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Trump's executive order to lower drug prices-how will this impact stocks?


muscleman
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https://www.npr.org/2020/07/24/895290378/trump-signs-executive-orders-on-drug-prices

https://www.hhs.gov/about/news/2020/07/24/trump-administration-announces-historic-action-lower-drug-prices-americans.html

 

It is odd that I don't even find related articles in WSJ.

Could anyone share some insights on how this would affect the pharma and biotech industry?

The first articles says "Overall, the ideas embodied in the executive orders aren't new and aren't as meaningful as the White House lets on, says Ameet Sarpatwari, assistant director of Harvard Medical School's Program on Regulation, Therapeutics and Law."

 

But it did not elaborate on why.

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LLY stock price is down ~1% alongside other drug companies but generally speaking, life has been good for drug manufacturers recently , but not so good for consumers:

https://www.consumerreports.org/drug-prices/the-shocking-rise-of-prescription-drug-prices/

 

Medicare has a lot of market power already, they just need to use it. They can take some clues from single payer countries allover the world on how to do it.

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LLY stock price is down ~1% alongside other drug companies but generally speaking, life has been good for drug manufacturers recently , but not so good for consumers:

https://www.consumerreports.org/drug-prices/the-shocking-rise-of-prescription-drug-prices/

 

Medicare has a lot of market power already, they just need to use it. They can take some clues from single payer countries allover the world on how to do it.

As far as I know medicare is specifically prohibited from using this power through the Medicare Modernization Act.

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Lower drug prices is a noble goal and there's seems to be some kind of consensus (unusual these days) but it's also true that even if most people want to go to Heaven, nobody wants to die.

 

The following is from 2019 (the impact of 2003 MMA is mentioned; and how to potentially circumvent it) but this has been a recurrent theme:

https://www.kff.org/wp-content/uploads/2019/07/Issue-Brief-Whats-the-Latest-on-Medicare-Drug-Price-Negotiations.pdf

 

The international arbitrage is the most promising but is also the most easily 'challenged'.

 

It seems like the drug pricing environment suffers from a similar phenomenon than relativity theory: the subset of people who understand versus the number of people who think they understand is probably small and the people that benefit from it seem to be better equipped to extract value than the team of people trying to prevent the extraction. The US drug industry is like a cartel. Cartels can result in a satisfactory compromise but don't survive well if excessive behaviors are institutionalized. The best outcome would include efforts for reasonable and self-imposed reforms but the clock is ticking. A quote from Spekulatius' link may be most revealing: "When pressed by senators, the industry executives said drug costs could be controlled only if the entire payment system was reformed".

"Be careful what you wish for, lest it come true!" -Aesop’s Fables, around 260 BC

 

 

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LLY stock price is down ~1% alongside other drug companies but generally speaking, life has been good for drug manufacturers recently , but not so good for consumers:

https://www.consumerreports.org/drug-prices/the-shocking-rise-of-prescription-drug-prices/

 

Medicare has a lot of market power already, they just need to use it. They can take some clues from single payer countries allover the world on how to do it.

As far as I know medicare is specifically prohibited from using this power through the Medicare Modernization Act.

 

Thx, I wasn’t aware of this. I guess that would be a low hanging fruit to pick. Well theoretically ....

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While drug prices are always good headlines, the truth of the matter is that overall drug spend has been flat or up by low single digits for the past few years. Over 90% of subscriptions now are generic.  The rising prices are largely led by the specialty drugs used for personalized medicine.  Capping those without substantially harming supply and development will be nearly impossible.

 

If you want to tackle healthcare costs, start first and foremost at the hospital level.  Even the drug costs are abnormally impacted by the prices.charged in hospital vs thru drugstores.

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While drug prices are always good headlines, the truth of the matter is that overall drug spend has been flat or up by low single digits for the past few years. Over 90% of subscriptions now are generic.  The rising prices are largely led by the specialty drugs used for personalized medicine.  Capping those without substantially harming supply and development will be nearly impossible.

If you want to tackle healthcare costs, start first and foremost at the hospital level.  Even the drug costs are abnormally impacted by the prices.charged in hospital vs thru drugstores.

i agree with the substance of what you describe but can i submit some nuances becoz of difficulty handling the Truth (of the matter)?

 

-Since the mid 90s, the trend in retail drug expenditure per capita in the US has disconnected from other comparable countries and an argument could be made that innovation has not relatively increased and a strong case has been fairly well established that it's the multiple on an increasingly lower marginal input that has increased.

-From an investment perspective, there is nothing wrong about taking advantage of pricing power (à la See's Candies in the 70s) but there are clearly developing affordability issues at the consumer level for drugs.

-Also, recently, combining Medicare, Medicaid and out-of-pocket expenses has resulted in a comfortably more (and growing) than 50% payer share for national retail prescription drugs suggesting that it may become difficult to maintain pricing power going forward.

 

Personal note: i did not live through the private to public transition in my jurisdiction but the previous generation frequently suggested the following, after the fact:

-Going through the transaction was painful (income and earnings).

-After the transition, knowing how to make money remained a comparative advantage but the landscape became more hostile.

-Had they known the previous two aspects, actors would have acted differently (and preemptively).

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