President-elect Donald Trump said last week that pharmaceutical companies are “getting away with murder” in what they charge the government for medicines, and promised that would change, sending drugs stock prices sharply lower.
The benchmark S&P 500 index .SPX slipped into negative territory after his remarks at a news conference spooked investors. The iShares Nasdaq Biotech ETF (IBB.O) dropped 4 percent at its session low and ended down 3 percent, its largest daily percentage drop in three months.
“When the president-elect says we’re going to negotiate drug pricing, you have to take that seriously, but at the same this is a complicated issue because there’s not going to be clarity on drug pricing reform anytime soon,” said Brad Loncar, manager of the Loncar Cancer Immunotherapy ETF (CNCR.O). “When somebody that high profile says something that negative, people do not want to invest in it.”
After his promise to bring down drug spending, the ARCA pharmaceutical index gave up as much as 2.6 percent and ended the day down 1.7 percent.
The drug industry has been on edge for two years about the potential for more government pressure on pricing after sharp increases in the costs of some life-saving drugs drew scrutiny in the press and among lawmakers. The government is investigating Medicaid and Medicare overspending on Mylan NV’s (MYL.O) allergy treatment EpiPen, for instance.
David Katz, chief investment officer at Matrix Asset Advisors in New York, said negative comments on drug pricing trigger selling both from algorithms and investors who suffered from share drops when Democrat Hillary Clinton campaigned against healthcare cost increases.
Trump’s campaign platform included allowing the Medicare healthcare program to negotiate with pharmaceutical companies, which the law currently prohibits. He has also discussed making it easier to import drugs at cheaper prices.
“We are going to start bidding. We are going to save billions of dollars over time,” Trump said.
Medicare, which covers more than 55 million elderly or disabled Americans, spent $325 billion on medicines in 2015.
Industry trade group Pharmaceutical Research and Manufacturers of America, or PhRMA President Stephen Ubl said “Medicines are purchased in a competitive marketplace where large, sophisticated purchasers aggressively negotiate lower prices.”
He said the industry is “committed to working with President-elect Trump and Congress to improve American competitiveness and protect American jobs.”
But Speaker of the House, Paul Ryan did not quite seem to be on board with the Trump agenda. He said that he wants to “have more conversations about” Trump’s efforts to crack down on Big Pharma corruption before the president-elect – soon to be president- does so. “I believe that the current premium support system with Part D works extremely well,” Ryan said. “I think there’s some real success stories – and I think we need to tell that story.”
Yet Democrats seem to be urging Trump to move forward. Sens. Sherrod Brown and Al Franken are leading a letter to President-Elect Donald Trump last month, urging him to prioritize prescription drug price reform and saying that Senate Democrats are standing by to partner with his administration.
“During your campaign, you promised to address the high prescription drug prices that the vast majority of Republicans and Democrats expressed as a top concern in the election,” Brown, Franken and 17 other Democrats write. “In this letter, we have listed tangible ways your Administration can lead bipartisan work on this issue.”