Breakingviews: Trump’s grain of truth makes biotechs vulnerable

Published Wed, Dec 7 20164:25 PM EST

Breakingviews

Robert Cyran

Donald Trump 's stream of consciousness involves at least moments of truth. The U.S. president-elect said he dislikes what has happened to drug prices, and biotech stocks slumped by more than 2 percent on Wednesday. Hillary Clinton 's campaign statements similarly dented shares in the sector. They're vulnerable because the jabs are justified. More from Breakingviews : Credit Suisse realism does investors little good Net pharmaceutical prices in the United States rose 2.8 percent last year, according to data from IMS Health. That's slower than the galloping rate of past years, but once again it's far faster than inflation. So it shouldn't surprise anyone if a populist politician like Trump says he's going to bring down prices. What adds bite to his remarks is that nearly every new pill and many discovered decades ago experience increases beyond inflation. About one-fifth of generic drugs surveyed by the Government Accountability Office had at least one 100 percent price increase over five years. Regulatory barriers, manufacturing difficulties and industry consolidation mean there's limited competition among producers for many old therapies. Clinton weighed in on egregious instances like Mylan's price increases on its EpiPen emergency treatment for allergic shock, helping trigger a selloff and an effort by the company to cut the headline cost of its products. Even industry luminaries have taken aim. Roy Vagelos, who headed Merck for nearly a decade, has said repeatedly that raising prices faster than the norm would hurt the industry. During his tenure, he refused to increase them more than inflation. And Regeneron Chief Executive Leonard Schleifer said at a Forbes conference this month that the reason pharma companies aren't liked "is because we as an industry have used price increases to cover up the gaps in innovation." Industry defenders like Pfizer Chief Executive Ian Read point out that the cost of drugs as a proportion of total healthcare expenditure hasn't risen in decades. That may be true but it's undermined by the fact that medical outlays have steadily increased as a share of GDP. If investors were confident drugmakers charged fair prices and were using the profit to churn out useful new drugs, they wouldn't feel defensive. But Trump's words, and Clinton's before him, hit home. In pharma companies, and biotechs in particular, there's too little successful innovation and too much reliance on raising prices. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

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