The day after the November election victory for President Donald Trump the BioWorld Biopharmaceutical index shot up 9 percent, with investors returning to the battered sector believing that the issue of drug pricing that had dogged the industry all last year would not be high on his administration's agenda. (See BioWorld Insight, Nov. 14, 2016.)

Although the jump in value would run out of steam by the end of 2016, the industry received a further shot in the arm last week, and this time it could be just the long-lasting therapy that it needs.

The excitement revolved around the meeting of Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), together with the CEOs of Novartis AG, Merck & Co. Inc., Johnson & Johnson, Eli Lilly and Co., Amgen Inc. and Celgene Corp., who sat down with President Trump to discuss issues of mutual interest and concern. By the end of the meeting, biopharma equities began to increase in value despite the fact that Trump said he wanted to see drug prices reined in.

"You folks have done a terrific job over the years, but we have to get prices down for a lot of reasons," he said. (See BioWorld Today, Feb 1, 2017.)

That sentence, in itself, would have been enough to send biopharma shares reeling, but the fact that he also indicated that the administration is willing to work with the domestic industry to ensure that it remains competitive was enough to keep investors feeling positive about biopharma going forward. Of particular interest to the sector was the fact that Trump said he intends to streamline the drug-approval process as part of his strategy.

The participants left the meeting feeling that it had been "positive and productive," according to Ubl, who in a post meeting press statement noted, "We discussed many areas of common ground including: advancing stronger trade agreements to level the playing field with countries around the world; reforming our tax code to spur investment and job creation here in the United States; and removing outdated regulations that drive up costs and slow innovation."

It was a sentiment shared by several of the biopharma executives. On Merck's fourth-quarter and full-year conference call, Chairman and CEO Ken Frazier said he came away "encouraged by the open and constructive dialogue of this first meeting."

In responding to a question on how the meeting went with the president on Lilly's earning call, company President and CEO Dave Ricks said that they had covered a wide range of topics and indicated Trump was "very interested in understanding how our business works and what the opportunities are to further grow the American innovative engine in the biopharmaceutical industry."

The feel good meeting and the president's apparent less aggressive tone on drug pricing has certainly changed the uncertainty surrounding the sector and has given analysts and company execs something to smile about because there appears to be a general understanding of the importance of the industry and sympathy to the hurdles of innovative R&D.

In just one day, the BioWorld Drug Developers Index jumped 5 percent in value to help close out the month of January up a whopping 11.5 percent. (See BioWorld Drug Developers Index, below.)

Mixed thoughts on the future

It has been an up and down month, to say the least. Right out of the gate the biopharma equities soared more than 8 percent. (See BioWorld Biopharmaceutical Index, below). The bump in value, according to Cowen and Co.'s Biotech Thermometer, "felt more like a dead cat bounce (following year-end tax loss selling and window dressing) than reflective of any real change in conviction toward biotech."

Sure enough, the Biopharmaceutical Index drifted down for the rest of the month before its resurgence in the wake of biopharma's meeting with President Trump.

Will that upward trajectory be sustainable in the months ahead?

Cowen doesn't believe so because the group has not attracted back generalist investors, and specialist investors are also unenthusiastic about biotech, because "they believe the industry's fundamentals have deteriorated . . . and bemoan the relative dearth of new products and view the 2017 earnings outlook (especially for large-cap biotech) as mixed."

On the flip side, RBC Capital Markets analyst Michael Yee has a more positive spin on things. Writing in a research note, Yee said he is "keenly positive on the idea that Trump and the biopharma industry should be engaging and getting together and will be viewed ultimately positively by the equity marketplace."

Now that the playing field has been defined, in order for biopharma to get its groove back it will need to consistently demonstrate strong fundamentals. Its first chance will be fourth-quarter and year-end financials. Amgen got the sector off to a reasonable start last week with the company's fourth-quarter total revenue coming in at almost $6 billion, an 8 percent growth compared to the fourth quarter of 2015.

The company's innovation engine is strong, but as far as 2017 goes, Bob Bradway, Amgen chairman and CEO, said on the earnings call that the firm "will likely face headwinds as declines in our mature brands will begin to offset volume growth from our more recently launched products."

There was no mention of business development acquisitions.

To bring investors back to the sector, most analysts believe that we need to see plenty of M&A transactions, and they will be listening closely to biopharmas' earnings calls during the next week or so for comments on their business plans this year.

Merck's Frazier did indicate that "business development remains an important priority for us, as we are committed to building on our current portfolio and pipeline." Merck is looking for "scientific opportunities via acquisitions, partnerships and collaborations at the right financial valuation with particular focus on augmenting our early to mid-stage pipeline."

It is clear that we will start to see an increasing number of transactions and companies pull the trigger on deals sooner rather than later since there is a strong possibility that target acquisitions will become more expensive as share prices climb in the current environment.

By the numbers

The BioWorld Biopharmaceutical Index closed January up 5 percent, with Incyte Corp. (19 percent) and Vertex Pharmaceuticals Inc. (15 percent) leading the gainers in the group; Bristol-Myers Squibb Co. declined 16 percent.

Clovis Oncology Inc. and Array Biopharma Inc. led the gainers in the BioWorld Drug Developers Index group, with their shares closing up approximately 47 percent and 24 percent, respectively. The collective market cap of the 363 public biopharma companies stood at $777 billion at the end of January, with 69 of companies having market caps above $1 billion.