Attack has pharma leaders hunkered down in shock

Trump’s blast to pharmaceutical leaders creates uncertainty.

In a hallway of a San Francisco luxury hotel, investors huddled around a computer screen watching dozens of drug stocks plummet as President-elect Donald Trump lit into pharma companies, declaring that “they’re getting away with murder.” As for Obamacare, he said, “it’ll be repeal and replace.”

The mood was shock and disbelief as thousands of health-care investors, bankers and executives gathered at the cramped Westin St. Francis Hotel. Many had paid thousands of dollars to attend the industry’s biggest investing get-together of the year, the four-day J.P. Morgan Healthcare Conference. And they had spent the last days speculating about what policies Trump would push in health care. Then the bomb dropped.

“It’s horrible,” David MacCallum of Outer Islands Capital, a small hedge fund in New York, said over the phone to his wife as he watched the tickers tilt downward.

On Wednesday, Trump promised to force drug and biotechnology companies to bid for the government’s business, and reiterated his demand to do away with Obamacare. “We’re the largest buyer of drugs in the world and yet we don’t bid properly.” He promised the government would “save billions of dollars.”

Trump’s attack on the industry is just the latest turn in a populist governing philosophy where he’s gone after companies that provide high-value goods and services to the government, like defense manufacturers, or major employers, like car manufacturers. Drug stocks jumped after Trump’s election, as investors bet he would be friendlier to the industry than his opponent, Democratic candidate Hillary Clinton.

“Well, that party ended fast,” John Schroer, sector head of health care at Allianz Global Investors, said as the Nasdaq Biotechnology Index fell 3 percent and the Standard & Poor’s 500 Pharmaceuticals, Biotechnology & Life Sciences Index fell 1.7 percent.

Trump offered few concrete details on his plans for U.S. health care and, as is his habit, may very well still change his mind. Still, he has begun to outline broad priorities for an industry that’s more closely tied to the government than any sector other than defense. The government is a customer for its drugs and services, a regulator of its new products, and an organizer of its markets.

At the same time, Trump has identified a legitimate concern for consumers. U.S. taxpayers and patients essentially subsidize the drug industry.

They pay higher prices for drugs than anywhere else in the world. Yet there is also a huge payoff for the system, and not just for companies’ bottom lines. Those subsidies have also made the U.S. a cradle of biopharmaceutical innovation.