US drug pricing reform has lifted an overhang on the biotech sector that has existed since Bill Clinton came to power three decades ago.

For Trevor Polischuk, manager of Worldwide Healthcare (WWH), an announcement on drug pricing measures has allowed biotech to ‘breathe’ and attracted new investors to the sector.

Interviewed at the recent Frostrow investment companies conference, Polischuk said: ‘Over the last couple of years that overhang really got heavy on the sector as Joe Biden took office, the Democrats controlled Congress in the US and were threatening to pass some sort of legislation relating to drug pricing for seniors.’

Provisions included in last year’s Inflation Reduction Act will allow the government to negotiate prices on the costliest prescription drugs covered by Medicare from 2026, but only if the medication has been on the market for a certain amount of time (nine years for drugs and 13 years for biologics) and only if the medication does not have a comparable alternative.

The sector is ‘suddenly off the bottom’ Polischuk believes, thanks to clarity on this coupled with the emergence of M&A activity in the middle of last year, which followed the longest and largest drawdown in biotech history in both absolute and relative terms.

‘Once we start getting M&A it starts to attract other investors,’ said Polischuk, a partner at Orbimed Advisors in New York. ‘Other investors start asking why are these companies being bought for 100% or 200% premiums?

‘It’s because they have fascinating stuff in their pipeline – new drugs, new product opportunities, potential new cures, and that also attracts investors into single-stock ideas and the whole sector starts to rise.’

Worldwide Healthcare, a diversified £2bn portfolio spread across healthcare equipment and service providers as well as drugs developers, has struggled in the past five years, generating a 26.6% total shareholder return that has underperformed the 70% of the MSCI World Health Care index. Over 10 years, it has provided a 221% return ahead of the benchmark’s 213%.  The shares trail on a 10% discount to net asset value.