Political gridlock could be good for biopharma

Split congressional control will result in more drug pricing talk, but don’t expect much action.

America’s return to a divided government is at once a new challenge to the biopharma sector and a sign that little more will be done on drug pricing until at least 2021.

Democrats now control the House of Representatives and will be empowered to pass legislation that would seek to bring down drug prices by mandating direct negotiation on pricing between drugmakers and the US government. But, with congressional power split, the chances of any such bills being sent to President Donald Trump are practically zero.

Compromising with Mr Trump might be the only route to achieving the drug pricing restraints that Democrats want; however, this is unlikely as it would give the president an achievement to boast about in his 2020 re-election campaign.

The House proposes, the Senate disposes

Cowen analyst Rick Weissenstein believes that the divided government is positive for biopharma on drug pricing issues. The threat of direct drug price negotiation was the sector's biggest fear during the 2016 election campaign, and Mr Trump's flirtation with this idea post-election prompted a major stock market gyration.

His administration has since backed away from such proposals, and instead embraced concepts like competitive bidding in Medicare, elimination of rebates, price transparency and expanded access to biosimilars.

Passing a direct price negotiation bill could be a matter of rounding up all House Democrats for a vote, and is an idea that has broad support within the party. However, such legislation would be dead on arrival in the Senate, where Republicans expanded their majority. Cowen's Mr Weissenstein argued that congressional Republicans would be emboldened to defend the sector on competition and innovation grounds.

Thus, the situation provides an opportunity for dealmaking between the White House and House Democrats. Whether that will happen is up to Mr Trump’s willingness to compromise and Democratic leaders’ calculations about whether, if they reject any deal, they could continue to campaign on this issue.

This stance could play badly with voters who elected Democrats on a healthcare ticket. Geoff Garin, president of Hart Research, pointed out in a post-election webinar put on by the liberal-leaning interest group Familes USA that the issue of healthcare generally helped Democrats win their House majority.

“This was a healthcare election, maybe the healthcare election,” Mr Garin said. “The issue of healthcare contributed 21 points to the Democratic margin overall.”

Within healthcare, drug pricing figured prominently. In a tracking poll before the election, the Kaiser Family Foundation found that the most important healthcare issue was cost, including drug costs.

Celebrating gridlock

But a compromise with Mr Trump would hand him a victory on drug pricing before the 2020 elections, something Democrats will not want to do.

Nevertheless, some advocates urged cooperation. “Now that the Democrats have the majority in the House, there is a real opportunity for bipartisan compromise on drug prices,” Tricia Neuman, senior vice-president of the Kaiser Family Foundation and director of its Medicare policy programme, told Vantage.

“So far, the drug industry has been quite successful in blocking serious efforts to control drug prices. Congressional Democrats and President Trump have both campaigned on this issue, and our polls show strong public support for government action.”

If voters expect lawmakers to deliver restraints on drug prices, House leaders might need to try to make a deal on legislation agreeable to their Senate counterparts and Mr Trump, especially as healthcare has been so vital to winning Democratic votes. The question is whether the mercurial president will want to take part when other issues, like immigration and the economy, appear to be more important to his voter base.

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