Biopharma Can't Wait for This Election to End, Either

No matter the outcome, the sector's volatility should fade.

If there's any consensus in America about the 2016 election, it's relief at the prospect of it ending.

No industry agrees more than biopharma; the Nasdaq Biotech Index is down 23 percent year-to-date, and a Bloomberg Intelligence big pharma index is down nearly 11 percent. The election has been marked by persistent criticism of drug pricing, creating a huge amount of volatility and negative sentiment for the sector. The election's end means things might finally start to calm down.   

Annus Horribilis

The 2016 presidential election has not made biotech great again

Source: Bloomberg

Almost regardless of the outcome, November 9 will be something of a relief for pharma (after some potential early jumpiness). In fact, the last batch of polling points to what's arguably a Goldilocks situation for the sector: a Clinton win -- putting a centrist in the White House and avoiding the uncertainty of a Trump presidency -- and a split or still-Republican Congress, lowering the likelihood of substantive pricing legislation. Even a California ballot proposition aimed at cutting drug prices, at one point polling as a sure thing, looks more likely to fail after an onslaught of pharma money aimed at derailing it. 

Outside of an alternate universe where Martin Shkreli didn't make drug pricing easy political pickings and the GOP nominated a more-competent candidate, this might be the best outcome the industry could expect. That realization, and a likely cool-down in anti-pharma rhetoric, should make the sector much calmer than it has been for the past year and a half. 

Biotech is always more volatile than the broader market. That's an inevitable feature of an industry where drug trial results can cause stocks to double, triple, or halve within a trading day. But this year has been something special. In addition to all the usual fluctuation, this election cycle brought the spectacular pricing-related implosions of Valeant and Mylan, along with a newly minted political super power: the ability to shrink pharma share prices with a single tweet.

Investors have fled this volatility, making things worse. Health-care stocks, weighted down by biotech and pharma, will likely under-perform the broader market in 2016 for the first time in five years. 


Drug pricing criticism has been a fixture of the 2016 presidential campaign, boosting biotech volatility

Source: Bloomberg

In this environment, bad news is contagious, and good news is discounted. Many pharma firms, big and small, with results that might have been welcomed at any other time saw shares fall instead. 

Heads You Lose, Tails You Also Lose

Even companies with relatively solid third quarter earnings have seen shares decline in a toxic market for biopharma

Source: Bloomberg

But the worst may be over. Yes, criticism of excessive price increases is likely to continue. And even without major legislation, competition is hurting firms that rely on price hikes to squeeze extra profit out of older drugs. But that is already priced into the stocks: Big pharma and biotech valuations are at their lowest points in years. 


Both big biotech and pharma valuations have taken a major hit over the course of the 2016 election season

Source: Bloomberg

* based on blended 12 month forward Bloomberg earnings estimates

Other individual firms may be put in the pricing spotlight. But there likely isn't another Valeant-sized giant ready to blow up, fall 92 percent in 15 months, and take a bunch of other companies with it.

Meanwhile, people haven't stopped getting sick, and companies are still developing important medicines at a pretty rapid clip; a decline in FDA drug approvals this year has more to do with timing and manufacturing snafus than anything truly fundamental. 2017 should be better on that front.

The bubble highs of 2015 likely won't be back soon. But these stocks should have smoother sailing heading into 2017. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Max Nisen in New York at

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    Mark Gongloff at

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