Welcome back. Happy New Year. Here are 17 questions, thoughts, declarations, catalysts and observations about biotech stocks in 2017.
1. Mergers and acquisitions: The number and value of M&A transactions fell sharply in 2016 from the prior year, disappointing investors and contributing to the sector's underperformance. The expectation for a significant rebound in deals for 2017 is very high, driven by a.) a consensus view that the largest pharma and biotech companies must acquire new products to fuel growth; b.) management teams expressing desire to do deals; c.) lots of cash on balance sheets; and d.) expectations for pro-growth and tax reform policies from President Trump.
By a wide margin, an uptick in M&A is seen by investors and analysts as the most important tailwind for biotech stock outperformance in 2017. I don't need to tell you what happens if deals don't materialize.
2. Fund flows: Biotech stocks cannot perform well if investors pull more money out of the sector than they put in. That's what happened for most of 2016. Fund flows into biotech picked up after the election in November. Watch this trend and hope it continues into 2017 if you're someone who wants biotech stocks to move higher.
3. Drug pricing: Politicians talking or tweeting about the desire to rein in escalating prices of drugs through government legislation was a huge overhang for biotech and pharma stocks in 2016. Will 2017 bring proposed legislation to back up that talk?
Normally, Republican control of the White House and Congress would alleviate all concern about drug pricing, but we're not living in normal times. Regardless of what the government does or doesn't do, insurance companies and pharmacy benefit managers will continue to be aggressive about keeping a tight lid on drug utilization through formulary restrictions and barriers to reimbursement.
4. Biotech investor sentiment: It sucks. That's actually bullish because basically anything positive is upside at this point.
5. Trump: Does anyone really know what President Trump and his Twitter account holds for the health care industry in 2017?
Investors may stay away from biotech and drug stocks until Trump's plans, if he has any, are better articulated.
6. Approval decisions and commercial launches: Investors will be watching these drugs closely in 2017: Biogen's (BIIB) Spinraza, Kite Pharma's (KITE) KTE-C19, Novartis' (NVS) CTL019, Clovis Oncology's (CLVS) Rubraca, Vertex Pharma's (VRTX) Orkambi (Europe), Regeneron Pharma's (REGN) dupilumab, Ariad Pharma's (ARIA) brigatinib, Puma Biotech's (PBYI) neratinib, Acadia Pharma's (ACAD) Nuplazid, Roche's (RHHBY) ocrelizumab, Sarepta Therapeutics' (SRPT) Exondys 51, Tesaro's (TSRO) niraparib, Neurocrine Biosciences' (NBIX) Ingrezza and GW Pharma's (GWPH) epidiolex.