What Trump means for European pharma – the long view (The Pharma Letter)

Salma Ajraoui’s invited commentary in The Pharma Letter 15th November 2016


Speculation is rife about what Donald Trump’s US presidential election win means for pharma and health care in the USA, but what of its potential impact on the industry in Europe? Novasecta’s Salma Ajraoui analyzes the issue.

Pharmaceutical companies are experiencing again a growing uncertainty after the US election on November 8. As US voters and the rest of the world start to come to terms with Donald Trump as the President­-elect for the USA, we take a look at the implications for European pharmaceutical companies that are still absorbing the uncertainty caused by the UK’s Brexit vote in June.

As with Brexit, it is still very early days to anticipate the amount of disruption to business as usual and/or predict policy changes. After all, the President­-elect was described during the campaign as an “erratic individual” by Marco Rubio, Republican US Senator from Florida.

Since little has been shared in terms of Trump’s real strategy, there are five key implications that can be drawn from glimpses of information shared during the election campaign so far.

Repeal of Obamacare

During his campaign, Mr Trump vowed to abolish Obama’s Affordable Care Act, which would see millions of Americans losing their health insurance. He pledged to replace it by a new act, but little if no information has been provided on what the new act would look like.

Some options have been suggested, included replacing the Obamacare individual coverage with high­-deductible healthcare plans and insuring high­-risk patient pools separately.

The market has responded accordingly. Shares of Molina Healthcare (NYSE: MOH), an insurer focused on Medicaid, dropped by nearly 16% immediately following the election result.

However, according to policy analysts, repealing Obamacare may be easier said then done and it will take years to draft and implement a new model. The impact on European pharmaceutical companies will be more uncertainty for a while yet.

Fears lifted on drug pricing ‘temporarily’

The initial stock market reaction after the result announcement saw most pharmaceutical companies’ share prices increasing by single digit percentages, with US pharma giant Pfizer (NYSE: PFE) experiencing the highest increase. Its shares rose by 12% after the vote.

This reaction is explained partly by the perception that Trump may not be as aggressive as his Democratic rival Hillary Clinton on drug price reductions, lifting the immediate fears of a government drug pricing crackdown. However, drug prices are still an issue high on the agenda of American people, even more so than Obamacare, so the general drug price outlook for the USA will continue to be slow growth, flat or downwards slightly.

Isolationism and restrictions on global trade

Trump has also pledged to walk away from the Trans-­Pacific Partnership and could even withdraw from the North American Free Trade Agreement, which raises questions that parallel negotiations with Europe may also end.

“Every trade deal we have is horrible and we should be ashamed of … they’re defective, and they knew they were defective, and they were done for a reason. Believe me, they will be unwound so fast,” Trump said in an October speech.

If Trump keeps his pledge, new tariffs and custom duties may be instated, driving up prices of imported products and affecting negatively the supply chains of European pharmaceutical companies with operations in the USA.

Most European pharmaceutical companies need access to the lucrative US market in some way, so any tariffs or duties would clearly be detrimental.

Reduction of US corporate tax

To encourage companies to relocate to the USA, Stephen Moore, Trump’s senior economic advisor, wants to cut corporate taxes from the current rate of 35% down to 15%.

Lower corporation tax may in the short term be an incentive for European pharmaceutical companies to establish and/or expand their presence in the US market. However, if free trade is restricted in the long term, the upside of lower taxation will be cancelled out.

Negative impact on science and people mobility

In the pharmaceutical industry, good science relies on international scientists, researchers and academics that come from all over the world to work on cutting­edge research at universities and biotechs.

The xenophobic and isolationist discourse used during the election campaign may drive a brain drain away from the USA. If the country becomes hostile to foreigners, it will threaten research and innovation in the big US life sciences hubs in San Francisco and Boston.

European pharmaceutical companies with operations in the USA may find it more challenging to ensure mobility of their staff, but may also find it easier to lure talent away from the US hubs.

Watch and wait

The pharmaceutical industry as a whole will gain a better view and see less uncertainty once Trump takes office in January 2017 and announces his nominations of key senior roles. European pharmaceutical companies should, however, factor the new and additional uncertainty into their decision­-making processes when necessary.

We therefore advise European pharmaceutical companies to watch and wait, while continuing to make their businesses attractive to talent of all nationalities, including the US citizens who are horrified by what their country has done. Furthermore, when making business cases involving the US market, we advise that companies mark down any over­aggressive projections of US price levels for new drugs.

The main areas to be sure to factor into decision­making after that are the potential changes to trade agreements and the consequent impact on tariffs and global supply chains.


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