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.
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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