In a recent Knowledge@Wharton blog post, LDI Senior Fellows Daniel Polsky and Scott Harrington weigh in on the fate of “Big Pharma” under the Trump Administration. This issue will take center stage as the confirmation hearings begin for Scott Gottlieb, the nominee to head the Food and Drug Administration (FDA).

Polsky predicts that the administration will loosen regulation of both the FDA and the pharma industry, and that some hurdles to getting a drug approved will be removed. Harrington holds that the outlook for the pharma industry remains ambiguous, and that the administration’s moves are “up in the air.”

The Trump administration has given mixed signals about its stance on the pharmaceutical industry. During Trump’s campaign, he railed against the high price of prescription drugs and supported granting negotiating power to Medicare. Once in office, he met with top pharma executives, and suggested, instead, that he supported reducing industry regulations and taxes. Additionally, he spoke of his desire to appoint an FDA director who would expedite drug approvals. Press Secretary Sean Spicer has since reiterated Trump’s support for granting Medicare negotiating power.

On March 10, Trump announced Scott Gottlieb, a former FDA official with deep ties to big pharma and biotech companies, as his pick for head of the FDA.

To expedite the drug roll-out process, the FDA must change their standards in some way—what Polsky and Harrington describe as a balancing act between the price setting, development, and regulation of drugs. Polsky explains that deregulation “wouldn’t fix the price problem, [and would result in] more marginal, more lower-value drugs in the market.” In addition, the pharma industry itself may be skeptical of deregulation policies. 

Creating a new drug involves an enormous amount of risk, expense, and time, up to a decade at minimum by some estimates. According to the Tufts Center for the Study of Drug Development, only 9.6% of proposed drugs actually make it onto the market. Harrington believes price controls wound reduce the industry’s incentive for innovation. He predicts that the number of drugs on the market would decrease, which is detrimental to a society vying for breakthroughs for conditions such as cancer and heart disease.

Although pharma companies are striving to maximize profits for their shareholders, neither Polsky nor Harrington hold that this necessitates egregious, headline-making price hikes that have been in the spotlight during the recent presidential campaign. Further, Harrington suggests that because of these high-profile situations, pharma and biotech recognize and are willing to address such industry issues. Last year, Ari Friedman and Janet Weiner elaborated on five of these drug pricing storylines in an LDI blog post.  

Polsky thinks that granting Medicare bargaining power over drug prices would be a step in the right direction. He explains that countries that have found success with reining in drug prices rely on a “strong purchaser” or arrangements with the government. Harrington adds that even if the Administration supports Medicare gaining negotiation power, it would be challenging to garner legislative support for this measure because the pharma industry would vehemently oppose increasing Medicare’s strength. Ultimately, Polsky believes that even if Trump wants to fix the pharma industry, the inherent challenges of doing so will delay the process.

These issues, of negotiating power and pricing and regulation, will no doubt emerge in Dr. Gottlieb’s confirmation hearings, which begins on April 5.