The number of drug dealers in Washington, D.C., has increased immensely of late. I'm not talking about the illegal kind or even the drug sales reps. I'm referring to the lobbyists on Capitol Hill trying to get the best deals for big pharmaceutical and biotech companies.
No matter what your political leanings, as an investor, increases in lobbying should be acceptable, as long as the companies are accomplishing what they want. Let's take a look at some recent political outcomes and update those lobbyists' report cards.
One of the reasons for Amgen's dramatic increase in political spending is that the pricing of its anemia drugs, Epogen and Aranesp, has come under fire from Medicare. Unfortunately, the lobbyists haven't done the greatest job of putting out that fire. Earlier this month, Medicare curtailed the reimbursement for Aranesp and Johnson & Johnson's
The Prescription Drug User Fee Act (PDUFA) increases funding for the Food and Drug Administration through fees paid by the drug companies. The companies don't mind paying the fees because they increase the size, and more importantly the speed, of the FDA.
For drug companies, the goal of the fourth reauthorization of the PDUFA was more about minimizing restrictions than it was increasing the spirit of the original PDUFA: drug companies paying for speeding up things at the FDA. Overall, I'd say the lobbyists did an acceptable job at getting the drug companies what they needed.
No. 1 on their list was probably keeping any restrictions on direct-to-consumer (DTC) advertisement out of the bill, which was successful. All you have to do is look at the evening news to see that spending on DTC advertisements has increased substantially in recent years. And for good reason -- they result in increased drug sales.
One loss for the drug companies was actually a gain for investors. Much of the clinical trial data will be made available in a database for anyone to see. It will cost the pharmaceutical companies a little to input the data, but I think it's a relatively small price to pay for increased scrutiny.
In this round, it's drugmakers fighting each other, with generic-drug makers such as Teva Pharmaceutical
The bipartisan compromise reached by key senators in June looked pretty even for both sides. The generic-drug makers scored the right to make follow-on biologics, and the biotech companies retained 12 years of market exclusivity. Apparently, the fight had just begun, because it seems there has been no action since the agreement was reached. Of course "no action" is a win for the biotech companies because it keeps the status quo, which is essentially a monopoly on biotech drugs even after the patents run out.
Spending investors' money properly
There's plenty of ways that drug companies can influence politicians. Large companies lobby through an organization called the Pharmaceutical Research and Manufacturers of America, which includes Amgen, Pfizer, and Eli Lilly
Overall, I'd say the lobbyists haven't really done the best job of getting the most for their clients. I guess things could have been worse if the lobbyists weren't on the Hill working on behalf of the drug companies, but as a drug investor, I'd like to see the lobbyists pick up the pace a little to protect the drugmakers' interests.
The key for investors is to find drug companies that are spending their money wisely. Whether the investment is in a capital project or on Capitol Hill, it has to result in a higher payout than the initial investment. Any political spending will cut into net margins now, but that's an acceptable price to pay if the companies get what they want.