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Biden and Healthcare: Why Managed Care Companies and Generic Drug Companies Will Be Healthcare Investors’ Big Winners of 2021

As Joe Biden is now officially the President of the United States, healthcare is one of the top priorities the new administration will change. The major focus will be to create a public healthcare system similar yet better to the Affordable Care Act (ACA). Below, we’ll discuss some of the specific ways that Joe Biden’s new healthcare policy may affect investors’ decisions for 2021.

Managed Care Companies

Managed care companies are health organizations that contract with insurers or self-insured employers to finance and deliver health care using a specific provider network and their services and products. 1 Managed care companies were not negatively affected when the ACA was first enacted in 2010.  The current outlook on how the revised ACA under President Joe Biden affects managed care companies will be mentioned and how it relates to investors’ future actions.

Expand Coverage Through Medicare and ACA

President Biden’s healthcare policy, colloquially known as Biden Care, will have a significant adverse effect on healthcare providers. In a 2017 study, it was found that “despite increases in provider capacity, there [were] still areas of unmet need and persistent professional workforce shortages that were exacerbated by the ACA’s coverage expansions.” 8 Most unmet needs were in the mental health and substance abuse disorder treatment services.” 8 With the pandemic in full swing, mental health services are needed now more than ever before. Right now, the question is if an already underprepared system will be able to cope with the increase in the volume of new people qualifying for its services? President Joe Biden and investors believe the system will. President Biden has vowed to protect the ACA and expand coverage to low-income Americans. He emphasized that he “will ensure …individuals get covered by offering premium-free access to the public option for those 4.9 million individuals who would be eligible for Medicaid but for their state’s inaction and making sure their public option covers the full scope of Medicaid benefits.” 2  The states’ inaction that President Joe Biden is referring to are 14 states in which governors and state legislatures, “have refused to take up the Affordable Care Act’s expansion of Medicaid eligibility, denying access to Medicaid for an estimated 4.9 million adults.” 2

Managed care providers who are willing to cooperate with Biden Care are more likely to see investors’ support. In fact, “shares of Centene Corporation (CNC) are up 6.5% since the market closed on January 5, while shares of Molina Healthcare (MOH) are up 3.6%. The S&P 500 Managed Care Sector index is up 1.7%, slightly trailing the broader S&P 500, which is up 1.8% over the same period.” 3  This rate of change emphasizes investors’ belief in how well Biden’s health care policy will do not only in regards to the general public but with the House of Representatives and the Senate.

Generic Drug Companies

Repeal Existing Laws That Protect Brand-Name Pharmaceutical Companies

President Biden will begin to limit the power of brand-name pharmaceutical companies during his term as President.  This, once again, comes down to Biden’s health care policy and the abuse of power that pharmaceutical companies have at controlling drug prices.2 One of the policies that will have a significant effect on pharmaceutical companies and, in turn, investors is Biden’s proposed appeal of an existing law that barres Medicare from negotiating lower prices with drug corporations.2 With the repeal of this law, pharmaceutical companies will be forced to negotiate with Medicare for lowering drug prices. As a result, it is quite possible that the profit of pharmaceutic companies that create brand-name drugs will be significantly curtailed due to their loss of drug pricing control.

The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2019

In 2019, Senator Patrick Leahy (D, VT) led the formation of the Creating and Restoring Equal Access to Equivalent Samples (“Creates”) Act of 2019. With President Joe Biden’s support, generic pharmaceutical companies a second initiative increasing the chances of their success. The proposal hopes to stop pharmaceutical companies’ anti-competitive practices in two ways. First, generic pharmaceutical companies are allowed to purchase samples of a reference listed drug (RLD). “A Reference Listed Drug (RLD) is an approved drug product to which new generic versions are compared to show that they are bioequivalent.” 9 Second, reduced approval difficulty with the Federal Drug Administration (FDA).5 The first part of the proposal would “[permit] a biosimilar or generic manufacturer to bring an action in federal court for injunctive relief (i.e., to obtain the sample it needs) and limited damages may be awarded as a deterrent in certain particularly egregious cases.” 5 This information is necessary to develop more affordable alternatives and prove that the medicine is equivalent to the brand-name product, a prerequisite for FDA approval. The second part of the legislation would “give the FDA more discretion to approve alternative safety protocols, rather than require the two parties to develop shared safety protocols.” 5 Thus, brand-name pharmaceutical companies would not interfere with generic pharmaceutical companies taking part in required protocols.

With this particular proposal approved, pharmaceutical companies would have their power in price regulation significantly reduced.

The ability of generic pharmaceutical companies to have a quick turnover time in producing generic versions of popular and much-needed medications would result in them potentially having significantly high profit margins than previous years. The company value would be anticipated to rise in direct correlation with their increased freedom to manufacture generic versions of medications. Therefore, from an investor viewpoint, generic pharmaceutical companies will have increased prominence and, hence, increased commercial attractiveness.

