Trump's Activism on Drug Pricing May Help Biotechnology
This is kind of a hard statement to believe in, and may even appear counter-intuitive.
But perhaps, Trump can be that catalyst which spurs M&A activity in Biotechnology and provides a support to valuations.
We suspect that Trump's tweets and a monthly dose of diatribe on the pharmaceutical industry can exert sufficient public pressure to begin pushing the large pharmaceuticals to shift more towards innovation, and away from relying significantly on price increases. This shift, we strongly believe, can spur the pharmaceuticals to accelerate their M&A activity, which despite much hope was fairly dormant last year. There are programs at Biotechs that have advanced over 2016 without much reflection in the valuations. In addition, the Biotechnology sector as a whole corrected over 21%, as represented by Biotech ETF (NASDAQ:IBB), in 2016, thus becoming more attractive for acquisitions. This contrasts with a relatively much better performance of the broader healthcare sector, represented by healthcare ETF (NYSEARCA:XLV), which declined only -4% last year.
So in addition to all the other reasons that are guiding towards a more active M&A season in 2017, as pointed in Biotech Bonanza - 5 Reasons For Biotech Stocks To Shine, we now have another reason:
Mr. Trump himself. Can Trump be the catalyst that spurs M&A in an already favorable environment for consolidation? We believe so.
http://seekingalpha.com/article/4038934-biotechnology-can-trump-catalyst