Americans and the rest of the world are trying to come to terms with the election result that saw political outsider Donald Trump elected to succeed Barrack Obama as US president. The implications of this electoral upset will unfold over the months and years to come, but here are my early expectations for the pharmaceutical industry as a result of this vote.
Pharma shares surge
Pharmaceutical company shares promptly rose as a result of the election result. The initial market reaction, no doubt, has been due to expectations that Trump is the lesser of two evils as far as drug price control goes. Unlike his rival Hillary Clinton, Trump never spelled out a vision for pharmaceutical pricing policy in case he was elected. Clinton, on the other hand, announced some very specific plans which - in the unlikely case they were supported by a Republican-dominated Congress – may have led to significant market access constraints for pharma. Specifically, in order to address high drug prices in the US, she proposed:
- Directly intervening to make alternative treatments available and supporting alternative manufacturers that enter the market and increase competition to bring down prices and spur innovation in new treatments.
- Allowing emergency importation of safe treatments from developed countries with strong safety standards.
- Introducing penalties for unjustified price increases to hold drug companies accountable and fund expanded access.
The market’s reaction today has been, in my view, simply a case of celebrating the fact that Clinton will not be in a position to sponsor such measures as president, but some form of price control may be considered by Congress with or without Clinton’s involvement. Thus, I view this celebration as a bit premature. Pharma has more to lose from a Trump presidency and the worst part is that he is to a great extent an unknown opponent. Traditionally, a Republican victory would have meant more support for business, but Trump is not a traditional Republican.
End of free trade deals looms large
Some of the measures he has mentioned so far – while not focused on pharma – may have negative implications for pharma. Unraveling of some of the free trade deals will result in the introduction of tariffs on goods imported into the US, and likewise US medicines exported to other countries. Furthermore, such deals are often linked to extended intellectual property protection: the Trans-Pacific Partnership (TPP), which may now completely unravel, is a case in point. TPP has extended to five years' data-exclusivity protection for biologics in the other TPP members without setting a maximum term. If Trump leads the US out of agreements such as NAFTA and TPP emerging markets that have signed these agreements may no longer provide the current patent protection terms to US-imported medicines.
ACA repeal is a possibility
Another serious threat to the pharma industry is what will happen should Trump carry out his pre-election threat of repealing the Affordable Care Act (ACA), popularly known as Obamacare. Trump has said in the past that ACA should be repealed and replaced with “something absolutely much less expensive". With a Republican majority now in both the House and the Senate, the task of repealing Obamacare has become easier, although Trump is likely to need a majority of at least 60 for a full repeal.
Even if ACA is not repealed in full, there is a high chance that Republicans will chip away at the provisions of the law by refusing funding: for examples, through a reconciliation bill which requires just a simple majority to pass. In fact, a reconciliation bill was introduced last January preventing Obamacare’s expansion of Medicaid and subsidized health insurance. That bill was vetoed by Obama, but with Trump at the helm, protecting the tenets of ACA is uncertain.
The conundrum for Trump and the Republican majority in Congress now is that after six years of experience with ACA, completely repealing the bill may not be politically expedient. If a complete repeal of ACA is supported by Congress, 22 million people, according to Congressional Budget Office estimates, will lose access to health insurance following a two-year transition period. Would two years be enough for Republicans to come up with a replacement for ACA that is less costly? Trump has given limited details on what his vision for healthcare reform is, but a few key measures stand out:
- Introducing tax-free health savings accounts to help people cover healthcare costs;
- Allowing individuals to deduct the cost of their premiums on their personal income tax returns
- Permitting health insurers to sell policies across state lines in a bid to boost competition in the healthcare sector.
There are limits to how successful an ACA replacement could be particularly if it drops the requirement for mandatory health insurance for individuals and the requirement for health insurers to cover pre-existing conditions. While these measures, which form a critical part of Obamacare, may have reduced health insurer profits, they have resulted in an unprecedented rise in the number of Americans covered by health insurance. A return to the pre-ACA state of affairs will be, for many, unthinkable.
Whatever the final outcome, we are facing at least two years, and possibly four, of uncertainty in health insurance regulations and in access to healthcare in the United States. This uncertainty would, in my view, negatively impact the pharma industry: on the one hand, health insurers, unsure about what will be required of them, are unlikely to reduce pressure on formulary listings and their quest for price discounts; on the other, if the number of patients with access to health insurance is drastically curtailed in the US pharmaceutical sales would certainly suffer.