An audible sigh of relief was heard on Wednesday morning that, at last, the U.S. 2016 election is over. In the end, in what was an oft-controversial, hot-tempered and at times bewildering contest between two bitter rivals--and in what 18 months ago seemed impossible--Republican Donald Trump became the president-elect of the United States.
This has been a result that few had predicted from biotech, and Democratic nominee Hillary Clinton, the former First Lady who had been seeking to become the first female POTUS, had by far the most financial backing from the industry leading up to the election--with Trump having almost no financial support.
In the days leading up to the vote, and coming after the FBI said over the weekend that there was “no evidence of criminality” from their latest search of Clinton’s emails, a Clinton victory had seemed more likely.
The polls have been close for months, narrowing in recent weeks to just one or two percentage points between Clinton and Trump, but there was a notable bounce after the FBI announcement, which renewed belief from the markets that Clinton would win--something that helped strengthen the dollar against the euro on Monday.
The day before the election also saw the Nasdaq Biotechnology Index ($IBB) and S&P Biotech ($XBI) up 3.7% and 4.5% respectively partly on this belief, after the downward spiral of October. Nervousness started to creep in on Election Day, however, with both down by around 1% first thing, although it rebounded in the afternoon to go back into the green.
Both were however up by around 9% on the day, also being boosted by early results from California's Prop 61 that indicate voters have rejected plans to lower drug prices.
European biopharma stocks also surged, with a mixed picture for what this will mean. Many had believed a Clinton victory by a small margin would be the best case scenario for biotech stocks, given her desire to punish high drug prices--but many are seemingly betting that Trump, and the Republican party, won’t push as hard on this issue.
Jefferies analysts said U.S. pricing pressure and political reform "would remain a concern," but Trump's win would be a relief for investors worried about a sea change in the U.S. system, which could have seen greater price controls from a Clinton administration.
But volatility was hitting global markets first thing, which doesn’t like the unexpected, and turns on its head all received wisdom on politics. As the numbers came in after midnight Wednesday morning, and a Trump victory became a growing reality, stock markets plunged as Japan's Nikkei slumped by 6% and in Hong Kong, the Hang Seng was off by 3%.
The U.S. dollar also sank while the Mexican peso plummeted by 13% to a record low. In London, the futures market fell more than 4% ahead of the stock market open, while crude oil also plunged.
Kathleen Brooks, research director at City Index, told Sky News that investors were facing a "triple whammy" with the Republicans taking control of the U.S. Senate and House of Representatives, as well as the White House.
“A Republican Congress could deliver some of the more extreme policies that Trump has touted during his campaign, such as import tariffs and a ban on certain immigrant groups.
“This is a major concern for the markets, as it could completely change not just US politics, but also the global economic norm.”
However, many started to rebound later in the day, including the S&P 500, the Dow Jones Industrial Average, and the Nasdaq. European stocks were also trading higher, following on from losses earlier in the trading session.
But Jack Ablin, chief investment officer at BMO Private Bank in Chicago, told Reuters that U.S. stocks could drop as much as 10% over the next 10 sessions in a Trump presidency.
"We think the stock market sell-off will be short lived," Deutsche Bank analysts wrote in a note to clients. "This apparent Republican sweep is positive for the broad market and especially healthcare stocks."
The long-term trouble with Trump is that, fundamentally, he was an unknown to the market--an outsider who was unpredictable, and with future policy plans seemingly susceptible to change.
Trump’s health plans have publicly at least centered around his desire to rip up Obamacare “on day one,” whereas Clinton was set to expand the program. Adam Feuerstein, a columnist at TheStreet, said on Twitter: “A Republican WH and Congress repeals Obamacare, which is bad for drug sales, forget about prices.”
It remains to be seen just how this would happen, and whether Trump would still have the appetite for such a massive untangling on an integrated process, but his supporters may push for this regardless.
But, like Clinton, Trump has also argued against high drug prices, and described former specialty pharma CEO Martin Shkreli, who upped the price of his company’s med by 5,000%, as “a spoiled brat.” He’s even argued that politicians are “beholden to the pharma industry” and are therefore unlikely to tackle these sorts of hikes.
Trump was also in favor of allowing Medicare to negotiate drug prices--something that has also been endorsed by Clinton--as well as allow the sale of health insurance across state lines. The former could prove a major headache for biopharma, and the legislative battlefield ahead will rely on strong support from both chambers.
This support could also prove influential on the 21st Century Cures Act, which would clear some new, faster pathways for drug development--and is unsurprisingly backed by the industry.
The bill’s aim is to involve patients more than ever before, notably their medical experiences, which includes gathering patient data and leaning more on the burden of disease.
The biggest financial implication is the several billion extra dollars earmarked to be pumped into the NIH and clinical research, with the bill promising an additional $2 billion per year for five years to create an “NIH Innovation Fund” and $550 million also coming in added funding to the FDA over the same period. This funding has however irked some Republicans who dislike high government expenditure.
There are some controversial elements, such as increasing the use of surrogate markers for disease to approve drugs. Fundamentally, the problem is that a marker may not turn out to have been as reliable as needed, and many meds, such as those in oncology, can be approved on a surrogate marker that end up not providing clinical or survival benefit in the real world.
Speed does not always equate with quality, and getting more meds onto the market more quickly worries many, including those in the FDA--but it is something broadly popular with the American public, who intrinsically want the latest drugs available as soon as possible. Fears remain that this could dampen regulatory rigor on evidence, lowering the burden of proof and lead to drugs and medical devices to be sold with less evidence than ever before.
The bill is still to be passed, but a Republican-leaning Congress is generally thought to make this more likely to happen, given that they tend to favor legislation that can help business.
Democrats have recently pledged not to pass it without the kind of drug-pricing action it’s outlined attached to the bill.
Congress should get back to work next Monday, and this bill has been touted as one of its top priorities. It passed with relative ease in the House last year.
Perhaps the biotech bounce is so surprising: Clinton has remained a concern for biopharma, given that she openly “declared war” on pharma pricing last year and has, along with Democrat (and failed presidential hopeful) Sen. Bernie Sanders, shaken stocks with their tweets denouncing “price gouging” from the industry.
She had also come under fire from Ian Read, chief of Pfizer ($PFE), for some of her plans to lower drug prices, with the U.S. giant’s leading man saying back in September at the Wells Fargo Healthcare Conference that her broader plan to lower drug prices “will be very negative for innovation.”