Biotech M&A and the implications of a Trump presidency

High drug prices have resulted in political heat on the pharma and biotech industry the past year, but conditions are looking rosier for biotech investment – thanks in part to assumptions being made about the presidency of Donald Trump.

Investors are anticipating that an influx of foreign cash and better stock values will kick dealmaking into high gear in the coming year, fueling renewed interest in prime takeover targets and speculation.

“It could also throw a lifeline to smaller biotech firms, which on average have only 11 months of cash left to finance their research,” Fortune magazine recently reported.

Biotech stock prices took a dive after politicians announced efforts to end price gouging last year – something Trump has not allied himself with. Biotech stocks have risen substantially since the Trump win earlier in November – including a 9% bump in the Nasdaq Biotech Index the day after the election.

Notable M&A activity since the election includes:

  • Allergan’s acquisition of Chase Pharmaceuticals, a clinical stage biopharma company focused on developing treatments for Alzheimer’s disease. The deal included an upfront payment of $125 million.
  • Actelion has confirmed that it was approached by Johnson & Johnson about a possible transaction. The Swiss lung disease specialist might be looking at competitive bids, analysts say.
  • India’s Sun Pharma announced it would buy a majority stake in JSXC Biosintez, a Russian pharma company. Sun will acquire an 85% stake for $24 million and assume $36 million in debt.

But is the coming M&A spree really all that? Some skeptics say the outlook for activity may be misplaced.

One of the assumptions of a Trump presidency is that new tax measures would allow corporations with cash held overseas to bring the money back, which in turn would free up money for mergers and lead to lucrative buyouts of small biotechs.

“Major biotech and pharma companies should gain from Trump’s proposed tax plan and proposal to repatriate corporate profits held offshore at a one-time tax rate of 10%,” reported Nasdaq.

But, reports the Wall Street Journal, “access to capital clearly hasn’t been an issue” and many of the juiciest companies have already been snapped up and most remaining biotechs ripe for picking are small enough that a better tax deals won’t change their M&A outlook.

“All that means investors are betting on the wrong industry within health care,” Wall Street Journal wrote. “The more likely winner under a Trump presidency is the big drug companies. Mr. Trump will likely be less tough on drug-pricing issues than Hillary Clinton would have been. Instead of a spending spree by big pharma shareholders, the companies would more likely boost dividends and share buybacks.”

Barron’s agrees. During the last tax holiday, in 2004, “companies repatriated $300 billion, and used must of that cash to repurchase their own shares. Buybacks rose 84% in 2004 and 58% in 2005.

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