What is in Store for the Pharma Industry After the 2020 Elections?

Broad stock market indices saw significant positive reactions in the couple days post-election, with analysts suggesting Republicans will win at least one of the Georgia Senate seats, thereby keeping them in control. Healthcare and pharmaceutical stocks rose about 5% following the election news, as these stocks were previously underperforming relative to the S&P 500 six months prior to the election.² One argument suggested is that divided government may help President-elect Biden provide a moderating policy influence against positions proposed by the progressive wing of the Democratic party who are looking to go further left than the electorate will likely want as seen in the House election results and the 74 million (47%) of the votes received by President Trump.³ Divided government also likely means threats to the pharma industry will be no greater relative to what has already been imposed by the Trump administration. Therefore, what remains to be decided is whether the industry sees Scenario 3 or 4 as outlined below in Table 1 (and as outlined in the pre-election white paper).

Table 1: 2020 Election Outcome Scenarios of Party Control for President, Senate, and House

Source: See a previous Axtria Research Hub September 2020 white paper by Chressanthis: What Is At Stake For The Pharma Industry From The Upcoming 2020 Elections: How Should Companies Prepare?⁴

How is the Pharma Industry Expected to Fare Under a Biden Presidency?

2.1 Biden Presidency Pharma Effects

A Biden administration will attempt renewed policy efforts to control the cost of prescription drugs that could affect pharmaceutical company profitability.⁵ These policy efforts will likely come in the form of imposing direct price controls (which have already been implemented by the Trump administration) and proposing the federal government be allowed to negotiate directly on discounts for medicines under Medicare, which cannot be done under current law.⁵ A Republican-controlled Senate (Scenario 3) would likely maintain current law.

Scenario 4 is the outcome that is potentially the most significant for the pharma industry and can occur if the Democrats win both Georgia Senate runoff elections (VP-elect Harris would break any 50-50 tie votes in the Senate). Democrats could impose more significant changes in drug pricing legislative policies, which would be more affecting and longer-lasting to the industry than those imposed through executive actions. Executive orders can generally be easily undone by the next President, whereas passed legislative Congressional actions signed by the President are harder to undo.

The following list represents predictions on what could likely be facing the industry under Scenario 4:

• Implement the broader use of an International Pricing Index (IPI) for the reimbursement across all Medicare drugs. This approach would go beyond President Trump’s use of the IPI for Medicare Part B drugs. The administration did just this by extending the approach to Medicare Part D drugs through executive action in mid-September 2020. However, the administration’s recent proposal to create a Most Favored Nation (MFN) referencing pricing approach for some Part B drugs by using the lowest price offered across all the Organization of Economic Cooperation and Development (OECD) countries is especially troubling for the industry.

• Introduce direct Medicare negotiation of drug prices for public and private reimbursement. Direct federal government negotiation of Medicare drug prices would have spillover consequences for the private commercial payer market.

• Institute Medicare rebates on drug price increases that are greater than the rate of inflation. Such rebates would reduce and limit drug net prices.

• Enact a patient out of pocket cap for Medicare Part D drugs, requiring manufacturers to pay a percentage of catastrophic costs.
• Require manufacture price transparency reporting to validate drug prices by disclosing how much they spend on R&D, manufacturing, marketing, etc.

2.2 Biden Presidency Health Care Effects

The Wall Street Journal (WSJ) outlined potential Affordable Care Act (ACA) and Medicare policy changes under a Biden presidency.⁶ While not directly affecting the pharma industry, policy changes could have spillover effects that could have managed market impacts on drug access, plan control, and affordability. According to the WSJ assessment, a Biden presidency would strengthen the ACA after Trump administration policies weakened it, and expand federal subsidies.⁶ Eligibility requirements for Medicare would be expanded, with a public option plan for people to buy into the program, including those with employer-provided health coverage.⁶ Biden would like to see entry into Medicare lowered to 60 from 65, affecting some people to shift from Medicaid to Medicare, and reduce the number of people who are covered under employer-provided health coverage.⁶ Increasing enrollment into Medicare would drive up spending, which may be difficult to pass with a Republican Senate (Scenario 3). Senate Republicans may be unwilling to add to the deficit given the $3 trillion budget gap for the fiscal year ending in 2020, due to earlier tax cuts, COVID-related stimulus packages, and recession effects on lowering tax revenue while increasing anti-recessionary entitlement spending. Greater enrollment in Medicare, coupled with the law change to allow for direct government negotiation of discounts for medicines, would make drug net prices lower and thus could reduce the profitability on pharma companies exposed to this business. Possible offsetting effects to reductions in profitability are the shift of business to Medicare from Medicaid (plans that provide greater margins to companies), and increasing the coverage for people who currently do not have health insurance. Higher enrollment means greater access to prescriptions, thus higher volume of business, which then must be weighed against policies to reduce net drug prices. The final effect on profitability depends on a weighted price-volume by payer channel analysis. Therefore, which party controls the Senate (Scenario 3 vs. 4) is critical to pharma companies and their future business operations, given the range of policies and resultant effects.

