What a difference a day makes.
On Wednesday the headline worry was a study warning that drug price increases were moderating. Industry watcher EvaluatePharma had cut its global revenue forecast for the drug industry by $390 billion for 2017-2022. The forecast echoes findings from researchers at SSR that drug prices fell in the first quarter–if discounts and rebates are included. Net prices fell by 1.2% in the quarter versus a 4.3% increase in the first quarter of 2016. If you take out the effect of discounts and rebates, prices rose by 6.5%.
Wednesday and today, however, the drug sector has moved up strongly as details of the Trump administration’s plan to control drug prices leak out. According to a draft of a proposed executive order obtained by the New York Times, the drug industry will largely escape any direct efforts to lower prices. instead the executive order focuses on removing regulations that the industry has argued add to the cost of bringing drugs to market. Absent from the draft is anything about letting the government use its vast buying power to negotiate lower drug prices. (Tom Price, the Secretary of Health and Human Services, was an opponent of allowing the government to negotiate drug prices when he was in Congress.) And it goes beyond simply ignoring that issue to actively coming down against existing efforts to negotiate prices. For example, the Trump administration would do away with the 340B program that requires drug companies to give discounts to hospitals and clinics that serve large numbers of low-income patients.
Lobbying by the drug industry climbed by 14% in the first quarter of 2017 from the first quarter of 2016 to $78 million.
Today Bristol Myers Squibb (BMY) was up 2.25%; Merck (MRK) climbed 0.86%, and Pfizer (PFE) was ahead 0.55%. Biotechnology stocks saw even bigger gains over the last two days. For example, Incyte (INCY) was up 1.22% today after gaining 1.10% yesterday and Nektar Therapeutics (NKTR) was ahead 1.77% today after picking up 2.04% yesterday. The iShares NASDAQ Biotechnology ETF (IBB) gained 1.27% today.
The question in the current market where sector trends don’t last for more than a few days, typically, is how long the upward trend in drug stocks might last. The Senate Republican health care plan released, finally, today by Senate Majority Leader Mitch McConnell has on first read struck the stock market as favorable to drug, healthcare and health insurance stocks. That effect could stretch this sector move to Friday. I don’t know if it will survive a weekend where analysts get to read the bill in detail and where the Sunday talking heads pick it apart.
Incyte and Nektar are members of my Jubak Picks and Volatility Portfolios.
Full disclosure: I own shares of Nectar in my personal portfolio. I own call options on Inctye and Nektar in my personal portfolio.