He talked about the Russia scandal. He talked about divesting from his businesses. But the one thing that came out of President-elect Donald Trump's long-awaited news conference Wednesday that could affect the most Americans in the most vital way was his unexpected targeting of the drug industry. Trump wants drug prices down and it's past time for that industry to get serious about making a deal.
Trump's words had an immediate impact on pharma and biotech stock prices. They tanked. But the longer term impact could be much more profound. He has pointed out the problem of higher drug prices before, but the way he defined the drug industry Wednesday was something new.
First, he talked about the drug industry a manufacturing industry. And just like the way he's singled out car companies, he talked about how the drug companies are leaving the U.S., but still selling their products here. This important definition/characterization opens the door to a whole new way of negotiating with the drug companies.
All of sudden, it's possible for them to be like Carrier or Ford or Fiat Chrysler and try to curry favor with the new president by promising to bring back or save U.S. jobs in its remaining drug manufacturing plants. If the Big Pharma CEOs are smart, they should start thinking about doing that right away.
But unfortunately for them, Trump didn't stop there. He reminded the audience that the U.S. is the biggest buyer of drugs in the world and he went on to promise a better bidding procedure to get prices down. The most memorable moment may have been when he described the drug industry with the loaded and powerful term: "they're getting away with murder." Now you know why those drug stocks tanked so fast.
Of course Trump is right, the U.S. government alone is the biggest buyer of drugs in the world through Medicare and Medicaid. Those two programs for older and poorer Americans, respectively, actually make us the biggest single payer health care system on Earth even though we also have a private insurance system for everyone else.
It's always been puzzling to businessmen and businesswomen in America why our government doesn't use that leverage to negotiate lower prices on all prescription drugs. But they're forgetting the great wisdom of Nobel Prize winning economist Milton Friedman, who always taught that the worst price inflation comes when someone in the government is in charge of using someone else's money to provide goods and services to yet another party. Trump is essentially promising to change all that and he seems poised to hire just enough non-government bureaucrat types in his cabinet to actually make it happen.
But speaking of politics, the political support for this kind of "get tough" policy with the drug companies is very high. Just imagine if President Obama or Senator Elizabeth Warren had used those exact, "they're getting away with murder," words about Big Pharma. The entire liberal and a great deal of the moderate voter bases would be cheering loudly. Trump has the added burden of actually having to deliver on reducing drug prices before he gets those kinds of cheers, but at least he can count on his efforts to do so being very popular along the way.
And that's not only bad news for the drug companies, but all the other countries in the developed world who benefit from the fact that we pay more for the same drugs. In other words, Canada, Britain, France, etc. only pay less because the drug companies make up those losses or lower profits by charging America more. Their party could soon be over. But that's a big part of the new definition of "America first."
So, should everyone start to expect lower prices and potentially significantly lower profits for drug companies? Should investors take their money out of the entire pharma sector? Worse yet, will the long-held conservative belief that essentially enforcing price controls on these products lead to drug shortages and stunted medical innovation? There's a very good chance both of those ill effects could result based on what we've seen before with even essential drug treatments like the flu vaccine. Is there a way out of all of that?
The answer could be yes if Trump and his team follow through on their promise to be real, non-political deal makers. Trump loves that image of being a businessman and not a politician and a politician would be more than happy to see prices go down no matter what the longer term effects would be.
But if the drug companies do have a sympathetic ear of a fellow business leader at the table, they could get somewhere by describing their liabilities and other costs that they say force them to charge so much for certain drugs. If they're smart enough to ask for some government relief in that area, from drug tort reform to bigger tax breaks for costly research and development, some kind of price relief just might happen without those worst case scenario side effects.
And finally, there's a chance the two sides could meet in the middle when it comes to regulatory relief. Helping the industry get more new drugs to market quickly is something a Trump administration could do with everything from relaxing the FDA approval process to allowing terminally ill patients easier access to experimental drugs.
The bottom line is that after Wednesday's news conference, Big Pharma better be ready to deal with the Trump team for real. And "ready to deal," does not mean hiring more or better lobbyists like it has in the past. The drug industry definitely has some things to offer the new administration to soften the blow, but Trump wants drug prices to go down and he has the power to make life very unpleasant for the companies that don't comply.