As President-elect Donald Trump prepares to take office with a Republican-controlled Congress, major shifts in drug pricing policies are not expected, a new report by investment research firm Morningstar claims. However, the firm suggests ACA changes would likely focus on repealing healthcare insurance mandates and loosening overall regulations.
Morningstar contends that Republican plans for ACA changes — in addition to eliminating the insurance mandate — are likely to include allowing the sale of insurance across state lines, converting Medicaid into block grants and generally loosening regulation. "These changes will likely reduce the number of insured patients, which is generally a negative for the healthcare market, but the loosening regulations should help offset this negative," writes Damien Conover, with Morningstar.
In his report, Mr. Conover also addressed drug pricing. He said Morningstar doesn't expect any major changes from the government on drug pricing, but the firm does anticipate continued drug pricing pressure from pharmacy benefit managers. He said this pressure from PBMs "should continue to decelerate U.S. drug pricing growth, adding pressure to drug stock valuations."
Morningstar also said the research-and-development landscape is rapidly increasing the speed of generating excellent clinical data in areas such as oncology. The firm notes that drugs in certain areas of cancer are reaching the market at half the time of drugs developed 10 years ago. Morningstar said this can be attributed to major advancements in science and clinical designs, as well as to more accommodative healthcare regulatory groups.
"We expect the shift to continue and to increase drug-development productivity and strengthen the moats for drug companies, especially as the productivity gains are in areas of unmet medical need that hold strong drug pricing power and steep launch trajectories," writes Mr. Conover.
Additionally, as far as capital finance, the firm said healthcare companies continue to buy back shares and increase the dividends while also acquiring firms "as cashflow generation looks robust, but increased growth is needed from acquisitions."
"Persistent low interest rates are also fueling merger and acquisition trends because cheap capital is available to fund acquisitions. Additionally, any change lowering of the U.S. corporate tax rate by the new U.S. government would likely increase the acquisition activity as more international profits would be less restricted by tax losses in bringing the cash back to the U.S.," Morningstar said. "Overall, the low interest rates combined with the need for scale and growth should drive continued healthcare acquisitions over the next six months."
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