President-elect Donald Trump pulled no punches when it came to big pharma in a press conference on Wednesday: He said that pharmaceutical companies "are getting away with murder." Trump also promised that he would do something about the problem when he takes office. During the 20-minute press conference, big pharma stocks lost around $24.6 billion in combined market cap. Is Donald Trump now the industry's worst nightmare?
What exactly did President-elect Trump say about the pharmaceutical industry? First he said, "We've got to get our drug industry back. Our drug industry has been disastrous. They're leaving left and right. They supply our drugs, but they don't make them here, to a large extent."
This could cause heartburn for big pharma companies that primarily manufacture their drugs overseas. However, it depends on the details of what President-elect Trump and the Republican Congress actually do. There could be some benefits for pharmaceutical companies.
Pfizer (NYSE:PFE) is one big drugmaker that seems to already be thinking about a potential Trump influence on where its drugs are manufactured. Frank D'Amelio, Pfizer's CFO, said at the J.P. Morgan Healthcare Conference on Tuesday that some tax-reform plans being floated around could impact where the company makes some of its drugs. He added that there could be "real positives for job creation in the U.S."
Reading between the lines of D'Amelio's comments, it sounds like Pfizer's executives think financial incentives might be provided for companies to make more drugs in the U.S. rather than in other countries. Of course, there's always the possibility that a stick might come with a carrot to the industry.
Trump then moved on the subject of drug pricing. He said that he wanted to "create new bidding procedures for the drug industry," adding that "we're going to save billions of dollars over a period of time."
Big pharma has clearly been nervous about pricing. Gilead Sciences (NASDAQ:GILD) CEO John Milligan told CNBC on Tuesday that the pharmaceutical industry "has done a bad job" of being transparent about drug pricing. Milligan called on the industry to increase its transparency.
If President-elect Trump gets his way, Gilead might have no choice but to be more transparent in its dealings with Medicare. The federal healthcare program spent more than $7 billion in 2015 on Gilead's hepatitis C virus (HCV) drug Harvoni. With other HCV drugs now on the market, Gilead could find itself in a bidding war in the future.
Johnson & Johnson (NYSE:JNJ) CEO Alex Gorsky, though, thinks the pricing issue is bigger than just prescription drugs. In his comments at the J.P. Morgan conference, Gorsky stated that there is an overall "healthcare pricing challenge" due to pressure being put on the system by an aging population.
Nightmares and dreams
It seems likely that Trump will push for a Medicare bidding process. It's also likely that he'll pick up some bipartisan support. That could mean lower earnings are on the way for drug companies that make a significant portion of their total revenue from Medicare.
However, big pharma also has reason for optimism about the incoming administration. Pfizer's D'Amelio enthusiastically pondered the possibilities for corporate tax reform, especially the GOP's proposals for repatriation of overseas cash. He said, if enacted, the plans could give Pfizer "huge capital firepower."
J&J's Gorsky, though, was more cautious. He speculated that the net effect of tax reform might actually marginally increase his company's rates. Still, Gorsky thought that corporate tax reform along the lines of what President-elect Trump has proposed should be an overall positive for Johnson & Johnson.
When all is said and done, Donald Trump just might make big pharma's nightmare of price negotiations with Medicare a reality. However, he could make some of the industry's dreams come true as well.