"Forbes" magazine says President-elect Donald Trump's statements yesterday were a nightmare for the pharma industry. Trump announced specific measures for lowering drug prices that he intends to take. The Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price responded by falling 2.6% to $34.30, its lowest in a decade, pushing the company's market cap down to $34.8 billion. The shares of Mylan N.V. (Nasdaq: MYL; TASE: MYL) and Perrigo Company (NYSE:PRGO; TASE:PRGO) fell 4.3% and 6.9% respectively. Teva was down more than 2% in today's trading on the Tel Aviv Stock Exchange (TASE).
Trump: We aren't bargaining the way we should be
Trump's remarks came as a surprise in both their content and severity. He said that the government should create a drug pricing system for the pharma companies, because they were "getting away with murder." He said that the pharma industry had many powerful lobbyists, and there were very few tenders for drugs. He added that the US government was the world's biggest purchaser of drugs, but was not bargaining the way it should. "We are going to start bidding. We are going to save billions of dollars over time," he said.
Trump also said that the US drug industry was terrible, because the US was buying drugs from the companies, which did not produce them in the US, and that production should be returned to the US.
He was referring to certain pharma companies that had carried out reverse mergers into foreign companies in order to evade taxes. Production can be returned to the US in two ways: by cutting taxes in the US or by enacting law making this tax planning unprofitable. Judging by the way Trump attacked the companies, the second option is more likely.
When Trump was elected president on the Republican ticket, the market thought that his election was safer for the drug sector, because the Republicans have traditionally supported the free market and opposed excessive regulation, and have traditionally been friendly to large industries like pharma.
Trump's statements, however, are in the same direction (although not with the same degree of detail) as those made by Hillary Clinton, the Democratic candidate defeated by Trump, and Senator Bernie Sanders, who ran against Clinton in the Democratic primaries and is considered a socialist and a threat to the pharma industry.
Any bill proposed by Trump must first pass the House of Representatives and the Senate, in both of which the Republicans have majorities. In addition, the pricing process requires difficult planning. Furthermore, a monopoly exists for many drugs, so it is unclear how much freedom the state has to bargain over their prices.
Teva: Delayed launches and missed forecasts
In a presentation earlier this week at the JP Morgan conference, Teva CEO Erez Vigodman candidly explained the reasons that the company's 2016-2017 guidance had proved inaccurate. He said that the erroneous forecast should not have occurred, and that Teva would do everything in its power to prevent it from happening again. According to Vigodman, the reason was that Teva had launched new products over the past four years that generated $881 million in revenue in 2012, $400 million in 2013, $883 million in 2014, and over $1 billion in 2015. On the basis of these results, Teva assumed that it would launch new products generating at least $600 million in revenue. Vigodman said that 2016 had been a very difficult year for Teva, and the new products it had managed to launch had generated a mere $40 million in revenue, which had affected its 2016 results.
Asked why the company had erred so badly in estimating the pace at which its new products would be approved, Vigodman explained that there was uncertainty about intellectual property and regulation in the pharma industry. In 2015, just two generic launches had accounted for almost all the revenue generated by new products. He said that a number of delayed launches were capable of changing the entire picture.
Vigodman stated that there were many more products ahead, each on a smaller scale, meaning that there were more opportunities for success, and more stable results were likely. Commenting on Teva's innovative products, Vigodman said that the key product was a treatment for migraine headaches. While saying he wanted to be cautious, he stated that Teva's revenue from this drug could amount to billions of dollars. He added that the company also had SD-809, a drug for movement disorders; Laquinimod for multiple sclerosis; fasinumab, developed in cooperation with Regeneron; and pridopidine for Huntington's Disease. He also said that Teva could add eight drugs developed within Teva to its advanced development pipeline.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 12, 2017
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