The winds of political change are blowing, and it’s not doing much to help investors. Pharmaceutical and biotech stocks were already suffering as the mid-term elections drew close.
Will Trump Plus Democrats in Congress Become the Perfect Storm?
The winds of political change are blowing, and it’s not doing much to help investors. Pharmaceutical and biotech stocks were already suffering as the mid-term elections drew close. Since Democrats won control of the House of Representatives, they’ve gone lower.
The fear is obvious: Lowering drug prices, along with investment in infrastructure, may be an area where there is broad enough agreement between Democrats and President Trump to actually get something done. The presumptive new Speaker of the House, Nancy Pelosi (D-Calif.) has said as much, highlighting drug prices along with guns, immigration, and campaign finance reform as areas of focus for 2019.
For his part, President Trump has repeatedly called out the high cost of drugs, and even accused the industry of “getting away with murder.” But he’s also backed off of proposals like direct Medicare negotiations, so it’s not always been clear where the administration stands. The clearest signal is a blueprint released in May that calls for a number of relatively modest reforms, like “value-based pricing” in which drugs are discounted if they prove ineffective. It also included some interesting but seemingly hard to realize proposals, like making other countries pay more for drugs. More recently, he proposed that drug companies be forced to disclose the list price of drugs in television ads.
Many Democrats continue to support direct Medicare price negotiations, along with capping out-of-pocket expenses for Medicare beneficiaries, reimportation of drugs from countries with cheaper prices, and several other ideas. While these go further than the White House’s blueprint, they are all ideas that Trump has flirted with in the past.
Congress May Be More Industry-Unfriendly Than It Appears
But is Democratic control of one house enough to make a difference? Quite possibly.
The incoming chairman of the Health Subcommittee of the Ways and Means Committee will be Lloyd Doggett (D-Tex.), who has accused the industry of “price gouging.” Even over in the GOP-controlled Senate, Finance Committee chairman and industry ally Orrin Hatch (R-Utah) is retiring, probably to be replaced by Charles Grassley (R-Iowa). Grassley is far more critical of the industry.
So is a perfect storm forming that will take down the fortunes of drug makers? A lot depends on what Trump judges to be the better optics for him personally. Will he view successful reform as handing a win to Democrats as we move closer to the 2020 presidential race, and something to be avoided? Or does the populist appeal of lowering drug prices and fulfilling a campaign promise outweigh that? Democrats, of course, are looking at the same calculus, with potentially much more to lose. The notion of handing the President a victory going into the 2020 election cycle is going to dissuade many legislators who might otherwise support reform.
The stakes are high enough that my guess is sweeping reform won’t happen. But something smaller could be a win-win.
Trump has backed off Medicare price negotiation, one of the most popular Democratic reform concepts. If Democrats and the White House decide to go for an easier victory—around, say, price disclosure in ads or value-based purchasing that companies are already experimenting with—it could satisfy Trump politically, offer a success for Democrats, do little to hurt the industry…and leave the status quo largely in place.
Of course, that will also mean just kicking the can down the road. But what else is new?
