After a presidential tweet directly targeted Pfizer Inc. for recent drug price hikes, the pharmaceutical company appeared to back down.
“Pfizer is rolling back price hikes, so American patients don’t pay more,” President Donald Trump tweeted triumphantly.
But always read the fine print.
Pfizer is actually postponing its July 1 price increases until the end of the year or the president’s drug price blueprint goes into effect — “whichever is sooner,” as Pfizer’s press release puts it.
In other words: the drugmaker gave the Trump administration a deadline. And the Trump drug price plan, which was introduced in mid-May, likely won’t be ready in time.
“President Trump may take a Twitter-based victory lap over Pfizer’s announcement to roll back drug price hikes temporarily,” Height Capital Markets analyst Andrea Harris said. “However, in negotiating this outcome, the Administration publicly ceded ground to drug manufacturers (either willingly or not).” That trade-off came “at a political cost” for the Trump administration, she added.
The Trump administration’s drug price blueprint, called “American Patients First,” is supposed to lower U.S. pharmaceutical costs. Theoretically, at least, that should affect pharmaceutical companies.
But the plan poses the largest threat to U.S. pharmaceutical middlemen in the long-term, especially pharmacy-benefit managers, which negotiate drug prices, because it focuses on reducing the “list prices” of drugs.
Read more: Your guide to the Trump drug price plan: who it affects and how
Pharmaceutical companies do set the list price of their drugs. But they have said that because of the complex dynamics of the U.S. pharmaceutical market, and the cut that drug middlemen take, they don’t always reap the rewards of higher list prices.
Meanwhile, drug middlemen have been accused of helping to drive list prices up, to their benefit.
Take the recent, now-deferred, Pfizer drug price hikes as an example. Pfizer raised prices on 100 product on July 1, by more than 9% for many drugs, according to the Financial Times.
But the drugmaker also told the Financial Times that the increases did not reflect net price increases, or what Pfizer actually gets to keep, which it expected to be in the low single digits. Net prices exclude discounts and rebates; at least one major company in the space subtracts ingredient costs, taxes and various fees.
Then there’s the matter of the Trump drug price plan itself. In its most recent, public form, the plan contained few details, and is expected to take years to implement — which is why industry shares rose after it was released. Many parts of the plan will also require Congressional legislation.
See: President Trump’s big drug price speech boosts pharma stocks
“We assign virtually 0% odds to Congress passing drug pricing reform legislation of this significance in 2018,” Harris said.
But parts of the plan that target pharmacy-benefit managers and the rebates that they negotiate might be feasible for the administration alone to pass, she said, potentially even by year-end.
“The question that determines the outcome is whether the Trump Administration will take Pfizer’s threat more seriously than the pharmaceutical industry is taking the Trump Administration’s threats,” Harris said.
Pfizer shares declined 0.6% in Wednesday trade. Shares have surged 4% over the last three months, compared with a 5% rise in the S&P 500 SPX, -0.71% and a 2.1% rise in the Dow Jones Industrial Average DJIA, -0.88% .
The Health Care Select Sector SPDR XLV, -0.79% has surged 6.2% over the last three months, the SPDR S&P Pharmaceuticals ETF XPH, -0.33% has surged nearly 7% and the SPDR S&P Biotech ETF XBI, +0.09% has risen 12%.