The Trump Effect on the Pharmaceutical Industry

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There are many experts that have stated that the pharmaceutical industry will prosper under newly elected President Trump. But why? What is it regarding the President's policies that will benefit the pharmaceutical industry? What new trend will present itself and how can today's investor get involved?

President Trump has commented that he wants to deregulate the FDA approval process. Will that action be what gives Pharmaceuticals the shot in the arm the experts are expecting? Many believe deregulation of the drug approval process will speed this process up, thereby lowering the cost of many extremely expensive medications. How does that help Pharmaceuticals?

The answers to these questions do not lie on the surface of this discussion, so let's dig around to see what we can uncover. Hopefully we can discover where the potential gains in this sector may come from and create an investment strategy that will leverage an advantage for investors.

Deregulation of the FDA approval process could possibly stimulate competition in the drug market, and the result can lead to cheaper drug prices. Drug manufacturers are eagerly awaiting the removal of outdated regulations, some more than 60 years old and not suited for the modern applications of the chemical remedies of our time. The President stated he wants to get rid of 70 - 80% of the existing FDA regulations.

I would like to share a quote from the President, " I’ll oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market.” Inside that statement I found a key that would open the door to an investment opportunity.

FDA deregulation will allow smaller and younger pharmaceutical companies, with solid products, the ability to bring their products to the marketplace and compete with the larger and more well established firms in that sector. Traditionally, smaller pharmaceutical firms have been bought out by larger firms which was usually viewed as the norm. Therefore, if FDA deregulation is successful, investments in younger pharmaceutical companies has the potential to see gains like never before.

Another interesting factor of President Trump's plan for the pharmaceutical industry are the tax reforms he plans to implement. It appears that the tax reforms for pharmaceutical companies may be the bargaining chip he is using to get the pharmaceutical industry to accept the idea of their drugs selling for less money to the American public in the future.

On the 31st of January, the President met with the leaders of the dominant drug companies, and the major trade group of biotech industries, Pharmaceutical Research & Manufacturers of America (PhRMA), executives from Amgen (AMGN), Celgene (CELG), Johnson & Johnson (JNJ), Lilly (LLY), Merck & Co. (MRK), and Novartis (NVS) were all present.

President Trump meeting with drug industry executives. Credit: Ron Sachs/SIPA/Newscom

The President proposed his objectives, simply put, bringing down the price of medicinal drugs in America and having more of their products manufactured within America. To achieve his objective, as we surmised earlier, he offered tax reforms and deregulation.

At this point we as investors need to gauge the success of this meeting and determine if there is an opportunity for investment and gains. I pulled up the charts of some of the participants at the meeting to see if there was any movement in the stock value.

Amgen Inc. (AMGN)

As we can see immediately after the meeting there was a sharp increase in the stock's value. Was this a fluke? If indeed a trend was manifesting we should find a similar pattern in another stock in this same industry.

Johnson & Johnson (JNJ)

Amgen's stock price rose $28 dollars within a week after the meeting, JNJ's stock value gained $15 and MRK's gained approximately $2 per share.

I will take that to mean that the meeting resulted in a meaningful measure of success. What I don't want our readers fretting over is, that they missed the opportunity to participate in the gains of pharmaceuticals. The policies have not been officially approved, and the companies are yet to unveil their new products or reveal future quarterly earnings. There is still an opportunity for us all to participate in the potential growth of this sector.

One thing that I will definitely add to my 'to do' list, is to be poised and ready like a lioness about to pounce on the kill, the next time there is a meeting of industry executives at the White House. The speculation of deregulation and tax reform appears to have positive results so I'll be ready to enjoy the full ride after the next meeting of industry leaders sitting down at President Trump's bargaining table.