Pharmaceutical manufacturers received good news this month when president-elect Donald Trump won and “breathed new life into troubled industries, like Big Pharma stocks” according to a recent article published by InvestorPlace here. Industry-wide stock values that tumbled throughout the election seem to have the political winds in their favor.
Despite Trump’s mix of campaign promises that both favor and disfavor manufacturers, there appears to be no shortage of optimism, and here’s why: since Clinton supported the same two policies that would limit pharmaceutical leverage as Trump does—importing from overseas and allowing Medicare to negotiate prices—it seems those promises are not being taken seriously; meanwhile his promise to reduce federal oversight could be driving the optimism further.
Of Trump’s various campaign promises, there are five that have direct pharmaceutical industry impacts:
1.Less scrutiny over drug safety by the FDA
2.Less scrutiny over mergers
3.Less scrutiny over price increases
4.More overseas competition
5.Medicare negotiating prices
Of these five, the only ones that are virtually guaranteed are the first two or three, which largely explain why—despite statements made during the Trump campaign—drug companies’ stocks skyrocketed with the unexpected win. As pharmaceutical industry columnist Ed Silverman reported here:
“With Donald Trump elected to the White House and Republicans controlling Congress, the companies that make your medicines can expect a friendlier environment in which to operate. And investors quickly responded by boosting drug and biotech stocks.”
Since November 9th, InvestorPlace reports stock values matching values closer to where they were during the primaries across leading manufacturers such as Pfizer and Lilly. Some manufacturers such as Merck are now at a 2016 year high, although the article points out that due to a promising pipeline, “it’s fair to say that Merck & Co., Inc. (MRK) was always going to have a good year, regardless of what happened during the election.”
Let’s take a look at each of the vectors for pharmaceutical industry market change.
1.Less FDA involvement
One reason for optimism is the emphasis Trump’s campaign made on reducing the limitations from the FDA to improve patient access and innovation. Overall Trump’s “Great Again” transition website highlights a short but telling list of healthcare priorities:
· Protect individual conscience in healthcare
· Protect innocent human life from conception to natural death, including the most defenseless and those Americans with disabilities
· Advance research and development in healthcare
· Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products
· Modernize Medicare, so that it will be ready for the challenges with the coming retirement of the Baby Boom generation – and beyond
· Maximize flexibility for States in administering Medicaid, to enable States to experiment with innovative methods to deliver healthcare to our low-income citizens
Although reforms could mean more competition from generics, the lack of emphasis on Medicare’s negotiating power speaks volumes to how he might approach lowering drug prices.
2.Less scrutiny over mergers
As reported in Fortune Magazine here days after the election, mergers in the industry (and others) are likely to see less oversight than they experienced in the Obama administration in such high profile cases as Pfizer’s attempt to buy Allergan.
3.Less scrutiny over price increases
Although Trump did not take a stance on Clinton’s “price gouging” criticism of the industry, the silence is an indication that it won’t be the highest priority. He is likely to use free market principled arguments to answer the call to limit drug prices. Regulation from the feds. will likely take a back seat to free market capitalism. However, if polls are to be trusted, Reuters reported here that the cost of drugs is more important to the electorate than repealing Obamacare, so he is likely to voice concern while offering policies that are industry-friendly.
4.More overseas competition
One campaign promise that he may stick to is allowing foreign drug manufacturers unfettered access to the US market with less emphasis on restrictions designed to improve patient safety. The competitive free market and patient access arguments may work against the industry in this instance, unlike #3 above.
5.Medicare negotiating prices?
A hallmark distinction between Trump and other Republican candidates was the stance that Medicare should be able to negotiate drug prices. That issue appears off the table, to the relief of manufacturers. With strong links between Trump’s team and pharmaceutical advocates, favorable conditions for manufacturers appear likely, despite Trump’s claims earlier in the year that the pharmaceutical lobby had too much power.
In Sum: Deregulation for Manufacturers
Reducing FDA scrutiny is easy in a Republican-controlled house, doesn’t threaten the lobby base, and is likely to be received well by the public since the outcome appears to be in support of patients and could arguably impact the cost of drugs by increasing competition, especially from generics.
As for Medicare negotiations and overseas imports, those are campaign promises with a strong tailwind—possibly straight out the door.
Photo Credit: Forsaken Fotos
