A pandemic. Drug pricing legislation. Megadeal scrutiny. These key issues will continue to affect the pharmaceutical industry and wider healthcare sector beyond the 2020 U.S. election, experts say.
No matter the outcome of the presidential race, the pandemic has shifted priorities within the healthcare sector, said Ben Isgur, head of the Health Research Institute at PricewaterhouseCoopers, in an interview.
"The power of the presidency with public health issues is the power of the bully pulpit," Isgur told S&P Global Market Intelligence. "And the big question on industry leaders' minds is whether the bully pulpit will be pushing public health issues in the new year."
Isgur said the role of the federal government in fighting the pandemic is particularly at stake with messaging about public health actions — including mask-wearing — differing so widely between the challenger Joe Biden and incumbent President Donald Trump.
"First and foremost for the industry right now, no surprise, is the pandemic, and we're seeing the numbers rise again," Isgur said. "There's a lot of work and energy and effort as we go into the election and past the election, which is, where is the country going to be?"
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Vaccine development will continue under either party as pharmaceutical companies like Pfizer Inc., Johnson & Johnson, Moderna Inc. and others near the finish line in clinical trials, said Martin Jarzebowski, director of Responsible Investing at Federated Hermes, in an interview.
"When you think about the way that COVID-19 is certainly top of mind for the entire voting nation, and being able to coordinate a very efficient distribution of the vaccine when it does come to market, I think it really won't matter which party is dominating Capitol Hill," Jarzebowski said. "It's something that is going to be a uniform effort."
The companies developing vaccines have meanwhile accrued reputational currency as they occupy the front lines of the pandemic. This could help them politically down the road when, just a year ago, the industry was in the "political crosshairs" from both parties to address drug pricing, Jarzebowski said.
"What a difference a year makes in how the world has perceived the biopharma industry as a whole," Jarzebowski said. "Many people are viewing the biopharmaceutical industry as really the only viable long-term solution to this pandemic."
To bring vaccines from the development stage to widespread use, many parts of the health system will need to align, from pharma and life science companies to distributors, and then retail pharmacies and doctor's offices who will administer the shots, Isgur said.
The pandemic will have lasting effects on the pharmaceutical supply chain, exposing gaps and vulnerabilities that the industry is now forced to address, Isgur said. Both Trump and Biden have discussed onshoring and using the tax code to bring businesses to the U.S.
Experts have said bringing drug manufacturing back to U.S. shores is more complicated than politicians have made seem. For drug companies, though, the pandemic has tested the limits of their supply, and they are looking to better understand their sources and contingencies for unplanned events.
Drug pricing conundrum
Even in a hotly contested presidential election, some issues remain bipartisan. The drug pricing debate does not center on whether price tags for pharmaceuticals should be lower for consumers, but how, Isgur said.
"There is not an exact agreement on how to 'solve' the drug pricing issue, but it is a bipartisan issue," Isgur said. "It's an issue that's not going to go away, because even though drug costs are not the biggest piece of the pie, they do tend to be one of the areas of fastest growth in cost and spend, so it'll always have a target on its back."
The introduction of generics and biosimilars — which would allow for further competition in the marketplace — has risen in recent years as a result of legislation from both Democrats and Republicans in office. Isgur said that the U.S. Food and Drug Administration has been approving more generic drugs and biosimilars under presidents Trump and his predecessor Barack Obama.
The possibility of a Democratic sweep of the election has caused pharmaceutical stocks to underperform due to concerns that the party's proposals would lower U.S. drug prices and raise corporate taxes, Morgan Stanley analyst David Risinger said in an Oct. 27 note.
But Risinger said the reforms would likely be "more incremental than transformational" because the Biden healthcare plan would focus elsewhere. Economic support, corporate tax reform and broadening healthcare coverage would likely be a priority before pricing, Risinger said.
If President Trump were to be re-elected or Republicans hold the Senate, pharmaceutical investors would likely count on a lower likelihood of significant drug pricing legislation and a more modest tax rate risk, Risinger said.
Cowen analyst Steve Scala said in a Nov. 3 note that a poll of three payors showed that only one outcome would have a significant effect on drug prices: a Democratic sweep of the White House and Congress could result in a 5% decrease in price, they predicted.
Different approaches to M&A
Healthcare industry mergers and acquisitions slowed down due to uncertainty caused by the pandemic in the first half of 2020 after a record-breaking 2019. Deals have begun to ramp up again in the second half, led by Gilead Sciences Inc.'s acquisition of Immunomedics for $21 billion in October.
"There's a big push toward more consolidation and efficiency — there is a continuing pressure for scale that can help health organizations deal with investment challenges," Isgur said.
During a challenging time like the pandemic and economic recession, larger companies are likely looking to diversify holdings to better sustain market power, experts have said, although deal scrutiny could lead to more difficult M&A processes.
The ability to make deals could be affected by which party occupies the White House and legislative branch. In an Oct. 6 PwC survey of business leaders across all industries, 61% said deal scrutiny would increase in the first year of a Biden administration. Only 41% said the same would happen in the first year of a second term under President Trump.
Another survey from U.S. law firm Dykema similarly showed that nearly twice as many executives felt Trump's re-election would be positive for M&A compared to a Biden victory.
"It's no surprise that a Donald Trump re-election and Republican-controlled Congress would be viewed positively by deal-makers from an M&A perspective," Jeff Gifford, head of Dykema's Corporate Finance Practice Group, said.