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Stock Analyst Update

Trump's Plan Will Have Little Impact on Pharma, Biotech

The pricing power of branded drugs in the U.S. still looks strong.

The Trump administration’s policy paper titled “The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” offers proposals that don’t impact our moat ratings in the Big Pharma and Biotech industries, and the pricing power of branded drugs in the U.S. still looks strong. The blueprint’s near-term focus largely supports increasing generic drug competition, slightly strengthening Medicare drug price negotiations, improving drug price transparency, and providing more information to help patients lower out-of-pocket costs, all of which we believe have a limited impact on branded U.S. drug prices. The mild policy proposals appear to largely build on the 2019 U.S. Budget Proposal and the drug white paper issued by the Council of Economic Advisors in February. In aggregate, we think the proposals would likely impact less than 1% of U.S. drug spending, excluding the potential changes to negotiations for Medicare Part B drugs, which could offer another 1%-2% reduction in U.S drug spending depending on the exact implementation.

Overall, the blueprint’s proposals create minor headwinds to branded drug pricing. Regarding the proposal to increase generic competition, we have viewed the branded drug industry’s tactics of limiting generic competition as relatively ineffective. For generic biologics (biosimilars), we have largely assumed swift competition following patent losses, which is already in line with these policy efforts to increase generic competition on hard-to-make drugs. The policy proposal to limit the use of Risk Evaluation and Mitigation Strategies to delay generic competition is rarely used, but could potentially impact some drug firms; for example, Celgene and its key drug Revlimid could face additional generics and more rapid launches once generics are reviewed by the FDA.

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