The drug industry is just wrapping up what looked like an upbeat week here at the J.P. Morgan Healthcare Conference in San Francisco, where all of the healthcare industry’s biggest executives come every year to court investors and negotiate deals. This is the where big mergers are conceived. But now every pharma and biotech executive has a lump in his throat (they’re mostly men). Because of Donald Trump.
Many pharmaceutical executives hoped that because of the Republican Party’s long-term opposition to price controls and love of free markets, a Trump presidency would involve fewer controls on drug prices than a Hillary Clinton one. But at his first press conference today, Trump made it very clear that is not the case. Here’s what he said, via NPR:
“I think a lot of industries are going to be coming back. 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. And the other thing we have to do is create a new bidding procedures for the drug industry because they’re getting away with murder.
Pharma has a lot of lobbies, a lot of lobbyists and a lot of power. And there’s very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don’t bid properly. And were going to start bidding and were going to save billions of dollars over a period of time.”
The “we have to get our drug industry coming back” refers to tax inversions–companies like Mylan, Allergan, and Valeant that have tax domiciles outside the U.S. but operations based here. It also seems to refer to that fact that many drugs are manufactured outside the U.S. So it might sound like a hug, but it’s not. But it’s that second part that will really hurt pharmaceutical companies: the idea that Medicare, the biggest buyer of drugs, will start negotiating drug prices. This is an idea that was popular with Bernie Sanders and Hillary Clinton. It is something drug companies have spent years fighting, because if Medicare has power to insist on a price, they will probably have to pay it.
As with most of Trump’s statements, there is no detail on how this would happen. If Medicare doesn’t have the ability to refuse to offer a medicine, it won’t really be able to lower prices much. Much of Medicare is now run by private sector insurers like Humana or Aetna, who already bid on drugs to get lower prices (this is known as Medicare Advantage). Republicans in Congress may not go along with this. Creating real government bidding on pharmaceuticals could be difficult and tiresome.
Those are details. Donald Trump doesn’t care much for details. The message here is simple and clear:
Donald Trump is going to be a populist president. Pharmaceutical companies are a popular villain. That’s it.
And there are ways Trump could use executive power to hurt drug companies that charge high prices. When Dendreon, a Seattle biotech since bought and sold by Valeant Pharmaceuticals, introduced a cancer drug that cost almost $93,000 in 2010, Medicare put it through a gauntlet called a National Coverage Determination, slowing adoption of the drug. (It flopped.) There are plenty of steps a Medicare administrator motivated by working for an angry Donald Trump could take to hurt a drug company whose price had been deemed too high.
Drug company executives have not been blithely unaware that this might happen. Some have been addressing it publicly. In December, at the Forbes Healthcare Summit, Allergan Chief Executive Brent Saunders announced an expanded patient assistance program to make sure that patients could get access to Allergan medicines for mental illness and infectious disease. He’d also pledged not to take large price increases, limiting Allergan to 10% increases no more than once a year. Here’s what he said about Trump at the time:
“I worry today that the pharmaceutical industry has a very false sense of relief or security because of a Trump administration and a Republican Congress. I think we should recognize that the drug pricing issue is a populist issue. Americans are rightfully angry. The fault is not, surely, on the pharmaceutical industry’s shoulders, but we bear that because we make the drugs. We innovate the drugs, and as a result of that, whether we like it or not, or we want to try to explain it or not, we have to deal with it.
To think that President-elect Trump isn’t a populist, that he won’t jump on the next EpiPen scandal and tweet more than Hillary Clinton tweeted, or anybody else, because he’s a prolific tweeter, against any company that does something like that, you’re fooling yourself. I think perhaps the best thing that came out of this election is we have a moment in time to solve it ourselves. Maybe it’s a few months, maybe it’s several months, but we don’t have a lot of time. The next big scandal will revive the debate and probably then some because I think President-elect Trump will be more vicious, more focused on taking down or fighting whoever does something egregious again.”
It turns out that Trump didn’t wait for the next egregious drug price increase. He just threw his comments into his first press conference. It doesn’t matter that Gilead Sciences cured hepatitis C, or that vaccines made by Merck and Pfizer and Sanofi keep American kids from dying of meningitis or measles. (In fact, yesterday, Trump said he was considering a commission on autism that might look at the issue of whether vaccines cause the disorder–even though it is settled.) People are mad about drug prices, and they don’t like drug companies, and that makes this a great issue for Trump.
Better yet, it could become a bipartisan issue, one of the few where Democrats will come across the aisle to support change, if anybody can figure out what change is. The pharmaceutical industry has just been thrown in a hole, handed a shovel, and told to dig itself out.
One of the key voices to listen to on this is that of Leonard Schleifer, the founder of Regeneron Pharmaceuticals, a Tarrytown, N.Y., biotechnology company. Regeneron has become a $4.7 billion (sales) company thanks largely to a drug called Eylea, which treats age-related blindness. Schleifer, who is a billionaire because of his Regeneron stake, has become a critic of his peers. Here at the J.P. Morgan meeting, he went off-script during his investor presentation and spent more time talking about drug pricing and the industry’s reputation than about his own company’s finances.
It was a line of discussion that he’d started at the Forbes Healthcare Summit. I asked a panel of pharmaceutical chief executives why the industry is so hated. After the others had answered, Schleifer was literally quivering in his seat. “If you look at the prices of drugs, they have gone up, sometimes double digits twice a year as a very efficient way of increasing profits without coupled to any innovation,” Schleifer said. “It’s ridiculous. It’s no wonder. I hate us also when I see all this stuff.”
Ian Read, the chief executive of Pfizer, disagreed. “The point I want to make is that the total cost of drugs as a percentage of healthcare has not changed in two decades,” Read says. “I don’t know whether you talk about three prices a year, two prices a year, double digits, not double digits. The cost of drugs have not changed as a percentage of healthcare in two decades, so it’s a red herring.”
Schleifer zinged back that drug companies are not “entitled to a fraction of the GDP,” but Read had a point. John Milligan, the chief executive of Gilead, had an even better one when he said, “Let’s talk about the people who are alive.” Gilead was vilified for charging $96,000 a year for Sovaldi, its hepatitis C drug. It didn’t get any credit for the fact that the drug was a cure, and arguably a cost-saving one. But here’s the reality: Schleifer and Saunders are reflecting the popular mood. The arguments Read and Milligan are making are arguments drug companies have been making for years. The pharmaceutical industry used to be one of the most respected in the country but now–maybe because of bad things it’s done, maybe because of a general anti-science sentiment, perhaps because of both–it is one of the least. And those arguments aren’t about to start working in 2017.
There’s no doubt that Trump’s statements are merely an opening salvo, a negotiating position. Things may not be as bad as they sound. It’s also almost certain that Trump and the Republican Congress will put through tax policies that will allow pharmaceutical companies to bring back many billions of dollars in off-shore cash they’ve been protecting from U.S. taxes. The industry is still launching all sorts of innovative products, and these will make money. But for the drug industry as a whole, things just got materially worse.