Investors Bet Big on Trump for Big Pharma
Even with the recent tremendous drop in the stock market, the actual net rise for the pharmaceutical sector is two and a half times positive since the election, says economist Bill Black
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
The nine largest pharmaceutical companies listed in the New York Stock Exchange lost $24.6 billion, or 4% of their value, in just 20 minutes during President-elect Donald Trump’s press conference on Wednesday. The drop appears to be related to comments that Trump made during his press conference in which he said that the pharmaceutical industry, and I quote, “is getting away with murder.” Let’s have a look.
DONALD TRUMP: 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 — to a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they’re getting away with murder. Pharma… pharma has a lot of lobbies, and a lot of lobbyists and a lot of power, and there’s very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don’t bid properly, and we’re going to start bidding, and we’re going to save billions of dollars over a period of time.
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SHARMINI PERIES: Joining us now to talk about all of this is Bill Black. Bill is an Associate Professor of Economics and Law at the University of Missouri Kansas City. He’s a white-collar criminologist and a former financial regulator, and the author of “The Best Way to Rob a Bank is to Own One”. Thanks for joining us, Bill.
BILL BLACK: Thank you.
SHARMINI PERIES: Bill, what do you think happened when they heard this announcement by President-elect Trump during the press conference about the drug industry?
BILL BLACK: Well, most expressions that they would’ve actually used would’ve been obscene, and we can’t… (laughs) you know, give the kind of level of pain that they would have felt. $24.6 billion is considerable, even for them. But, let’s recall that after this nearly 4% drop, the pharmaceutical sector is net since the Trump election up nearly 9%, which is to say it was over 12% prior to this talk. And since they have a market capitalization combined of slightly over $900 billion — in other words very close to a trillion — net, they’re making out like bandits and celebrating.
So, the press conference, in this section, showed that Trump is able to tell the truth in certain areas. He’s quite correct that Big Pharma has been getting away with murder, and he’s correctly identified three of the ways. One is that they’ve increasingly outsourced and removed U.S. jobs, but sell here. And, indeed, he kind of makes the point that it isn’t just that those drug companies — supposedly U.S. drug companies — sell here, they make the vast bulk of their profits here. And that’s because of the second thing that Trump said, and that is we don’t do competitive bidding at the federal government on drug prices. And as a result, compared to the rest of the world, we overpay and we overpay to the tune of hundreds of billions of dollars over time for these drugs. And the third thing is, once we produce these record profits for these Big Pharma, they’ve also been among the folks doing these tax inversion deals so that they can get flaky, extremely low tax rates in tax havens like Ireland and such. So this is the triple whammy.
Now, I must tell you a hilarious thing. CNBC, which no one should ever watch, has done this, in essence, op-ed saying, “This is great! Look what it means when we finally have a businessman. He’s going to take a business approach, not like those lefties, you know, that have been running government.” Well… and he’s going to actually use our leverage — we’re the biggest drug purchasers in the world, the United States government, by far, is the largest drug purchaser in the world — we can use that leverage to get, and in fact we can, much lower drug prices and now, finally we’re going to have a business type and he’s going to do that.
Except that, of course, all those lefty liberals have been screaming about this for years, and who has blocked it? Well, all of those business types. And, in particular, but not exclusively, business types associated with the Republican Party, which would be that reference that Trump made to “they have an army of lobbyists,” and that army of lobbyists has owned the Republican Party lock, stock and barrel, and they have put into the law prohibitions against the government using its negotiating leverage to get a proper price.
Now, again, this isn’t exclusively Republicans that are bought and paid for. There are a significant number of Democrats in that list, but it’s still really disproportionate. So it’s exactly the opposite of how CNBC is picturing this.
SHARMINI PERIES: But on the part of President-elect Trump this was somewhat of a jab at President Obama who actually refused to negotiate with pharma, even prior to him getting into office You know, when he was campaigning he kind of made a deal with the pharma industry that he wouldn’t go there when it came to Obamacare, and then we had this legislation you’re talking about, as well. But isn’t this a good thing that he’s actually saying and what is the likelihood of him carrying it out to get competitive prices in the United States?
BILL BLACK: Yes, it is a good thing that he’s saying it. The likelihood comes back to exactly your question, because this fits in enormously to his other stuff about repealing healthcare insurance, and there he said something at the same press conference that means there may not be any repeal. He said, “Any repeal should be followed almost simultaneously by a full replacement.” Now, obviously, it should work the other way. But, hey.
You can’t do that. So, and your point is the critical one: what people need to recall is that Obamacare was not a Democratic plan — this was a plan of the Heritage Foundation, which is an ultra-right-wing group. Right? And so it never had cost containment, which is why the public option… or direct healthcare provision by the government was what Obama critically needed to do to get a reform that would work. And you can see what happens when you do an extension of care without the cost controls. It can seem to work for a while, but eventually the insurance companies are going to start dropping out one after another.
You are quite correct: Obama made an explicit deal to get the insurance companies to support Obamacare as opposed to fighting it. And that was that there wouldn’t be cost containment, and either from public option or from the United States starting to negotiate like an intelligent buyer that we would do.
Now, could Obama have gotten through competitive bidding? Um… not clear. After all, he was able to get virtually no Republican support for Obamacare. But he never tried because of his view that, politically, the only chance he had was to make this deal with the big insurance companies and Big Pharma.
SHARMINI PERIES: Bill, a steroid puffer for people who have asthma, for example, in Canada you can buy that for $35, and we actually have a colleague here who’s paying $350 for it on top of his insurance, and in American dollars, for that matter. How do you explain this, and would a negotiation and competitive prices on drugs like this be able to dramatically reduce the cost of drugs and make healthcare more affordable for Americans?
BILL BLACK: For Americans, yes, but recall that the overwhelming bulk of the profits for Big Pharma comes in the United States. So, if you dramatically reduced those profits in the United States, we’ve been cross-subsidizing — we, the American people and American government – Canada, through this mechanism. The Big Pharma is claiming, “You do this, Canadian prices are going to go up,” and of course, not just in Canada.
But let’s also mention the other scandal that Trump hasn’t mentioned. And that is, on top of everything we’ve discussed to date, for a whole range of critically needed drugs that literally are a matter of life and death, like the EpiPen, what we’ve seen in the last five years is hedge funds getting into the business and then increasing prices by thousands of a percent. I mean, as much as 5,000%. And these are people that will literally cause people to die because of these price rises. Trump hasn’t said anything about what he’s going to do with those drugs which are not purchased by the federal government, which is a critical range of drugs for people and have even worse problems than the ones he’s described.
So, he aptly used the metaphor that Big Pharma in the sales to the U.S. government is getting away with murder. Well, you know, and as you said, that’s a mark-up of typically 300% to 500% above Canada. What about these things where the mark-up is 5,000 times Canada?
SHARMINI PERIES: And looping this whole story back to the beginning, which is what caused the ups and downs… well, the big dive in the markets yesterday, is what you call this speculative bidding that’s going on.
BILL BLACK: Yeah. But, again, I would caution: even with this tremendous drop yesterday, the actual net rise is two and a half times positive since the vote. In other words, investors are betting that Donald Trump is going to be fabulous for Big Pharma.
SHARMINI PERIES: All right, Bill. I thank you so much for joining us today.
BILL BLACK: Thank you.
SHARMINI PERIES: And thank you for joining us on The Real News Network.