Rising drug prices have become a political issue in the U.S. Understanding the reasons will help investors make sound decisions, said Jean Hynes, managing partner and global industry analyst at Wellington Management in Boston, Mass.
The market is more geared toward drugs that treat specialty diseases than it used to be, said Hynes, who manages the Renaissance Global Health Care Fund.
And the patent life of drugs “is much more finite,” she said, leaving companies only 10 or 15 years. “There’s really no tail left of enjoying revenues once patents expire. It’s very unlike every other industry.”
As a result, drug prices have risen. However, the U.S. government is taking steps to prevent further escalation, she said.
Along with the absolute price of drugs, there are a number of proposals to go after “high, out-of-pocket co-pays” that patients have to make, Hynes explained. President Donald Trump put out a drug pricing blueprint last year, she said, and Health and Human Services Secretary Alex Azar has been seeking feedback.
There are likely to be changes to Medicare that would allow rebates to be passed on to consumers, she said.
One issue remains, however, and that’s how these changes will “roll over to other parts of healthcare that are not government funded, such as commercial payments,” she said.
Still, the measures being considered are positive for the healthcare industry because “they increase transparency [and] lower the out-of-pocket pay for consumers.”
“For the major biopharmaceutical companies, [the measures] will probably be slightly positive to slightly negative, or neutral. They won’t have a major impact. They could have more of an impact on the supply chain—the middle man who makes money from these rebates. But overall, we believe it’s a good direction for the country to take.”
Affordable Care Act politics
Meanwhile, the uncertainty around the Affordable Care Act, the policy commonly known as Obamacare that expanded health insurance coverage, is also impacting the healthcare sector.
The act has been a source of political debate between Democrats and Republicans since it was enacted in 2010, said Hynes. President Trump campaigned in 2016 to overturn it but the Republican Congress failed to do so in 2017.
Hynes said roughly 20 million Americans have benefited from the law.
“We don’t think you can take a benefit away from 20 million people, so there will have to be some alternative,” she said. “There are a lot of political alternatives as part of the pre-election, but there is nothing concrete that would really replace the Affordable Care Act. So I do not believe that anything will happen in the next few years.”
Expanding Medicare to make it available to everyone is becoming another issue in the 2020 presidential race, Hynes said. Candidates vying for the Democratic nomination, including senators Bernie Sanders, Elizabeth Warren and Kamala Harris, have supported such a move.
“We believe [this] is a program that is very unlikely to be adopted. It would be extremely disruptive to the U.S. healthcare system—to doctors, to hospitals—and it would be very unaffordable for the country,” she said.
“But it has captured the imagination of the markets and of the public in the near term. As we move into 2020, and have more of a debate between Democrats and Republicans, we believe other proposals will likely come into the forefront.”
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