By Maggie Fick and Bhanvi Satija
LONDON (Reuters) -Trump administration cuts across federal health agencies have sent shivers through a biotech industry already struggling through a prolonged downturn, increasing concerns they will have a harder time getting products approved, investors, company executives and analysts said. Mass firings at the U.S. Food and Drug Administration are particularly risky for small- and mid-cap biotech companies that have innovative treatments in clinical trials but no products on the market to keep them afloat, these sources told Reuters.
Directives from President Donald Trump’s administration to freeze grant funding from the National Institutes of Health may also discourage future talent and resources from flowing into the biotech sector, some of them said. The S&P Biotech ETF index hit an 18-month low last week and is trading at less than half its 2021 peak. It is down about 20% this year. A record nearly 30% of U.S.-listed small- and mid-cap biotech companies are trading at or below cash, suggesting the market does not ascribe any value to their existing business or drug development pipeline, according to Jefferies analysts. “The sector needs a predictable, science-led regulator to function,” said Linden Thomson, senior fund manager at asset manager Candriam, whose biotech fund holds shares in Vertex and Ascendis Pharma.
“The future cash flows of the businesses that are used to value stocks are, in biotechnology, in large part based on U.S. commercial sales. If you don’t have U.S. approvals you don’t have future value,” Thomson added.
U.S. Health Secretary Robert F. Kennedy Jr. says the layoffs that began last week are needed to streamline the nation’s health bureaucracy and will improve agencies’ work. But the ouster of top scientists at FDA and other institutions has raised questions over how they will fulfill their missions. Biotechs have faced delays in scheduling meetings and receiving feedback from the FDA that guides drug development, according to a letter from company executives and investors to Congress this week. “Many have concerns that approval decision deadlines will be missed,” the letter said. “The overwhelming view is that the regulatory agency is impaired, although we have not seen the consequences of it yet since the layoffs and firings have only recently occurred,” said Paul Ariano, associate portfolio manager at Thornburg Investment Management, whose fund holds shares in Sarepta Therapeutics and Cytokinetics.
“Sentiment is bad and there is little clarity on the factors that could provide more optimism,” he said.
‘PERILOUS TIME’ Multiple Trump executive orders are blocking funding from the NIH. Funds for early-stage research that NIH has traditionally provided help drive the formation of biotech startups, some of which go on to develop important medicines on their own or in conjunction with large pharmaceutical companies. “It’s a perilous time for small- and mid-cap biotech companies and this will have knock-on effects for the development of new medicines and treatments in years to come,” said Tim Opler, managing director in Stifel Investment Bank’s Global Healthcare Group. Shares in biotech firms have been under pressure since a peak of investment during the COVID-19 pandemic, hampered by high interest rates.
They declined further after Trump took office in January and the selloff deepened following the resignation of senior FDA scientist Peter Marks, who led the FDA center that regulates vaccines and biological treatments. “Everyone is wondering what it will mean with the FDA losing this champion for accelerated regulatory approvals for innovative treatments,” said Nawal Ouzren, CEO of French company Sensorion, which has hearing loss treatments in mid-stage clinical trials. The market is viewing each FDA decision on new drug products as a barometer of whether it is functioning normally, investors said. The agency recently missed a decision deadline on a COVID vaccine from Novavax, but gave a green light to a pre-filled syringe version of Argenx’s already-approved immune disorder drug. The climate of uncertainty has left biotechs largely unable to access public capital. Biotech companies have raised $4.2 billion this year compared to $11.1 billion in the same period last year, according to LSEG data. Christian Koch, head of the biotech fund at Bellevue Asset Management in Zurich, said his fund had recently exited from some companies that could not access capital, while others were trying to find alternative ways to extend their cash runways. He did not name them. Arbutus Biopharma, which is testing a hepatitis B drug in mid-stage trials, announced layoffs in March, adding to a growing list of biotech firms who have collectively announced hundreds of staff cuts this year. Biotech firms unable to raise fresh funds may increasingly see a benefit in being acquired, said Jefferies analyst Michael Yee. But large deals involving pharma and biotech companies have stalled as executives grapple with mercurial White House economic policies and a global trade war, Reuters reported last month. “The vast majority of biotech companies in our coverage are now trading below their fundamental fair value in a near worst case scenario,” said RBC Capital Markets global healthcare analyst Brian Abrahams.
(Reporting by Maggie Fick in London and Bhanvi Satija in Bengaluru; Editing by Michele Gershberg and Bill Berkrot)
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