United States

2020 Election preview: Life sciences


With the election approaching, RSM is looking at the economic stakes and the key issues for various industries and sectors. This is one in our series of election previews.

The top policy issue for life sciences

Drug pricing reform remains a priority for voters and lawmakers and a top concern for the life sciences industry. The federal government spent $201 billion in 2018 on prescription drugs under Medicare Part B and Part D, according to Bloomberg. Americans spent an estimated $82 billion out of pocket for prescription drugs in 2019. Increased access to generic drugs saved consumers approximately $70 billion dollars in medication costs between 2014 and 2019, but new branded drugs, a higher volume of existing branded drugs and brand drug price increases have resulted in a net increase of $56 billion in manufacturer revenues over that time frame, according to the latest medical spending report by health care analytics company IQVIA.

If Trump wins

President Trump has issued a series of executive orders with the goal of delivering lower prescription drug prices. These orders are primarily aimed at negotiating with pharmaceutical companies over pricing for certain drugs, controlling kickbacks and allowing the importation of some drugs from other countries. While not law, these orders are indicative of potential policy proposals during a second term. We also expect Trump would continue to pressure the legislature and the courts to repeal the Affordable Care Act, which would be disruptive to payers, Medicare and drug and medical device manufacturers, who have all adapted to the current structure.

It is also likely that Trump, if he serves a second term, will place greater focus on the government’s ability to negotiate drug pricing for Medicare. While there is some support on Capitol Hill for such a move, there is opposition from the House and some Republicans in the Senate. More likely is a move to reduce copays under Medicare Part D, which has some bipartisan support in the Senate Finance Committee. The president has also supported linking U.S. drug pricing to an international pricing index, believing that other “other countries have rigged the system so that American patients are charged much more for the exact same drug.” Given his propensity to engage in international trade deals, we see this as a likely drug pricing focus should Trump win a second term.

If Biden wins

Former Vice President Joe Biden has said that he wants to expand Medicare, lowering the age of eligibility to 60. Biden has also indicated he would seek to reduce drug costs by allowing the government to negotiate the price of drugs for Medicare beneficiaries, a move that the Congressional Budget Office estimates would reduce drug spending by $450 billion over 10 years. If passed, a 2019 House of Representatives bill aimed at lowering drug prices through negotiation would redirect these savings to pay for new Medicare benefits, help low-income Medicare beneficiaries and fund research. Biden would likely face the same congressional challenges as Trump in securing broad negotiating powers for the government.

Biden has also praised the innovative prowess of America’s biopharma companies, but his platform includes measures to control prices of branded drugs and biologics, while increasing competition between drug manufacturers. His proposals include limiting price increases for all “brand, biotech and abusively priced generic drugs” to the U.S. inflation rate (in order for those drugs to be part of Medicare). He would also seek to limit the price for new and novel drugs to a “reasonable” level based upon an evaluation by independent review board or an average price paid in other countries. Both proposals would face heavy opposition by those who see such measures as inhibitors to innovation in an environment that has already seen new drug approvals remain stagnant for the last decade. Biden’s position would increase competition by importing drugs from other countries that have been deemed safe by the Department of Health and Human Services as well as by providing a streamlined path for the approval of generics and biosimilars.

Other life sciences issues:

Oversight of mergers and acquisitions could become more pertinent if the administration changes next year. Over the past several years, the Federal Trade Commission has issued a number of split decisions related to pharmaceutical company M&A deals. In these split decisions under the Trump administration, such deals have been approved with three “yes” votes by the Republican-appointed board members, versus two “no” votes from the Democrat-appointed board members. Under a Biden administration, which would likely have a less laissez-faire approach to business, we expect new FTC appointees to be more critical of mergers, which would likely mean more mergers would be blocked or require substantial concessions for approval.

Beyond regulatory oversight of deal transactions, life sciences companies should expect public pressure and government action to contain both government drug spending and individual out-of-pocket costs. Three in 10 Americans said they did not take a prescription as directed because of the cost, according to a Kaiser Family Foundation poll conducted in 2019. Whoever wins the election, focus on this issue will remain prevalent.

The Trump administration’s effect on the industry:

Under the Trump administration, political appointees to the Food and Drug Administration, HHS and the FTC have been friendly to life sciences businesses: We have seen few major roadblocks put in front of mergers and acquisitions by the FTC, and FDA drug approvals have been moving more rapidly than under the previous administration.

Under Operation Warp Speed—a program aimed at quickly producing vast amounts of vaccines for COVID-19—and other federal programs, the government has injected billions of dollars into the life sciences industry to support vaccine and therapy development, purchasing medical devices and stockpiling personal protective equipment. However, the speed at which vaccines are being developed—alongside the disagreements the Trump administration has had with the Centers for Disease Control and Prevention, FDA and HHS—has introduced confusion and distrust of potential COVID-19 vaccines and therapies and diminished trust in our health and scientific communities. Recently, the president’s executive orders on drug prices and pharmaceutical supply chains have similarly injected uncertainty into the life sciences industry, but the orders have had little concrete impact to date.

By the numbers: 80%

That’s the amount of all drug spending in the United States that was spent on branded drugs in 2019, but these drugs accounted for only 10% of prescriptions dispensed, according to IQVIA (the remaining 90% dispensed were generics). That is a significant shift from a decade ago, when branded drugs represented approximately 30% of prescriptions; this is likely reflective of the significant increase in the price of branded drugs and expanded access to more affordable generics. The following charts illustrate how pricing for branded drugs is far outpacing their generic counterparts as well as how the number of generics entering the market is increasing. It is this increasing competition and increasing branded drug pricing that creates a difficult situation for lawmakers, as simply increasing the supply of generics has not caused a decrease in branded drug pricing. 



In preparation for the outcome, life sciences companies should consider: 

With an ongoing focus on drug pricing, life sciences companies should ensure they have the appropriate processes and controls in place to effectively manage the third parties they work with to operate these programs. If pressure continues to mount for reshoring the manufacturing of life sciences products, companies should start considering if there is appropriate contract manufacturing capacity available or if they need to start building that capability themselves. 


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