HYBRID VIGOR: VOL 3 ISSUE 46 "Season or Reason?"

Last week we published a white paper detailing the rationale behind our thesis that a Trump Administration is likely to revive convertible issuance and the overall importance of the asset class. Virtually every early market indicator points in that direction: interest rates, volatility, infrastructure capital requirements. 

One area where we may, or may not, have jumped the gun is pharmaceuticals and biotech. The markets got shaken up last week on a quote from the president-elect’s Time Magazine Person of the Year interview. Mr. Trump said he didn’t like what was happening with drug prices and wanted to make them lower. That was enough to continue the undoing of the post-election sector spike, which in turn followed a hard pre-election selloff presumably inspired by an expected Clinton win and greater efforts at drug price regulation.

We don’t consider ourselves political experts, but our take is that Mr. Trump’s interview comment was standard populist fare amidst many issues. We don’t necessarily think it should be ignored, but it needs to be considered in the context not only of a Republican congress but also of a Health and Human Services nominee, Tom Price, whose legislative history and professional affiliations would make him a most unlikely sponsor of significant new drug-price regulations.  You could do worse things, it seems, than to position yourself for a 2017 turnaround in the group.

All that aside, last week’s new issuance (detailed Friday in Kathy Schick’s The Week That Was) seemed to corroborate our thesis, though the calendar may also have been a factor.  Bankers have a longstanding tradition of getting deals through the pipeline at year-end. Cynics would call it the bonus push. We’ll put that aside and say only that we were heartened to see the handful of deals that came last week and even more heartened to hear that more were in the pipeline.

(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).