Biotech stocks and pharmaceutical companies added to recent market gains Monday after Trump’s top health aide delivered a speech that largely spared them the brunt of drug-pricing reform.
Health and Human Services Secretary Alex Azar delivered his speech on drug-pricing reform Monday. Like Trump, his speech was light on its impact for biotech companies and pharmaceutical companies. Instead, the White House is considering changes to Medicare and caps on out-of-pocket spending.
Most proposals will impact so-called middlemen including pharmacy benefit managers, or PBMs and drug distributors. They include the likes of Express Scripts (ESRX), CVS (CVS) and AmerisourceBergen (ABC). But Azar was critical of pharmaceutical companies’ high list prices and a lack of transparency in direct-to-consumer advertising.
«We look forward to working with industry to build a better system,» he said. «But if industry isn’t willing to work with us to lower prices, President Trump and his administration will keep turning up the pressure — until the system finally puts American patients first.»
Shares of pharmaceutical companies had rallied but ultimately slipped marginally at the close while biotech company stocks gained 1.2% on the stock market today following the speech. The Nasdaq Biotechnology (NBI) was flat while the iShares Nasdaq Biotechnology (IBB) index rose 1%.
Medicare Changes Proposed
Among the proposals, RBC analysts see changes to Medicare Part B and Part D as having the biggest impact on biotech stocks. Still, they wrote in a note to clients even that will still be «relatively benign overall.»
Part B covers physician-administered drugs whereas Part D covers prescription drugs. Under the proposal, negotiation from some Part B drugs would be more similar to Part D negotiation. More broadly, the president is calling for Part B to merge into Part D, Azar said.
«Inflation-capped price increases in Part B is likely most impactful proposal in biotech, as well as out-of-pocket transparency for Part B vs. Part D drugs (infusions vs. self-injectables) and unifying Part B billing codes,» RBC analysts said.
Regeneron Pharmaceuticals (REGN) has the largest exposure among large-cap biotechs to Part B through its eye disease drug called Eylea. Celgene (CELG), Biogen (BIIB) and Amgen (AMGN) also are exposed. Further, Sage Therapeutics (SAGE), Alder Biopharmaceuticals (ALDR) and Dynavax (DVAX) face difficulties.
Changing Rebate Structures
Azar also suggested changes to how PBMs issue and negotiate rebates. He proposed an end so-called «gag clauses» on pharmacists. These prevent pharmacists from telling consumers when they’d actually save money by paying out of pocket for their medicines.
«Right now, we’re asking a pretty straightforward question: What if, instead of the current system where drug companies get paid rebates and middlemen take a cut, we just had fixed-price discounts?» Azar said. «This would fix the situation where even the pharmacy benefit manager, who is hired to help keep prices low, makes money from higher list prices.»
He also suggested pharmaceutical companies include their list prices in advertising that goes out directly to consumers. Further, Azar said he and the Centers for Medicare and Medicaid Services are developing incentives to lower list prices.
But most of these changes are long-term «further actions,» Raymond James analyst Michael Baker said in a note. Changes to Part D contracts that prevent pharmacists from explaining when out-of-pocket costs are cheaper «will likely not have a meaningful impact.»
A Product Manager with expertise in pharma marketing and sales operations