Trump tweet on drug prices sinks pharma shares; what’s next, doctors’ wages? Not.

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Steve’s Take:

President Trump’s morning ritual continues to enthrall millions, but occasionally causes Wall Street analysts covering the pharma industry to reach for their bottle of Maalox.

After House Republicans unwrapped a new healthcare bill saying essentially nothing about drug pricing, Trump on Tuesday promised he hasn’t forsaken his promise to take action. The tweet storm began with the announcement that “getting rid of state lines, which will promote competition, will be in phase 2 & 3 of healthcare rollout,” leading most observers to guess he’s referring to geographic restrictions on insurer–and closing a gap in the effort to repeal-and-replace the Affordable Care Act.

Then, switching to his opaque drug-pricing rhetoric, which when held up to the complexities of the American healthcare scheme sends many an analyst and investor reaching for something stronger, said,

“I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!”

And accordingly, Pharma stocks tumbled, Bloomberg reports.

Allergan PLC’s shares dropped 1.5%, as did Mylan’s, which was publicly sent to the guillotine last year for a six-fold price hike on its EpiPen. Perrigo plummeted 2.5%. Standard & Poor’s 500 Pharmaceuticals, Biotechnology & Life Sciences Index–which comprises 25 members–took a 1.3% shellacking. It was the largest dive since Trump charged the Pharma industry was “getting away with murder” on January 11, 2017.

Less than three weeks later, Trump held a seemingly cordial roundtable with industry executives at the White House, saying he wanted to speed up the drug-approval process, which could reduce developers’ costs. Sure enough, Pharma stocks immediately headed north.

“We certainly lack the understanding of what he wants to do,” said Les Funtleyder, healthcare portfolio manager for E Squared Asset Management, according to The New York Times. “He keeps making conflicting statements, and it’s hard to really pin him down.”

Democrats and a handful of Republicans in Congress have posited some ideas that arguably and practically might reign-in drug prices, both before and after Trump’s election. For example, proposals have been floated allowing patients to important medicines from Canada, where price controls keep costs far lower, and allowing the federal Medicare program to negotiate prices for eligible seniors.

Draft legislation embodying such ideas died a quick death, primarily due to opposition from the Republican right and automatic pressure from the well-heeled Pharma lobby.

Leading drugmakers have given assurances for decades that any form of price controls would stifle innovation because research is so expensive. To their credit, successfully taking a molecule from the drug lab to the pharmacy shelves on average takes more than 10 years and costs a minimum of around $2.5 billion-$3 billion. It takes at least several years to recoup such cost before patents expire and generic drugmakers crash the party.

Trump’s proposal about speeding up drug approvals also has disbelievers, according to The Times. Analysts say there’s no factual basis and thus no reason to believe faster approvals would result in lower initial prices for new medicines.

“I’m skeptical about what it is that he might do that would actually have a material impact on drug prices,” said Paul Heldman, managing partner at Heldman Simpson Partners, speaking to Trump’s tweet.

His firm follows healthcare issues for institutional investors out of Washington, according to BNN.

“I wouldn’t rule it out, but I’m just not there yet that he has some sort of broad plan that has a big impact in the marketplace that will actually become law,” Heldman said.

Of course, this is the latest in a series of political developments–and Trump declarations–that it has kept politicians, analysts, investors, regulators and increasingly, the general public, jittery. Mr. Trump has made repeated assertions about “bringing down” drug prices, and has backed some proposals, such as Medicare price negotiation and drug importation, that the Pharma industry has previously swatted away. But as of yet, the administration still hasn’t set forth specific strategies/proposals with the specificity and solid rationale necessary to successfully reduce drug prices here.

Reacting to Tuesday’s presidential tweet, Evercore ISI analyst Umer Raffat queried what Trump meant by “bolstering competition,” according to Fierce Pharma. He noted that brand vs. generic competition exists, and direct brand vs. brand competition requires “interchangeable meds.” That’s possible in some therapeutic areas, but not all, he points out. “Reality is, we just don’t know until something definitive is put out.”

Bottom line:

Of course, this isn’t the first time Trump has blasted drug prices. Jim Cramer at Mad Money says that if Trump wants to lower the drug pricing, he need needs help from Congress. And the best way to govern drug prices is via a single-payer healthcare system where the government mandates pricing.

“Anything that would really impact drug prices would need to go through Congress, and I am telling you right now that Trump simply will not get his way on this issue. The drug lobbyists have too much sway and the GOP is too committed to free markets,” added Kramer. He also added that whenever the President tweets about an industry, instead of panicking, “one should wait for the prices to come down as it becomes a buying opportunity.”

Thank you, Mr. Cramer.

Clearly, Mr. Trump will have unprecedented obstacles to overcome on his way toward mandating drug pricing. Someone pointed out that cutting drug prices to lower healthcare costs is like trying to reduce the cost of college by lowering the cafeteria prices. It’s an awfully small portion of the total.

Steve's Take: Will @realDonaldTrump mandate drug prices? What next? Mandated doctor wages? Not! Click To Tweet

Even if Mr. Trump was successful with drug prices, what’s next? Mandating lower doctor wages? I don’t think so, because, well, that just won’t go over, unless perhaps martial law is declared.

Ferreting through the various tweet storms, whether it’s replacing Obamacare with something “much better” and “far cheaper” or making drug prices “come way down,” Mr. Trump still resembles a right-leaning populist with no original ideas.