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iShares NASDAQ Biotechnology Index (ETF) (IBB): Can Biotech’s Trump Bump Last?

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In the weeks since Donald Trump’s presidential election victory, the stock markets have ridden a wave into positive—and in the case of the Dow, record-breaking—territory. The so-called Trump Bump also sent biotech indices, flaccid for much of the year, up as much as 15%. With the election now nearly a month old, and hot-button issues such as drug pricing still in the press, industry watchers have begun to weigh in on what might happen in the biotech and pharma markets when Trump takes office.

Biotech stocks began their sharp climbs immediately after the elections, with the NASDAQ Biotechnology Index climbing from the ~2,600 level to more than 3,000; it has since slid back into the ~2,800 range. The Life Sciences Report’s 2016 Small-Cap Biotech Watchlist also surged, nibbling at positive territory before dropping to below breakeven as of Dec. 1.

As the Trump transition has progressed, experts have weighed in on what might have provoked the bump in biotech and pharma stocks, and what companies and their investors might expect going forward.

In an article for the Motley Fool published on Nov. 15, writer Cory Renauer cited several factors contributing to the biotech and pharma market boost. First, Hillary Clinton’s defeat removed the immediate threat of government-imposed regulation of drug pricing. In addition, Trump’s promise to go after the Affordable Care Act “with a sledgehammer” diverts attention away from drug pricing controversies.

Trump has also pledged to bring drug company profits stashed overseas back to the States. “If successful, the president-elect’s plan to enact a one-time tax rate of just 10% on the repatriation of foreign profits could result in a nearly $100 billion U.S. drugmaker cash infusion,” the Fool article states.

In addition, one of Trump’s healthcare initiatives, as stated on his transition website, is to “reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products.” Though this mandate is “vague,” the Fool article notes this could result in faster approvals for orphan drugs and generics.

FDA reform also carries risk, however. “Encouraging emotional patient advocates to force approvals for experimental drugs that haven’t been proved safe and effective could put lives at risk, but it could also lower pre-approval development expenses. If the Trump administration takes clear steps in this direction, however misguided, it would continue lifting stock prices of biotechs developing rare-disease treatments,” the article states.

Writing for Bloomberg, columnist Max Nisen noted on Nov. 22 that the jump in market values would enable companies to more easily access equity funding. But he advised taking advantage of the opening in the “fundraising window” quickly, because though “there’s currently a market consensus Donald Trump’s administration will be friendly to biotech, but there’s no guarantee that feeling, or Trump’s amity, will last.”

Nisen also observed that biotech markets “have been unable to sustain a rally for any length of time this year, and the Trump Bump might be no different.”

An article published by Reuters on Nov. 10 noted Trump’s election could also lead to “an uptick in biotech M&A.”

The article cites a “potential influx of foreign cash and improved stock valuations under the Trump administration” that could not only spark acquisition, but also “throw a lifeline to smaller biotech firms, which on average have only 11 months of cash left to finance their research, according to Thomson Reuters data, and have been hesitant to try to raise money during a weak equities market.”

In an interview published on Nov. 22 in BioTuesdays, Jason Kolbert, senior biotechnology analyst with the Maxim Group, said Trump’s “pro-business” mindset could be positive for biotech markets.

“In a Trump presidency, biotech and pharma industries should benefit and there is reason to believe that valuations will rally,” Kolbert told the online publication. “We expect the outcome of this election to have a lasting impact on valuations and innovations, with things like R&D tax credits having an important long-term impact on company pipelines and productivity.”