How This Analyst Views Hillary Clinton’s Proposed Drug Price Hike Monitoring

September 2, 2016 by Jon C. Ogg

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It is an election year, and that brings all sorts of proposals and promises to the American people. Whether you are voting for Hillary Clinton or Donald Trump, or one of the independent candidates, one hot-button issue that is back on the table is the ongoing fight over drug prices. While this might ultimately bring one more wave of regulation, the public has been debating drug prices for years now — long before the EpiPen price hike debacle.

Clinton has released a proposed drug price plan that would review and ultimately prevent what might be some of the unjustified price hikes on drugs. That may sound awful for pharmaceutical and biotech outfits on the surface, but there may be some silver linings here that make this issue more pointed.

For starters, one of Clinton’s stated issues is finding a cure for Alzheimer’s disease by 2025. If a cure is found, they probably won’t be able to control the price of that treatment initially. On top of that, billions and billions of dollars have been spent by biotech and pharmaceutical companies in the fight against Alzheimer’s and dementia.

24/7 Wall St. has obtained a report from Janney Montgomery Scott’s Debjit Chattopadhyay with a review of what the Clinton plan really means to the industry. All in all, it might not be as catastrophic universally as some investors, consumers, patients and biohealth industry workers might fear. It may leave biotech upside but may focus more on existing drugs where price hikes are “not justifiable” based on time on the market and on R&D expenses.

In an effort to keep this from leaning to one side or the other, 24/7 Wall St. has included some brief commentary from industry watch groups on the Clinton proposals. After all, this is a serious hot-button issue.

Chattopadhyay has taken both sides of the case here to task. His initial statement said:

Overall, the proposals do not seem as onerous to biotechonology and appears to be directed towards long-available drugs, where prices have been artificially raised because of the lack of competition. However, the proposals do not tackle the issue of pharmacy benefit managers who have huge leverage with producers and are extracting significant discounts that are not being passed on to consumers. The plan also does not tackle the costs associated with hospitalization, which is where the bulk of health care dollars are being spent. On the not-so-good side – Giving Medicare power to negotiate drug prices, Capping out-of-pocket deductibles, and Value-based pricing are likely to weigh negatively. However, these are proposals and eventually needs to be shepherded through the fractious political system.

Chattopadhyay went on to show that the Clinton plan highlights what are the unjustified price increases of lifesaving or critically needed treatment that has long been available; with no meaningful change or improvement in the product (such as when a new acquirer rapidly raises the price); where there is limited or no competition among manufacturers of the treatment; and where there is an unjustified, outlier price increase. The so-called unjustified price increases would be determined by a review of criteria, including the following:

  • The trajectory and scope of the increase in price
  • Changes in the cost of production
  • The treatment’s relative value to patients, among other factors that give rise to threatening public health

Another issue brought up was that the plan proposes emergency purchases of alternative versions and to encourage competition from additional suppliers. Also proposed would be legislation to safely and securely import drugs for personal use from foreign nations, if those nations have safety standards as strong as those in the United States.

And for how the plan might work financially or with penalties, Clinton is proposing a fine or increased rebate from drug companies if they are found to be excessively raising prices. The funds from such fines or penalties would then be used to lower costs, as well as to make alternative drugs and treatments available and speeding up approvals to increase competition.

Chattopadhyay noted several other noteworthy proposals, as follows:

  • Allowing Medicare to negotiate prices
  • Capping monthly drug costs
  • Ensuring drug companies invest in R&D rather than marketing
  • Requiring health insurance plans to place a monthly limit of $250 on covered out-of-pocket prescription drug costs
  • Building on Affordable Care Act provisions that invest in private research
  • Suggestions of a value-based payment system
  • Ending direct-to-consumer (DTC) marketing and reinvesting those funds into R&D and ending corporate write-offs for DTC advertising
  • Establishing a mandatory FDA pre-clearance procedure for DTC, funded through user fees paid for by pharmaceutical manufacturers
  • Requiring drug companies that benefit from taxpayers’ support to invest in research, not marketing or profits

It is important to understand that this is not a pointed report calling out or challenging the proposals. The Chattopadhyay report was even titled, “Drug Pricing Proposals – Part Deux – The Good and the Not-so-good.”

One more issue to consider is where a firm stands on an industry. The Janney Montgomery Scott’s related analyst ratings include 109 Buy ratings, followed by 98 Neutral ratings and two Sell ratings.

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24/7 Wall St. has taken several other views from industry groups, organizations and media reports to make sure that this is fair and balanced. Thesewill be updated as more outside opinions and statements are released:

  • The Alliance for Retired Americans: Hillary Clinton’s Drug Plan Is a Win for Seniors; Government Would Act Against Unfair and Monopolistic Business Practices
  • USA Today: Clinton offers plan to rein in ‘excessive’ drug price hikes
  • New York Times: Hillary Clinton Unveils Plan to Address ‘Excessive’ Increases in Drug Prices