With the Democratic Party's national convention now wrapped up in Chicago, it's a time of ambitious policy proposals that seek to win votes and reshape the face of the nation. The party's platform contains many proposals that could have profound implications for the biopharma industry and investors, covering ideas for changing everything from healthcare affordability to science investment, intellectual property, and even jobs training.
So let's dive in and analyze what the Democratic Party is suggesting, and how it might affect the stocks you're holding or thinking of buying over the next few years.
NYSE: PFE
Key Data Points
1. Drug pricing reforms
Limiting the prices of medicines is a key policy component of the party's healthcare platform. There are two proposed avenues for general pricing reform, and one additional avenue for diabetes care specifically.
The first proposal is to continue to require drugmakers that increase their prices faster than the rate of inflation to provide a rebate to Medicare to cover the difference. The second is to expand Medicare's ability to negotiate prices with pharma companies by roughly 50 new drugs per year, up from the 10 drugs it currently has permission to do.
Big pharmas like Pfizer (PFE 1.70%), Merck (MRK 0.02%), and Johnson & Johnson (JNJ 0.85%) are the most likely to be impacted by these proposals if they're implemented, and especially those like AbbVie and Biogen that are already in frequently contentious relationships with regulators due to pricing concerns. It's reasonable to take a financially conservative mindset and anticipate that new regulations on drug pricing will hamper the growth of these stocks somewhat, even if such a result isn't guaranteed.
However, the financial impacts may not be as serious as some might expect, and there is no reason to brace for share prices to collapse, or for them to never go up again. The initial pricing of new medicines won't be affected by the first proposal. And pharma companies will have a lot of leverage in pricing negotiations with Medicare for any product that's an improvement compared to a prior standard of care.
The platform also proposes capping the price of insulin at $35 per month for all citizens, adding to a previous policy that caps the price for people on Medicare. Some major producers like Eli Lilly already have discount programs offering insulin at the same price point, so the financial impact of a legally imposed cap would probably be negligible for them.
NYSE: MRK
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2. Increased investment in cancer therapies
The Biden administration launched an ambitious cancer-fighting initiative in 2022. While it hasn't yet had enough time to reach its goal of slashing the national cancer death rate by 50%, the party platform calls for a continuation, and perhaps an expansion, of research and development (R&D) activities in oncology. The agencies tapped to lead the effort include the newly formed Advanced Research Projects Agency for Health (ARPA-H), the National Cancer Institute (NCI), the Food and Drug Administration (FDA), and the Centers for Disease Control and Prevention (CDC), with supporting roles for Veterans Affairs (VA) and the Indian Health Service (IHS).
The implication of continuing a government-backed campaign against cancer is clear: Expect more funding to trickle through to biotech and pharma businesses seeking to develop oncology medicines. High-profile cancer-therapy collaborations with government, or awards for reaching specific milestones, will probably buoy the share prices of at least a few biopharmas.
Aside from direct grants, it's also very likely that oncology developers will reap value from an increase in publicly funded basic research, as they'll be freely able to use the findings of that research to inform and advance their own efforts. If these policies continue to be implemented, companies that have the least ability to independently answer fundamental research questions, like smaller biotechs, stand to gain the most.
NYSE: JNJ
Key Data Points
3. Intellectual property protection enforcement and reform
Intellectual property (IP) protections, such as patents, are a big deal for biopharma businesses. Without those protections, competitors can simply copy a product that took a lot of time and money to develop.
In fact, IP protections are such a big deal that some players are accused of "patent trolling": filing an abundance of overly broad patents in the hopes of blocking other companies from doing anything remotely within the same space -- or worse, filing patents solely to generate revenue by suing any rival that could be interpreted as violating them. The Democratic Party platform proposes limiting the scope of these blocking patents for pharmaceuticals, with the goal of delivering less expensive medicines.
For biotechs like Moderna, which is being sued by another company that claims its patents were infringed, the implementation of this platform could be something of a relief. While big pharmas have no problem shelling out millions in legal fees, biotechs tend to be a lot more cash-constrained, so having additional protection against patent trolls could support slightly higher share prices across the board.
