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This has been just announced: Robert F. Kennedy Jr. has been appointed as the U.S. Secretary of Health. The chap is known as a serious antivax and is well known for his vocal criticism of pharmaceutical companies and advocacy for drug pricing reforms. This  appointment signals a policy shift that could reshape the American healthcare landscape. Fine! Vox Populi Vox Dei. If the promise for more affordable medicines aligns with US public health priorities and US people willingness, it also raises serious concerns for the Biotech industry.
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Drug Price Cuts: A Looming Threat for Biotech Financing

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Like it or not, the global biotech sector does rely heavily on U.S. profitability to drive innovation and attract investment. Worldwide! 

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One of Kennedy's central objectives is to lower the cost of prescription drugs in the U.S., a market that accounts for nearly half of global pharmaceutical revenues. For biotech companies, whose success often hinges on the promise of high-margin therapies in the U.S., these changes could have profound consequences:

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• Profitability Pressure: Reduced pricing power would directly impact revenues, limiting the ability of companies to reinvest in R&D.

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• Valuation Declines: With lower profitability projections, biotech firms could face reduced valuations, complicating fundraising efforts.

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• Investor Reticence: Venture capital and institutional investors may turn away from biotech, opting for sectors with clearer growth potential.

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A Macro Risk: Chilling Effects on Global Biotech Investment

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Kennedy’s nomination has already unsettled markets, with major pharmaceutical stock prices experiencing volatility. This signals a broader anxiety among investors, particularly in a sector that has seen its access to funding dwindle over the past two years. Risks are all around:

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• Venture Capital Pullback: Price controls could deter early-stage investors, shifting capital toward lower-risk segments such as diagnostics or medtech.

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• Reduced M&A Activity: Larger pharmaceutical companies, often a lifeline for biotech exits, may hesitate to acquire startups if margins in their key market are compressed.

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• Delayed IPOs: Uncertainty over future pricing dynamics could exacerbate the biotech IPO drought, already at historic lows.

 

Drug pricing reforms will extend far beyond American borders challenging biotech ecosystems

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The ripple effects of U.S. drug pricing reforms will extend far beyond American borders, most certainly challenging biotech ecosystems worldwide. For European biotechs, the U.S. market represents not only a key revenue driver but also a crucial source of investor confidence. Biotech (but also Medtech) may face cascading challenges:

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• Funding Diversification: European companies, which rely heavily on U.S.-based venture capital, could struggle even more to secure alternative funding sources, especially as American investors reassess their exposure to biotech risk.

 

• Revenue Pressure: Many international biotech firms depend on U.S. pricing to justify costly R&D pipelines. A sharp decline in U.S. margins could force these companies to rethink their global strategies, cutting investment in innovative, high-risk projects.

 

• Strategic Shifts: With tighter pricing regulations squeezing margins capital-intensive areas such as oncology, gene therapies, and rare diseases could face reduced investment. What would be the new priorities of VCs in the field? Back to treatments for broader, more established markets, such as chronic diseases (e.g., diabetes, cardiovascular conditions) or therapies with lower development costs, such as biosimilars and generics?. Or full throttle on AI?

 

Time to Act !!

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Robert F. Kennedy Jr.'s nomination may mark a turning point in US healthcare but is very likely to mark one as well for the global biotech ecosystem. For European biotech companies and investors, this is a critical wake-up call: the U.S. market can no longer be relied upon as the sole driver of profitability and innovation.

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European players must adapt swiftly, diversifying funding sources, and, moreover, strengthening local ecosystems. The time to act is now. Time to act for entrepreneurs, time to act for investors, time to act for governments, time to act for Europe!

2024 has been a graveyard for biotech companies. Let’s avoid that 2025 becomes a slaughter.