Trump’s next target: Big Pharma

When then-President-elect Trump blasted Lockheed Martin (LMT) for the cost of the F-35, LMT slipped 3%. Shares recovered, which means investors who bought at the Dec. 12 tweet low are up about 3%. 

General Motors (GM) shareholders felt the power of Trump-a-tweetin’ too when he wrote on Jan. 3,

General Motors wasted no time responding to Trump’s attack, saying,

“All Chevrolet Cruze sedans sold in the U.S. are built in GM’s assembly plant in Lordstown, Ohio. GM builds the Chevrolet Cruze hatchback for global markets in Mexico, with a small number sold in the U.S.”

GM shares dropped slightly throughout the day but closed higher. Since then, GM is up over 6% and outperforming the S&P 500 so far this year.

So who else is Trump targeting? And are more short-term profits possible?

Big Pharma now has his attention 

Trump said at a Jan. 11 press conference,

I think a lot of industries are going to be coming back. We have to get our drug industry coming back. Our drug industry has been disastrous. They’re leaving left and right. They supply our drugs, but they don’t make them here.

And the other thing we have to do is create new bidding procedures for the drug industry because they’re getting away with murder. We’re the largest buyer of drugs in the world, and yet we don’t bid properly, and we’re going to save billions of dollars.”

Within minutes of Trump uttering those remarks, the nine biggest pharmaceutical companies, including Pfizer (PFE) and Eli Lilly (LLY), lost $24.6 billion in value out of fear that constantly increasing prices might be a thing of the past.

Volume of shares traded on the iShares Nasdaq Biotech ETF (IBB) and the SPDR S&P Pharmaceutical ETF (XPH) were more than three times higher than normal and closed about 3% lower.

Both have been down since.

IBB and XPH are down more than 2% in 2017.

Congress has been quick to drag companies such as Mylan (MYL) and Valeant Pharmaceuticals (VRX) across the carpet for taking advantage of desperate Americans.

Yet they’ve looked the other way when it comes to forcing big pharma to cut prices for Medicare recipients.

Follow the money to understand why …

The pharmaceutical industry, which opposes price negotiation, has protected its interests by lavishing political contributions on members of Congress.

“Pharma has a lot of lobbies, a lot of lobbyists and a lot of power.” — President Trump

Last year alone, it contributed more than $27 million to members of Congress. Lobbyists spread around another $186 million.

From 2009 to 2016, the average member of the 115th Senate received about $108,600 in contributions. That could explain why, on Jan. 11, 2017, the Senate voted down an amendment to allow importation of cheaper prescription drugs from Canada.

Trump said,

“Pharma has a lot of lobbies, a lot of lobbyists and a lot of power.”

A few days later he promised to subjugate drugmakers with the power of the tweet. He told the Washington Post,

“They’re politically protected, but not anymore.”

Trump doesn’t have many friends in big pharma. We’ve written about how he was not a favorite of their money during the campaign. He received $259,000 whereas Hillary Clinton pocketed more than $2 million, making her the top recipient among presidential contenders.

Trump-o-nomics in action

Trump is a CEO first and foremost. He is not diplomatic. It is clear that has no sensitivity to politics and is quick to criticize both parties …

The ultimate outsider who many Americans say is capable of shaking up a political system that has failed them.

Trump believes the government can negotiate better prices for seniors on Medicare than the free market. This may be true. But it will be a tough sell to a Congress with big pharma dollars in its pockets. Some see it as contradictory for a president to promise to axe several government departments … while favoring government negotiators over the free market.

Yet the government negotiates when contracting a new aircraft carrier or interstate highway bridge. So why not drugs for Medicare?

As with many of his concepts, Trump hasn’t spelled out how he plans to accomplish this, which leaves more questions than answers. You can be sure, though, that he’ll use Twitter as his bully pulpit to get word out.  

But suppose the drug companies don’t succumb to a lowball offer from our Negotiator-in-Chief? Some have patent monopolies; there may be no comparable therapeutic substitutes.

Would he walk away from the deal and refuse to include the drug in Medicare’s list?

That would certainly cause political backlash. Then there are the government negotiators that Trump would have to hire. Will the drug companies’ lobbyists and their public relations campaigns make them buckle under pressure?

Rep. Tom Price (R-Ga.), Trump’s pick to be Health secretary, refused to say whether he would support efforts to expand the government’s authority to negotiate lower prices from drugmakers.

Image Credit: wikipedia

Testifying before the Senate Health Committee, Price made only a general commitment to help make drugs prices more “reasonable.”

Price has received tens of thousands of dollars from drugmakers, and records show he has invested heavily in industry stocks.

And even if Trump gets Big Pharma to cave in to his demands, these companies also generate much of their profits overseas. So, their bottom lines should remain strong.

We expect Trump to continue his tweetin’ and his attacks on corporate giants that have Congress in their hip pockets.

Instant moves in the market whenever he speaks or tweets is a trend we expect will continue, which could mean opportunities for you.   

Meanwhile, you might want to contact your Representative and Senators to voice your opinion about pharmaceutical prices and whether the government should negotiate prices directly with the manufacturers.

Best wishes,

The Sound Dollar Campaign

1 Response to Trump’s next target: Big Pharma

  1. Patent monopolies are useful when one wants to block private-sector competition. A patent-holder can sue a competitor for patent infringement and get money damages. A court can order the competitor to cease and desist.

    Going against a government is a different story. Patent laws are enacted by the world’s national governments. Every one of those governments includes March-In Rights in their patent law…under some circumstances, a government nationalizes the patent it granted, and puts the invention to use for itself. In 1917, for example, a German citizen named Fritz Haber held a US Patent on how to make ammonia from nitrogen and hydrogen. His invention gave a cheap route to making nitrates such as nitroglycerin and trinitrotoluene, used in military explosives. When Congress declared war, the US simply marched in and took the Haber patent away, building a huge factory at Muscle Shoals, Alabama to manufacture amatol and cordite for artillery shells. Germany held the patent, but could not stop the US from taking it away.

    Marching in and seizing the rights to make a drug, is a big step. I doubt we’d do it under anything but an extreme danger. There’s an advantage to employing people experienced in a patented technology, as they’ve learned things not written in the patent, that are valuable. (Several big explosions happened at Muscle Shoals, that might have been avoided if the US and German engineers had compared notes. We don’t compare notes with an enemy in wartime, but in peacetime, it’s a smart thing to do.). Still, march-in is a risk, when trying to enforce a patent against a government that granted it.

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