Biotech stocks have slumped 15% since Donald Trump clinched victory over Kamala Harris to win his second presidency.
That's because Trump comes with a lot of unknowns. And some of his early decisions have caused a stir.
Trump has said he will let vaccine skeptic Robert F. Kennedy Jr. "go wild" on health care. He also plans to appoint TV celebrity Dr. Mehmet Oz to head up the Centers for Medicare and Medicaid Services and Elon Musk, the controversial head of X, Tesla and SpaceX, to lead the new Department of Government Efficiency. Both have spoken in favor of antiobesity medications.
While there's inevitably turnover between administrations, Trump's plans potentially foretell a significant shake-up at some of the biggest health care agencies. Earlier this month, Patrizia Cavazzoni announced her departure from the Food and Drug Administration. Cavazzoni heads up the FDA's Center for Drug Evaluation and Research and is involved in much of the agency's drug review work.
Cavazzoni's departure is just the most recent of a series of high-profile exits among health regulators. Robert "Bob" Temple, the deputy director for clinical science at CDER, also announced his retirement at the end of December. Temple is often credited with revolutionizing the way drugs are developed and regulated. He was with the FDA for 52 years.
"There's a lot of interest now in regulatory — how it's going to change," Perspective Therapeutics Chief Executive Thijs Spoor said in an interview. "The big issues are always going to be what is the FDA going to be changing? I think we all know how to play on the field with the rules that we understood. The only question is what's going to change with the rules on the field and are all the players going to be there?"
Trump's Impact On Biotech Stocks
Biotech stocks have largely been in a free fall since early 2021. The industry group is ranked a so-so No. 90 out of 197 groups Investor's Business Daily tracks. That's down from No. 5 a year ago. Its IBD Digital Relative Strength Rating of 55 puts the group in the middle-of-the-pack when it comes to 12-month performance.
Trump will undoubtedly still have an impact. But it's unclear whether that will be positive or negative.
Like Trump, his health care nominations have been a bit unconventional. They include a TV celebrity, a health economist, two former presidential candidates and businessman Musk. There's Kennedy, also known by the moniker RFK Jr., who has spoken against vaccines and the proposed National Institutes of Health lead Jay Bhattacharya, a Stanford professor and health economist who argued against Covid lockdowns.
The result could totally change the landscape for health care in the U.S., says David Lilienfeld, a 30-year biotech industry veteran and a former professor of medicine and researcher.
"I don't think there was ever a sense that the integral values would be tested in the same way," he told IBD. "This is the first time a health economist is taking over the reins at the NIH. Usually, the background is in clinical research."
Following Trump's presidential victory, a wave of health care officials announced plans to leave their respective agencies. The personnel exodus from agencies like the FDA and NIH could hurt patients, companies and academic centers, Lilienfeld said.
"A lot of experience is walking out the door," he added. "And there are rumbles that there are a number of folks who are going to follow. We'll see if that happens. You're not going to have review times going down. They're going to go up instead."
On the flip side of the coin, the Department of Government Efficiency, or DOGE — headed up by Musk and biotech entrepreneur and former presidential candidate Vivek Ramaswamy — could cut health care funding. That would make it harder for agencies to fill positioned vacated by people like Cavazzoni and Temple.
M&A Implications From Trump
In December, the president-elect said he would appoint Andrew Ferguson to serve as the new chairman of the Federal Trade Commission. Ferguson, a current commissioner, will replace Lisa Khan who, experts in biotech stocks say, has been less friendly toward big licensing deals.
Licensing transactions are a key business component for biotech companies. Smaller players will often strike deals with big pharmaceutical companies that have the cash to further develop, manufacture and commercialize their products. In return, biotechs usually get an up-front payment and are eligible for future milestone payments and/or royalties on sales.
"We've seen a couple of examples of them challenging licensing transactions — and that was never seen before in our business," Michael Metzger, Syndax Pharmaceuticals CEO, told IBD. "I think the change there will hopefully give access to more cross-border transactions and more activity in the U.S. relative to M&A."
Kennedy Vs. Vaccines
The appointments of Oz and Musk could also prove to be a boon for biotech stocks working on obesity medications. Kennedy is something more of a wild card, however.
After Trump's victory, Kennedy said he's not going to "take away anybody's vaccines." Still, shares of Pfizer, Moderna and Novavax — the makers of the current suite of Covid vaccines — slumped after Trump announced his plan to appoint Kennedy to lead the Department of Health and Human Services.
