Trump’s Threats on Drug Prices have rebounded and Industry Has Surged

March 5, 2017

 

By: Nelufer Jalil

Date: February 28th, 2017

In late January 2017, President Donald Trump met with American Pharmaceutical executives to discuss plans to lower the overall price of drugs. The meeting included executives from Merck & Co. MRK, Eli Lilly & Co. LLY, Amgen Inc. AMGN, Johnson & Johnson JNJ, and Novartis NVS.  He used the example of Aspirin:  “The numbers we pay — I mean we have cases where, if I go to a drugstore and buy aspirin, the aspirin costs me less than what the United States pays for aspirin,” Trump said. “So I can buy at a drugstore, the aspirin, for less money.  But we have to do something about that.” The essence of what he meant was that consumers are able to have better prices for drug when they purchase on their own then through a private insurer or a government insurance program. Trump spoke about the overall price of drugs, and how it is comparably high in USA relative to other countries so he wanted it lowered. He also promised to lessen regulation and reduce taxes to help the Pharmas compete.  SPDR S&P Pharmaceuticals ETF XPH had lowered by close to 9% after Trump said that drug companies were “getting away with murder” and bidding could lower prices.

However, in the month since then it appears that Trump has backed away from negotiating the prices. The sector ETF has recovered, SPDR S&P Pharmaceuticals ETF has surged 11.8%. Paul Yook, co-portfolio manager of Bioshares says the key factor raising the stocks since the meeting is what other countries pay for drugs. Yook said “He’s very concerned that the U.S. is paying more. He sees this as a real discrepancy that should not be in place. I think drug executives are very happy to hear that… If you can raise prices outside the U.S., and lower prices in the U.S., net-net it could be flat to the health care system, or certainly not all down.” Yook also said that the tax reform prospect that Trump discussed could also be a significant boom for pharmaceutical companies.

There still exists the belief that drug price negotiations is still on the table. Mark Schoenebaum, Evercore ISI analyst said he has a concern about the market and said many of the proposals Trump discussed were “scary”. The market has “become a little complacent about what Trump’s going to do on drug pricing. I will tell you that my behind-the-scenes conversations with industry executives indicate they are scared. They don’t know what’s going to happen, and they’re standing on guard.”

 

 

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn