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Rare Disease Companies and Election 2016

Rare Disease Companies and Election 2016 Impact

The presidential election of 2016 promises to stand out in history books for many unflattering reasons, most of which won’t be the central topic of this discussion.

Both major parties have claimed the industry of healthcare requires significant reform. This could have a huge impact on rare disease companies by regulating costs of the most expensive drugs and therapies in history, regulating drug costs overall, or passing regulations for insurance companies. Neither candidate has addressed rare disease directly, but instead raise “healthcare” as a concern for most Americans.

The Healthcare Industry

Pharmaceutical companies, including the world’s rare disease companies, and insurance companies, are two huge components of the healthcare industry.

Established pharmaceutical companies are keeping the spotlight on themselves and their markets with the recent and widely reported price increases for cancer treatments, Epipens, other drugs, and executive compensation that multiplies by orders of magnitude in relatively brief timespans.

Insurance companies are attracting scrutiny by paying ever decreasing shares of claims and announcing withdrawals from markets they entered through the Affordable Care Act.

Which is responsible for rising consumer costs?

Both factor in to higher consumer costs, but the “investor class” probably bears the most responsibility by driving their behavior.

Publicly traded companies strive for earnings. Fund managers only buy and maintain the demand for a company’s stock, keeping its price high, when earnings or earnings potential is forecast. When markets are saturated and earnings growth can’t be had by market growth, companies either have to increase revenue through higher prices, or decrease costs by whatever means, including reducing what gets paid in claims if it’s an insurance company.

When drug prices rise, and corresponding insurance reimbursements do not rise or decrease, consumers pay the difference or go without. If consumers don’t pay the difference directly, they eventually pay a greater share of total revenue to the IRS when companies get subsidies and tax write offs written into new legislation or relocate their Headquarters outside the US.

Candidate Positions on Healthcare Costs

Hillary Clinton had already jumped into the drug pricing discussion, leading investors in rare disease companies to panic in 2015. According to this Motley Fool article in 2015, biotech companies in the rare disease market lost $40 billion in market capitalization as a result of one Tweet Clinton made lambasting drug prices.

However, since that fateful tweet, Clinton has received and accepted millions in campaign donations from pharmaceutical interests. Politicians have never been known to bite the hand that feeds them, and Mrs. Clinton is the consummate politician.

Contrary to the position Sanders campaigned on for a national single-payer solution, Clinton’s health care platform calls for creating incentives for individual states to expand Medicaid. She was quoted at an event in the primary contest to say a single payer solution would “never, ever come to pass.” She had been a proponent of a single-payer, medicaid-for-all solution as First Lady during the administration of Bill Clinton. Now? Not so much.

Her platform calls for reducing drug costs by eliminating tax deductions for direct-to-consumer advertising costs…. Yes, apparently all the costs for airing all the “ask your doctor about” ads are deductible expenses. Her prescription price plan also talks about requiring companies that reap the benefits of large tax write offs to reinvest in research. It’s unclear how that would affect retail drug prices.

She claims she will protect and expand the Affordable Care Act. A provision of the Affordable Care Act required insurance companies to pay rebates to consumers if profits exceeded certain percentages of claims paid. This may be why Aetna announced their intent to cancel ACA policies. Imposing a profitability cap on pharmaceutical companies seems outrageous, but no one really complains about salary caps in professional sports leagues. While not identical, there are parallels, and the owners still make boatloads of money.

Donald Trump’s stated number 1 priority for healthcare, outlined here, is repeal of the Affordable Care Act, a.k.a. “Obamacare.” Trump promises to repeal the ACA in its entirety. This in spite of the glaring reality that the House of Representatives failed to repeal any or all parts of the ACA in 63 votes since the Republicans won the majority in the House in 2011. Seriously, that’s about all the House of Representatives has done for the past few years.

One of those attempts was defunding parts through the budget reconciliation process. Obama vetoed it, and Republicans could not get any support to override the veto. Of course, if Trump wins, that kind of legislative process could undo the Affordable Care Act. If enough Congressional seats are won by the Democrats, no votes on repealing the ACA should be expected for the next congress.

He also claims competition with imported drugs would lower prices. Perhaps, but when patent protection applies, as it does in the rare disease market, there can’t be competition. Also, the orphan disease population is small, creating a significant barrier to entry for competition. Current therapies hold virtual monopolies just because the known patient populations are so small. Competition in therapies for orphan diseases may not evolve like those for more prevalent maladies.

One of the most significant elements of the ACA was the elimination of “pre-existing conditions” as a reason to not cover an individual. Should it be repealed, it would allow insurance companies to eliminate coverage for any preexisting condition, including a rare or ultra rare disease.

Insurance companies lose money on rare-disease patients, while the drug companies profit. No one rare disease patient will ever pay enough into the insurance industry for policies that would provide years of coverage at $100,000, or $200,000, or $400,000+ per year. Lifetime caps are reached quickly as well.

Selling insurance across state lines isn’t an answer. Initiating the development of new therapies for a few to several thousand potential patients from scratch isn’t a viable answer either.

The ACA expanded health insurance coverage to rare disease patients, but insurers were able to put these specialized therapies in specialty tiers, passing more costs on to the patients. Some coverage is better than no coverage if you’re a patient.

What impact would all this have on Rare Disease Companies?

Rare disease companies rise and fall on perceptions of Wall Street. What is the future of a single product company whose revenue depends on its customers having insurance policies that can pay for the therapies, when the insurance industry is subject to change radically?

If Clinton wins, nothing much will probably change from the rare disease perspective. There may be some adjustment of the specialty tier rates, but nothing significant. Ubiquitous Medicaid for anyone could actually benefit the rare disease drug manufacturer market. More patients would be covered, albeit probably at lower rates. It is more insurance coverage, and therefore drug company income, than no coverage.

According to this report on Celgene’s web site, 200 rare disease patients shared stories with Congress about being denied access to treatments. Insurance, the lack of it, and inability to pay for the expensive therapies are the real Death Panels that original ACA opponents decried.

If Trump wins, and enough congressional seats turn Republican, the ACA is history. His proposed block grants for Medicaid could bring similar, subdued stability between reimbursement rates and more extensive coverage.

Focusing on this, things will probably be similar if either candidate wins.

Insurance sold across state lines will likely carry the same lifetime caps that patients exhaust in the first years of treatment. Nothing much would probably change except perhaps an insurance company’s ability to offset the expense of paying for rare disease treatment with larger customer bases. Shareholders would win… again.

There is no incentive for insurance companies to increase or remove lifetime caps in either candidate’s position.

Rare disease companies seem quite dependent on regulatory changes requiring insurance companies (or Medicaid) to pay. Or, they are dependent on their breakthrough therapies being effective on much more common diseases with massively larger patient bases.

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