President Donald Trump’s White House has been looking at ways to lower the price of pharmaceutical drugs. One of the floated solutions–putting a hefty tax on imports and attempting to bring pharmaceutical manufacturing back into the United States–is not popular with the generic drug industry. Generic drug giants like Teva in Israel and Sun Pharma in India are staunchly opposed. But another possible solution for rising drug costs is to increase competition in the pharmaceutical sector. This would involve streamlining FDA approval processes for faster generic drug approvals. This solution is very popular with the generic drug industry.
If the Trump Administration decides to go with the first solution, then generic pharmaceutical companies could see a downward push on their valuations as their drugs become more expensive in the US market. A protectionist mindset in the US would be particularly damaging for the Indian generic drug industry, which is overly reliant on shipping drugs in the United States. But there is significant doubt about Trump’s protectionist rhetoric actually becoming reality. For starters, Republicans in the House and Senate have long been opposed to protectionism, and it is unlikely that Trump could easily shift Republican ideology on free trade. Trump is also likely to have close advisors try to dissuade him from what could be the beginning of a trade war with foreign countries.
A more likely solution is Trump eases FDA regulations, allowing for generic drug companies to their drugs approved quicker. With faster generic drug approvals and more products in the generic space, the price of a host of drugs can be expected to become more competitive. This benefits both domestic consumers and generic companies who sell drugs in the US market. Generic giants like Teva and Sun Pharma can expect to see a boost to their share prices if their drugs would be approved and marketed in the US market faster than they currently are.
It is too soon to say definitively what direction the Trump Administration will take. It is only about 50 days into the critical first 100 day period, and the Trump Administration is currently in the midst of navigating a replacement for the Affordable Care Act. It might take the Trump Administration several months to determine how it is going to try to lower drug costs. But when the Administration does make its decision, there will be a lasting effect on the generic drug industry. Time will tell if that effect is a positive or negative one.
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