Trump’s War On Drug Prices Not The Only Concern For Pharma Companies

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February 1, 2017 7:26am NYSE:PJP

Image of multicolor pills in blister pack

From Brad Hoppmann: The news out of Washington keeps flooding out, and specifically news that’s being made straight from the Oval Office.


In a meeting this morning with pharmaceutical industry executives, President Trump sent out a few new salvos in what might be described as a new “war on drugs.”

This war isn’t about fighting the import of illegal drugs. Rather, it’s all about the pharmaceutical industry coming under fire from the president over the high cost of drug prices.

Now, the industry is feeling the heat for where it makes its products, too.

“I want you to manufacture in the United States,” President Donald Trump said to the group of pharmaceutical CEOs at the White House. This group included Robert A. Bradway, chairman and CEO of Amgen Inc. (AMGN), Joaquin Duato of Johnson & Johnson (JNJ), and Merck (MRK) CEO Kenneth Frazier.

That meeting also came with President Trump’s admonition on costs: “We have to get the prices way down.”

Yet there is good news on this new war on drugs.

Rather than it being a war waged against pharmaceutical companies, President Trump wants to frame the government as an ally in helping the industry reduce costs.

The president has yet to provide any specifics on how his administration would foster renewed drug manufacturing in the U.S. But the most-obvious way to “encourage” it also is likely to cause costs to go up.To offer aid and assistance in this new drug war — or, more precisely, this new war on drug prices — the president said he plans to reduce regulations and taxes to encourage more domestic drug manufacturing.

That obvious way is to impose what the president has called “very major” border taxes on companies with operations overseas. This would comport with some Republican congressional proposals designed to increase taxes on imported goods.

Taxes on imports would likely only serve to boost the cost of drugs for consumers. But the administration hasn’t worked that out yet.

What President Trump has done is appoint two seasoned pharma executives — the aforementioned Frazier of Merck, and Alex Gorsky of Johnson & Johnson — to a 28-member advisory council that’s tasked with expanding manufacturing in the U.S.

Though I’m quite sure President Trump would like to engineer a reduction in drug costs as well as an expansion of pharmaceutical manufacturing in the U.S., these two goals will, I suspect, be difficult to achieve.

While the pharmaceutical industry tries to work with the administration on reducing drug costs and increasing homegrown manufacturing, the industry has another front to deal with that has nothing to do with politics.

That issue is the slew of drugs coming off-patent in 2017.

In the case of Merck, the company has four big-selling drugs set to go off-patent in 2017. These include Invanz, Vytorin, Cancidas and Cubicin.

Perhaps that helps explain why CEO Frazier is participating actively in ways to help the administration?

Pfizer (PFE) is another big pharma firm with several very big drugs going off-patent. Somavert and Relpax are two of the company’s brands that will be off-patent this year. Yet by far the biggest seller is the company’s “little blue pill.”

That’s right, Pfizer’s biggest drug, Viagra, is set to lose patent protection in 2017.

Israeli generic pharma leader Teva Pharmaceuticals (TEVA) is going to put out a generic version of the erectile dysfunction drug, and that will likely impact Pfizer’s bottom line.

While Merck and Pfizer are the two biggest off-patent losers in 2017, they aren’t the only ones.

Eli Lilly (LLY) also will suffer the loss of its Strattera, the ADHD treatment that brings in some $700 million per year.Novartis (NVS) will lose Sandostatin LAR while Bristol-Myers Squibb (BMY) loses Reyatz. Both medications are respective billion-dollar products.

So, between patent losses — and the push for lower drug prices and more U.S. production — the pharmaceutical industry faces a lot of unknowns … as well as a lot of challenges … in 2017.

Yet if the administration and Congress can make good on tax cuts and incentives for the industry, 2017 just might turn out to be a good year for the sector.

The PowerShares Dynamic Pharmaceuticals ETF (NYSE:PJP) was unchanged in premarket trading Wednesday. Year-to-date, PJP has declined -0.07%, versus a 1.79% rise in the benchmark S&P 500 index during the same period.

PJP currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #20 of 36 ETFs in the Health & Biotech ETFs category.


This article is brought to you courtesy of Uncommon Wisdom Daily.


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