The Trump Rally: GOP Sweep Is Good News For Biopharma – But Don’t Get Carried Away

Wall Street has made up its mind that the Nov. 8 US elections were great for biopharma companies. But is it really that clear cut?

Investors didn’t take long to digest the surprising election victory of Republican Presidential Candidate Donald Trump before settling on the biopharma industry as a big beneficiary.

Biopharma stocks soared across the board, as investors cheered both the reduced prospects of direct intervention on drug pricing and the increased chances of corporate tax reform. (Also see "Pharma Stocks Rally As Election Dust Settles" - Scrip, 9 Nov, 2016.)

But is the outlook as rosy as that reaction makes it sound? There are certainly good reasons for biopharma companies to feel good about the GOP sweep on Nov. 8. But there are also – to put it mildly – uncertainties to worry about.

Here are three reasons for drug companies to be happy with the results – and three reasons to worry.

Three Reasons To Celebrate

• No Clinton pricing plan to worry about.  All those memos and white papers can go in the trash can, or – more accurately – back on the shelf for another four years. While there is no saying for sure that Trump won't go after the drug industry (see below), his campaign has not made it a priority issue. The likelihood of Administrative action and/or significant new legislation to address pricing is clearly much lower than it might have been.
• No drug pricing hearings chaired by Bernie Sanders.  For most of the election cycle, a Democratic takeover of the Senate looked at least as likely as a Clinton victory. While no one knew for sure where Vermont Independent Sanders would have landed in the reorganized structure, he would definitely have had a lot more leverage to go after companies over pricing. That explains why his recent complaints about insulin price increases got so much attention. Sanders still has a national profile that he didn’t have before his primary campaign – but he doesn’t have the power to set hearing agendas or issue subpoenas.
• No Prop 61 to fight. Arguably the most important victory for the innovator industry on election night was the defeat of a California ballot initiative intended to deliver lower prices to the state. While the impact of the proposal was uncertain at best, the symbolic value of its defeat is immense. After all, this was the year that drug pricing was supposed to be an irresistible, bipartisan populist issue – and Sanders went to California to campaign in support of this proposal in particular. The pharmaceutical industry mobilized against it and defeated it, by a fairly comfortable margin, even as California predictably stood out as a Democratic stronghold on election night. For the industry, this is really a double win: they don’t have to try to fight the implementation of the measure in court or on Capitol Hill – and they have delivered an important message about the strength of the industry lobbying at the start of the new Congress.

Three Reasons To Worry

• No one knows how Trump will govern. If you have questions about what a Trump Administration will look like, you are not alone. It may end up looking more or less like the administration that any Republican candidate would have put together. Or it may look a whole lot different. Consider the list of names circulating for HHS Secretary. Two names that come up are Florida Gov. Rick Scott or former Louisiana Gov. Bobby Jindal. Both feel like typical GOP picks. Then there is Ben Carson, whose primary qualification would be that he is a physician who endorsed Trump quickly after dropping out of the GOP primary race. That does not feel like a normal HHS secretary selection. For biopharma companies, the make-up of Trump’s transition team is very reassuring, with New Jersey Governor Chris Christie and long-time industry executive Rich Bagger playing key roles. But until Trump formally makes some nominations, it is purely speculative to assume his Administration will look like a conventional one.
• What happens to FDA? Normally, a Republican Administration would be greeted as a sign that FDA will be pushed to be more pro-innovation, and less cautious on new drug approvals. However, it is all but impossible to imagine FDA operating in a more pro-innovation mode than it has shown in the past few years. On the other hand, it is very easy to imagine it getting worse. Any transition is disruptive, and the transition from Obama to Trump could feel extremely disruptive. FDA is already facing challenges recruiting and retaining staff; if morale were to decline and senior staff start to depart, there could be a significant erosion in the climate for drug reviews. Those issues will depend heavily on who the new administration chooses to run FDA – and how quickly new leadership is installed and can win the trust of the career staff.
• Repealing ACA is not inherently good for pharma. It is worth remembering that the biopharma industry supported the Affordable Care Act, and did so at great cost (in the form of rebates, discounts and fees). Repealing the ACA is clearly a high priority for the GOP and Trump, a rare area where the new President’s agenda aligns with the establishment of the party. In theory, Republicans want to repeal the law and replace it with something “better,” and there is certainly a best case scenario where the GOP action ends up improving the stability and quality of insurance coverage. But it is probably more likely that fewer people will have good insurance after the repeal – and possible that a whole lot of people will lose insurance. And there is no reason to believe that the “repeal” will include all of the rebates and fees agreed to by pharma – nor should the industry want things like the donut hole discount to be repealed. (Also see "Trump’s ACA Repeal: What’s In It For Biopharma?" - Pink Sheet, 9 Nov, 2016.)The ACA debate will likely dominate the first few months of the new Congress. For biopharma companies, that is better than fighting over drug pricing – but there is still reason to worry that the industry has more to lose than to gain in that process.

From the editors of the RPM Report