DAY (8/15): PRRN CHALLENGE!
Hello! I am Priya, and thank you so much for being here! :)
25/03/2025
Quick disclaimer: There are a lot of medical and pharmaceutical terms mentioned below. Kindly note that this blog is simply to reinforce my learning and spread knowledge. I do not have a pharmaceutical background, so kindly make some provision for scientific inaccuracies, which may be possible! :)
Today I spent most of my time completing Evaluate Pharma's report that I had started reading yesterday. It was really exciting because today's sections were centered around the macro environment for pharma, politics, economic and regulatory whirlwinds.
Starting with the Trump administration. I've been reading a lot of mixed opinions about his administration. This report highlights that one of the most satisfying aspects about his administration is that he may revise regulatory programs that require pharma companies to give incessant discounts and rebates.
THE GOOD
(i) The 340-B Drug Discount program: According to this law, if a pharma company wants to list themselves on the government's Medicaid program, they must 'pay' rebates to the government, and must also offer discounts to insurers, who cater to lower income populations.
This might result in investments being steered away from several critical conditions as from the face of it, there is literally no incentive to their hardwork. Larger focus is bound to be diverted to those conditions where a higher price can be realized.
As I see it, investments are already being steered away from oncology into other domain areas, and hence Trump's revision of this law is critical in maintaining a balance across all therapy areas.
(ii) Reformation against Pharmacy Benefit Mergers: These mergers collaborate with retail pharmacies/hospitals etc in order to bargain with pharmaceutical manufacturers for lower prices. Trump's stance against such mergers might positively impact the margins of pharma companies.
(iii) Favourable revisions to the Medicaid program: This is expected to limit the amount of rebates that need to be offered to buyers.
(iv) A bit more leniency with the implementation of Anti Competition laws: These were very strict under Biden Administration. It is useful to know that pharma companies cannot at once devote maximum attention to all therapy areas, and hence M&A's are almost required, to diversify their portfolios and maximize their profitability.
In fact, many non specialist investors in pharma judge the performance of this sector based on the level of M&A in a company. Such stringent regulations make this a lot harder, and affect share prices negatively.
The above were of course only speculated by political experts in 2024 (which was when this report was written). Things so far look really rosy, but of course, all that glitters isn't gold ;)
My inference here is that all these regulations and reforms are centered around giving more economic freedom to the pharma companies, to in some sense, enable them to control their own pricing.
THE BAD
Today is the 26th of March 2025, and I'd like you to pick up any non biased newspaper and open the pharma section. My guess is 9 out of 10 of them voice out their resentment with the Trump administration.
Based on the newspapers I've read and the Evaluate Pharma's report, I've compiled the following reasons. I don't necessarily have political opinions (LOL), so I will focus my report on what could be the economic implications of these:
1) Hiring skeptics: To the healthcare department, the GOP has nominated 3 very controversial figures, who have some strong opinions about the FDA and the pharma sector at large.
At first there's Robert F Kennedy, who is very openly a vaccine skeptic. Of course he may have his reasons, but this is bound to hurt the businesses of companies like GSK, who have been working incredibly hard to develop new vaccines in the meningitis space.
To top this, Jim O'Nielle, who is the expected Deputy HHS, has suggested that safety of medications will be a big priority for him, and that no medicine should be launched into the market unless it's very well proven to be safe.
As patients, of course, this is crucial. However from the pharma companie's standpoint this is bound to increase the approval time for each medicine, not to mention the number of additional clinical trials they would need to invest in to confirm the safety of their drug. Many drugs unfortunately do come with a % chance of being dangerous, however, it seems such flexibility will no longer be tolerated.
In addition to such stringent requirements, Martin Makary (current Commissioner of the FDA) has in the past mentioned that he believes that the FDA employees do not have a commendable work ethic, which means as an institution, the FDA is going to see a big difference to their work culture, and also the work that is expected from them, and the political analysts at Evaluate suggest that this could lead to a large number of people quitting.
2) PDUA: PDUA or Prescription Drug User Ammendment, discusses the fees pharma companies need to pay in order to get their drugs reviewed by the FDA, which could later be accepted or rejected.
Here no matter what decision is taken, it could have negative consequences for pharma. If the price of the PDU fees goes up then pharma companies would need to pay more to get their drugs reviewed and this is what was suggested by Donald Trump initiallly.
However Robert Kennedy finds this to be a form of corruption where the FDA is being paid to do reviews, and this may create some sort of bias where they may want to approve certain drugs. Hence HE might want to reduce the fees collected.
However, just imagine: The fees for the FDA reviews are reducing, there is a very new change in the organizational culture, and the reviews must be much, much more accurate.
Remember what I mentioned about quitting? It may literally grow 2 fold.
3) BIOSECURE: Biosecure basically wants to limit the exposure that sponsors (companies that approach the FDA with a clinical trial) have with Chinese companies.
Those that read yesterday's blog, would be able to predict why this might have adverse effects on the pharma sector in the short term. The biggest reason, is of course that, almost all pharma companies have atleast 20% of their pipeline somehow being associated with China.
Either these drugs have been acquired from them, or they are being done in collaboration with them, or their rights have been sold to a Chinese company. The potential increase in tarrifs is also doing no good in terms of exploring the Chinese markets.
FINANCING FOR PHARMA
The above reasons have created a whirlwind of uncertainity in the minds of investors who are really unsure what to expect. Indeed, pharma stocks are 'defensive stocks' and many non specialist investors hold on to them as some form of risk neutralization.
However, the uncertainity from Trump's administration coupled with contractionary policies from the FED have made it harder to appeal to such investors. Additionally, pharmaceuticals like BioAge who's development had to be recalled due to toxicity reasons, does not help much either.
Considering the GOC's increased attention toward the safety of drugs, such cases may perhaps be a little bit more common than before. The last resort would be Venture Capitalism. However in pharma currently, this fianancing seems to be increasingly concentrated in a few hands, and this may once again reduce the scope of flexibility in this industry.
HOPE YOU ENJOYED MY TAKE AND INFERENCES. SEE YOU ALL IN DAY 9! :)
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