A trio of stock analysts this week examined the likely impacts on biopharma from Donald Trump’s election victory and forthcoming return to the White House in January, with insightful results that portend dramatic shifts not only in federal policy, but in how the industry is likely to act in response.
Jefferies analysts Michael J. Yee and Akash Tewari, and Leerink Partners analyst David Risinger, all pinpointed the most dramatic effect on biopharma coming from the presence of Robert F. Kennedy, Jr., in a yet-to-be-defined role in healthcare.
“He’s going to help make America healthy again,” Trump said of Kennedy while declaring victory Wednesday morning, using his slogan designed to describe his administration’s public health and biopharma agenda. “He’s a great guy and he really means that he wants to do some things, and we’re going to let him go to it.”
Trump all but announced a dramatic role for Kennedy in late October by stating publicly that would allow RFK Jr. to “go wild on health.” Kennedy’s role is expected to be far-reaching and extend into reshaping how vaccines are regulated, since he has emerged in recent years as a sharp critic of the COVID-19 vaccines, quoted as calling it “criminal medical malpractice to give a child one of these.” Trump catalyzed the development of the COVID-19 vaccines through his first administration’s Operation Warp Speed effort.
“We need to see who Trump advances into key power positions,” Risinger cautioned Wednesday in a research note. “Nominations for HHS Secretary and FDA Commissioner will be important perception drivers ahead; we will need to see if there is disruption to FDA’s ability to execute and retain staff.”
Speaking on NPR the day after Election Day, Kennedy insisted: “Of course, we’re not going to take vaccines away from anybody,” adding: “We are going to make sure that Americans have good information about vaccines and vaccine safety.”
“Pack your bags”
Kennedy has targeted the FDA for drastic changes on a host of biopharma and broader healthcare concerns that Risinger said suggest equally drastic changes in FDA leadership.
Late last month, ABC News reported based on unnamed sources that Kennedy recommended Florida Surgeon General Joseph Ladapo to Trump’s transition team as a candidate for secretary of HHS, which oversees the FDA.
Ladapo opposed mandatory closings and mask mandates for Florida schools while publishing data showing that the mRNA-based COVID-19 vaccines increased the risk to younger men of cardiac-related deaths—though Ladapo was faulted for not submitting the data to peer review by Peter Hotez, MD, co-director of Texas Children’s Hospital Center for Vaccine Development and dean of the National School of Tropical Medicine at Baylor College of Medicine.
The ABC report quoted Kennedy as saying: “The president has asked me to clean corruption out of the agencies, to return them to doing the kind of gold-standard, evidence-based science that they were famous for when I was a kid, and to end the chronic disease epidemic. And he’s asked that I get measurable results in reducing chronic disease in children within two years.”
In an October 25 post on X (formerly Twitter), Kennedy warned current FDA officials: “If you work for the FDA and are part of this corrupt system, I have two messages for you: 1. Preserve your records, and 2. Pack your bags.”
“FDA’s war on public health is about to end,” Kennedy declared. “This includes its aggressive suppression of psychedelics, peptides, stem cells, raw milk, hyperbaric therapies, chelating compounds, ivermectin, hydroxychloroquine, vitamins, clean foods, sunshine, exercise, nutraceuticals, and anything else that advances human health and can’t be patented by Pharma.”
Based on these and numerous other public statements and comments, Yee of Jefferies wrote Wednesday, “RFK’s pot’l neg[ative] impact on vaccines and related developers is most ‘new’ or intriguing to biotech investors.
“Investors are bracing for a realization of consistent Trump RFK comments (even as recently as again [Wednesday morning] in the victory speech) and promises to give RFK a role or some power over healthcare strategy and policy will put some form of a cloud on vaccine stocks (and pot’l neg headwind on future outer year sales at least on branded vaccines—such as COVID-19, flu, etc.),” Yee added.
While Yee cited speculation that some members of a second Trump administration may try to temper anti-vaccine sentiment, he countered: “We expect a more hostile environment for vaccine makers (“whittle down the # of recommended vaccines”) and “(-) [negative] impact for vaccine and/or mRNA makers.” [emphasis in original]
Yee cited by name Moderna (NASDAQ: MRNA) as an example of a vaccine developer hurt by declining sentiment around vaccination as the number of COVID-19 cases retreats from spikes earlier this year.
Gathering clouds
Proverbially speaking, gathering clouds if not gray skies were evident Thursday when Moderna (MRNA) reported its third-quarter earnings. Even though the company surprised analysts by reporting net income of $13 million (up from a $3.63 billion net loss in Q3 2023) and higher-than-expected sales of its COVID-19 vaccine Spikevax® ($1.8 billion), Moderna shares have fallen nearly 3% since Wednesday, from $51.81 to $50.28 Thursday, then down another nearly 7% to $46.84 Friday as of 2:02 p.m. ET.
Investors connected Moderna’s profit to earlier vaccine sales compared with a year earlier (Q3 vs. Q4), and to the cost-cutting it announced in September, when the company said it will chop between $1 billion and $1.2 billion in expenses by shrinking its R&D budget by about 20%, going from the $4.8 billion it anticipated spending this year to between $3.6 billion to $3.8 billion by 2027. Moderna also pushed back its profitability forecast two years, to 2028—a forecast it achieved years ahead of schedule.
Another Leerink analyst, Mani Foroohar, noted that Moderna did not change its full-year product sales guidance to investors ranging from $3 billion to $3.5 billion, even with the Q3 sales spike.
“Our COVID-19 projections are largely unchanged, as declining vaccination rates and competitive pressures continue to weigh on revenue,” Foroohar wrote Thursday.
