On Tuesday, Health and Human Services Secretary Robert F. Kennedy Jr. (RFK Jr.) hosted a conference to make a big announcement. The Food and Drug Administration (“FDA”) will officially be banning petroleum-based food dyes in the U.S.

To quote the FDA’s related news release, the government will:

  1. “[Establish] a national standard and timeline for the food industry to transition from petrochemical-based dyes to natural alternatives.

  2. [Initiate] the process to revoke authorization for two synthetic food colorings – Citrus Red No. 2 and Orange B – within the coming months.

  3. [Work] with [the] industry to eliminate six remaining synthetic dyes… from the food supply by the end of next year.”

It will also authorize “four new natural color additives in the coming weeks” and accelerate reviews of others. Kennedy explained the rationale behind these plans, saying that:

For too long, some food producers have been feeding Americans petroleum-based chemicals without their knowledge or consent. These poisonous compounds offer no nutritional benefit and pose real, measurable dangers to our children’s health and development. That era is coming to an end.

These moves obviously affect Big Food stocks, which fell on the news yesterday even while the larger market shot up. As just one example, General Mills (GIS) – known for its bright, colorful cereal brands – fell as much as 2.5% over the past two days even as the broader market rebounded.

Some life science and technology shares were also under pressure.

In fact, many of them have been falling for six months straight since the Make America Healthy Again (“MAHA”) movement helped propel Donald Trump back into the White House.

The same goes for their landlords like real estate investment trust (“REIT”) Alexandria Real Estate (ARE), which owns several biotechnology labs leased to the major life science players. But I think these sell-offs are extremely overdone, leaving real bargains for us to find.

The RFK Jr. Effect on Life Science and Technology

I already wrote about PepsiCo last week, so I won’t go into great detail about it today. I’ll just note something FDA Commissioner Marty Makary, MD, MPH, said during the RFK Jr. conference:

Today, the FDA is asking food companies to substitute petrochemical dyes with natural ingredients for American children as they already do in Europe and Canada.

In other words, these companies already have the research and resources necessary to make the switch. More to the point, companies like Pepsi are already selling products that meet these new standards in markets like Canada. Now, they’ll have to do the same in the U.S.

It’s only a matter of implementation, which will certainly cost money… just not enough to warrant the intense stock price dips we’ve been seeing.

As for life science and technology companies, that could be a different story to some degree. This classification is pretty broad, including pharmaceutical operations, biotechnology, medical devices, biomedical technology, food processing, nutraceuticals such as vitamin and supplement production, and cosmeceuticals that combine cosmetics and pharmaceuticals.

That makes for a long list of potential tenants for a life science and technology landlord like Alexandria Real Estate – most of which could be in for some significant changes if RFK Jr. has his way.

Last November, life science-specific consulting firm PRP had this to say after Trump’s re-election: “The appointment of Robert F. Kennedy Jr… to a significant role in U.S. health policy could result in a major shift in regulatory and operational priorities for life science companies.”

More specifically, PRP anticipates such changes as:

  • Fewer fast-tracked approvals for controversial products,

  • Stricter regulations on vaccines,

  • Tighter regulations on drug pricing,

  • More “environmental oversight for pharmaceutical and biotech production facilities, including limits on hazardous waste and emissions.”

I would also add that if RFK Jr. has his way – and is right about current standards leading to higher levels of chronic sickness across the nation – far fewer people will actually need pharmaceutical products years and decades down the road.

In which case, it’s hard to see how the greater life science and technology sector won’t escape unscathed. I’ll fully acknowledge that very real possibility.

Yet, again, that doesn’t automatically translate to bad things for their landlords. And let me tell you why.

There Are Plenty of Life Science and Technology Fish in the Sea

For starters, I’ll go back to that “long list of potential tenants for a life science and technology landlord like Alexandria Real Estate.” It’s a list that could easily grow under President Trump’s tariffs.

Did you see how Switzerland’s Roche will invest $50 billion into the U.S. over the next five years? That announcement came on Tuesday, making it the second pharmaceutical giant to make such a massive move this month. The first was Novartis with a $23 billion plan.

And both companies were doubtlessly aware of the RFK Jr. threat before they made those decisions.

Of course, both also plan to build new facilities. But they’re good for that kind of money. Roche has approximately $8.4 billion in cash and equivalents on hand. Novartis has just under $8 billion. Both are investment-grade rated with strong cashflows, meaning they’ll have no trouble with financing.

Most other members of the industry are not. Therefore, smaller or mid-size companies looking to establish working space in the U.S. are much more likely to rent. And ARE provides some of the best facilities available.

Source: Alexandria 3Q24 Presentation & Release IR

Then there’s the growing movement to create “clean” products that are environmentally friendly and toxin-free. Market research and consulting firm InsightAce Analytic reported just weeks ago that the “global sustainable beauty and skincare market” was valued at $190.7 billion last year and should hit $433.2 billion by 2034 “at an 8.6% CAGR [compound annual growth rate] during the forecast period.”

That’s just one growth story that could easily benefit ARE. Another is vitamin and other natural supplement production, which could similarly skyrocket under the MAHA movement.

These clean products, whatever they are, still require physical space to test out and manufacture – space that Alexandria Real Estate has plenty of. The REIT offers 39.8 million rentable square feet of operating properties with another 4.4 million under construction.

Its facilities are top of the line, designed precisely to foster the kind of research and development its kind of tenants do. Ordinary office and industrial space just can’t cut it in this industry.

That’s why ARE has been able to build itself into a best-in-class, mission-critical power player with a $29 billion market cap included on the S&P 500.

One Fool’s Trash Is a Wise Investor’s Treasure

So will there be changes? I think that’s pretty obvious considering RFK Jr.’s conference on Tuesday. I’m sure his “war” on the food industry is only the beginning.

But will they be catastrophic for ARE? That’s what you would think from a stock price that’s fallen almost 35% in the last six months.

However, I just see that as a buying opportunity considering the REIT’s savvy management and strong balance sheet. ARE has liquidity of $5.7 billion with only 14% of debt maturing over the next three years. Plus, it’s investment-grade rated (BBB+/Baa1) with a net debt and preferred stock to adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] ratio of 5.2 times.

ARE will report its first-quarter results late on Monday, April 28. And analysts do expect it to show adjusted funds from operations – the real estate equivalent of earnings – of $7.63 per share in 2025, which would reflect only modest growth of 2% for the year.

However, its dividend, which is currently yielding 6.9%, is well-covered. And even with modest multiple expansion, shares could surge by 30% or higher over the next 12 months.

Once earnings wrap up, I’ll be writing a more detailed article on all life-science REITs that include Alexandria – the only pureplay landlord of the bunch – Healthpeak Properties (DOC), Kilroy Realty (KRC), and Boston Properties (BXP).

And speaking of future topics, here’s another one I expect to cover before long: My team and I expect merger and acquisition activity (M&A) to ramp up as pharmaceutical companies seek to backfill their pipelines with innovative medicines.

Given a more lenient Securities and Exchange Commission/Federal Trade Commission environment, the M&A cycle should shake the industry in more overtly positive ways… upgrading some pharmaceutical tenants and even expanding Big Pharma footprints in some cases.

There’s a lot to discuss – and profit on – going forward. And I can’t wait to write about it as the news develops from here.

Stay tuned!

Regards,

Brad Thomas
Editor, Wide Moat Daily

MAILBAG

What effects do you think the RFK Jr. policies will have on the economy as a whole? Write us at [email protected].