How will the US election impact biotechnology?
How the biotech sector may fare in different election outcomes
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In recent US Presidential elections, healthcare has been a huge topic of debate, contributing to considerable volatility in the biotech sector, as investors have struggled to price in the implications of various proposed policy initiatives and election outcomes for share prices.
Although the industry appears to be playing a more subdued role in the current election campaign, it remains important for investors to understand how different outcomes may impact the biotech sector in the years to come. A study of recent history is valuable here, as is an analysis of current policy stances.
Obama and the Affordable Care Act
The Affordable Care Act (ACA), introduced by President Barack Obama in 2010, aimed to make healthcare more affordable and accessible. Often referred to as Obamacare, the ACA expanded Medicaid, created health insurance exchanges and introduced the individual mandate, which required most Americans to purchase health insurance or face a tax penalty, thereby balancing the cost of healthcare provision more fairly across society.
For the biotech sector specifically, debate around Obama’s plans for healthcare reform prompted some market nervousness, with fears that government intervention and increased regulation could lead to pricing pressure. Ultimately, however, the ACA has been a net positive for the sector, because it has expanded healthcare system coverage. Prescription drugs only accounted for around 9% of the US government spending on healthcare in 2021 with hospital care taking up the lion’s share. So, while pricing pressure may have been felt by larger pharmaceutical companies selling well established products, biotech innovation has continued to be rewarded, particularly where it reduces, expensive, hospitalisations and thereby lowers long-term healthcare costs.
Nevertheless, Obama’s efforts to democratise the US healthcare system laid the foundations for the industry becoming a key political battleground in subsequent elections.
Trump vs Clinton, 2016
Donald Trump’s election campaign in 2016 promised a swift reversal of Obama’s healthcare policies. Trump had repeatedly called the ACA a “disaster”, citing rising premiums and government overreach. His campaign included a promise to repeal and replace the ACA with a market-driven alternative, something he never achieved.
By contrast, Hillary Clinton’s healthcare rhetoric in the 2016 election was focused on expanding the ACA and lowering drug prices. While supportive of Obama’s reforms, Clinton’s calls for drug price controls created some market concern. In 2015, her tweet denouncing pharmaceutical companies for “price gouging” prompted significant volatility for biotech company share prices, albeit she was subsequently keen to make clear her continued support for biotech innovation. Nevertheless, uncertainty over who would prevail continued to weigh on sentiment towards the sector throughout the campaign.
Ultimately, Trump was unable to dismantle the ACA during his Presidency, but his administration did successfully eliminate the tax penalties that helped to enforce the individual mandate. A combination of factors, including divisions within the Republican Party and strong public support for the broad principles of the ACA, thwarted full repeal efforts, emphasising how entrenched this important piece of US healthcare legislation had become.
Trump vs Biden, 2020
In the 2020 election, healthcare remained a central issue, though it was reframed by the Covid pandemic. Donald Trump campaigned on deregulation, continuing efforts to dismantle the ACA and promoting competition to reduce drug prices. Joe Biden, by contrast, positioned healthcare at the heart of his platform, and his plan to navigate the crisis by expanding access to healthcare and ensuring effective vaccine distribution, resonated with voters that were concerned with both pandemic management and healthcare affordability.
Ultimately, Trump’s stance on dismantling the ACA and criticism over his pandemic handling contributed to his electoral defeat, especially in swing states where healthcare access was a key voter issue.
Biden went on to enact the single most important piece of US healthcare legislation of the last few decades within the broader Inflation Reduction Act. The Act introduced pricing negotiations on the sales to Medicare of an expanding number of the most profitable well established drugs, effectively ringfencing drug pricing at the innovative end of the biotech industry from Government interference. Although this legislation will only come into force in 2026, initially covering just 10 drugs with the highest revenues, such as treatments for diabetes and heart disease, it has effectively addressed the contentious issue of drug pricing, thereby possibly removing it from the top of incoming politicians’ “to do lists”.
Trump vs Harris, 2024
In 2024, healthcare does not appear to be the subject of quite so much contention as in previous election campaigns. That said, the industry remains important, with healthcare spending and regulation still featuring in the debate.
Indeed, a recent poll shows that healthcare remains a top issue among voters, with two-thirds of Americans believing it hasn’t yet received enough consideration during the current election campaign.
This election is a very close race, and we won’t attempt to pick an ultimate winner. From a market perspective, the political uncertainty is unlikely to help sentiment in the next few weeks, but when the outcome becomes clear, the biotech sector should be well-placed to return to favour with investors, irrespective of who wins.
If Kamala Harris wins, she is expected to continue to build on the Biden administration’s efforts. She supports expanding Medicare’s negotiation powers to cover a larger number of established drugs, which may put further pressure on larger pharmaceutical companies. However, she is also committed to promoting innovation and ensuring that biotech companies are still incentivised to develop new treatments.
If Trump wins, his administration is likely to emphasise deregulation and more market competition within the healthcare system. He has gone back on his earlier “Favoured Nation Model” proposal to tie drug pricing to the prices paid by other nations. Further efforts to dismantle the ACA look likely but should continue to be challenging to implement. Meanwhile, we expect continued support for innovation, and we could see policies that look to lower regulatory barriers and accelerate drug approvals. These could be beneficial for biotech firms looking to bring new products to market more quickly.
Gridlock is a real possibility. A divided government, with one party controlling the Senate and the other controlling the House of Representatives, would likely preserve the status quo, with neither party able to pass significant legislation without compromise. This would mean a period of relative stability, allowing biotech firms to continue to focus on innovation without the threat of broader policy reform that could impact profitability or market access.
Business as usual
While healthcare has been a politically charged issue in past elections, so far, it appears to be less contentious in 2024, probably because the Inflation Reduction Act is seen as having largely addressed the thorny issue of drug pricing of the long-standing established drugs. Regardless of whether Trump or Harris wins, we would argue that the outlook for biotechnology remains positive. Even though both candidates have voiced a desire to bring down medical inflation, total healthcare spending looks set to continue to rise, driven higher by patient demand, an aging population and the rising cost of medical services and innovation. Innovative drugs which play a role in keeping patients out of hospital, are unlikely to be the target of Government intervention as it is hospitals that account for the largest share of US healthcare spending.
Regulatory appointments may prove important. Trump is likely to favour more market-friendly leaders at regulatory institutions such as the US Food and Drug Administration (FDA) and the Federal Trade Commission (FTC). This could accelerate deregulation and increase the likelihood of M&A deals in the sector. Harris may focus on consumer outcomes, making appointments that could lead to increased scrutiny on mergers and acquisitions (M&A) to ensure fair competition and consumer protection. However, neither approach is likely to stifle innovation, which remains a core, and overwhelmingly positive, element of the biotech investment case.
Indeed, biotech’s long-term success is underpinned by its role in public health and scientific advancement. There is an implicit understanding between the state and the biotech industry – governments rely on biotech innovation to address pressing healthcare challenges, while the industry benefits from supportive regulatory frameworks and funding, and investors who fund biotech’s drug development efforts benefit from the potential for attractive returns on investment. This mutually beneficial relationship means that governments will continue to incentivise the biotech industry, given the critical need for innovation that can ultimately reduce healthcare costs and improve patient outcomes.
In summary, political uncertainty may cause some temporary volatility for the biotech sector, but probably in a more muted way than in previous elections thanks to progress made on drug pricing legislation. The industry’s long-term fundamental drivers remain incredibly strong, and the biotech sector is positioned to thrive as innovation continues to be cherished and rewarded.
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