Saturday, May 12, 2018

What Trump's New Drug Plan Really Means

On Friday, President Trump announced a plan to "lower drug prices." It was mostly about technical tweaks to current government involvement in the pharmaceutical sector, not about
less government interference in the sector.

Fortune magazine reports:
These broad goals would ostensibly be achieved through a variety of regulatory and legislative measures. Some are pretty technical, such as giving the Medicare Part D prescription drug program authority to negotiate lower prices for certain drugs under Medicare Part B. Others are more aspirational and politically controversial, such as Trump’s broadsides against foreign countries that supposedly “free ride” by paying less money for drugs than Americans through their single payer systems. It’s unclear how increasing costs for foreign governments and patients would help reduce prices in the U.S., but Trump nonetheless framed the issue as “putting American patients first."
[ Department of Health and Human Services (HHS) Secretary Alex] Azar also asserted that pharmaceutical company ads on TV should disclose prices (although he didn’t specify which ones would be listed given the convoluted U.S. price negotiation regimen).
To best understand what President Trump's new drug plan means, take a look at drug stocks after he made his announcement. Wall Street was pleased with the tweaks.

From the New York Times:
Ronny Gal, a securities analyst at Sanford C. Bernstein & Company, said the president’s speech was “very, very positive to pharma,” and he added, “We have not seen anything about that speech which should concern investors” in the pharmaceutical industry.
Shares of several major drug and biotech companies rose immediately after the speech, as did the stocks of pharmacy benefit managers, the “middlemen” who Mr. Trump said had gotten “very, very rich.” The Nasdaq Biotechnology Index rose 2.7 percent on Friday. CVS Health, which manages pharmacy benefits for many insurers and employers, finished up 3.2 percent.
From The Wall Street Journal:
 Shares of drug stocks rose after the president’s speech, with Merck & Co. up 2.8% and Regeneron Pharmaceuticals Inc. up 6.2%. The Nasdaq Biotechnology index rose 2.7%, outpacing the broader Nasdaq index, which was down slightly. Shares of industry middlemen also rose, with Express Scripts Holding Co. up 2.6% and CVS Health Corp. up 3.2%.
From The Washington Post:
 The proposals were “somewhat gentler than many feared. We feel that healthcare supply chain stocks, in general, should rally on this outcome,” wrote Eric Coldwell, a senior research analyst at the financial services firm Robert W. Baird & Co.
Bottom line: The announcement was pretty much a nothing-burger. The crony pharmaceutical sector remains intact. It seemed to be mostly about somehow forcing up drug prices in foreign countries.

From the Financial Times:
Donald Trump hit out at “freeloading” foreign countries that benefit from US pharmaceutical research as he launched an initiative to lower drug costs, but he stopped short of measures that would crimp American companies’ profits.

Mr Trump complained that foreign countries were paying “a tiny fraction of what the medicine costs in the USA” as his officials said overseas buyers were not contributing their fair share to research and development costs.

“It’s unfair and it’s ridiculous and it’s not going to happen any longer,” Mr Trump said in a speech at the White House on Friday. “It’s time to end the global freeloading once and for all.”

Healthcare stocks rallied following the speech on relief among investors that the plan did not contain radical measures likely to hurt profits in the US healthcare industry, although Mr Trump did chastise the industry for its prolific lobbying.
Lobbying which seemed to work on the Trump administration.

The industry most feared a loosening of regulations that currently make it impossible to “re-import” cheaper medicines from countries such as Canada but this did not appear part of the plan.

-Robert Wenzel  


  1. Maybe there will be a miniscule drop in some drug prices in the US. However the FDA is making a full court press to shut down the Canadian pharmacies where many Americans get their medications at a fraction of the cost. I don't know whether this is with or without Trump's blessings.