Biopharma investors breathed a collective sigh of relief Friday after a drug-pricing speech from President Trump was consistent with earlier views that he would offer “more rhetoric than reform,” according to one analyst.
On the stock market today, biotech and pharmaceutical stocks stayed in the black at the close, up 2%-3%. Pharmacy retailers like CVS (CVS) and Amerisource Bergen (ABC) briefly retreated before jumping a respective 3.2% and 1.6%.
Trump’s plan to cut foreign drug prices would actually help pharmaceutical companies, says Topher Spiro, vice president of health policy for American Progress, a nonpartisan policy think tank. Spiro was critical earlier in the week of a potential blueprint for pricing reform.
“Why are Big Pharma stocks way up?” Spiro said in a tweet. “Trump is promising their number one priority: trade deals that boost prices abroad. And virtually nothing touching U.S. prices.”
Foreign Drug Costs
Specifically, Trump said he had instructed Robert Lighthizer, the U.S. trade representative, to work on trade agreements with foreign countries for drug prices. The president called for Lighthizer to “end global freeloading once and for all.”
Outside that, Trump’s plan was light on details. He pledged to “eliminate the middlemen” but stopped just short of identifying those as pharmacy benefit managers. He swore to take on the “tangled web of special interests,” but didn’t say how.
Pharmacists should be allowed to tell patients how to save money, Trump said. He also called out firms for using patents to “choke out competition.” And Health and Human Services Secretary Alex Azar argued drugmakers should be required to list the prices of their drugs in commercials.
Altogether, “Trump’s drug-pricing plan has gaping holes,” Spiro said on Twitter. It doesn’t address how to cut prices on existing and launching drugs for private insurance, Medicare Part D nor Medicaid. It only looks at cuts for Medicaid Part B, he said.
The Blame Game
Height Capital Markets analyst Andrea Harris didn’t expect the proposals to have any teeth without Congressional support. Trump says he’s working on it, but didn’t outline which specific proposals he expects to send to Congress in the coming weeks.
But one piece of Harris’ report did come to fruition: Trump had a lot of blame to spread for the “broken system.” Among those, he identified drugmakers, insurance companies, distributors, pharmacy benefit managers and the government for keeping prices “artificially high.”
Trump also called out “twisted incentives” under ObamaCare. He promised to give Medicare Part D plans, which cover pharmaceuticals, new tools to negotiate and incentives to keep prices low. He pledged to end “dishonest double dealing” that enriches middlemen.
“We are not going to reward companies that constantly raise prices,” he said.
Harris had predicted “fiery rhetoric” from Trump.
“The president never shies away from fiery rhetoric, and we expect that in his speech he will finger manufacturers, pharmacy benefit managers, insurers, hospitals and foreign countries as responsible for high drug prices,” she said in a report before the speech.
More Than 50 Actions
Health Secretary Azar said Trump’s blueprint has more than 50 actions planned. The goal is to “reorder an entire, complex system of our economy,” he said.
Earlier in the week, Azar outlined a laundry list of hurdles the HHS is working to solve. He noted issues with high list prices, seniors and government overpaying due to a lack of negotiation tools, rising out-of-pocket costs, and foreign governments “free-riding off American innovation.”
“HHS’ blueprint for addressing these issues will build on the proposals put forth in President Trump’s 2019 budget, but he wants to go much, much further,” Azar said at the time. On Friday, though, he was more subdued on the specifics.
Trump is working on “real change while continuing to lead the world in innovation and patient access.”
Tackle High List Prices
Harris had expected Trump to blame rebates, a pricing practice in the pharmaceutical supply chain that makes it so patients don’t have to pay the full list prices for drugs. These are often negotiated by middlemen called pharmacy benefit managers, or PBMs.
In a speech earlier this week, Food and Drug Administration Commissioner Scott Gottlieb called out PBMs for allegedly failing to pass savings onto patients. The FDA has the power to approve drugs, but it can’t dictate their prices.
“The top three PBMs control more than two-thirds of the market, the top three wholesalers more than 80%, and the top five pharmacies more than 50%,” he said, according to Business Insider. “Market concentration may prevent optimal competition.”
Harris doesn’t expect Trump to ban rebates altogether. But she did expect for him to call on the Centers for Medicare and Medicaid Services to require PBMs to pass rebates onto patients. The HHS could also be asked to deem rebates as kickbacks, she said.
But some highly priced drugs will likely be spared, American Progress’ Spiro said ahead of the speech.
“There is nothing, absolutely nothing in this plan to lower the sky-high launch prices of new specialty drugs,” he said. “These drugs are for diseases like cancer and multiple sclerosis, costing tends of thousands or even $100,000.”
Seniors, Government Negotiating
Heights’ Harris expected Trump to call on the Center for Medicare and Medicaid Innovation to use HHS authority to write new payment models in Medicaid and Medicaid Part B. Part B is health insurance coverage, whereas Part A covers hospital expenses.
It’s possible Trump could require physician-administered drugs to be negotiated under a PBM-like payment model. Currently, these receive reimbursement at 106% the market price, she said.
This “would force these drugs to compete for placement on a formulary like prescription drugs currently do,” she said. “This could be a material headwind for manufacturers, but it is politically challenging.”
In the blueprint posted by Spiro, the proposal allows for greater flexibility in negotiating for prices under Medicare Part D. Part D is the prescription-drug side of Medicare. It would also offer free generics to low-income patients and require plans to share rebates with patients.
But, American Progress’ Spiro added, “There is nothing, absolutely nothing in here to lower drug prices for the 150 million Americans with employer coverage or the millions more with other private insurance.”
Out-Of-Pocket Costs
Trump also praised efforts by the FDA to approve more generic drugs and said that will continue. In 2017, the FDA approved a record number of generic drugs in an effort to increase competition. The FDA is soon to unveil a plan to boost the number of biologic copies, called biosimilars.
It’s possible Trump could also call on Congress to crack down on patent and market exclusivity “gaming practices” between branded- and generic-drug manufacturers, Harris said. He could further require the Federal Trade Commission to enforce “pay for delay” violations.
Hospitals are also at risk, she said. The Trump administration is rewriting regulations that require manufacturers to sell drugs to hospitals and clinics at deep discounts. This allows providers to be reimbursed at market price and pocket the extra cash, she said.
“We expect the president to call for further pro-patient (and pro-manufacturer) changes to this program, some of which can be achieved unilaterally through regulation and others that will require congressional action,” she said.
Foreign-Government Issues
As expected, Trump blamed foreign governments for “exploiting U.S. drugmakers.” The same pill with the same ingredients, in the same package, made in the same plant, costs more in the U.S. than it does in other countries, he said.
“When foreign governments extort unreasonably low prices from U.S. drugmakers, Americans have to pay more to subsidize the enormous cost of research and development,” he said. “It’s unfair and it’s ridiculous and it’s not going to happen any longer.”
But, this will all have “much more bark than bite,” Heights Capital Markets’ Harris said. The outcome will be dependent on trade agreements, she said. American Progress’ Spiro agrees.
“This is the biggest item on Big Pharma’s wish list!” he said. “How the heck is this going to lower drug prices in this country?”