"RFK has been known as an anti-vaccine activist who is at odds with current FDA leadership," Leerink Partners analyst David Risinger said in a recent report. "RFK openly said that the FDA staff should be prepared to 'preserve your records' and 'pack your bags,' which indicates that he wants dramatic change in the FDA leadership."
That's where CDER director Cavazzoni's departure comes into play. Cavazzoni didn't call out Kennedy or Trump when she announced her retirement. But her last day will be Jan. 18, two days before Trump's inauguration.
"Leaving CDER was an extremely difficult decision, but the time has come for me to be more present for my family, who have taken the backseat over the past few years due to the demands of my role and our critically important public health work," she wrote in an email to colleagues, according to media reports.
Cavazzoni's exit follows the departure of Dr. Namandje Bumpus, the agency's principal deputy commissioner, at the end of December. Top medical device regulator Jeffrey Shuren said last summer he would leave the FDA at the end of 2024, Politico reported.
Focus On Nutrition, Exercise
As biotech stocks tied to vaccines tumbled, so too did shares of companies working on obesity drugs.
In an interview with Fox News, Kennedy suggested the best approach to treating obesity is through diet and exercise, rather than pharmaceuticals.
BMO Capital Markets analyst Evan Seigerman says the obesity sell-off reflects "more fear than real fundamental downside risk." He said Kennedy, in his role as the HHS Secretary, won't be able to change policies around the use of incretin-based drugs like Novo Nordisk's Wegovy and Eli Lilly's Zepbound.
"Investors appear to be reading into previous comments by RFK Jr. that outline his skepticism about both the price of antiobesity medications and the rationale for covering such drugs," he said in a report. "We note that while RFK Jr. appears less optimistic on the use of incretins to curb the obesity crisis, he remains limited in his ability to influence either policy or pricing of obesity medications."
The obesity drugs market could also boom under Trump. President Joe Biden proposed Medicare be required to cover the cost of weight-loss drugs. It will be up to Trump to decide whether to sign the proposal into law. Today, the agency only pays for antiobesity medications when they also treat sleep apnea or reduce the risk of heart attacks or strokes.
Will Makary 'Course-Correct?'
Dr. Marty Makary will undoubtedly carry some weight and could bruise both vaccine- and obesity-tied biotech stocks. Trump plans to appoint Makary as his FDA commissioner. In a post on the social media platform, Truth Social, Trump said the FDA "has lost the trust of Americans." He needs Makary to "course-correct and refocus the Agency."
Makary has criticized the Orphan Drug Act pathway, a means by which companies can seek speedier approvals for drugs that treat rare conditions. He accused drugmakers of "gaming the system" in a Johns Hopkins University report.
RBC Capital Markets analysts note Makary has called the nation's health care system broken, saying it's too entangled with pharma. He has also said Covid vaccine messaging ignored the benefits of natural immunity and is concerned about the "chronic disease epidemic," attributing it to the overuse of antibiotics in children, the "poisoned food supply" and a lack of focus on preventive disease measures
Makary has also criticized medical journals, advocated for pricing transparency and expressed concern about weight-loss drugs and the loss of lean muscle mass.
"We sense that if made FDA head, Dr. Makary could make the Agency more suspicious of, rather than collaborative with, drugmakers, with his criticisms around medication overuse potentially leading to a more skeptical and less permissive culture around approving drugs with mixed data or more modest benefits vs. the current FDA," the analysts wrote in a Nov. 20 report.
Drug Price Negotiations
Beyond his nominations, investors in biotech stocks will undoubtedly be watching how Trump handles drug prices. Under the Inflation Reduction Act, 10 of the most costly drugs will face lower prices in 2026. Medicare recently released the list of negotiated drugs.
During the first two years of the new law, only Part D drugs will face negotiated prices. Part B, which includes those administered by doctors and in hospitals, will be up for price negotiations beginning in 2028. Over time, the number of drugs facing negotiations will increase.
Critics have said the IRA isn't allowing for negotiations. Instead, Medicare is setting the prices. In 2023, one expert in biotech stocks told IBD it's like "negotiating with the mob."
Experts in biotech stocks had expected an expansion to the Medicare negotiations under Kamala Harris. It's less clear how Trump will handle the new law. Experts say the IRA isn't going anywhere. What is clear is that Trump loves a good negotiation, says Spoor, Syndax's CEO.
"If the voice at the top of the ticket is consistent, it's that he loves negotiations," he said. "I find it hard to see the IRA completely removed now. ... At least it will soften down to be bona fide negotiations and not one-sided."
Follow Allison Gatlin on X/Twitter at @IBD_AGatlin.
