Investing.com -- The outcome of the 2024 U.S. presidential election is poised to affect the biotechnology sector, as both major parties present policy proposals that could reshape drug pricing, regulation, and research investment.
As per analysts at RBC Capital Markets, biotech companies face uncertainties as Democrats and Republicans outline their healthcare agendas.
The Democratic Party, led by Vice President Kamala Harris, has a more aggressive stance on drug pricing. Harris supports expanding the Inflation Reduction Act, which would allow Medicare to negotiate the prices of up to 50 drugs per year. This policy is likely to place pressure on companies heavily dependent on Medicare pricing.
Companies such as Gilead (NASDAQ:GILD), Regeneron (NASDAQ:REGN), and Neurocrine (NASDAQ:NBIX) Biosciences, all of which have high exposure to the IRA, would likely face the most negative impact.
An expansion of pricing controls into commercial markets and a cap on out-of-pocket costs for generics could also compress profit margins across the sector.
However, not all biotech firms would be adversely affected by a Democratic victory. The Harris administration’s focus on mental health, women’s health, and oncology could prove beneficial to companies developing treatments in these areas.
Mental health-focused firms like Intra-Cellular Therapies (NASDAQ:ITCI) and Axsome Therapeutics (NASDAQ:AXSM), as well as oncology firms such as Exelixis (NASDAQ:EXEL) and Nuvation Bio, stand to gain from expanded funding and access to care.
Additionally, the Biden administration’s decision to protect orphan drugs used for rare diseases from IRA price negotiations means companies like BioMarin and Ultragenyx might avoid some pricing pressure.
On the other hand, a Republican-led government, likely under former President Donald Trump, would offer a more favorable environment for biotech firms.
Republicans are expected to take a more moderate approach to the IRA, potentially easing its implementation and reducing the pressure on companies exposed to Medicare.
RBC analysts point out that this could provide a tailwind for companies like Regeneron and Neurocrine, which would benefit from slowed IRA-related discounting.
Moreover, Trump’s focus on chronic illnesses could boost companies developing treatments for such conditions, particularly for children. Vertex Pharmaceuticals (NASDAQ:VRTX) and Jazz Pharmaceuticals (NASDAQ:JAZZ) are among the firms likely to benefit from initiatives aimed at improving care for chronic diseases.
Additionally, Republicans are seen as more favorable toward mergers and acquisitions, particularly if a less stringent Federal Trade Commission head is nominated, which could trigger further consolidation in the biotech industry.
The GOP’s stance on drug pricing is, however, not without potential risks. While Trump has backed away from his earlier proposal of a “most favored nation” pricing model, if resurrected, it could be more damaging than the IRA.
This policy would require the U.S. to pay the lowest price for drugs globally, disproportionately affecting companies with significant price differentials between the U.S. and international markets.
Firms like Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BIIB) would likely suffer from this scenario, especially if the policy were extended beyond Medicare.
Another area of potential risk under a Republican administration is a reduction in emphasis on pandemic preparedness, which could harm vaccine producers like Moderna (NASDAQ:MRNA).
Trump’s earlier policies had focused less on bolstering preparedness, a trend that might continue, reducing the government’s focus on pandemic-related R&D.