Spotlight On: Uncertainty beats worst-case scenario as pharma reacts to Trump's stunning presidential win

Confirmation of Donald Trump's surprise victory in the US Presidential election coincided with the opening of European markets on Wednesday morning. This provided the first tangible evidence that the pharmaceutical industry had avoided a worst-case outcome – a victory for Hilary Clinton and Democrat control of congress – with shares in large-cap European pharma companies reacting positively to the news. A few hours later, a similar response was seen from pharma and biotech stocks trading in the US. The NASDAQ Biotechnology Index closed up 8.9 percent, its biggest one-day gain since October 2008. 

Sell-side analysts were quick to throw their support behind the surprise outcome, the hope being that sector gains can steadily claw back some of those losses that Clinton and fellow Democrat Bernie Sanders have instigated over the past 18 months with rhetoric aimed at reducing US drug prices. With a Trump presidency, drug pricing is much less likely to come under scrutiny, chorused analysts. Positive sentiment will also be gained from California's rejection of Proposition 61, which proposed to transfer the drug discount rates negotiated by the Veterans Administration to other drug purchasers in the public sector. The argument that introduction of Proposition 61 would ultimately lead to higher drug prices for veterans appears to have found public favour. Sanders had suggested that victory would lead to similar legislation in other US states, but that proclamation now looks hollow in light of Tuesday's shock Presidential result.

What should be noted is that there is no reason why intensified pricing pressure in the US private sector, that primarily instigated by pharmacy benefit managers (PBMs), will dissipate. This undermines some of those share price gains seen in Europe on Wednesday morning; Novo Nordisk and Sanofi were beneficiaries of the Trump effect, but both remain heavily exposed to diabetes pricing pressure from PBMs. As analysts at JP Morgan noted "on the pricing front, the worst case scenario appears to have been avoided, but let's be real…changes are already in motion."

ViewPoints: Pfizer chief – PBM rebate process needs revision

In exchange for avoiding Clinton's backlash against drug pricing, pharma will have to concede some uncertainty under Trump's Presidency and much of this will focus on the future of the Affordable Care Act. Trump wants to repeal the Act – otherwise known as Obamacare – but there is no clear plan laid out for replacing it.

Analysts at Jefferies suggested that "whilst repealing Obamacare would theoretically be negative for Large Cap Pharma, it is unlikely to be significant. Of the approximate 36 million previously uninsured in 2014, relatively few have signed up under Obamacare. Furthermore, given the significantly higher rebates paid under Medicaid, any incremental sales lost would be modest and carry a relatively low margin."

Evercore ISI policy analyst Terry Haines noted that "the political and policy success of a Trump presidency will depend in large part on quickly improving the economy and reforming (not repealing) the ACA. These issues also are the ones on which Trump and congressional Republicans agree most, a fortunate political coincidence, and we continue to expect general harmony among these leaders on those issues as Congress moves them through the process."

ViewPoints: Analysts prescribe positive sentiment for pharma industry in response to Trump victory in US Presidential election

What the Presidential race has highlighted is the importance to the pharma industry in maintaining the status quo on US drug pricing and analysts at Credit Suisse offered some sobering words of caution. These are likely to resonate given that few anticipated Trump would beat Clinton to the White House and many will consider him a loose cannon.

In a note to investors they reiterated that while Trump has not targeted drug prices in the way Clinton has, neither has he held out an olive branch. He has previously touted consumer access to imported drugs from overseas countries that offer safe, reliable and cheaper products, and in January signalled support to allow the HHS to negotiate drug prices under Medicare Part D. While campaigning in New Hampshire, Trump stated that "$300 billion could be saved," by negotiating Medicare prices with pharmaceutical companies. He went on to say "we don't do it. Why? Because of the drug companies."

Such a proposal was not included in his formal campaign plan, but public anger over US drug prices should now be viewed as a bipartisan concern. While Trump is unlikely to target the pharma sector in the early part of his tenure, a willingness to ride on populist topics of debate has positioned him in the White House. After a stunning upset he is unlikely to change a winning strategy. 

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