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The impact of Trump's victory on pharma and healthcare

Donald Trump’s presidency is unlikely to leave any industry untouched. But how will pharma, biotech and healthcare fare when he takes office?
Trump/Obama Care

Outwardly, the election of Donald Trump to the White House and the Republicans controlling both the House of Representatives and the Senate should be a positive step for the life science sector.

That's particularly true when we consider Clinton's proposed policies to require pharma companies to spend a defined portion of their profits on research and development, ending tax breaks for pharmaceutical advertising and allowing Americans to import lower-priced drugs from other countries. This latter view was shared by Trump but it is expected to be difficult to implement, given the power of the pharmaceutical lobby group.

Further, Trump's victory meant the evaporation of Clinton's promise to create an oversight panel with the power to impose a set of harsh enforcement rules to control aggressive pricing of pharmaceuticals in the US. The result was a 16% bounce in the NASDAQ Biotech index and an 8% increase in the US Pharma & Biotech index.

Drug price controls
It remains to be seen whether or not Trump will stand behind his campaign promise to control drug prices - nothing has been mentioned since his victory and it is likely that the pharmaceutical lobby group ($148m in 2015, according to the Center for Responsive Politics) will press for the status quo to be sustained, the argument being that action to lower or impose drug price controls will not only reduce its ability to invest in research but will lead to fewer new therapies. The industry typically spends around 15% of revenues on R&D and 25-35% on sales and marketing. Arguably a shift in cost allocations is needed, given the recent emergence of precision medicine in which therapies can now be developed to help specific patients with specific problems.

Be that as it may, the issue of drug prices is unlikely to dissipate with Donald Trump as President - or at least, not according to senior pharmaceuticals executives. Indeed, Sanofi warned that pressure on pharma companies to cut prices is likely to continue in the US, while Sir Andrew Witty - departing CEO of GSK - recently stated that since pharma was already going to be subject to more pricing controls, the election victor was inconsequential for the sector. Payers and healthcare systems will still pay for innovation but will not do so without clearly evidence-based outcomes.

[Trump's] dissatisfaction with Obamacare is shared by many but a defined plan and concrete policies are needed

Repealing Obamacare?
Trump has made it clear that he would like to repeal the Affordable Care Act, which extended medical insurance to 25 million more people by expanding the Medicaid plan for the poor, creating subsidised coverage for individuals, thus enabling healthcare access to a total of 40-45 million people.

However, it may be that Obamacare stays out of the firing line, as it would seem that Trump generally opposes interfering with the drug industry. Instead, he would like to eliminate the individual mandate, which requires all US citizens to have an insurance policy, and replace it with tax deductible health insurance plans. He has also demanded greater price transparency from all healthcare providers, so that individuals can shop around for the best prices for procedures, exams or any other medical related interventions.

This may be easier said than done; nonetheless, pressure on healthcare costs is likely to continue. US healthcare spending is rising at an unsustainable rate, increasing 5.3% to $3.0tn in 2014 - or $9,253 per capita. As a share of GDP, this was 17.5%, up from 17.3% in 2013. The 2014 growth-spurt can largely be blamed on major coverage expansions under the Affordable Care Act, particularly for Medicaid and private health insurance, which contributed to an increase in the insured share of the population.

Predicting the unpredictable 
True to form, it has proved hard to pin down Trump's policies on healthcare. His dissatisfaction with Obamacare is shared by many but a defined plan and concrete policies are needed. It seems unlikely that Trump will take a truly aggressive stance on drug price controls, but his unpredictability means that the real impact of his victory cannot be known until his graduation to President next year - the promises he made during his campaign may to come to nothing. In the meantime, pharma, biotech and healthcare sectors must - along with the rest of the world - wait expectantly.

Alex Pye and Mark Brewer are life science analysts at finnCap

20th January 2017

From: Healthcare

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