Understanding the Impact of the US Election on the Biotech Sector

The outcome of the 2024 U.S. presidential election is likely to have significant implications for the biotechnology sector, as both major political parties unveil policy proposals that could alter drug pricing, regulation, and research funding.

Analysts at RBC Capital Markets indicate that biotech companies are facing uncertainties as both Democrats and Republicans outline their healthcare plans.

The Democratic Party, under Vice President Kamala Harris, is advocating for more stringent drug pricing measures. Harris supports the expansion of the Inflation Reduction Act, which would permit Medicare to negotiate prices for up to 50 drugs annually. This could exert pressure on companies that rely heavily on Medicare pricing.

Firms such as Gilead, Regeneron, and Neurocrine Biosciences, which have significant exposure to the Inflation Reduction Act, may experience the most adverse effects. The introduction of pricing controls in commercial markets and caps on out-of-pocket costs for generics could further compress profit margins across the biotechnology sector.

However, not all biotech companies would suffer under a Democratic administration. The Harris administration’s emphasis on mental health, women’s health, and oncology may benefit companies focusing on developing treatments in these areas. For example, firms like Intra-Cellular Therapies and Axsome Therapeutics, as well as oncology companies such as Exelixis and Nuvation Bio, could see advantages from increased funding and improved access to care.

Additionally, the current administration’s protection of orphan drugs used to treat rare diseases from Inflation Reduction Act price negotiations may allow companies like BioMarin and Ultragenyx to avoid some pricing pressures.

In contrast, a Republican-led government, likely under former President Donald Trump, may create a more favorable climate for biotech firms. Republicans are expected to adopt a more moderate stance on the Inflation Reduction Act, potentially easing its implementation and alleviating pressure on companies dependent on Medicare.

According to RBC analysts, this shift could provide a boost for firms like Regeneron and Neurocrine, allowing them to benefit from a slowdown in inflation-related discounting initiatives. Trump’s focus on addressing chronic illnesses could also support companies developing treatments for such conditions, especially for pediatric patients. Vertex Pharmaceuticals and Jazz Pharmaceuticals are among those likely to gain from initiatives aimed at improving care for chronic diseases.

Furthermore, Republicans are generally viewed as more amenable to mergers and acquisitions, particularly if a less restrictive Federal Trade Commission is appointed, potentially leading to increased consolidation within the biotech industry.

Nonetheless, the GOP’s approach to drug pricing carries certain risks. Although Trump has distanced himself from a previous proposal for a “most favored nation” pricing model, its revival could be more detrimental than the Inflation Reduction Act. This policy would mandate that the U.S. pays the lowest global price for medications, significantly impacting companies with considerable price discrepancies between the U.S. and international markets. Companies like Amgen and Biogen could face considerable challenges if this scenario materializes, particularly if it extends beyond Medicare.

Another potential risk under a Republican administration is a diminished focus on pandemic preparedness, which could negatively affect vaccine manufacturers such as Moderna. Trump’s earlier policies showed less emphasis on enhancing preparedness, a trend that may persist, potentially reducing the government’s commitment to pandemic-related research and development.