Biotech stocks and ETFs are among the assets that responded positively to last week’s presidential election results. As just one example, the ALPS Medical Breakthroughs ETF (SBIO) is up 10% for the week ending November 11.
Time will tell if SBIO and friends can build on recent gains. Yet there is some favorable history for investors to acknowledge. Yes, much of it has to do with coronavirus pandemic. But biotech stocks performed well during President-elect Trump’s first term in office. However, the group languished over the past three years.
On the other hand, market participants could be pensive about biopharma equities. That’s because Trump is promising sweeping changes at the Food & Drug Administration (FDA) – a movement that could be steered by Robert F. Kennedy Jr. Kennedy is an overt critic of drug makers and their relationships with the federal government.
Potential Catalysts for SBIO
Some market observers believe one of the potential benefits for the biotech industry regarding the incoming Trump administration is that the president-elect’s team will clean house at the Federal Trade Commission (FTC), perhaps stoking a new wave of biotech consolidation activity.
“Pharmaceutical company deal-making plays an important role within biotech. Acquisitions generate returns for biotech investors and recycles capital as well as talent into startups working on new ideas. They can also, some argue, increase companies’ market power and snuff out competitors,” reported Biopharma Dive.
An uptick in biotech mergers and acquisitions activity could be a boon for SBIO. That’s because the ALPS ETF holds small- and midcap biotech names and because the fund has a documented history of being home to takeover targets.
Additional SBIO Benefit
FTC Chairwoman Lina Khan sees her term expire in 2028. But new presidents get to appoint new FDA leadership, meaning Khan will likely be replaced. Plus, Trump will have the ability to appoint a new FTC commissioner by the middle of next year. That indicates the new president can reshape the commission in a fashion that’s cumbersome to prospective healthcare buyers.
There is some speculation regarding how a new Trump administration could affect drug pricing. Under President Biden, Medicare gained the ability to negotiate prices of select drugs with pharmaceutical companies. That’s a policy many voters support. And that implies politicians would be wise to not dramatically alter that policy. Should Medicare’s pricing power remain in effect as expected, it could compel large-cap pharma companies to go shopping for firms that produce drugs and therapies outside of Medicare’s pricing scope. That could benefit SBIO.
VettaFi LLC (“VettaFi”) is the index provider for SBIO, for which it receives an index licensing fee. However, [ETF SBIO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SBIO.
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