November 9, 2017
BioInvest News â Biotech Sector â Trump Victory Brings V-Shaped Reaction âThe immediate reaction of a widely unexpected Republican sweep was a huge across the board rally in health care stocks. While it is still very early make definitive conclusions, several positive impacts have resulted in a major reversal of sentiment. Todayâs impressive rally (NBI +8%) is a likelihood of some combination of the following macro fundamental and technical changes that are expected to occur with a new, right leaning administration. In a sector that has been painfully beaten down repeatedly since the original Hillary tweet in September 2015, the clouds are lifting. It may just be the beginning of a new regime although at the end of the day, as we know the best outcome is often statistically significant clinical trials that lead to commercially successful, life improving and/or saving, new drugs. Just like we were stuck over the past 15 months ago, these too are unchartered waters, only this time in the right direction.
- Price Control Pressure Will Lessen
- Prop 61 in California Defeated
- No runaway but normal drug price increases
- The end of ObamaCare, as it is today, is likely
- Repatriation Of Pharma/Bio Cash May Bring ~$100 Billion Back Home
- Fund Flows May Reverse â
- Sideline money put to work
- Generalists, shift back to health care
- Stocks Are Still Cheap
- P/Es (15x Big Bio ex GILD) and dividends (3-4% for Big Pharma)
- Small caps â most are still undervalued orphans
- Technicals Flip In Favor
- Indices back above support
- Long-term charts need to be intact
Conclusion â The Perfect Storm In Reverse
The level of anxiety for the future of the biopharmaceutical sector peaked in October and early November, and the Trump victory has resulted in a major reversal of fortune in a broadly positive way. There are still many issues to be resolved with drug pricing, the overall cost of health care, changes to ObamaCare, etc. Nonetheless, the sharply improved sentiment is a welcome change and likely to create a more constructive investment landscape for biotech stocks going forward.