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Spending Bill Finally May Move; Drug Industry Could be Vulnerable

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Insights and Market Perspectives

Spending Bill Finally May Move; Drug Industry Could be Vulnerable

Author: Greg Valliere

July 8, 2022

JUST BENEATH THE RADAR, negotiations have been proceeding on Capitol Hill to pass a scaled-back Build Back Better bill, and there’s a chance that prescription drug price reforms could be included in the measure.

THE KEY, AS USUAL, is unpredictable West Virginia Democrat Joe Manchin, who has blocked much of the bill. But he’s now negotiating seriously with Senate Majority Leader Chuck Schumer. Manchin may agree to a $1 trillion spending bill but a lone holdout — Sen. Kyrsten Sinema of Arizona, another Democratic maverick — could doom the measure.

BUT WASHINGTON INSIDERS think bill could pass; the Democrats desperately need to enact something. Lobbyists point to four key elements to watch:

1. The likelihood that Obamacare subsidies could expire this fall, which would generate a public uproar and hurt Republicans just as they approach a takeover of the House. An Obamacare extension is included in this bill.

2. The possibility of tax hikes, which has lobbyists on alert. Somewhat higher taxes on wealthy individuals and highly profitable corporations could be in a final bill; a
global tax deal, stalled for the past year, has a chance of inclusion but our take is
that this provision may be too complicated to pass this fall.

3. A host of new spending proposals, including environmental provisions that are still
evolving. A tax break for electric cars may die, as will spending for child tax
credits, education and senior home support.

4. But still very much alive is a provision allowing Medicare to negotiate prices for
the 10 most popular drugs — a foot in the door for the government, which could gradually ratchet up price controls.

THREE MAJOR COMPLICATIONS: The first one is time — there isn’t much left, as Congress returns next week but then leaves in early August on a five-week break. By mid-September, the focus will be on getting home for election campaigning. The second potential complication is whether the Senate parliamentarian rules that the drug pricing provision meets the “reconciliation” test to evade a filibuster.

FINALLY AND MOST IMPORTANTLY, MITCH McCONNELL is threatening to block a popular bill to fund U.S. manufactures who compete with China. This bill would send $52 billion to semiconductor chip makers, but McConnell — who initially supported the measure — wants assurances that Democrats won’t use the reconciliation process to pass the Build Back Better bill. Without using that tactic, the measure would fail.

CONFUSED YET? Sorry, this is a very complicated dance. The bottom line is that a
spending bill is still alive and may move later this month; the obstacles would
become more apparent this fall.

IN THE MEANTIME, the drug industry won’t be be out of the woods any time soon. The conventional wisdom in this town is that the industry has excellent lobbyists and a ton of cash for TV ads blasting price controls as stifling innovation. Those two
weapons have consistently killed drug price reforms in recent years.

BUT THE CONVENTIONAL WISDOM may not be correct this time; the industry may escape price controls, but that’s a very close call. At the least, the pharmaceutical industry may face “headline risk” for the next few months.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2023 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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