After President-elect Donald Trump accused big pharma companies of “getting away with murder,” his inflammatory comments sent a shock wave through the market, leaving the S&P 500 to take a dip into the negative and knocking the iShares NASDAQ Biotechnology down a sharp 3%.
Yet, for Piper Jaffray analyst Joshua Schimmer, Trump’s charges against the industry strike him as ironic, considering “it’s actually one of the few industries prolonging life.”
Nonetheless, Schimmer does not entirely disagree with Trump’s criticisms of the drug makers’ steep price games, agreeing it might be time to change the rules.
Trump admonished in his press conference last Wednesday, “Pharma, pharma has a lot of lobbies and a lot of lobbyists and a lot of power and there’s very little bidding on drugs,” adding, “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.”
While the President-elect’s politics might be incredibly divisive, it is true that the public’s frustration with big pharma companies making magnified profits on overpriced drugs has become heated. With Trump backing these drug makers into a corner and health care investors frazzled as the new administration prepares to dawn, breakneck prices might be ready to meet their match.
Schimmer poses the key question: “Does the biopharma industry have enough friends?”
The analyst believes the time has come that the pharma industry has been stripped of its bureaucratic buffers. “While biopharma claims to have friends on both sides of the aisle, Trump has indicated that the industry is no longer politically protected […] and we doubt many will be willing to stand up for the industry when it comes to pricing negotiation given how aggressive Trump can be with his Twitter account and how unpopular the pharma industry is with the public,” Schimmer contends.
Take the case of Mylan (NASDAQ:MYL) and its revolutionary product, the EpiPen, an epinephrine injection to treat a life-threatening allergic reaction otherwise known as anaphylaxis. It’s a life-saving drug; but one that has seen price hike after price hike since it first made its way to the public in 2007. A decade later, the injection is 500% more expensive than when it first was sold. Close to 150,000 of a concerned public have signed a petition in desperation, pleading to relegate this necessary drug to a more reasonable price.
CVS has countered Mylan with a generic version of the allergy-treating injector, offering weary consumers a solution at one-sixth of the $600 Epi-Pen.
This a public that saw Trump’s wrath as a welcome first strike of action.
From Schimmer’s standpoint, “There is merit to his point that the government should be allowed to negotiate drug prices (like private payors do) which would have its greatest impact on more competitive classes while sparing monopolies and innovation (the way it should be?) Negotiating doesn’t mean a total collapse of prices, as we’ve seen with PBMs, but could be another effective tool to reign in spending and force the larger companies to improve their innovation engines and/ or increase rates of acquiring/in-licensing high quality innovation which is readily found in the small/midcap world.”
Whether you like or loathe the President-elect, the big bad biopharma problem might not come down to a party issue. As far as Schimmer sizes up the issues at hand, he ultimately recognizes a happy medium can exist between cost-effective solutions without eliminating the dynamic spirit of invention.
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