With U.S. presidential and congressional campaigns in full swing, it’s not just Americans anxiously awaiting the results of the upcoming elections. The races could affect European pharma companies in a big way, and now ODDO BHF analysts are laying out potential ramifications for the industry there.
Amid the intense campaigning by both parties, the "usual package of measures" on drug pricing and insurance has surfaced, the analysts wrote in a note to clients, adding that they're “clearly deflationary” for pharmaceutical companies.
Democrats, ahead in the polls, have proposed allowing Medicare to negotiate prices directly with pharma companies and creating an optional federal healthcare program for all Americans. The measures have “the potential to create a single public buyer with strong negotiating clout,” driving prices down, the analysts wrote.
The six European Big Pharma companies ODDO analysts cover—AstraZeneca, GlaxoSmithKline, Sanofi, Roche, Novartis and Novo Nordisk—earn between 6.5% and 14.3% of their total global sales from Medicare, the analysts wrote. Roche generates the most from Medicare among those in that group, while GlaxoSmithKline nets the least.
Aside from those key proposals, Democratic presidential nominee Joe Biden proposes allowing consumers to buy drugs from other countries, and he proposes limiting launch prices. The latter measure “could raise the innovation bar required to conserve pricing power,” the ODDO analysts wrote.
On the other side of the aisle, President Donald Trump and the Republicans have proposals that are “similarly unfavorable” for the industry, the analysts wrote. Among them is an aim to reduce drug prices in Medicare to match prices paid by other countries, a measure the biopharma industry strongly opposes.
This summer, Trump also signed executive orders focusing on importation, eliminating rebates and offering discounts for insulin and epinephrine. Considering all the proposals, the ODDO analysts see Biden’s plan for a new public health insurance option as the “main point of divergence” between the candidates’ plans.
Aside from pricing considerations, the analysts see tax risks ahead for Roche if Biden wins the White House. Roche benefited the most from Trump’s 2017 tax cut among the group of European companies, and Biden has pledged to increase the corporate tax rate to 28% if he wins.
Considering all those factors and more, the analysts upgraded AstraZeneca and GlaxoSmithKline and downgraded Roche and Novartis in a Wednesday note. They see limited U.S. market exposure for AstraZeneca and a diversified business for GlaxoSmithKline helping those companies.
On the flip side, they cited tax risks and “major U.S. exposure” for Roche, while they also see a “less attractive newsflow” hurting Novartis. The analysts held their buy position on Sanofi and are neutral on Novo Nordisk.