Don’t let the initial market enthusiasm to Trump’s victory in the US Presidential election detract from the longer-term themes investors in the healthcare sector need to consider and the limited visibility we have over how the Republicans will approach US healthcare policy.
The reaction in healthcare to the outcome of the US Presidential election, and Republican control of Congress and Senate (albeit lacking a supermajority in Senate), has been mixed.
First, pharmaceutical and biotechnology companies share prices have rallied reflecting the belief that a Trump administration is less likely to try to control US drug prices than a Clinton administration. These shares were also boosted by the fact that Proposition 61, a drug pricing control provision on the California ballot, was voted down. Second, the US hospitals stocks have been hit hard anticipating the impact of a repeal of Obamacare, in particular the healthcare insurance exchanges which have expanded coverage. US hospitals had benefitted from the extra volumes of insured patients that resulted from Obama’s Affordable Care Act (ACA) and are perceived to be impacted if those volumes disappear as a consequence of ACA repeal.
This was somewhat predictable given the Democrats’ policy plans and the market’s anticipation of a Clinton victory, as well as the defeat of Proposition 61 in California.
We have much less visibility of what a Trump presidency means for US healthcare.
The table below summarises the proposals Trump has made at various points during his campaign and those listed on his website.
The repeal of Obamacare seems to be Trump’s top priority as regards healthcare. The extent to which this can be achieved as part of the budget reconciliation process when Trump takes office, which only requires a simple majority in Senate, isn’t clear. A supermajority (60%), which the Republicans don’t have, would be needed to pass new legislation. However, a repeal of the ACA and the proposals to make health insurance more affordable might actually be positive for the managed care sector which has been exiting many healthcare insurance exchanges due to low profitability.
It is much harder to decipher what Trump actually wants to do re drug prices in the US given the lack of recent comments about it. Drug price re-importation or direct Medicare negotiation of drug prices would be detrimental to the profitability of the pharma/biotech industry, but the former is very challenging to enact and would be resisted by those countries whose drugs would be exported, as well as the industry. Direct Medicare negotiation was more of a Democratic than Republican policy but we don’t really know how a Trump presidency will approach US drug pricing issues.
As highlighted in a recent blog, regardless of the outcome of the election, investors shouldn’t ignore the ongoing commercial drug pricing pressures which are growing in the US and won’t go away, or the long-run trend to move from volume to value-based healthcare in the US to control costs, improve access and most importantly improve outcomes. In short, a Trump victory might lessen short-term noise on drug pricing, but long-run pressures won’t change.
One final thought. Trump’s flagship policies to reduce taxation and infrastructure investment would seem likely to provide a significant stimulus to the US economy. This should favour domestic companies in more economically-sensitive sectors which may be bad news for the relative performance of the more defensive end of the US healthcare sector in particular i.e. the pharmaceutical companies.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.