Stocks Of Drug Distributors And PBM-Owners Surge After Trump Administration Pulls Rebate Proposal
Source:

Sarah Toy, MarketWatch

July 11, 2019

Shares of drug distributors and pharmacy-benefit-manager owners got a boost Thursday, after the Trump administration said it would be withdrawing its plan to overhaul the rebates that drugmakers give to middlemen in Medicare.

The administration, which is making lowering drug costs for Americans a key priority, had said such a proposal would help drive down the prices people pay for prescription medications. However, that would have been a blow to the pharmaceutical industry.

Pharmacy benefit managers, or PBMs, act as middlemen between drugmakers and insurance plans, negotiating discounted prices on branded prescription drugs in the form of a rebate. However, PBMs end up pocketing some of those rebates for themselves. The proposal looked to direct those discounts toward patients instead.

“The rule has been an overhang for… stocks for well over a year,” Evercore ISI’s Ross Muken wrote in a note to clients. “Its withdrawal is positive news for companies in the drug channel with economics tied to higher gross list prices, including PBMs and their parent companies, distributors and pharmacies.”

Shares of Cigna Corp. CI, +11.69% , which owns Express Scripts, surged 10.3% in premarket trade on the news. Shares of CVS Health Corp. CVS, +5.76% , which owns CVS Caremark, jumped 6.8%, and shares of OptumRx-owner UnitedHealth Group Inc. UNH, +4.49%   rose 3.4%.

Drug distributor McKesson Corp’s MCK, +1.87% stock rose 3.0%, while AmerisourceBergen Corp. ABC, +1.96%   shares rose 3.6%. Cardinal Health Inc.’s CAH, +1.94% stock jumped 3.8%.

Some industry analysts believe the proposal was withdrawn due to cost concerns among some within the Trump administration.

The pulling of the proposal comes after a federal judge on Monday blocked a plan put forth by the Trump administration requiring drugmakers to disclose their drug prices in television ads. It was another part of the president’s plan to lower drug costs.

The administration is still looking at ways to lower those costs. Just last week, the president said he was planning to issue an executive order allowing the U.S. to buy drugs based on the lowest price paid by other developed countries.

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