Health care reforms are always a popular topic of discussion ahead of a US presidential election campaign, where politicians talk about proposed changes that can be very different than the current system. Although it’s too early to predict how the November 2020 election will play out, Franklin Equity Group’s Evan McCulloch discusses why we might see US legislation on drug pricing before then. He also explains why he’s optimistic about the outlook for the biotechnology and pharmaceutical industries.

Ahead of the 2020 US Presidential Election, equity investors may be concerned about the outlook for biotechnology and pharmaceutical stocks. It’s an understandable concern considering that recent US elections have tended to bring a lot of talk about health care reforms.

Although uncertainty about potential reforms can lead to stock price volatility and suppressed valuations in the health care sector, a lot of proposals discussed at this point of the presidential cycle tend to be merely campaign rhetoric. In our view, it’s a little early to predict the likely winner or speculate over certain health care proposals and how they might play out.

That said, we do see the potential for US legislation on drug pricing in the near term. President Donald Trump has made progress in his effort to combat the opioid crisis with binding legislation, and has repeatedly voiced his dissatisfaction with the high prices of prescription drugs since his election in 2016.1 We think he is likely to push for reforms during his re-election campaign.

This is also a rare instance in which Republicans and Democrats are more or less aligned in bipartisan agreement. Both sides of the aisle have come under growing pressure as members of Congress seek to address their constituents’ concerns on drug prices, which in many cases have increased at a much faster pace than inflation in recent years.