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Executive Summary

President-elect threatens a government bidding process to control drug pricing in his first post-election press conference.




President-elect Donald Trump took another swipe at prescription drug pricing and challenged the biopharmaceutical industry’s reliance on ex-US tax havens during his first post-election press conference Jan. 11.


Trump’s high-profile comments sparked concern in the industry and on Wall Street, which sent drug stocks falling (see chart below). The general downturn erased the gains made after the presidential election, when drug stocks rose on investor relief that industry had escaped a vigorous drug pricing agenda under Hillary Clinton.

It was not the first time Trump has mentioned government price controls for drugs, but the comments are notable because it shows he is intent on keeping the industry on alert. He continues to view drug pricing as a populist issue and industry as a punching bag.

“We have to … create new bidding procedures for the drug industry because they’re getting away with murder,” Trump said.

Pharma has “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.”


Democratic Ideas


Although Trump has offered no specifics, industry worries he is referring to a plan to allow HHS to negotiate drug prices directly with manufacturers on behalf of the Medicare Part D program, an idea that Democrats have supported and the pharma industry has lobbied against for more than a decade.


The law creating Part D specifically prohibits HHS from direct price negotiation so a change would have to be made through legislation.


However, Republicans in Congress have consistently opposed such a bill. Detractors point out the Congressional Budget Office has concluded that direct HHS negotiation would not save the program money because there is no national Medicare formulary that could be used as negotiating leverage. Industry also frequently argues that individual Part D plans already negotiate pricing with manufacturers.


Some ways around the national formulary issue have been discussed in Democratic policy circles. For example, the Obama Administration has explored a process of binding arbitration in which manufacturers and HHS would agree to accept the decision of a third-party arbitrator on the appropriate price for high cost specialty drugs in Part D. (Also see "HHS Envisions Drug Price Arbitration For Part D" - Pink Sheet, 17 Apr, 2015.)



A lack of detail about Trump’s plans makes it hard to know how concerned the industry should be. His remarks could be viewed a way to push industry into developing solutions on its own to avoid government intervention. (Also see "Trump’s Drug Pricing Remarks: A Gambit For Industry Self-Restraint?" - Pink Sheet, 7 Dec, 2016.)


In a research bulletin, Leehrink analyst Seamus Fernadez notes Trump’s comments create an environment of uncertainty. As a result, “we continue to recommend that investors focus on companies … that are either in or repositioning their companies toward categories with greater and more durable pricing power, like oncology and rare disease,” he said.


Meanwhile, big pharmas are busy positioning themselves as separate from “bad actors” in industry. A number of companies at the J.P. Morgan Healthcare conference emphasized their focus on “transformational innovation” to produce high-value treatments.



Tax Reform To Stem Ex-US Migration?


Trump’s comments also sought to link the drug industry to his narrative about bringing jobs back to the US, which could be read as a willingness to take on corporate tax reform, something the industry strongly supports.


“We’ve got to get our drug industry back,” he said. “Our drug industry has been disastrous. They’re leaving [the country] left and right. They supply our drugs, but they don’t make them here, to a large extent.”


Although he didn’t specifically mention tax reform, Trump referred to a situation created by industry’s interest in avoiding US taxes, suggesting he might be open to the possibility of a tax holiday, or even broad corporate tax reform. (Also see "Pharma Is Ready And Waiting For A Tax Holiday Under Trump" - Pink Sheet, 9 Nov, 2016.)


Even before the press conference, industry has been trying to tie tax reform to US production. Julie Gerberding, executive vice president and chief patient officer in global public policy and public health at Merck & Co. Inc., commented Jan. 10 at the Biotech Showcase meeting in San Francisco that "We manufacture things in places that might not be the most economically efficient over the long run because of the confusion and difficulties that we have with taxes.” (Also see "The Trump Administration: Seven More Things To Watch Out For" - Pink Sheet, 11 Jan, 2017.)


Nevertheless, the prospect of tax relief was not enough good news to offset the threat of government price controls. All in all, it was not a good day for industry.





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