Healthcare stocks need lifeline after presidential tweets
In what is becoming a familiar story, president Donald Trump took to Twitter on Tuesday to opine on the price of drugs in the U.S. His opinion is that they’re too high. His promise is that he’ll fix it. The market’s reaction is… well, not great. The S&P 500’s Pharmaceuticals, Biotechnology & Life Sciences Index dropped by as much as 1.3%, as fuel was added to the fire of speculation over how the president will achieve his goal.
This is far from the first time Mr. Trump has bemoaned the price of drugs in the U.S. He ran his campaign on – amongst other things – the twinned messages of lowered drug costs and the repeal of Obamacare. It is also not the first time he’s used Twitter to cause a storm in the market.
According to Mr. Trump, he is working on a “new system where there will be competition in the drug industry.” In January, he caused a similar drop in drugmakers by Tweeting that Big Pharma was “getting away with murder.” Between these two incidents, Mr. Trump had a meeting with senior management at many of those same companies that, apparently, went very well indeed.
Analysts, understandably, are struggling to make sense of this narrative. Some of them are taking clues from this latest tweet’s timing, seeing how it followed on from the House Republicans’ unveiling of their legislation to repeal and replace the Affordable Care Act on Monday. Credit Suisse analyst Vamil Divan said, in a note to clients:
“We are intrigued by the timing of President Trump’s tweet this morning as it followed rapidly behind the health-care reform bill, and we believe shows the administration’s continued focus on drug pricing.”
The U.S. is unusual in that it does not regulate drugmakers, and if Big Pharma has its way, that will remain the case. However, when it comes to Mr. Trump’s as-yet-unknown policies, Evercore ISI analyst Umer Raffat reminded investors of the bottom line: “reality is, we just don’t know until something definitive is put out.”
The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.
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