Biopharma Stock Election Impact: Potential Reduced IRA Headwind but Unpredictable Challenges

We think that President-elect Donald Trump brings a mix of potential headwinds and tailwinds to the biopharma industry, and we’re not making any adjustments to our fair value estimates at this time. We had previously assumed that the most likely case was split control of the presidency and Congress by Democrats and Republicans. However, with Republicans locking in control of the Senate and holding a lead in elections in the House, we think it looks increasingly likely that Trump and his party could have control across both branches of government, making any potential policy priorities more likely to be implemented.

In terms of industry tailwinds, Trump could lessen pressure from the Federal Trade Commission on mergers and acquisitions, making it easier for large firms with sufficient cash to expand their pipelines. He could also try to repeal the Medicare negotiation portion of the Inflation Reduction Act, lessening pricing pressure on the industry.

However, Trump’s alignment with and potential to place RFK Jr. in a prominent role in the Department of Health and Human Services or the Food and Drug Administration could lead to less predictable outcomes, ranging from White House influence in approval decisions (possibly fewer approvals of certain new types of drugs, and particularly vaccines) to high turnover of FDA staff (leading to significant backlogs in applications).

One of the first priorities could be an attempt to repeal the IRA. We think it would be difficult to repeal the IRA in its entirety, as many parts of its multiyear implementation are already in progress, and legislators might be unwilling to stop funding on projects in their states and districts. However, a more piecemeal approach to dismantling some upcoming provisions might work.

Zeroing in on biopharma, one of the most likely pieces of the IRA to be repealed is the upcoming Medicare negotiation program. The Heritage Foundation’s Project 2025, a document penned partly by members of Trump’s prior administration, specifically calls out Medicare negotiation as a target for repeal, which Republicans in Congress would also support. However, the negotiation provision is likely to contribute the most savings among the drug policies in the IRA; while the Congressional Budget Office has recently reduced its savings estimates, this was originally estimated at roughly $100 billion over a ten-year period.

Therefore, a repeal could be slightly difficult (but still possible) to combine with a costly renewal of Trump’s Tax Cuts and Jobs Act of 2017. That said, ending the negotiation provision would be a reprieve for several firms that were positioned to see Medicare negotiation well before patent expiration, including Gilead GILD (HIV drug Biktarvy), Novo Nordisk NVO (diabetes and obesity drug semaglutide), and AstraZeneca AZN (oncology drugs Calquence and Tagrisso). Other drug policy changes in the IRA, like the Medicare Part D out-of-pocket cap being put in place in 2025, are likely too popular to be considered for repeal.