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Pharma Finance and the Trump Effect

Jan 23, 2017 | By: Philip White
Philip White

In the month that Donald Trump becomes the 45th President of the United States, Diaceutics assesses the possible impact of the new administration on the world of pharma, diagnostics and precision medicine as rising drug prices come under fire.

Few investors cheered Donald Trump’s election as President of the United States as much as those who held large positions in pharma stock. His opponent, Hillary Clinton, had wanted to tackle pharma and drug pricing, so a Trump win prompted a wave of relief across the sector. Markets and analysts were buoyed and there was a 10 per cent jump in the NASDAQ Biotech index. Skip forward to January 2017 and the JP Morgan Healthcare Conference in San Francisco1, where top pharma executives were presenting their plans for 2017 and beyond. But the mood of positivity was suddenly cut short when Mr Trump described the pharma industry as “getting away with murder”.

In the opening remarks of his first press conference since the US election, Mr Trump chose to single out pharmaceutical companies for criticism over their product pricing.

“Pharma has a lot of lobbies, a lot of lobbyists and a lot of power. And there’s very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don’t bid properly. And we’re going to start bidding and we’re going to save billions of dollars over a period of time.” Donald Trump, 11 January 20172.

His comments sent the shares of drug makers tumbling. The NASDAQ Biotech index lost 3.7 per cent in early trading while J&J shares fell 1 per cent and Pfizer’s by 2.2 per cent.

Has there been a volte-face on drug pricing from Mr Trump?

During the campaign trail, Mr Trump had been quiet on pharma and drug pricing, so it came as a surprise when he appeared to flip into to a prolonged attack on drug pricing. It was the Clinton campaign that caused unease in pharma boardrooms with Hillary proposing that the White House could influence drug prices in the private market by empowering regulators to penalise companies for unjustified price increases. She also suggested allowing authorities to use cheaper alternative treatments, which could create competition and drive a better bargain for the government. She made a significant example of Martin Shkreli – the ‘bad boy’ of pharma – and joined the public in a backlash against his price increase of a life-saving cancer and Aids drug from $13.50 per pill to $7503.

During the election campaign the pharma stock price fell adversely as Clinton seemed to be ahead but following Mr Trump’s win stocks rebounded positively in a ‘not-Hillary’ bounce. They dipped back following his news conference comments and they have remain subdued [to 20.01.2017].

Confidence is growing around the precision medicine market

Diaceutics attended the JP Morgan Healthcare Conference and saw that the trend lines reported by pharma executives were broadly positive on the future of precision medicine:

  • The sector is on the cusp of delivering potentially game-changing immunotherapy drugs and their combination therapies;
  • There is clear movement towards precision medicine;
  • Evidence of greater collaboration in drug development and cross-sector convergence against a backdrop of increased M&A activity following a successful 2016 deal map;
  • Increased understanding around the importance of diagnostics and testing strategy.

But the volume of drug pricing discontent is getting louder

While there is a growing positivity for precision medicine and its potential for healthcare, there is growing concern about its price. Several factors have placed drug prices at the front of the public’s mind. These include the recent pricing cases, like that of Shkreli, and the fact that medical costs are increasing for individuals covered by the Affordable Care Act (ACA, or Obamacare). Also, drug prices have outpaced the rate of inflation (in 2016 drug prices increased by 6 per cent compared to all prices increasing at 2 per cent). These all add to existing public discontent. It would seem therefore that Mr Trump’s remarks are broadly in line with the sentiment of most Americans, whereas executives at the conference immediately responded by stating that drug pricing is more complicated and follows investment levels in R&D.

What can the pharma and healthcare industries expect from the new administration?

We must expect that as President, Mr Trump will begin a process to review prices. How extensive this will be we will have to wait to find out. Bargaining, however, or allowing companies to tender against each other in a competitive process that will drive down the price, would be more complicated than it sounds. It would be difficult for the Trump administration to say no to a drug regardless of price if there were no alternatives. If a regulatory authority could choose one cancer drug over another, it would amount to picking winners and losers in the market. There’s no saying where this would go but it would be an undesirable situation in terms of the future growth and development of the industry.

In response, the pharma industry is likely to pre-empt the Trump administration and fast-track an industry-led regulatory body. We will also see a move towards evidence-based economic impact models, because proving the value of precision medicine drugs will become more important as the attempt to control pricing is stepped up.

More broadly, Mr Trump’s other proposed policy initiatives, namely cutting taxes, deregulation of the banks and planned infrastructural investment, are intended to grow the economy. Certainly, cutting the taxes allowing US drug makers to release billions of trapped dollars overseas is a positive move. Amgen, Gilead, Merck, Pfizer, BMS and Eli Lilly currently have a total $100bn in trapped cash overseas. The deregulation of the banking sector will also allow greater funding in the biotech sector and this in turn increasingly feeds the pharma pipeline. Mr Trump is aware of the strength of corporate America. As 2016 closed, Bloomberg reported US market capitalisation was 38 per cent of the world’s total, a 10 year high4.

Conclusion

The election of Donald Trump ushers in a new era for the US pharma and healthcare industries as they look on and await the details behind the proposed policies. The repeal of the ACA, drug pricing reviews and a renewal of US-based manufacturing are some of the goals Mr Trump is hoping to achieve. In the meantime, pharma will remain positive and take a ‘wait and see’ approach. Those of us concerned with the success of precision medicine and diagnostics have to hope that improved patient outcomes is high on the list of the new administration’s goals, and that it doesn’t all come down to costs.

References

  1. https://www.jpmorgan.com/global/healthcareconference
  2. https://www.nytimes.com/2017/01/11/us/politics/trump-press-conference-transcript.html?_r=0
  3. http://uk.businessinsider.com/hillary-clinton-martin-shkreli-daraprim-price-2015-9?r=US&IR=T
  4. https://www.bloomberg.com/graphics/2016-year-in-money/?cmpid=socialflow-twitter-business