Limiting Launch Prices for Drugs That Face No Competition

As novel pharmaceutical medications are manufactured, pharmaceutical companies are able to price their product as they see fit. Prices can become exorbitant in cases where there are no other competing medications. As frontrunners in treating an illness, pharmaceutical companies also gain power in controlling the market and the value of products that treat a particular disease. This, in turn, allows them to receive a higher profit margin than if there would be a competitor on the market. What the new healthcare policy will do is that “the Secretary of Health and Human Services will establish an independent review board to assess [the product’s] value. The board will recommend a reasonable price, based on the average price in other countries (a process called external reference pricing) or, if the drug is entering the U.S. market first, based on an evaluation by the independent board members.” 2 The external reference pricing review process will cause the pharmaceutical companies’ pricing of a product in the United States to be comparable to their product pricing in other countries. Several countries have similar review boards, including the U.K., Australia, New Zealand, and Canada. In continental Europe, countries can go through the European Medicines Agency to evaluate the cost-effectiveness of medications.7 The introduction of an independent review board would signify that brand-name pharmaceutical companies will not have the same power that they once had in the stock market, as an outside independent agency will control their potential profit. In turn, investors are unlikely to pursue new and large investments in companies with no competition, as they will have to oblige to the government’s new standards. Though the external reference pricing review process will not directly apply to generic pharmaceutical companies, it has been found that when “there is a single generic producer, the average manufacturer price ( AMP)  is 39% lower than the brand AMP before generic competition, compared to a 31% reduction using invoice prices”. 10 With an independent review board pricing brand-name pharmaceutical medication, generic pharmaceuticals are likely to price their generic variations at a lower price point than usual. In turn, though the new administration’s rules support generic pharmaceutical companies,  this particular section of President Joe Biden’s health policy will likely cause generic pharmaceutical companies to lose a significant portion of potential profit.

Allowing Consumers To Buy Prescription Drugs From Other Countries

A final way that the healthcare policy may change investors’ perspective in name-brand pharmaceutical companies is by allowing the public to buy prescription drugs from other countries. As of now, “it is illegal for individuals to import drugs or devices into the U.S. for personal use because these products purchased from other countries often have not been approved by the FDA for use and sale in the U.S.” 5 When this policy goes into effect, the leverage that U.S. based brand-name companies had in controlling the price of prescription medications available to the general public will be significantly reduced unless they lower their prices to be comparable to those companies that are based outside the U.S. This means that what was once a U.S. based market will be infiltrated with new rivals that these U.S. based companies have to fight against to control the brand-name prescription medication market. With them losing a significant portion of the market, investors will presumably move toward the generic pharmaceutical company market. As a result, they have a substantial chance of growing rather than stalling in 2021.

Conclusion

2021 will encourage investors to expand their investments into the generic pharmaceutical market and the managed care sector due to the new healthcare policies that Joe Biden’s presidency will attempt to put into effect immediately. The investments will strengthen generic pharmaceutical companies’ position among investors due to the new investment trend. The new healthcare policies will increase investors’ trust in managed care companies as they transition into a more consolidate patient care system. Accordingly, if healthcare investors aim for a successful 2021, they may want to adjust to these new policies.

Bioinsider is hosting an informal closed-door Friday Roundtable Discussion on Friday, Jan. 29 covering “How COVID-19 is Driving Venture Investments in Healthcare Innovation” from 12:00 – 1:00 PM EST. Sign up and join this discussion here using this FREE promo code “100expert”.

About the author:

Nicole Ludwiak is enthusiastic about emerging cancer therapeutics and the potential of technology to advance medical research. 

 

 

References:

  1. S. Legal, Inc. (2020). Managed Care Organization (MCO) Law and Legal Definition | USLegal, Inc.U.S. Legal. https://definitions.uslegal.com/m/managed-care-organization-mco/
  2. Biden For President. (2020, October 12).Plan to Protect and Build on Obamacare | Joe Biden. Joe Biden for President: Official Campaign Website. https://joebiden.com/healthcare/
  3. Nathan-Kazis, J. (2021, January 15).Buy Anthem Because It Should Benefit From a Biden Stimulus, Analyst Says. Barron’s. https://www.barrons.com/articles/buy-anthem-because-it-should-benefit-from-a-biden-stimulus-analyst-says-51610717303
  4. Center for Drug Evaluation and Research. (2018, June 1). Generic Drugs: Questions & Answers. U.S. Food and Drug Administration. https://www.fda.gov/drugs/questions-answers/generic-drugs-questions-answers
  5. The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2019. (, 2019). Senate.Gov. https://www.leahy.senate.gov/imo/media/doc/020519%20116th%20CREATES%20Fact%20Sheet1.pdf
  6. Office of Regulatory Affairs. (2020, November 10). Personal Importation. U.S. Food and Drug Administration. https://www.fda.gov/industry/import-basics/personal-importation#UScitizen
  7. Evans, W. K., & de Oliveira, C. (2017). Evaluating Cost-Effectiveness: An Essential Part of New Cancer Drug Approvals. Journal of Thoracic Oncology12(10), 1461–1463. https://doi.org/10.1016/j.jtho.2017.08.013
  8. How Have Providers Responded to the Increased Demand for Health Care Under the Affordable Care Act?(2017, November 1). RWJF. https://www.rwjf.org/en/library/research/2017/11/how-have-providers-responded-to-the-increased-demand-for-health-care-under-the-aca.html
  9. Center for Drug Evaluation and Research. (2017, November 14). [email protected] Glossary of Terms. U.S. Food and Drug Administration. https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-glossary-terms
  10. Center for Drug Evaluation and Research. (2019, December 13). Generic Competition and Drug Prices. U.S. Food and Drug Administration. https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/generic-competition-and-drug-prices
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