Healthcare Repeal Bad For GlaxoSmithKline, Other HIV Treatment Stocks

The Congressional Budget Office has said that the Senate version of the Republicans’ Affordable Care Act replacement bill could result in 22 million fewer Americans with health insurance.

That dramatic reduction in coverage could have major implications for drug makers offering expensive treatments for HIV, Citi analyst Andrew Baum wrote on Wednesday.

The current HIV treatment market is roughly a $16 billion business. However, the top competitors in the HIV market may see their customer base shrink significantly if the ACA is repealed.

“Potential repeal of ACA in the absence of offsetting federal funding would represent an additional $2.3bn downgrade to our current HIV market forecast by 2025 due to a funding gap from newly uninsured and under-insured patients previously covered through Medicaid expansion coupled with pressure on net drug pricing through restricted formularies,” Baum wrote.

Related Link: What Quorum Health Stands To Lose If The GOP Health Reform Bill Passes

Repeal could be bad news for GlaxoSmithKline plc (ADR) GSK, whose ViiV Healthcare joint venture with Pfizer Inc. PFE could take a hit. Earlier this month, ViiV submitted a simpler, two-drug HIV treatment regiment for regulatory approval. However, with fewer Americans insured, previous assumptions about how much revenue these drugs could generate may need to be revised lower.

Citi has cut its ViiV revenue forecast by 13 percent and downgraded GlaxoSmithKline's stock from Buy to Neutral.

While ACA repeal could hit certain drug stocks hard, the biggest fallout may have nothing to do with the stock market.

“From a public health perspective, we are fearful that the enormous gains in prevention and treatment made in the U.S. over the last decade could reverse,” Baum wrote.

However, even without ACA repeal, Baum said Merck & Co., Inc. MRK’s EFdA has “category-killer potential” and is on track for FDA approval as soon as 2021.