Trump health policy uncertainty sends biotech sector into deeper slump
Trump administration cuts across federal health agencies have sent shivers through a biotech industry already struggling through a prolonged downturn, increasing concerns they will have a harder time getting products approved, investors, company executives and analysts said.
Mass firings at the U.S. Food and Drug Administration are particularly risky for small- and mid-cap biotech companies that have innovative treatments in clinical trials but no products on the market to keep them afloat, these sources told Reuters.
Directives from President Donald Trump's administration to freeze grant funding from the National Institutes of Health may also discourage future talent and resources from flowing into the biotech sector, some of them said.
The S&P Biotech ETF index (.XBI), opens new tab hit an 18-month low last week and is trading at less than half its 2021 peak. It is down about 20% this year.
A record nearly 30% of U.S.-listed small- and mid-cap biotech companies are trading at or below cash, suggesting the market does not ascribe any value to their existing business or drug development pipeline, according to Jefferies analysts.
"The sector needs a predictable, science-led regulator to function," said Linden Thomson, senior fund manager at asset manager Candriam, whose biotech fund holds shares in Vertex (VRTX.O), opens new tab and Ascendis Pharma .
"The future cash flows of the businesses that are used to value stocks are, in biotechnology, in large part based on U.S. commercial sales. If you don't have U.S. approvals you don't have future value," Thomson added.
U.S. Health Secretary Robert F. Kennedy Jr. says the layoffs that began last week are needed to streamline the nation’s health bureaucracy and will improve agencies’ work. But the ouster of top scientists at FDA and other institutions has raised questions over how they will fulfill their missions.
Biotechs have faced delays in scheduling meetings and receiving feedback from the FDA that guides drug development, according to a letter from company executives and investors to Congress this week. “Many have concerns that approval decision deadlines will be missed,” the letter said.
"The overwhelming view is that the regulatory agency is impaired, although we have not seen the consequences of it yet since the layoffs and firings have only recently occurred," said Paul Ariano, associate portfolio manager at Thornburg Investment Management, whose fund holds shares in Sarepta Therapeutics (SRPT.O), opens new tab and Cytokinetics (CYTK.O), opens new tab.
"Sentiment is bad and there is little clarity on the factors that could provide more optimism," he said.
'PERILOUS TIME'
Multiple Trump executive orders are blocking funding from the NIH. Funds for early-stage research that NIH has traditionally provided help drive the formation of biotech startups, some of which go on to develop important medicines on their own or in conjunction with large pharmaceutical companies.
"It's a perilous time for small- and mid-cap biotech companies and this will have knock-on effects for the development of new medicines and treatments in years to come,” said Tim Opler, managing director in Stifel Investment Bank’s Global Healthcare Group.