Why Mr. Market did not react to Donald Trump’s Executive order on Pharma Imports?

On July 24th, the US president, Mr. Donald Trump, issued 4 executive orders to rein in prices that US consumers pay for over the counter drugs.

So let’s try to decipher what the official order from White House says.

Hey the law is not new! It exists since 2003!!

Why has no Health Secretary certified an imported drug in 16 years?

Perhaps, one of the answers to the above question lies deeply rooted in human psychology. Enter loss aversion. The idea of loss aversion is that humans are twice as likely to avoid losses than seek a similar quantity of gains.

Now, let’s suppose the Secretary of Health and Human Services, decides to import a critical life saving cancer drug from Canada. Everything goes smoothly until say, a few months down the road. A few patients who took a particular batch of those imported drugs, see their medical condition deteriorate or worse the bad batch of drugs leads to fatalities, then who takes the blame? The Secretary, his audit team or the President himself? The Secretary, the guy, who needs to make the critical decision of whether or not to allow an imported drug to enter the US could possibly be worried about a risk to his reputation. If importing drugs leads to a bad outcome, he could potentially lose his job, he could be all over the news, for the wrong reasons, he may have to face lawsuits or have to deal with the emotional trauma of facing the victims’ families. Maybe that is why no Secretary ever authorized this in 16 years and thought I’ll let it be? All that loss is just not worth it. Maybe, just maybe.

The situation could get even worse for the Secretary, in case the new President who potentially replaces Trump in Nov 2020 is from an opposition party.

Conclusion: The law is very nice to hear but perhaps very hard to implement, particularly so for the guy who needs to sign the import papers. That being said, it is still an important risk for Indian Pharma exporters because the President will still try to get this implement because his own incentives are tied to this executive order (The upcoming Presidential elections due in Nov 2020). In the eyes of at least some people, he will be a hero who got a long standing law practically executed. Meanwhile, Mr. Market could get nervous about this order and result in wild swings in stock prices of his current darling, the Pharma sector.

Barath Mukhi

4th August 2020.

Author: Barath Mukhi

Concentrated investor in Indian markets

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