The Wall Street Journal.

Trump Administration Makes Drug and Medical-Device Companies Nervous

Republican control in Washington unsettles the industries; Trump's comment about drug prices adds to concern

January 24, 2017
by By Jonathan D. Rockoff •

The pharmaceutical and medical-device industries are deeply unsettled about their future under Republican control in Washington, which presents threats as well as opportunities, according to industry officials and advisers.

The companies and their trade groups want to develop ties with key players in the Trump administration on health care to push their agendas and protect their interests, according to people familiar with company efforts. Yet who those key players will be remains largely a mystery, the people said.

Meanwhile, companies are trying to stay in touch with the staffs of influential lawmakers, such as House Speaker Paul Ryan (R., Wis.) and Rep. Tom Price (R., Ga.), the Health and Human Services secretary nominee, these people say.

As with most companies, drug and device makers stand to benefit from a proposed overhaul of corporate taxes. But they are concerned about changes to the Affordable Care Act that could reduce the number of insured, paying customers while potentially leaving drugmakers with the fees and taxes embedded in the law, say industry officials and advisers.

The companies also are keenly focused on rhetoric in Washington that suggests the industry could face a clampdown on prices paid by government health-care programs. Mr. Trump told reporters earlier this month that drug companies were "getting away with murder" in their pricing and indicated support for giving Medicare, the government health insurance for older Americans, negotiating authority on prices.

The Pharmaceutical Research and Manufacturers of America trade group this week launched an advertising campaign to bolster the industry's image and tout the value of its investment in research and development.

"There's a lot of work going into trying to figure out how to position the industry to succeed in this new environment," said Ian Spatz, a former Merck & Co. policy chief who is now a health-care consultant at Manatt Health.

Many interests of the health-product companies dovetail with Republican priorities, especially to overhaul corporate taxes.

U.S.-based multinationals would likely take advantage of any action that allowed them to bring back, at a lower tax rate, the money they hold overseas. Drug and device companies had $264 billion in cash overseas at the end of 2015, according to the latest data from Moody's Investors Service.

Wall Street analysts expect the companies would use their repatriated cash to buy back shares and pay for new mergers and acquisitions.

Medical-device companies would get a bump if lawmakers permanently lift the ACA's 2.3% excise tax on their U.S. sales, which has been temporarily put on hold.

Drug companies are eager to amend federal anti-kickback laws and best-pricing rules for Medicaid. They say the rules prevent them from discussing pricing with health plans before a drug is approved, and that a rollback in regulations would allow them to negotiate fairer reimbursement tied to drugs' performance.

Johnson & Johnson seeks changes "continuing the move toward value-based care and payment for improved patient outcomes," J&J Chief Executive Alex Gorsky said during a conference call with analysts and investors Tuesday. Mr. Gorsky was among a group of business leaders who met with President Trump on Monday for what the White House described as a "listening session."

Other Republican pledges could present problems for drug and device companies. A big concern is the shape of any legislation to repeal and replace the ACA.

The health law has been a mixed bag for the companies. It lifted sales by adding more people with insurance who could afford medical products. But at the same time it imposed fees and taxes on sales to help close Medicare's Part D "doughnut hole" in drug coverage, for instance.

Even if key features of the law get repealed, drug companies could end up continuing to pay its fees, which Moody's estimates will total $4 billion this year, say industry officials and advisers.

"No one is expecting there will be a rollback of the various taxes in the law" levied on pharmaceutical companies, said Dan Mendelson, chief executive of consulting firm Avalere Health.

Among the biggest threats to drug companies is the prospect of the government giving Medicare the power to negotiate drug prices. Industry supporters say that would mean price controls in practice, because Medicare is such a big buyer of drugs.

In the wake of Mr. Trump's comments about drug prices, share prices of drug company stocks fell, and in the following week investors pulled about $526 million, or 1% of assets, from biotech shares, compared with the $726 million that poured into such stocks the previous week, according to investment firm Raymond James.

Companies hope the remarks were just a negotiating tactic, and that they can seize the opportunity to win some sort of market-based solution that is in line with their interests, such as giving government health programs more flexibility to decide which drugs to cover, people familiar with the industry's thinking said.

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