President Trump today announced a plan to cut drug prices, saying he's making good on one of his campaign promises. But if his new strategy is so great, why did investors buy instead of sell?
Most likely it's because the plan is pretty much toothless, and according to this article in The New York Times, actually reneges on a couple of his key campaign proposals -- most likely indicating that pharmaceutical company lobbyists were pretty successful in watering down Trump's plan.
The Times pointed out that "Trump largely avoided the issues the industry fears the most, such as allowing Medicare to directly negotiate drug prices, or allowing Americans to import drugs. Investors noticed: Stocks of major drug companies rose after his speech, as did those of pharmacy benefit managers, or the “middlemen” that Mr. Trump said were getting 'very, very rich.'"
The Times added, "As the health care world parsed the president’s newly released “blueprint” to lower drug prices, the overarching insight seemed to be this: The drug industry’s formidable lobbyists had won some key victories, even if they did not escape entirely unscathed. Many proposals were light on detail and will need action by Congress to become real."
The two largest indices for biotech and pharmaceutical companies rose about 2 percent after Trump’s speech. The stock prices of Pfizer, Merck, Gilead Sciences, and Amgen all spiked. Even those “middlemen” Trump blasted were unharmed. Express Scripts, the nation’s largest pharmacy benefits manager, rose 2 percent as did CVS, a pharmacy giant that also negotiates drug prices, went up 2 percent as well.
Once again, Trump relies on "better deals" to lower drug prices to U.S. consumers and pressuring foreign countries to charge more, ending what he considers a free ride as Americans support the cost of research and development while foreign consumers do not.
Another interesting idea is to require drug companies to include the price of the drugs that they advertise in their ads. That's almost like current requirements of tobacco companies to include in their ads that smoking causes cancer and heart disease, which those companies hate.
We'll see how this goes. Clearly, I'm skeptical it will amount to much more than PR for Trump. Investors must feel the same way since Trump's plan to cut drug prices only sent industry stock prices soaring.