Don't Worry Spec. Pharma Investors, Drug Pricing Legislation Probably Won't Affect You

  • After speaking with industry insiders and legal experts, Leerink believes that the selloff in pharmaceutical stocks is overdone.
  • Experts see “near zero odds” that Hillary Clinton’s drug pricing plan will become law without significant changes.
  • Leerink believes that the most realistic portion of Clinton’s plan is the proposal for Medicare negotiating Part D drug pricing.
  • Many specialty pharmaceutical stocks have been hit hard recently on fears surrounding the potential for major reforms in drug pricing regulation. However, according to Leerink analyst Jason Gerberry, the majority of investor fears are unwarranted.

    Leerink recently hosted a conference call with two MEDACorp payer specialists and spoke with a health law attorney about the real risks that Hillary Clinton’s plan or a similar plan on drug pricing could pose for pharma stocks.

    Related Link: Biotechs Are Getting Killed Because Of Hillary Clinton's Response To This Drug Price Hike

    Congressional Roadblock

    According to Gerberry, the consensus among industry experts is that the Republican-controlled Congress will not allow any meaningful drug pricing reforms at least through 2017. In addition, attorneys have told Leerink that the drug re-importation aspect of Clinton’s plan has “near zero odds” of being passed into law.

    Most Realistic Proposed Changes

    Gerberry sees the potential for Medicare drug price negotiations as the most realistic aspect of Clinton’s proposal.

    “Of the various provisions of the Clinton HC reform proposal, payer specialists viewed Medicare negotiating Part D drug pricing as structurally the most feasible, as pharmacy drugs can be easily tracked (NDC codes) and [the] Medicaid model establishes [a] framework that can be copied,” Gerberry explained.

    Specialists believe that insurers would likely absorb the brunt of the cost hit from these potential changes, as drug manufacturers would likely price the Medicare hit into the cost of new drugs.

    Stock Picks

    Overall, Gerberry believes that the recent selloff in pharma stocks was too much and too soon.

    Leerink maintains its Outperform ratings on the following:

    • Allergan PLC AGN
    • Jazz Pharmaceuticals plc - Ordinary Shares JAZZ
    • Endo International plc - Ordinary Shares ENDP
    • Momenta Pharmaceuticals, Inc. MNTA
    • Teva Pharmaceutical Industries Ltd (ADR) TEVA

    Disclosure: The author holds no position in the stocks mentioned.

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    Posted In: Analyst ColorBiotechLong IdeasHealth CareTop StoriesAnalyst RatingsTrading IdeasGeneralHillary ClintonJason GerberryLeerinkMEDACorpmedicareMedicare Part D
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