Election aftermath: what now for life sciences?

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By Arda Ural , PhD
EY, US

In the aftermath of an (in many ways) unprecedented presidential campaign season in the US that felt way too long, and with the pundits and pollsters off-air, it is important to assess the implications of potential policies of the new government administration on the life sciences industry in a Congress dominated by a Republican majority.

One thing is certain: this set of predications is not a crisp black and white picture and is expected to shape up as President-elect Trump’s campaign statements change from seven paragraphs into comprehensive bills over the next several years.

Here is a short and speculative list of what our life sciences clients should brace for.

Drug pricing

While a Republican administration and Congress would historically not legislate any capitation to, transparency of or negotiation around drug prices, statements were made from the Trump campaign about the affordability of drugs. Specifically, empowering Medicare to negotiate drug prices with manufacturers has been a hot issue all along in his campaign. However, these ideas were not codified in the Trump campaign health care position as directly as they were in presidential opponent Hillary Clinton’s campaign under the Democratic platform.

Also, considering the failure of Proposition 61, The California Drug Price Relief Act, — a state-specific ballot initiative that was seeking to regulate drug pricing in California — consensus is that drug pricing and regulation is not expected be an immediate priority for the Trump administration and, further, any future bills to limit drug prices are unlikely.

Affordable Care Act (ACA)

The Trump campaign has made repealing the ACA a clear and imminent target all along. The conventional wisdom states that in the absence of 60 votes in the US Senate, the ACA cannot be totally repealed though there are sections that can immediately be clawed back. The ACA’s implication for the life sciences industry has been neutral to positive and can be summed as “dilutive growth” that balanced the addition of 20 million uncovered lives to the health care system with the group’s lower average price point.

If the law would be repealed in its entirety without finding replacement coverage for this population, the industry should expect a top-line erosion from the vanishing utilization of medications by these individuals who would no longer have insurance, under the Trump proposal. However, we don’t expect the ACA’s provision, which allows children up to age 26 to be covered in their parent’s insurance policies, to be repealed.

Regulation

Less regulation has been a common theme our life sciences clients have been asking for and they are likely to get it in the next four years. The FDA has performed well in its ability to review and approve new medications and devices in a timely fashion within the confines of the US Prescription Drug User Fee Act (PDUFA). So, it is realistic not to expect a faster review time from the FDA unless a major restructuring is done in how it operates.

Separately, on a different, recently passed US regulation — the Physicians Payments Sunshine Act, which is aimed at creating transparency in life sciences companies’ payments to physicians — no changes are anticipated.

Parallel importation

This is a tricky one in that the last of Trump’s seven policy statements calls for “removal of barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products.” It states that while “the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.”

It will be critical to observe if this policy position stays as stated or will change or even disappear over time as the industry weighs in, as it did in the past several attempts. Consensus is that it will disappear.

Tax outlook

This is going to be a very active area to watch. First, we expect that the medical device excise tax of 2.3% — so fiercely fought off by the industry and embargoed until December 31, 2017 — will no longer be a looming threat.

Second, proposed lowering of the corporate tax rate for US-based companies will help fuel net income and lead to bigger cash reserves, dividends and/or stock buybacks, all helping the industry and its investors with better capitalization. Finally, the much-discussed one-time repatriation tax on offshore profits is also likely to be passed in the next 2-3 years.

M&A activity

The industry has enjoyed a high level of portfolio optimization activity since the beginning of 2014. With the added infusion of cash trapped overseas, as well as the ongoing and pressing need to acquire external innovation, life sciences companies’ M&A firepower might sustain through 2017 and beyond.

In summary, these predictions are anything but certain, and given the recent unreliable forecasts from election pollsters, anyone coming up with predictions could be humbled. However, these areas should be closely watched with optionalities as contingency plans.