This story has been updated.
SAN FRANCISCO -- At his first news conference as president-elect on Wednesday, Donald Trump accused the pharmaceutical industry of “getting away with murder” and said that he would change the way the country bids on drugs to bring prices and spending down.
“Pharma has a lot of lobbies, a lot of lobbyists and a lot of power. And there’s very little bidding on drugs,” Trump said during the event at Trump Tower in New York. “We’re the largest buyer of drugs in the world, and yet we don’t bid properly.”
Federal law forbids the government from negotiating with drug companies to bring down the price of drugs for seniors using Medicare. While Trump did not announce a specific plan to address the issue, he has in the past called for ending the policy -- a proposal that Democratic lawmakers have repeatedly put forward.
The comment dropped a bomb into the middle of the drug industry’s major annual investor conference underway in San Francisco this week, sending pharmaceutical and biotech stocks plunging. The iShares NASDAQ Biotechnology Index closed down 3 percent Wednesday.
Speaking at the JP Morgan Healthcare Conference, Mylan Pharmaceuticals chief executive Heather Bresch, who has been under scrutiny for her company’s repeated list price increases on the lifesaving allergy drug EpiPen, said that it would be “premature” to respond to the president-elect’s comments because his specific plans are unknown. But she said the growing public outcry over the cost of drugs has convinced her that the system must change.
“If anybody is walking away from this conference thinking ‘business as usual,’ I think that’s a mistake,” Bresch said. “The pricing model has got to change. It’s not incremental change; I don’t think that’s what this country needs. I think it’s truly rethinking the business model.”
Pharmaceutical company AbbVie announced during the conference that it would temper its drug prices to single-digit increases annually, following similar announcements from Allergan and Novo Nordisk in recent months.
The announcement was unrelated to Trump’s comments, which came as the company was giving a presentation at the conference. Chief executive Richard Gonzalez said he had little insight into what Trump’s criticism would mean for the industry.
“I don’t have a crystal ball as to what changes the president has in mind,” he said.
In a phone interview, Allergan chief executive Brent Saunders pointed out that, in many respects, the expected pro-business agenda under Trump and a Republican Congress — such as corporate tax reform — will benefit the industry. But public anger about drug prices remains a vulnerability, he added.
Saunders has been outspoken that drug companies should show restraint in pricing to avoid a government intervention that could stifle the industry.
“Unfortunately, this is what I was worried about,” Saunders said. “It’s a complete contradiction to say the industry is getting away with murder when the industry is committed to saving and improving lives.”
He said Trump’s comments could have far-reaching implications, scaring investors away from the health care space.
“It goes to show the sentiment, and that causes investors that aren’t health-care specialists pause, in terms of investing in health care,” Saunders said. “It could cause investors in venture capital to have pause in putting money long term into health care, and it could stifle innovation.”
Rep. Peter Welch (D-Vt.) introduced a bill last week that would allow for Medicare negotiation. A 2007 Congressional Budget Office analysis found that the ability to negotiate alone for Medicare’s prescription drug benefit could be fairly toothless, having a “negligible effect on Medicare drug spending” without the ability to set prices or exclude drugs from coverage altogether by creating a formulary.
After Trump’s critical comments on the pharmaceutical industry, Sen. Bernie Sanders (I-Vt.) tweeted his agreement.
Trump also criticized drug companies for “leaving left and right,” potentially a reference to “tax inversions,” in which companies merge with foreign companies to relocate their headquarters in countries with more favorable tax rates. And he denounced the companies for manufacturing their products abroad.
Ronny Gal, an analyst with Sanford C. Bernstein and Co., said that many drug manufacturers have been gradually moving manufacturing overseas, particularly generic manufacturing.
Several chief executives said they would welcome the chance to increase manufacturing in the United States, if the business and tax climate were more favorable -- something that many hope will change under Trump.
Regeneron chief executive Leonard Schleifer said its largest manufacturing capacity is in the U.S., though the company also has a plant in Ireland.
“There’s plenty of manufacturing that does go offshore, but drugs are also sold offshore,” Schleifer said. “The fiscal and tax policies are going to make a difference here.”
More from Wonkblog: