Donald Trump, so far at least, has done a pretty darned good job of keeping his campaign promises as the drug industry found out today in Time magazine. That's right, in the Man of the Year interview with President-elect Trump, Time said he told them "his goal has never wavered." What's he going to do? "I'm going to bring down drug prices. I don't like what has happened with drug prices."
I think in the post-election euphoria, many stocks went up that shouldn't have, and the pharmaceutical stocks took off because Hillary Clinton, an avowed critic of drug price gouging, didn't get elected and the Senate didn't go Democratic, where we know Bernie Sanders would have been a powerful opponent of the industry. As Time reported, Trump suggested "some stock analysts may have misread his intentions. The biotechnology stocks, for example, which enjoy large profit margins under current law, rose 9% in the day after Trump's election, a rally of relief that the price controls Clinton had proposed would not happen."
In fact, we even read articles in the mainstream press about how Trump had seemingly decided to downplay the drug pricing issue. As the Los Angeles Times reported in mid-November: "The president-elect seems to have downgraded plans to act aggressively to control rising drug prices, handing the pharmaceutical industry an early victory and providing another illustration of the influence of lobbyists on the new Trump administration despite Trump's promise to 'drain the swamp' of special interests in Washington."
Oops, I guess not.
So if we dust off those campaign promises, what did Trump really call for? His main tenet: Negotiate the prices down, which basically means using Medicare's immense buying power. Back in February while stumping in New Hampshire, Trump said: "We're the largest drug buyer in the world. We don't negotiate. You pay practically the same for the country as if you go into a drug store and buy the drugs." He went on to say, "If we negotiated the price of drugs, Joe, we'd save $300 billion a year."
As the Washington Post quickly reported in a piece titled, "Trump's truly absurd claim that he would save $300 billion a year on prescription drugs," the actual Medicare drug buying program that he could alter spent $78 billion in 2014. So, the Post went on to say, "Trump in effect is claiming to save $300 billion a year on a $78 billion program. That's like turning water into wine."
The Post claims there's even more hyperbole to the claim than most realize: "In fact, depending on the source you consult, total annual spending on prescription drugs in the U.S. is between $298 billion a year and $423 billion a year. So that would mean that Trump," the Post goes on to write, "is claiming that he can eliminate virtually any cost to prescription drugs. It would suddenly be for free."
Which brings me to the real point of how we are seeing Trump work. Everything is a negotiation. Just like Trump negotiated with United Technologies (UTX) CEO Greg Hayes to keep Carrier jobs in Indiana -- he saved half of them, just like he said he'd cancel the order for Air Force One because Boeing's (BA) charging an outrageous $4 billion. Boeing CEO Dennis Muilenburg quickly pledged to the president-elect he would keep costs down. It's all about negotiation.
It was all the Art of the Deal, so to speak, to mention Trump's classic from 1987, and while he didn't save every job, he kept about 1,000 in this country and Air Force One will most likely cost less to the taxpayers because Trump tweeted out and spoke up.
Now, drug companies are powerful in Washington. But even people in the industry, notably Brent Saunders, CEO of Allergan (AGN) , and Regeneron (REGN) CEO Len Schleifer, have admitted that some price increases are out of line. Suffice it to say the Trump riposte could be the beginning of the bargaining or, alternatively, most likely warning that the drug companies get back into line or face the wrath of the president-elect. (Allergan is part of TheStreet's Action Alerts PLUS portfolio.)
Remember, it's the Art of the Deal, again. My suggestion: Any exec who relies on the government for business, including pharma honchos, should go to Amazon (AMZN) and get that -- soon, again, to be a bestseller. It could make them think twice before the next big increase. And remember, Trump seems to have a longer memory for his promises than the press or the industry or the Wall Street analysts seem to believe. (Amazon is part of TheStreet's Growth Seeker portfolio.)