In his first press conference upon winning the presidency, on Wednesday, Trump went up to bat against who he deems public enemy #1: Big Bad Biopharma. As soon as Trump uttered his Murder-She-Wrote denunciation against the industry as a whole, stocks in both the healthcare and biotech sector took a massive hit.
Trump lashed out, blasting drug and biotechnology companies alike:, “We have to get our drug industry coming back. Our drug industry has been disastrous, they’re leaving left and right. They supply our drugs but they don’t make them here, to a large extent.” What’s more? “And the other thing we have to do is create new bidding procedures for the drug industry, because they’re getting away with murder,” Trump charged.
Except now when Trump in his new position of political power starts pointing fingers, markets fall. Directly on back of these remarks, quite an investor scramble ensued.
In the aftermath of the President-Elect’s threats to take on the industry’s price hikes and allegations of business dealings abroad, iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) initially stumbled about 3%.
Meanwhile, the S&P’s 500 Pharmaceuticals, Biotechnology, & Life Sciences Index took a near 2% blow from the barrage.
Trump criticized, “We’re the largest buyer of drugs in the world and yet we don’t bid properly.” As he goaded these companies, he also assured his fellow Americans of his pledge to “save billions of dollars.”
FBR analyst Chris Meekins notes that even as “Trump slams drug companies,” his promised blitzkrieg remain “unlikely” as ever. For instance, Meekins highlights, “President-elect Trump said he supports ‘new bidding procedures for [the] drug industry.’ Bidding is not a term usually used when talking about drug pricing, but we believe he was referencing Medicare negotiating drug prices.”
Yet, as far as the analyst is concerned, without a majority ruling, Congress will not be taking any “significant” attacks against Medicare, “and a majority of House Republicans do not support Medicare negotiating drug prices.”
Meekins asserts, “We continue to believe that the likelihood of Medicare negotiating drug prices is low. A majority of Republicans in Congress oppose Medicare negotiating drug prices, and HHS Secretary nominee Tom Price, M.D. has voted against negotiating, as well. Changes in the tax code could encourage drug manufacturing to return to the U.S.”
The President-elect is not exactly wrong to point out that in subsidizing these drug makers, Americans do end up paying steeper costs than in any other country.
However, it is worthy to note that these dollars are precisely what have led to incredible, cutting-edge breakthroughs from U.S. companies.
Whether Meekins is right in his confidence that Trump will not ultimately hold dominion over these companies does not change that in the short-term, investors are clearly anxious to bet on these stocks- and will continue to tread with caution.