Future Business Implications for Pharma Companies

Scenario 3 (Republican Senate) does not mean the pharma industry is out of danger against policies that could dramatically affect its operations. The result of the preceding policies, if enacted, would be a resetting and lowering of the overall structure of drug net prices, decreasing marginal profitability on all resource allocations across the entire supply chain, from R&D portfolio investments through to commercial promotion activities.

What then should pharma companies do now to prepare themselves for future onerous legislation on drug pricing? Key suggested pharma company reactions are noted below, all involving the application of commercial analytics (see Chressanthis for further details):⁴

1. Develop R&D portfolio investment models to ensure the optimization of resource allocation.
2. Invest in analytical modeling capabilities to understand the direct and societal value of new medicines when engaged in pricing decisions.
3. Leverage economic models to develop the societal value of medicines.
4. Develop and apply a value/outcome-based & patient/healthcare system-oriented commercial model design (CMD).
5. Institute a more rapid drug commercialization process using analytics to achieve higher sales growth 12-18 months after launch.
6. Implement a robust marketing-mix allocation process to ensure optimal use of promotion spend.
7. Develop robust sub-national promotion-response models to estimate coefficients on promotion channels, and then apply these inferential models for improved forecasting.
8. Apply econometric modeling to measure the effects of variations in plan control and access design on brand performance and patient health outcomes.
9. Adopt a customer-centric omnichannel analytics approach.
10. Apply artificial intelligence (AI) and machine learning (ML) to generate real-time changes in model output information.
11. Create a nimble and efficient data architecture to handle the size and diversity of the growing myriad of different data sources and accelerate the data-to-insight cycle.
12. Generate capabilities in using technology to facilitate the implementation of the preceding analytical and data innovations.

Closing Remarks

Major political events are often miscalculated or ignored on their potential business effects. Pharma companies are particularly exposed to political-induced policy risk, given the attention the industry has among the electorate and politicians. Axtria’s think tanks in Decision Science, Commercial Excellence, and Business Information Management have developed innovative solutions and/or useful insights to help pharma clients in setting up and implementing the preceding suggested capabilities. Furthermore, the existence of the COVID-19 pandemic has directly caused and induced long-term changes while accelerated existing forces that were already in place, causing changes in pharma commercial models and analytics. Axtria has leveraged its expertise to assist clients in navigating through COVID-19 induced business challenges. If you are worried about how future political changes will affect pharma public policies, which in turn will significantly affect commercial operations, please contact us (directly below). Axtria would be delighted to help and ensure that your commercial operations are prepared for these future challenges and opportunities, as previously outlined. This will allow us to ensure that potentially life-saving medications continue to get to the appropriate patients and mitigate the negative societal health outcomes that public policy measures on imposing increased drug price regulations will create.

Follow developments on this and other important topics through articles published on the Axtria Research Hub and Axtria Blogs.

References

1. The Washington Post, published online, continuously updated, and viewed on 10 November 2020, available at https://www.washingtonpost.com/elections/election-results/house-2020/.
2. Grant C. Health-care stocks mend. The Wall Street Journal 2020; 6 November: B12.
3. The Editor. Joe Biden’s ‘time to heal.’ The Wall Street Journal 2020; 9 November: A20.
4. Chressanthis G. What is at stake for the pharma industry from the upcoming 2020 elections: how should companies prepare? Axtria Research Hub, published online September 2020, available at https://insights.axtria.com/white-papers/what-is-at-stake-for-the-pharma-industry-from-the-upcoming-2020-elections-how-should-companies-prepare.
5. Hopkins J. Industries look to new policies, scrutiny. Pharmaceuticals. The Wall Street Journal, 2020; 9 November: A7.
6. WSJ Staff. Biden to push U.S. policy in new direction. Health care. The Wall Street Journal 2020; 9 November: A11.

Written By:

George A. Chressanthis

Dr. George A. Chressanthis is currently Principal Scientist at Axtria, a big data and analytics company, in a newly-defined position held since his arrival in July 2016. He brings a unique combination of professional experiences into the analysis of strategic and operational issues affecting the biopharmaceutical industry. He is a former executive in the pharmaceutical industry with achievements in academia holding senior professorships in economics, healthcare management, marketing, clinical sciences, and political science.