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Shares of pharmacy benefit managers and drugmakers are edging higher as the market prepares for a long anticipated speech from President Donald Trump -- after some details became known last night -- on how the administration plans to cut drug prices.

“The President’s bark will be worse than his bite,” Height Capital Markets policy analyst Andrea Harris predicted, saying Trump will continue to blame the chain of drug distributors -- drugmakers, insurance companies, pharmacy benefit managers and hospitals. “There had been a fear he might adopt the more draconian measures the Democrats were pushing. This is not happening,” Bloomberg Intelligence senior analyst Brian Rye said in a phone call.

With Democrats already criticizing the President’s plan before the speech is even delivered, David Maris, a Wells Fargo analyst covering specialty and large cap pharmaceuticals, sees drug pricing becoming a key battle cry ahead of this year’s midterm elections.

Trump’s speech Friday will herald “the start of a dialog on drug prices and market reforms, and not the last to be heard,” he warned investors last week. However, many of the proposals outlined by senior administration officials aren’t a surprise, and don’t go as far as Trump’s threat in January 2017 to have the government directly negotiate some prices.

What no one knows is how far off the script the President will veer and what the repercussions could be. “No one has any idea what the President will say,” Cowen policy analyst Rick Weissenstein wrote last night. Today’s speech will likely be “relatively benign, with more drastic proposals coming at a later date or not at all.”

PBMs and Insurers

Pharmacy-benefit managers, or PBMs, continue to rebound, led by Express Scripts Holding Co. which agreed in March to be acquired by Cigna Corp. More broadly the BI North America Health Care Supply Chain Index rebounded for a third day after a selloff last week.

Food and Drug Administration Commissioner Scott Gottlieb suggested last week the administration may revisit safe harbor protections that drug rebates have under federal anti-kickback rules. Changes to the anti-kickback safe harbor, “would make rebates – or some portion of rebates above a threshold – ‘illegal remuneration’ subject to criminal penalties,” and is likely to draw the PBMs, especially Express Scripts, into the government’s cross-hairs, Veda policy analyst Spencer Perlman wrote in an email.

Leerink healthcare services analyst Ana Gupte expects PBMs to be “innovative” and the rebate system unlikely to go away immediately as the administration takes time to change the current benefit system. She sees “integrated PBMs” in the future, like UnitedHealth’s Optum Rx., Cigna’s planned linkup with Express Scripts and CVS Health Corp.’s deal for Aetna.

PBMs and health insurers that sponsor Medicare Part D plans are unlikely to see much change in profitability, RBC analyst George Hill wrote in a note. Details on reforms targeting Medicare Part B reforms may even be a positive for PBMs, he added.

“Other actions, including pushing for higher prices in international markets and attempts to accelerate generic competition to brand drugs, will have limited impact on the PBMs and drug supply chain.”

Pharmaceuticals and Generics

Large-cap pharmaceutical companies are edging higher, with Eli Lilly & Co. and Pfizer Inc. outperforming the S&P 500 Pharma Index after it closed at a 15-month low on Tuesday. Generic drugmakers are mixed Friday with Endo International Plc up 1.6 percent, and Teva Pharmaceutical ADRs and Perrigo Co. Plc little changed.

The group is largely insulated from many potential policy changes to Medicare Part B, Goldman healthcare researcher Jami Rubin said earlier this week. Regeneron Pharmaceuticals Inc., Amgen Inc., United Therapeutics Corp. as well as Roche Holding’s Genentech are among the few that are exposed.

As the FDA’s Gottlieb continues to move forward on plans to speed generics to market, Wells Fargo’s Maris cautioned investors against seeing this as a positive for generic drugmakers as it could wind up creating “more competition and lower prices for generics.”


AmerisourceBergen Corp., Cardinal Health Inc. and McKesson Corp. aren’t going to be affected much but generic drug pricing woes are not likely to ease anytime soon, Hill says.

Drug distributors are mixed as well with McKesson seeing a modest rebound as Cardinal Health stays range bound.

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