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Stock Strategist Industry Reports

What a Biden Presidency Could Mean for Drug Pricing

Reforms are likely to be moderate, and we don’t expect significant changes in 2020.

We think Joe Biden’s moderate position and nomination as the Democratic presidential candidate reduces the likelihood of significant drug pricing policy changes, in spite of more-aggressive reform recommendations from the Biden-Sanders unity task force. This forecast comes amid uncertainty around the bigger-picture healthcare issue, as the future of the Affordable Care Act is being debated at the U.S. Supreme Court level.

The low probability of drug pricing policy changes also reduces the likelihood of a major policy-related impact on drug innovation. We see a less than 10% probability of a "Medicare for All" system within the next decade, and we don’t include it in our analysis. Such a system would reduce U.S. drug prices with the negotiating power of a one-payer system, but odds are likely even longer now that U.S. Sen. Bernie Sanders is no longer in the running for the Democratic nomination.

The changes most likely to pass that could realistically influence drug pricing are those encompassed in the Senate’s proposed Prescription Drug Pricing Reduction Act, but we believe this bill holds a less than 50% chance of passing, based on mixed support by both parties, and we haven’t included it in our models. If it is passed, we estimate a 5% aggregate hit to U.S. branded drug sales from Medicare inflation price caps and Part D redesign.

We could still see some significant changes in 2020, but we think the likelihood is fading. The International Price Index and importation are two proposed rules that have yet to be finalized by the White House, but they are both probably experiencing delays due to the pandemic, as well as President Donald Trump’s uncertainty over the alternative of potential progress in the House and Senate with legislative reform.

In terms of congressional action, funding was poised to expire in late May for various government healthcare programs, and this could have been a logical time to include drug pricing policy changes. However, this funding was extended through the end of November as part of the economic stimulus in the Coronavirus Aid, Relief, and Economic Security Act, passed in March, without addressing drug pricing.

Senate Finance Committee Chairman Chuck Grassley had recently been hopeful about a vote this year on drug price legislation, with the view that the pandemic is the perfect time to have a conversation about drug prices, as COVID-19 vaccine and treatment prices will be under intense scrutiny. However, Grassley claimed in June that Democrats were unwilling to negotiate. According to Bloomberg and Politico, Grassley has the backing of Trump and at least a dozen GOP senators, and House Speaker Nancy Pelosi is willing to talk; however, Senate Majority Leader Mitch McConnell still has some issues with the PDPRA, and Senate Majority Whip John Thune sees potential for a scaled-back version of the bill, focused on limiting Part D costs.

Turning to potential policy changes beyond 2020, Biden could provide an environment for incrementally more pricing pressure on drug companies if he is elected, but we don’t expect any major changes. The recommendations released from the Biden-Sanders unity task force in early July look more aggressive than Biden's published stance on drug pricing reform, roughly encompassing most of the proposals in the House-passed HR3 bill, the Elijah E. Cummings Lower Drug Costs Now Act. More-disruptive pricing reform, such as broad international price benchmarking included in HR3 and the task force recommendations, is extremely unlikely to be brought to vote in the Senate unless Democrats regain control in 2021. Even then, barriers to such reform include difficulty with bipartisan support, concerns about impact on innovation and access, and implementation.

Biden has historically supported innovation in the drug industry and has published views on pricing reform that are more moderate than those in the task force recommendation, leading us to doubt whether the task force's most aggressive and controversial recommendations would be prioritized. Other healthcare reforms--like expanding coverage with a public option--seem more critical, particularly during and following the pandemic.

Biden and the unity platform both support importation (which we see as unlikely to affect pricing significantly) and tax penalties on drugmakers for price increases north of inflation in Medicare and in Biden's public option plan (which is also part of the Senate PDPRA bill and could have a 3% impact to sales, by our estimates). However, while Biden had historically supported giving Medicare the ability to negotiate drug prices, his position hasn't had the necessary teeth of former candidate Sanders' plan to establish a Medicare formulary that would allow pricing comparable to a basket of other countries.

Similarly, Biden has supported international price indexing, but to a more limited extent than the task force recommendations, in our view. Biden proposed that an independent review board established by the Department of Health and Human Services assess the value of newly launched specialty drugs that don't face competition, using prices in other countries as reference; this price would apply to Medicare, Biden's public option plan, and private plans that participate in the individual marketplace. In contrast, the task force recommends that these negotiated and benchmarked prices be applied to all purchasers, like the Sanders plan, making it more similar to HR3, which extends prices from Medicare and Medicare Advantage to private plans unless they opt out.