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Specialty Pharma Takes a Hit


DECEMBER 22, 2016 – ANALYSTS EXPECT MORE UNCERTAINTY FOLLOWING A YEAR IN WHICH THE MARTIN SHKRELI, EPIPEN, AND VALEANT SCANDALS BATTERED SPECIALTY PHARMA STOCKS.


Analysts at Morgan Stanley have identified multiple factors that should concern investors as they assess Big Pharma’s 2017 prospects. Among them: increased regulatory scrutiny, President Donald J. Trump’s promises to control drug pricing, and greater formulary pressures. With that said, Bala Murali Krishna, reporting for ValueWalk, suggests that consumers won’t see much relief in the coming year.


“IMS Health has projected list price increases of 8-11% and net price increases of 2-5% during 2017-2021,” he reports. “The ‘new normal’ for gross price increases… could settle at high single-digits in 2017, below the 12% level of the past three years.” This modest relief is likely due to efforts by payors and pharmacy benefits managers to “tighten the screws.”


As for political factors, the author notes that it is “unclear how Mr. Trump or other politicians could drive down out-of-pocket consumer spending.” For while “capping out-of-pocket costs is an option, such action would be at odds with formulary incentives to encourage utilization of low cost alternatives.” The article also notes that Republicans have not, in the past, supported government negotiation for Medicare drugs.


The knowledge that specialty pharma was the “worst-performing subsector in healthcare,” is cold-comfort for payors, particularly self-funded companies that would prefer to see declines in YOY net pricing. High single digits is describes a steep curve, and “it is unclear how/when the industry could transition to a system which involves a lower rate of list price inflation plus a lower rate of annual rebate growth.”

Read the full article here (subscription required):

“Specialty Pharma Underperorms S&P 500 For First Time Since 2009”

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