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Many analysts had predicted that President Donald Trump would highlight a push for an international pricing index in his State of the Union speech, but he didn’t make that move on Tuesday night.
That’s good news for investors in drug makers, according to Height Capital Markets analyst Hunter Hammond.
“Health-care investors, especially those involved with drug makers, should be relieved,” Hammond wrote in a note Wednesday.
“Given the opportunity to introduce the International Pricing Index model, Pres. Trump instead touted generic-drug approvals and reiterated his tacit endorsement of Sen. Grassley’s (R., Iowa) drug-pricing legislation, which we believe fares poorly in the Republican-controlled Senate.”
An IPI would link the drug prices paid by Medicare to the lower prices paid overseas. Height still sees a 75% chance that the Trump administration eventually will release a public notice on an IPI.
Republican Sen. Chuck Grassley of Iowa and Democratic Sen. Ron Wyden of Oregon, the Senate Finance Committee’s two highest-ranking members, have rolled out a bill aiming to curb drug-price increases by placing some caps on out-of-pocket spending in Medicare. Analysts have said the legislation would have a “negligible” impact on the pharmaceutical industry, affecting about 2% of drug sales and representing a “positive outcome for the industry.”
Related: Trump’s State of the Union speech could dent health-care stocks, analysts say
Also see: Trump hammers Democrats on health care, touts economy in State of the Union speech
Trump also didn’t make big waves on the issue of surprise medical bills, Hammond noted.
“After exclaiming that American patients should never be ‘blindsided by medical bills,’ Pres. Trump had the opportunity to overtly call for passage of surprise-billing legislation,” the analyst wrote. “Instead, the president extolled his hospital and insurance transparency executive order.”
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The Invesco Dynamic Pharmaceuticals ETF PJP, +1.25% and the health-care sector ETF XLV, +1.52% both recently traded higher by 1.5% on Wednesday, while the broad S&P 500 index SPX, +0.74% gained 0.8%. The pharma ETF is down 1% over the past 12 months, while the health-care ETF and S&P have gained 14% and 22%, respectively.
The Democratic-led House two months ago passed the party’s signature bill that aims to lower drug prices, but analysts have said it’s unlikely to become law. As Washington focuses on drug prices, the pharma industry has ramped up its lobbying spending.
Democratic caucus goers in Iowa on Monday ranked health care as the most important issue, and health care also was the No. 1 issue for all voters in the 2018 midterm elections.
