[Ip-health] FT: Hillary Clinton’s defeat provides antidote for US drugmakers

Thiru Balasubramaniam thiru at keionline.org
Thu Nov 10 02:23:36 PST 2016


Hillary Clinton’s defeat provides antidote for US drugmakers

by: David Crow in New York

There were few investors who feared the election of Hillary Clinton as much
as those who held large positions in pharmaceutical stocks, and her defeat
prompted a relief rally across the sector.

Whereas “bank bashing” had proven fertile ground for other Democrats, Mrs
Clinton tried to tap into public anger over the soaring price of medicines
by targeting drug companies.

On Wednesday, the screens of pharma traders turned into a sea of green as
investors digested Donald Trump’s stunning victory.

The majority of drugmakers, including Pfizer, Merck and Allergan, closed up
between 6 and 8 per cent, while the Nasdaq Biotech index added 9 per cent.

“It just shows you how much negativity there was built in around a Hillary
victory,” said one large life sciences investor. “It was a huge wall of
worry around drug pricing.”

Mrs Clinton first took aim at the industry in September last year, after
Martin Shkreli, the “bad boy” of pharma, generated a public backlash by
raising the price of a life-saving cancer and Aids drug from $13.50 to $750
a pill.

It just shows you how much negativity there was built in around a Hillary
victory. It was a huge wall of worry around drug pricing

Life sciences investor

Her pledge to crack down on “outrageous price gouging” wiped $38bn from the
value of shares in drugmakers and left the sector in a funk from which it
never really recovered.

Ever since, the stock prices of drugmakers have tracked Mrs Clinton’s
chances. A fortnight ago, when the Federal Bureau of Investigation
announced it had discovered new emails pertinent to the investigation of
her personal server, markets tumbled — but biotech shares rallied.

Each time drug pricing was in the headlines, Mrs Clinton voiced
condemnation, singling out companies such as Mylan for raising the price of
its life-saving allergy treatment, the Epipen.

Investors and executives could have lived with fiery rhetoric, but Mrs
Clinton also published detailed proposals, including the creation of an
oversight panel with powers to levy large fines on manufacturers who
implemented “unjustified, outlier price increases”.

“Overall, I think the Clinton approach to healthcare drives you to [drug]
rationing, to a place where most consumers don’t want to be,” said Ian
Read, Pfizer’s chief executive, after the proposal was published a few
weeks ago.

Conversely, Mr Trump said relatively little about drug prices during the
campaign and instead focused on his pledge to repeal the Affordable Care
Act, commonly known as Obamacare. His one proposal on pricing, which would
have allowed consumers to import cheaper drugs from overseas, was not taken

“The scope of his healthcare policies was less well-defined compared to
Clinton,” said Brian Abrahams, an analyst at Jefferies. “Proposals that
Trump had been more vocal on, such as drug re-importation … are generally
unpopular or have low feasibility.”

Investors cited other reasons beyond Mrs Clinton’s defeat for their high
spirits. They had feared that Bernie Sanders, her erstwhile Democratic
opponent, and a perennial critic of drugmakers, would be handed a powerful
new role to police the industry.

And a proposition on the ballot in California, the Drug Price Relief Act,
which could have also provided a template for lowering the cost of
medicines nationwide, was handily defeated.

Analysts are also predicting that Congress will pass a tax reform bill that
would allow drugmakers to repatriate almost $100bn of cash that is trapped
overseas, paving the way for share buybacks and a new boom in mergers and

Amgen, the large biotech group, has $34bn of cash stashed overseas, while
Merck and Gilead have $21bn and $25bn respectively, according to figures
prepared by Evercore ISI, the investment bank.

Investors also appear to be brushing off Mr Trump’s antitrade agenda, even
though many of the big trade agreements enshrine protection of their
patents, thus allowing them to generate significant profits outside of the

“I think it’s just bluster,” said the head of one large fund investing in
healthcare. “He’s a typical real estate negotiator — he’s going to get a
couple of victories on trade and that’s that.”

Mr Trump offered few concrete policy proposals during his campaign, but he
was adamant that he would repeal Obamacare, a pledge that will be
relatively easy to fulfil given that the House and the Senate are now
controlled by Republicans.

That pledge will not trouble most of the large health insurers. All of them
had struggled to make a profit on policies sold through Obamacare, and many
had started to desert the exchanges.

Ana Gupte, analyst at Leerink, predicts a Trump presidency would be
advantageous for health insurers because it would accelerate the
privatisation of Medicare, the government-funded healthcare programme for

“We expect a friendlier regulatory environment with a Republican
administration,” she said.

Shares in Cigna, Aetna and Humana closed up between 4 and 6 per cent on
Wednesday, while UnitedHealth was down by 0.7 per cent.

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