). That contrasts with the situation in oncology, where drug manufacturers hold the best cards when negotiating prices due to the high level of unmet medical need.
2017 will bring an acceleration of important product approvals and milestone announcements for the industry. At this year’s JP Morgan Healthcare conference, which is always a tone setter for the year ahead, most of the biotech firms were in good spirits. There were positive signals regarding the fundraising climate as well as the sector’s innovative strength.
Reporting season for the past year is now getting under way and most companies should meet expectations. Takeover activity is also expected to see a boost in 2017. With biotechnology valuations at attractive levels, more acquisitions by large players, including pharmaceutical firms, are likely. Actions of the incoming presidential administration in the US may accelerate this trend and we expect investors to follow suit. Repeal and rework of the Affordable Care Act (ACA) will be front and centre throughout the year, and there may be choppy reactions to possible drug price controls or moderation in the US.
Despite these transitional events which will be attentively scrutinised as always, BB Biotech remains convinced that the future of the biotechnology industry is bright. The sector will further demonstrate its strength as a source of innovation – and notwithstanding short-term uncertainties from political changes – we believe these sources will be converted into value for patients, care providers, the healthcare system at large and, of course, investors. BB Biotech looks forward to an exciting 2017 and remains dedicated to finding, analysing and investing in leading-edge biotechnology firms with exciting news flow and robust growth prospects.
