United States Senator Bernie Sanders has officially put big pharma on notice.
The Vermont Senator who has presidential aspirations recently stated that he will be introducing legislation to Congress that he believes will help put a stop to the soaring increases in prescription drug prices in the U.S.
In a statement on his website the Senator said:
Americans should not have to live in fear that they will go bankrupt if they get sick. People should not have to go without the medication they need just because their elected officials aren't willing to challenge the drug and healthcare industry lobby.
The senator went on to call out that lobbying is a major problem, as the pharmaceutical industry as a whole spent around $230 million lobbying Congress during 2014 alone, which was nearly $65 million more than any other industry spent during the year.
The awful truth
In his proposal, the Senator noted some grim statistics about the state of prescription drugs cost in America today.
- Americans pay the highest prices for prescription drugs in the world, spending twice as much per person as the average major industrialized country.
- In 2014, more than 35 million Americans choose not to fill a prescription because they felt they could not afford its cost.
- Americans saw prescription drug prices jump 12.6 percent last year, more than double the rise in overall medical costs.
These facts clearly outrage the Senator, and he states plainly:
What we need is a national healthcare system that puts people ahead of profits and health ahead of special interests.
The Senator offered up several ideas for how his legislation could fix this problem, which included ideas like calling on the Secretary of the Health and Human Services to negotiate harder on its Medicare Part D prescription drug program, allowing for drug reimportation from Canada, creating pricing transparency, and introducing stiffer fraud convictions. The proposal's intention is that if these ideas were enacted that they would save the country hundreds of billions of dollars over the coming decade.
While Senator Sanders is certainly hoping that his legislation proposals will help to reverse the trend of rising drug costs in America, it's clear that his overall goal is to transition our healthcare model to a single-payer system, which would provide Medicare to everyone, regardless of age.
If investors who thought the Affordable Care Act, also know as Obamacare, was a big change for the industry, you can only imagine how implementing a single-payer system would work to upend our current system.
What this means for your portfolio
You can bet that this legislation is causing some pharmaceutical giants like Pfizer, Johnson & Johnson, and Novartis, to shake in their boots. Each of these companies generates billions of dollars in profit off of the current prescription drug system, so you can bet they would fight tooth and nail to protect themselves in the future.
One part of the market that this legislation could be especially troubling for is the companies behind the next-generation cholesterol busters known as PCSK9 inhibitors. While these new drugs have only recently launched, prices announced after they received approval were so high that they caused Express Scripts, the largest pharmacy benefit manager in the country, to state that U.S. payers and patients could end up paying more than $100 billion each year for the drug. The company warned that "PCSK9 inhibitors are on a path to become the costliest therapy class this country has ever seen".
Investors in PCSK9 inhibitor manufactures Amgen and Regeneron are counting on big sales from this new class of drugs to drive future profitability growth, so if Senator Sanders' legislation ends up significantly reining in the revenue potential of these drugs you can bet these companies investors won't be happy.
For the time being, Sanders' ideas are certainly a threat to the long-term profitability of many pharmaceutical companies, but we won't know for quite some time if any of them will see the light of day. One thing we know for certain if that every big pharma company will be watching this story closely -- and investors in the space would be wise to do the same.