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Trump Executive Order Reshapes How Americans Pay for Drugs. Why It Isn’t Bad for Pharma Stocks.

WSJ article

The order itself, however, looks like it could be a blessing in disguise for big pharma, fundamentally restructuring the U.S. drug industry in a way that hurts pharmacy-benefit managers.

Drugmakers have blamed pharmacy-benefit managers for high drug prices in the U.S. The order appears designed to broaden the direct-to-consumer market, where patients pay drugmakers cash for medicines without using normal drug channels.

Big pharma stocks were rebounding Monday morning after dropping in the premarket hours. Pfizer shares were up 2.2%, Eli Lilly shares were up 2.9%, and Merck shares were up 4.3%. The SPDR S&P Biotech exchange-traded fund, which tracks the biotech industry, was up 3%.

Shares of the insurance giants that own the pharmacy-benefit managers, meanwhile, were falling hard. Cigna Group shares were down 5.5%, and CVS Health shares were down 3%. UnitedHealth Group shares were flat.

“We’re going to totally cut out the famous middlemen,” Trump said during a Monday morning press conference. “We’re going to cut out the middlemen and facilitate the direct sale of drugs at the most favored nation price directly to the American citizen.”

Analysts had expected Trump to reintroduce a rule from his first term in office that would have set the prices Medicare pays for certain drugs at the lower levels paid in other wealthy nations. That isn’t what is happening.

The new order seems to have a number of pieces, but the crux appears to be an unprecedented focus on the direct-to-consumer market, a cash pay option that cuts out insurers and pharmacy-benefit managers.

The White House said in a fact sheet issued Monday that the order will instruct the Secretary of Health and Human Services to “establish a mechanism through which American patients can buy their drugs directly from manufacturers who sell to Americans at a ‘Most-Favored-Nation’ price, bypassing middlemen.”

The fact sheet also says the order will instruct the administration to “communicate price targets” to drugmakers.

On a press call early Monday, a White House official said those targets would “open a round of negotiations between Health and Human Services and industry, and if adequate progress isn’t made through the price reduction targets, the Secretary of Health and Human Services will impose most favored nation pricing via rulemaking.”

The unexpected focus on the direct-to-consumer market comes as a surprise. Most Americans have medical insurance that covers prescription drugs. Asked about the insurance market, the White House official gave a vague answer on the press call.

“We again are looking for price reductions for people across all markets, including commercial insurance and federal payers,” the official said. “I have indicated that where appropriate, the President has directed the Secretary of Health and Human Services to facilitate direct-to-consumer sales. However, that’s obviously not going to be appropriate in all circumstances. So I mean, there will still be a role for insurance.”