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Drugmakers' stocks jump on promise of Trump presidency

November 9, 2016

Pharmaceutical stocks were among the winners in early trading Wednesday as Republicans’ sweeping victory in the U.S. elections eased concerns that Democrats would enact controls on drug prices in the world’s largest market for prescription medicines.

Even as drug stocks rallied, other parts of the health sector plunged. President-elect Donald Trump has promised to repeal the Affordable Care Act, or Obamacare, and health insurance and hospital stocks dropped on the possibility that millions could lose coverage while the industry faces a disruptive transition just years after the sweeping law was implemented.

Indianapolis-based Eli Lilly and Co., which saw its stock slip earlier this month after Sen. Bernie Sanders criticized the drug company's insulin prices, saw its shares shoot up 4 percent Wednesday morning, to $77 each.

Shares in Pfizer Inc., the U.S.’s biggest drugmaker, rose 11 percent, to $33.24

Stock in Indianapolis-based insurer Anthem Inc.'s dropped about 2 percent, to $124.35 per share. U.S. health insurer Centene Corp. dropped 18 percent and Molina Healthcare Inc. fell 14 percent. Tenet Healthcare Corp. led declines by the three largest publicly traded hospital companies, down 25 percent.

Overall, stocks indexes veered between small gains and losses in early trading Wednesday as Wall Street sized up the implications of Trump's stunning victory. The modest swings marked a reversal from earlier in the morning, when global stock markets roiled after it became clear that Trump had sealed the win over Hillary Clinton.

‘Sigh of relief’

Trump has laid out little in the way of detail for his health plans other than to say he would immediately repeal and replace Obamacare. His opponent Hillary Clinton made drug prices a key aspect of her campaign, and there were concerns that her administration could put substantial pressure on drug prices in the U.S.

“Right now I think most biotech and pharma companies might be sighing a sigh of relief because Mrs. Clinton looked like she might do something drastic on drug pricing,” Clive Meanwell, CEO of Medicines Co., said by phone. Trump, he said, may have other priorities. “I suspect he’ll have bigger health-care topics to take on first.”

Republicans who maintained control of the House and Senate have also promised to repeal the Affordable Care Act. Passed under President Obama in 2010, the ACA created markets where individuals can buy health insurance, often with subsidies, and gave states funding to expand their Medicaid programs to more low-income people. It also changed insurance regulations, added taxes and fees on the health industry, and cut payments to hospitals in exchange for the promise of more patients.

‘On the chin’

HCA Holdings Inc. followed Tenet’s drop, and was down 14 percent, to $69.64. Community Health Systems Inc. fell 25 percent, to $15.30. The industry’s lobbying group called for a transition period if the law is significantly changed.

“Stocks are really taking it on the chin, because the market abhors uncertainty,” said Sheryl Skolnick, an analyst at Mizuho Securities who covers hospital companies. “We know this is the worst possible outcome, but we don’t know how bad it is.” She downgraded all of the hospital stocks she covers on Wednesday.

“We need to maintain access to health care coverage for millions of Americans,” Chip Kahn, the CEO of the Federation of American Hospitals, said in an e-mailed statement. “Any re-examination of ACA will take time to develop and require a workable transition for those who depend on the coverage and those providing the care.”

Many of the publicly traded health insurers have already pulled back from Obamacare’s individual markets, meaning that the harshest impacts of repeal could be limited to companies that have stayed in the markets or benefited from the expansion of Medicaid.

Insurers drop

Along with Centene, Anthem and Molina all have large Medicaid businesses.

Of the other large insurers, Humana Inc. and UnitedHealth Group Inc. will benefit from a trend toward using the private sector, rather than government programs, to deliver health-care in a Republican administration. Both firms are big players in the private health program for the elderly known as Medicare Advantage.

“On privatization, you have a tailwind,” said Ana Gupte, an analyst with Leerink Partners who covers insurers. “You don’t have a threat of single payer or a public option.”

For Obamacare, one possibility is that instead of wholesale repeal, large portions of the law stay in place, with Trump and Republicans in Congress targeting only parts. Aspects of Medicaid could also be privatized, which could preserve some business for insurers under the program.

“The ultimate fate of ACA and/or select components will not be sorted out in short order but rather over many months and possibly years,” said Thomas Carroll, an analyst with Stifel, said on the health insurers. “These companies had strong operations and business models before ACA, and will after.”

Clinton’s proposals

During the campaign, Clinton was a regular critic of high prices of prescription drugs, and she has called for policies such as penalties for some drugmakers whose increases are too frequent or drastic. Trump has also criticized the high cost of prescription drugs, saying individuals should be allowed to import cheaper pharmaceuticals from abroad.

It’s possible Trump or Republicans in Congress might act on drug prices, and even without action, pressure on U.S. drug prices probably will continue, GlaxoSmithKline Plc CEO Andrew Witty told Bloomberg TV on Tuesday.

“A lot of people fixate on the political dimension and what might happen,” Witty said. “It’s also important to remember that the marketplace has itself put in tremendous mechanisms to ensure it gets good value for money.”

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