Biotech and pharmaceutical stocks rose after the election, reflecting investor optimism that a Trump presidency would mean less focus on drug prices. Not so fast, president-elect Trump said in his interview for Time 'Person of the Year.'
“I’m going to bring down drug prices,” Trump told Time in an interview in his dining room after the election. “I don’t like what has happened with drug prices.”
No additional detail about what Trump would do to lower drug prices was available, and his transition team did not immediately respond to requests for more information.
But Adam Fein, president of Pembroke Consulting, a firm focused on pharmaceutical economics, said that what Trump may be doing is sending a signal to the industry.
“Historically, a lot of manufacturers have increased the prices of their products at the beginning of the year,” Fein said. “I think that president-elect Trump is trying to send a message to sort of encourage manufacturers to not take their usual price increases. . . . He may be trying to use his bully pulpit to signal, 'you should change the system' -- without necessarily saying how he’s going to change the system, or what should be done.”
Pharmaceutical and biotech stocks were down in mid-day trading. The S&P Pharmaceuticals Select Industry Index was down 3.4 percent and the NASDAQ Biotechnology Index was down 4.2 percent at 11:30 a.m.
Some pharmaceutical executives, believing that the drug price debate isn't likely to recede, have pressed the industry to get in front of the issue to avoid government intervention. Brent Saunders, chief executive of Allergan, wrote a blog post in September vowing to limit drug prices to single-digit percentage price hikes, once a year. Danish diabetes giant Novo Nordisk followed suit with a similar pledge last week.
“We hear from more and more people living with diabetes about the challenges they face affording healthcare, including the medicines we make,” wrote Jakob Riis, Novo Nordisk's U.S. president. “This has become a responsibility that needs to be shared among all those involved in healthcare and we’re going to do our part.”
President-elect Trump's unpredictability has already made companies in multiple industries nervous. Drug companies may refrain from big price hikes simply to stay out of his crosshairs, since the pharmaceutical industry -- already under intense scrutiny because of price hikes -- could be an easy target.
— Brent Saunders (@brentlsaunders) December 7, 2016
Fein also noted that Trump may have industry tailwinds -- drug companies have increasingly begun to talk publicly about pricing and the warped incentives that exist in the current system. List prices are generally recognized as a fiction. Traditionally, list prices do not reflect what anyone in the system pays for a drug -- or what drug companies receive -- due to a complex system of payments to middlemen and secret rebates and discounts. But as health plans have shifted toward high-deductible plans or coinsurance, patients are being affected by the list prices of drugs, and drug companies have increasingly begun to acknowledge and focus on the problem.
It's hard to know whether the Trump administration would support other policy levers to rein in drug prices. But a signal may be in his choice of Tom Price to head the Department of Health and Human Services.
In 2007, Price said that allowing Medicare to negotiate on drug prices, for example, was a “solution in search of a problem,” according to the New York Times.
This story has been updated.