Drugmakers Rise After Trump Pricing Rule Is Blocked
July 09 2019 - 5:37PM
Dow Jones News
By Michael Wursthorn
Shares of drugmakers are rallying on hopes of greater pricing
flexibility.
The blocking of a Trump administration rule that would have
required drugmakers to disclose their products' pricing in
television ads is expected to help pharmaceutical and biotech
companies avoid some of the near-term pricing pressures that had
weighed on those stocks in recent months.
Pharmaceutical stocks like Mylan NV, Nektar Therapeutics and Eli
Lilly rose at least 1.4% each, while biotech shops also rallied,
including Regeneron Pharmaceuticals Inc., which added 1.7%.
The broad gains are being driven by a federal judge's decision
late Monday to block the rule that would have required drugmakers
to list prices to be included in direct-to-consumer TV ads for most
prescription drugs covered by Medicare and Medicaid, Jefferies
Group LLC health-care trader Jared Holz wrote in a recent note to
clients. The move "bodes well for pricing efforts more broadly near
term," he added, and investors are positioning themselves for the
likelihood of pharmaceutical companies reporting solid
second-quarter earnings results.
As of Tuesday, S&P 500 health-care stocks were projected to
grow second-quarter earnings by 2.1% from a year earlier, the
second-best rate of the broad index's 11 sectors, just behind
utilities, according to FactSet. Most other sectors are expected to
see earnings contract, with S&P 500 profits projected to fall
2.8%.
Health-care stocks also sport some of the market's most
attractive valuations and could also be factoring into investors'
interest. The S&P 500's health-care sector is currently trading
at 15.5 times its earnings over the next 12 months, lower than nine
other sectors except for financial stocks, according to
FactSet.
The rule, completed in May and set to go into effect Tuesday
before being blocked, was part of President Trump's broader effort
to lower drug prices. Drugmakers argued the disclosure would
confuse consumers into thinking they would have to pay more than
they actually would for medications.
Still, some health-care companies remain vulnerable to new
government regulation, something investors took notice of during
Tuesday's session.
Meanwhile, reports that the White House will attempt to overhaul
the kidney-care market as soon as Wednesday sent shares of
dialysis-care providers sharply lower. Dialysis providers fell,
with DaVita Inc. sliding 5.3% and Fresenius Medical Care AG
shedding 5%. The losses cut DaVita's year-to-date gain to 2.1%,
while Fresenius remains up 16%.
The tug between gains and losses left the S&P 500's
health-care sector up 0.1% on Tuesday.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
July 09, 2019 17:22 ET (21:22 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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