Trump Victory Brings V-Shaped Reaction (11-9-16)

November 9, 2017

BioInvest News – Biotech Sector – Trump Victory Brings V-Shaped Reaction –The 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. Today’s 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.

Election Chart 2016

  1. Price Control Pressure Will Lessen
    1. Prop 61 in California Defeated
    2. No runaway but normal drug price increases
    3. The end of ObamaCare, as it is today, is likely
  1. Repatriation Of Pharma/Bio Cash May Bring ~$100 Billion Back Home
    1. Global M&A likely to resume
    2. MTSL Targets We Believe – IONS, INCY, ACAD, MDCO
  1. Fund Flows May Reverse –
    1. Sideline money put to work
    2. Generalists, shift back to health care
  1. Stocks Are Still Cheap
    1. P/Es (15x Big Bio ex GILD) and dividends (3-4% for Big Pharma)
    2. Small caps – most are still undervalued orphans
  1. Technicals Flip In Favor
    1. Indices back above support
    2. Long-term charts need to be intact

Election Chart 2

Conclusion – 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.