22 JUN

2017

Equities , Rudi Van den Eynde , Topics

Biotechnology: where are we in the drug pricing discussion?

Biotechnology investors were recently spooked by rumours of an imminent executive order on drug pricing by president Trump.

On Tuesday the New York Times got their hands on a draft version of this order and published an article on their website. The draft focuses on reducing the regulatory hurdles for the drug industry and definitively reads positive for the biotech space. Enabling a more straightforward path to market for “bio-similars” will result in major savings for the healthcare system, while leaving the pricing of novel innovative medicines intact. More than ever, it will be “innovate or perish” – this has always been our assumption and we choose our stocks accordingly.

Other measures highlighted in the article are the protection and enforcement of overseas drug patents (which are not always respected in some countries) and a reduction in the current programme, which requires the drug industry to offer discounts to hospitals serving a large number of low-income patients. The latter, especially, is remarkable, since it is hard to imagine how this would bring drug prices down but, all in all, the measures are in line with the republican philosophy of reducing regulation and government interference.

Although this is obviously a draft version that could evolve, the trend is clearly to support innovation and take the logical and ethical route of reducing pricing by enhancing competition, especially for drugs whose intellectual property rights are about to expire. Innovation never sleeps and, more and more, it seems like it will continue to be rewarded.

Is this the green light for biotechnology? The pricing discussion will obviously continue but this draft, if confirmed, surely goes a long way towards giving an “all clear” signal – as well as being in line with our own thinking on how the US system should evolve (though we categorically reject the idea of giving less discount to low-income patients). The rather impressive 2-day rally we witnessed has surely some of its roots in this executive order.