Trump's win can spark pharma M&A spree, suggests Bellevue Healthcare - ICYMI

Bellevue Healthcare Trust PLC (LSE:BBH) co-portfolio manager Paul Major talks Proactive through the implications of a second Trump administration for the US healthcare sector.

Paul Major: You have to think about this in two ways.

The first question is healthcare versus the rest of the market. Secondly, specific policies relating to healthcare.

As everyone knows, Trump's main policy during the campaign was about putting America first in trade and imposing tariffs, which are pro-inflationary.

Whether his actions will match his rhetoric, we’ll see early next year. The market assumes that the path of falling interest rates may be slower due to continued inflationary pressure.

We’ve seen this environment since 2021, affecting parts of healthcare, especially less profitable areas with future-valued assets, as higher discount rates apply.

Paul Major: Initially, it may seem unfavourable for healthcare, but policy perspectives offer more depth.

The Biden administration posed challenges around M&A and antitrust, with an active Federal Trade Commission (FTC) investigating and blocking large deals.

Licensing and acquiring new products are essential for big pharma, where one in three drugs is developed externally.

The current FTC leadership under Lina Khan has been stringent, but this is expected to change, potentially leading to more substantial M&A.

Though smaller deals persisted, fear of the FTC restricted big transactions.

Clearer appointees could usher in significant M&A, reigniting investor interest in biotech, where M&A drives returns. Higher long-term rates may seem negative, but M&A optimism can offset this.

Paul Major: Notably, Trump’s second term appears less focused on substantial healthcare policy changes, unlike his first, which aimed to alter Obamacare and social security. This reduces the uncertainty that overshadowed his first term.

Proactive: You mentioned healthcare versus the broader market. What does the election mean for healthcare's performance compared to other sectors?

Paul Major: It's hard to predict now. Tariffs, which Trump supports, could strain supply chains—China being a major manufacturer of chemicals and electronics.

High tariffs on China and nations not aligned with US policies might impact costs, affecting consumer sentiment and prices.

As seen in the UK with budget and tax changes, companies might transfer these costs to consumers, potentially hurting public sentiment.

Some speculate this influenced Biden's loss, with people feeling less economically secure.

Trump may or may not follow through on his promises. Overall, healthcare may see stability as it isn’t as exposed to consumer spending fluctuations.

Its demand and regulatory environment remain steady, even with Congress under Republican control.

Proactive: Are certain healthcare subsectors more impacted by inflation or M&A activity?

Paul Major: Biotechnology and big pharma are noteworthy. Pharma needs biotech for new products, so M&A benefits both—securing revenue for pharma and providing premium buyouts for biotech.

A minor concern is potential regulation tightening on drug promotions, particularly with Trump's proposed healthcare appointees.

This could lead to stricter oversight of ads, which might curb growth but also improve margins, as TV advertising's true value is debatable.

Overall, the innovative drug space, especially biotech, may see a significant boost due to anticipated M&A.

Proactive: And your overall outlook for US healthcare?

Paul Major: We're optimistic. Demographics favour healthcare; it’s less affected by inflation or interest rate hikes compared to consumer-driven sectors.

People will still need healthcare services, regardless of economic conditions. Demand remains solid, and regulatory conditions should remain stable. We see strong prospects in the medium to long term.