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Healthcare industry fighting fit after Trump win

Healthcare industry fighting fit after Trump win

During her presidential campaign, Democrat nominee Hillary Clinton made several comments about drug pricing in the US, which had a significant impact on stock prices in the market.

Now that Donald Trump has been declared President-Elect of the United States, what effect will his victory have on the healthcare market?

Citywire Selector canvassed leading managers to see what was the prognosis for healthcare and whether the pricing question is still on the (operating) table.

Clear winners

Rudi Van den Eynde, who manages the Candriam Equities B Global Health Care fund, said Trump's win is positive for the industry. He does not believe the retraction of Obamacare would have a major impact on the biotechnology sector.

A Republican sweep offers greater power to this party and the caveat is that Trump’s ultimate policies are not exactly carved in stone, but the worst case scenario for the drugs industry of a Democrat sweep is clearly off the table

The only clear policy towards drug pricing seems the push towards more importation of drugs from other countries as prices are lower OUS-in practice, the FDA has been blocking this in the past while drug companies can counter this by limiting and monitoring supply towards other countries.

The Republican Party clearly sides with the pharma industry and favours innovation and the strong international competitiveness of the US drug industry over other considerations

Despite probably being lost in translation, yesterday California voted on the so called Proposition 61, which would have put pressure on drug pricing, and voted against this proposition- this is a major positive.

Obamacare might be repealed (if legally do-able) but this does not have a major impact on the biotechnology sector. It would be very negative for hospital stocks and some selected health insurers but we obviously are not invested in them.

Pro innovation

David Pinniger, who manages the Polar Capital Biotechnology fund, did not anticipate a Trump win but said it is a positive for healthcare. He will not make any major changes to the fund and is currently positioned for a relief rally.

It is a massive positive for healthcare - it is huge. Given the sentiment overhang on all of healthcare, particularly pharma and biotech stocks in the past 12 months or so we think healthcare particularly healthcare and biotech stocks could bounce significantly on the back of this over the next  few weeks.

A Hillary victory would be an agenda for the next four years where you would have seen a lot of heightened scrutiny over pricing practices, behaviour of drug companies etc. All of that has been taken off the table now. Trump is President Elect, Republicans have retained convincing control of both the House of the Representatives and the Senate, so that agenda is gone, it’s finished.

The Proposition 61 ballot, where there is this proposal that the state would pay VA [Veterans' Association] prices for drugs rather than relatively higher prices than they currently pay, that was voted against. Which is an incremental positive but it also takes off the table the probability that states could follow California's lead to try and drag down drug prices over time.

The Republicans are very pro-innovation, they are behind private sector solutions. Aside from Trump, we are very much focused on what Paul Ryan, the leader of the house of representatives, said about healthcare and how to move forward with healthcare.

If you read through his agenda items from earlier this year, he was very constructive when it came to the biopharma industry, wanting to put in place a lot of support for early stage research and for biomedical innovation to drive patient choice and progress.

Increased M&A

The Citywire A-rated Christophe Eggmann who manages the Julius Baer EF Health Innovation fund, expects the market to react positively. He thinks merger activity in the sector could rise.

The outcome of the US elections could not have been more positive for drug companies. The clean republican sweep may spell trouble for Obamacare but democratic proposals to curb drug pricing are off the table. In addition, voters in California rejected a contentious initiative aimed at lowering the price of drugs paid by California state entities. This is another positive for sentiment, and we expect the market to react very positively.

The sector is trading with a 10% discount to the overall market, the highest discount in five years, and biotechnology is trading at record low multiples. We expect the outcome of the election to help the case for a re-rating of the sector sooner rather than later. Also we expect M&A activity to pick up in the next months helped by the quest for growth, large cash balances and the prospect of corporate tax reform in the US including a repatriation bill targeted at offshore assets.

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