He estimates COVID-19 vaccine sales next year will fall to ~$2.0B, lower than the $2.6 billion predicted by a consensus of other Wall Street analysts cited by Foroohar. Based on that plus a lower 2025 product sales estimate than the company’s investor guidance of $2.5B–$3.5B, Foroohar lowered Leerink’s 12-month price target on Moderna shares 17%, from $46 to $38.
Addressing analysts on Moderna’s quarterly earnings call, CEO Stéphane Bancel noted that Moderna was among companies that had cooperated with Trump and Operation Warp Speed more than four years ago. In August 2020, for example, Moderna agreed to manufacture and deliver 100 million doses of its COVID-19 vaccine for the U.S. Department of Health and Human Services (HHS) and Department of Defense (DoD), with the federal government owning the doses.
“We worked very collaboratively with President Trump during his first term and so we’re going to continue to do that,” Bancel said. “Our mission is to make sure we help people and increase people’s health, which is [also] what the administration is going to work on.”
When it comes to pharma and biotech giants, Risinger and Leerink concluded, “We view the Trump win as mixed for large-cap biopharma since it creates potential uncertainty regarding FDA independence.”
Friendlier FTC for smaller biotechs
Smaller biotechs can expect to fare better under Trump, Risinger added, because the returning president is expected to name a U.S. Federal Trade Commission (FTC) chair who would be friendlier to mergers and acquisitions (M&A) in biopharma and other industries than the chair who took office during President Biden’s administration, Lina M. Khan.
Under Khan, the FTC opposed Illumina’s (NASDAQ: ILMN) acquisition of cancer blood test developer GRAIL (NASDAQ: GRAL), which the sequencing giant spun out in June after ending the deal last December. However, the FTC ultimately allowed Amgen (NASDAQ:AMGN) to proceed with its $27.8 billion acquisition of Horizon Therapeutics after the companies signed a consent order whose terms included barring Amgen from bundling one of its products with either of two Horizon treatments, Tepezza® or Krystexxa®, indicated for thyroid eye disease and chronic refractory gout, respectively. The FTC also allowed Pfizer (NYSE:PFE) to acquire Seagen for $43 billion, nine months after the deal was announced.
“FTC changes should lead to a more favorable M&A environment which is (+),” Yee wrote.
Yee observed that the Amgen and Pfizer reviews “put mega or large size deals (>$5B) on the sidelines given Khan’s other actions across other sectors,” citing among examples the FTC’s lawsuit against Facebook parent Meta Platforms (NASDAQL META), alleging that the company was illegally maintaining a personal social networking monopoly; Meta has denied wrongdoing.
“While we don’t nec expect any specific biopharma mega mergers, we do expect more smidcap (small- to mid-capitalization) deals with valuations higher than under the Khan administration if replaced (her term ends in Sept.),” Yee added.
A key opinion leader tapped by Jefferies analyst Tewari—Desh Peramunetilleke, the firm’s head of quantitative strategy—said small-cap biotechs will react positively enough to Trump’s triumph for two weeks to a month, which should lift electronic transfer funds (ETFs) specializing in shares of such companies, citing specifically the SPDR S&P Biotech ETF (XBI), the largest biotechnology ETF with total assets of $7.446 billion, as tracked by VettaFi.
Over the past year, the XBI has grown 44%, to $103.01 as of Thursday’s close, from $71.52 a year earlier. Since Election Day, the XBI has risen 2.4% from $100.62.
“Post-initial reaction, the XBI would flatten out,” Peramunetilleke predicted. But the XBI could instead continue to perform well if interest rates become extremely low or if the “yield curve”—a comparison between interest rates of long-term and short-term bonds closely watched by investors—steepens due to broad-based small- to mid-cap recovery, a scenario that he views as unlikely.
Another key opinion leader cited by Tewari—John Brooks, a former staffer at HHS and the Centers for Medicare and Medicaid Services—similarly opined that Trump’s second administration “will be more friendly toward M&A + more similar to what we saw prior to Lina Khan’s tenure but not completely revert back to those days, since the current framework has a chilling effect on economic activity and is not sustainable in the long term.”
Leaders and laggards
- Tango Therapeutics (NASDAQ: TNGX) shares plummeted 37% from $5.18 to $3.24 Wednesday, after the company said in its Q3 earnings release that it would halt enrollment in trials of TNG908 after data from a Phase I/II trial (NCT05275478) showed the MTA-cooperative brain-penetrant PRMT5 inhibitor did not show activity in glioblastoma in 23 patients at active doses, “likely because CNS exposure did not meet the required exposure threshold for clinical efficacy.” Tango said it would shift resources to developing TNG462 as a potential best-in-class molecule in MTAP-deleted non-CNS tumors, citing the 24-weeks-and-increasing time on treatment seen for TNG462 vs. 16 weeks for TNG908, plus ‘462’s superior target coverage, and safety and tolerability profile.
- Verrica Pharmaceuticals (NASDAQ: VRCA) shares nosedived 44% from $1.43 to 80 cents Tuesday, after the company reported it was exploring cost-cutting strategies following its third-quarter net loss of $22.86 million (vs. $24.802 million net loss in Q3 2023) based in part on negative net revenue of $1.865 million, vs. positive net revenue of $2.792 million a year earlier as the company set aside $1.7 million more in its reserve for estimated returns from certain distributors of expired product. Verrica also appointed Jayson Rieger, PhD, as president and CEO effective November 1, succeeding Ted White, and John Kirby as interim CFO effective Tuesday, succeeding Terry Kohler, now CFO of Optinose (NASDAQ: OPTN). Gregory Renza, MD, director and senior analyst of Biotechnology Equity Research at RBC Capital Markets, downgraded Verrica to “Sector Perform” from “Outperform,” and slashed the firm’s 12-month target price 82%, from $11 to $2.
