Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Here's one thing you and Big Pharma probably have in common: being on edge about the U.S. presidential election. A single tweet by Hillary Clinton last November about high drug prices helped sink the Nasdaq Biotech Index by 4.4 percent. A similar tweet in late August this year had a similar effect.

But there's a quieter upcoming vote that should arguably worry biotech and pharma companies more. In a little place called California, the sort of price-control legislation seen as a potentially negative (though unlikely) result of a Clinton presidency actually looks like it might pass.

Proposition 61, the California Drug Price Relief Act, would require certain state agencies to buy prescription drugs at prices similar to those paid by the Department of Veterans Affairs, which typically gets extra-large discounts from drugmakers.

Polls suggest voters support the measure. That has hurt shares of specialty drugmakers such as Perrigo, Mylan, and Endo, which have been particularly sensitive to price criticism. But the unease should be felt more broadly.

Not So Special
Shares of specialty pharma firms dropped after a poll suggested widespread support for a California ballot measure intended to lower drug prices
Source: Bloomberg

Substantial drug-pricing legislation is pretty much a non-starter in a Republican-controlled or split Congress, regardless of who's in the White House. 

Investors seem to regard the presidential election as the be-all and end-all for the drug industry -- an amazing chart from Bloomberg Intelligence's Eric Balchunas shows how an S&P biotech ETF has often mirrored Donald Trump's polling average (despite his less-than-pharma-friendly stances). But state-based initiatives are the more concrete threat, led by Prop 61.

The industry is aware of the risk. Fundraising is already lopsided in favor of the "no" side of the law, with biopharma the biggest contributor. And spending will likely ramp up as the election nears, RBC analyst Michael Yee wrote in a research note.

Stop That Prop!
In an environment of heavy drug pricing criticism, pharma companies are spending to defeat a California ballot initiative intended to cut prices.
Source: RBC

Drugmakers argue the proposition will limit choice; the VA does not cover some drugs due to the sorts of discounts it demands, and California agencies may end up doing the same.

But these arguments are running up against a wave of popular anger about high drug prices, currently focused on Mylan's massive price increases for EpiPens. The industry's campaign spending may not have the electoral impact it expects, though such referendum votes do tend to follow the money. A recent survey of likely voters found 50 percent in favor of the proposition, 16 percent opposed, and 34 percent undecided. Earlier polls also found large margins in favor of the proposition. 

It's not just specialty drugmakers that should fret. The sorts of expensive drugs made by the biggest biopharma companies will also be affected. California state agencies spend more than $4 billion on drugs annually. 

The potential impact of the law is uncertain. It will likely be hard to identify what prices the VA pays for drugs, as they're currently confidential. Drugmakers could refuse to sell certain drugs to California agencies, or they may hike certain prices. If voters give the thumbs up, years of lawsuits are almost certain to follow.   

But Prop 61 is a potential precedent and blueprint for other states. If it passes, and California actually does end up paying less for drugs, then more states are likely to follow. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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