US Rx Sales Growth and Pharma Sector PE Relatives
Hillary Clinton’s tweet suggesting that specialty pharmaceutical companies have been “price gouging” could send biopharma into a tailspin. Pharma Execs over 50 years old may remember the last time that Hilary Clinton attempted to get involved in the US Healthcare debate – a period described by some wag as “Hillary’s Bottom”. This description owes more to the sag in the share prices of various healthcare sectors than anything else but the impact was real enough whatever name we give it. During the early years of her husband’s presidency Hilary Clinton was investigating the possibility of “Universal Healthcare” for all Americans. Although there was no legislation resulting from this, the very threat of it did change the behaviour of several key stakeholders, albeit only temporarily, in the healthcare system.
The bottom half of the chart shows the significant contraction in the Pharmaceutical sector Price/Earnings ratio in 1993 relative to the stockmarket as a whole, while the top half of the chart shows the sharp drop in US pharmaceutical revenue growth over the same period. The chart shows that for the most part the sector did well (high PE relative) when the US pharmaceutical revenues were growing strongly. However, what was particularly intriguing was the reduction in price increases and the absence of improved mix or product trade-up during the 1993/4 period. This would seem to suggest that manufacturers deliberately limited their price increases and prescribers deliberately chose not to trade up from generics to brands or from first generation to second generation products. If true then their motivation may have been a desire to keep their heads below the parapet and not provide Hilary Clinton with more ammunition for healthcare reforms.
If Hillary Clinton receives the Democrat nomination for Presidential candidate and goes on to become the next US President in November 2016 perhaps the pharmaceutical sector can look forward to a rough ride thereafter. In the meantime it will be interesting to note whether healthcare stakeholders change behavior, as they did 22 years ago.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.