February 6, 2017
By Mark Terry, BioSpace.com Breaking News Staff
There are open questions about President Trump’s policies and how they may impact business. Keith Speights, writing for The Motley Fool, takes a look at two biopharma companies and analyzes specific Trump proposals that may cause them trouble.
1. Mallinckrodt Pharmaceuticals
Mallinckrodt Pharmaceuticals has U.S. headquarters in St. Louis, MO, and international headquarters in Dublin, Ireland. It offers a wide range of products in generics, active pharmaceutical ingredients and nuclear imaging. Speights focuses on one of the company’s products, H.P. Acthar gel, as something of a model. It is used to treat systemic lupus erythematosus, acute relapses or flares of multiple sclerosis (MS), sarcoidosis and flares related to other disorders such as dermatomyositis, psoriatic and rheumatoid arthritis, and others.
President Trump has unofficially proposed allowing Medicare to directly negotiate drug prices. As Speights notes, that’s potentially good news for U.S. taxpayers, but could be bad for some pharmaceutical companies.
Medicare spending on H.P. Acthar gel in 2015 was $504 million, which is almost half of the product’s revenue during that year. H.P. Acthar is responsible for more than a third of Mallinckrodt’s total revenue. This could be a problem for the company.
“First,” Speights writes, “H.P. Acthar is the single most expensive drug for the federal healthcare program in terms of spending per user. That could put a big bull’s-eye on the drug if Medicare is allowed to directly negotiate drug prices.”
Secondly, the company has indicated that its strategy is to increase Medicare sales, primarily through focusing on older patients.
Speights writes, “The major unknown is how low Medicare will be able to negotiate drug prices should President Trump’s proposed policy be enacted. Mallinckrodt’s unique situation could make it more vulnerable than most to huge price cuts.”
As the leader in gene sequencing technology, Illumina would seem to be in a terrific position as medicine moves more and more toward so-called personalized medicine, and the need for genetic and genomic information becomes a day-to-day part of healthcare. But where Illumina and Trump policies may go head-to-head are over China trade policies.
And to be fair to Illumina, it’s hardly the only company, biopharma or otherwise, that has bet big on the China and Asia-Pacific market in recent years.
In 2015, Illumina brought in almost $380 million from the Asia-Pacific market, or about 17 percent of total revenue. And China is the heart of that region.
Speights writes, “To get an idea of how important China is to Illumina’s future, just look at the company’s sales growth in the fourth quarter of 2016. Sales in the Americas declined 4 percent year over year. European sales increased 11 percent. But sales in China soared around 50 percent—more than any other geographical territory by far.”
He also notes that Illumina is selling more of its NextSeq sequencing systems to China due to increased demand for non-invasive prenatal testing (NIPTO). And the oncology test market is also growing in China. “Probably the biggest story, though,” Speights writes, “is China’s precision medicine initiative. The Chinese government plans to invest over $9 billion funding projects as part of this initiative, which represents a huge opportunity for Illumina in selling its high-throughput sequencing systems.”
Although it’s hard to say whether Trump’s attacks on China are rhetorical, or if he will try to address foreign policy in tangible ways aside from aggressive tweets and executive orders, he has accused China of currency manipulation and threatened to impose 45 percent tariffs on imports from China. If that were to happen, it seems likely a trade war would occur, and Illumina and any other companies selling products to China, ranging from Buicks to Coca-Cola to branded and generic drugs. According to the International Trade Administration, the U.S. exported $2 billion in pharmaceutical products in 2015. The U.S. is the leading source of pharmaceutical imports to China, making up 11 percent of total pharmaceutical imports.
It’s possible that Trump’s proposed corporate tax policies, which have included lower corporate tax rates and loosening up restrictions on offshore assets, would be an asset to international biopharma and healthcare companies. But probably only if they are well-thought-out policies that can get the approval of Congress.
