The Show, the Side-Show and the Impact on the Healthcare Sector

Political commentators, economists and Wall Street pundits are all in high gear trying to forecast the outcome of the presidential race this November. Post RNC convention polls showed Trump narrowing the lead that Hillary Clinton had, but in the two short weeks since the DNC, Hillary is starting to gain yardage against a Donald Trump who seems bent on shooting himself in the foot. He gives a good speech one day and then blows himself up the next. Combine Clinton’s email gaffes and Trumps seemingly irrational behavior, and it looks like they are handing the election to one another. While it may make for interesting television, voters apparently are tiring quickly of the mud wrestling.

No doubt the office of the president wields tremendous power—but thanks to a wonderful constitution, we have separation of powers. In our opinion, the Clinton-Trump cage match is the side show. For after the November elections and subsequent inauguration, either The Socialist or Yosemite Sam will have to face the harsh reality: CONGRESS. The real show this November is who wins the House and the Senate.

The GOP firmly controls the House with an advantage of 247 to 188 over the Democrats. The most pessimistic projection we, at In Sickness and Wealth, have seen is that the house might lose 20 seats; although most political strategists forecast decidedly less. Hence, barring an unforeseen countrywide revolt, the House will likely remain in Republican hands.

The Senate however, could be up for grabs. Republicans hold a 4-seat edge in the Senate, but according to a recent Barron’s article, there are 6 senates seats currently held by the GOP that are in danger of swinging back into Democratic control.

What does this mean for the healthcare sector? Many analysts on the street think that a Hillary presidency will be bad for healthcare—particularly the biotech and big pharma subsectors. It has become very popular these days to rail against sky-rocketing drug prices, especially for some of the treatments developed by biotech firms that have price tags larger than a house. Some of the protestations though, don’t look at the whole picture. They screamed at the $130,000 cost for Vertex’s Cystic Fibrosis treatments, yet they didn’t understand it took a decade to develop the drug. They didn’t acknowledge that the average CF patient was lucky to make it into their 20s before these types of drugs came out. And they didn’t realize that CF patients are, more than ever, living lives that more closely resemble normal. Politicians went berserk at the cost of Sovaldi and Harvoni, Gilead’s treatment for Hepatitis C ($84,000 at the time), but failed to mention that the alternative would be a liver transplant that would entail four times the cost. Yes, some of these drug prices are obscene and we will have to find a way to control these costs. But saber rattling against the drug companies doesn’t do a lot of good.

Some think that a Trump victory would have a more muted impact (Trump has made waves also about exorbitant drug pricing). Our guess is that there will be some action taken to control escalating drug prices. Politically correct or not, the overall costs of pharmaceuticals are overwhelming the Medicare/Medicaid budgets. And if prices remain unabated, they could cause serious economic pressures on the government and private payers. Already, CVS and Express Scripts have begun to play hardball with big pharma. The recently-announced 2017 formulary excludes many drugs precisely because cheaper, equally effective alternatives exist. Counteracting some of these negative factors would be the fact that a Hillary victory would likely expand upon Obamacare, providing additional coverages that would be a plus for healthcare and perhaps big pharma.

So Hillary Clinton and Donald Trump can scream all they want, but it will take both houses of congress to affect any change (absent any draconian executive order). In Sickness and Wealth will be watching closely—after all, we have a vested interest in the outcome of any healthcare legislation. We own Merck and Regeneron Pharmaceuticals, as well as Johnson and Johnson which derives a significant amount of profit from pharmaceuticals. Even with legislation or price restrictions, our guess would be these would still be excellent long-term investments. And if we get the slightest whiff that the business and investment case for big pharma will suffer, we will not hesitate to slim down or eliminate our positions. After all, there are plenty of great opportunities to put money to work in other areas of the healthcare sector.

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