The news out of Washington keeps flooding out, and specifically news that’s being made straight from the Oval Office.
In a meeting this morning with pharmaceutical industry executives, President Trump sent out a few new salvos in what might be described as a new “war on drugs.”
This war isn’t about fighting the import of illegal drugs. Rather, it’s all about the pharmaceutical industry coming under fire from the president over the high cost of drug prices.
Now, the industry is feeling the heat for where it makes its products, too.
“I want you to manufacture in the United States,” President Donald Trump said to the group of pharmaceutical CEOs at the White House. This group included Robert A. Bradway, chairman and CEO of Amgen Inc. (AMGN), Joaquin Duato of Johnson & Johnson (JNJ), and Merck (MRK) CEO Kenneth Frazier.
That meeting also came with President Trump’s admonition on costs: “We have to get the prices way down.”
Yet there is good news on this new war on drugs.
Rather than it being a war waged against pharmaceutical companies, President Trump wants to frame the government as an ally in helping the industry reduce costs.
To offer aid and assistance in this new drug war — or, more precisely, this new war on drug prices — the president said he plans to reduce regulations and taxes to encourage more domestic drug manufacturing.
The president has yet to provide any specifics on how his administration would foster renewed drug manufacturing in the U.S. But the most-obvious way to “encourage” it also is likely to cause costs to go up.
That obvious way is to impose what the president has called “very major” border taxes on companies with operations overseas. This would comport with some Republican congressional proposals designed to increase taxes on imported goods.
Taxes on imports would likely only serve to boost the cost of drugs for consumers. But the administration hasn’t worked that out yet.
What President Trump has done is appoint two seasoned pharma executives — the aforementioned Frazier of Merck, and Alex Gorsky of Johnson & Johnson — to a 28-member advisory council that’s tasked with expanding manufacturing in the U.S.
Though I’m quite sure President Trump would like to engineer a reduction in drug costs as well as an expansion of pharmaceutical manufacturing in the U.S., these two goals will, I suspect, be difficult to achieve.
While the pharmaceutical industry tries to work with the administration on reducing drug costs and increasing homegrown manufacturing, the industry has another front to deal with that has nothing to do with politics.
That issue is the slew of drugs coming off-patent in 2017.
In the case of Merck, the company has four big-selling drugs set to go off-patent in 2017. These include Invanz, Vytorin, Cancidas and Cubicin.
Perhaps that helps explain why CEO Frazier is participating actively in ways to help the administration?
Pfizer (PFE) is another big pharma firm with several very big drugs going off-patent. Somavert and Relpax are two of the company’s brands that will be off-patent this year. Yet by far the biggest seller is the company’s “little blue pill.”
That’s right, Pfizer’s biggest drug, Viagra, is set to lose patent protection in 2017.
Israeli generic pharma leader Teva Pharmaceuticals (TEVA) is going to put out a generic version of the erectile dysfunction drug, and that will likely impact Pfizer’s bottom line.
While Merck and Pfizer are the two biggest off-patent losers in 2017, they aren’t the only ones.
Novartis (NVS) will lose Sandostatin LAR while Bristol-Myers Squibb (BMY) loses Reyatz. Both medications are respective billion-dollar products.
Eli Lilly (LLY) also will suffer the loss of its Strattera, the ADHD treatment that brings in some $700 million per year.
So, between patent losses — and the push for lower drug prices and more U.S. production — the pharmaceutical industry faces a lot of unknowns … as well as a lot of challenges … in 2017.
Yet if the administration and Congress can make good on tax cuts and incentives for the industry, 2017 just might turn out to be a good year for the sector.
Yesterday was the worst day for stocks in 2017. Today we were greeted with another triple-digit (-107, or 0.5%) Dow slide. This added to Monday’s 123-point drop, but the Industrials still logged a 0.5% gain for January.
The January gains were bigger for the Nasdaq Composite (+4.3%) and the S&P 500 (+1.8%). Meanwhile gold’s 9% advance made this its best month since June. Weakness in the greenback and travel-ban uncertainty helped gold to rise. But neither factor did much for oil, which fell 1.7% during the first month of 2017.
Elsewhere in the news …
• The year’s first Fed meeting kicked off today. Traders are not expecting any rate hikes, after Janet Yellen telegraphed last month that the Fed is in “wait-and-see” mode. Traders are in the same mode — but this year, not only will they be awaiting tomorrow afternoon’s statement, but also Trump’s reaction to it.
• Will that reaction come via Twitter (TWTR)? President Trump is tweeting from two accounts now, @POTUS and his @realDonaldTrump account. Shares gained 4% today.
• 82% compliance: That’s how much OPEC is complying with its promised production cuts, according to a Reuters survey. The news lifted WTI crude 0.3%.
• ExxonMobil (XOM) missed out on today’s oil gains. Shares fell 1.1% after the company’s EPS came in at 41 cents vs. 70 cents expected. Exxon took a $2 billion upstream asset impairment charge in Q4, which left it with $1.7 billion in net income (down from $2.8 billion in the year-ago quarter).
• U.S. consumer confidence eased off its 15-year high. But survey respondents, while slightly more cautious, saw an uptick (from 3.3% to 5.9%) in their view of the jobs market.
• A trifecta of misses on the earnings, revenue and guidance fronts sent Under Armour (UA) down 23.4%. CEO Kevin Plank says the “growth story is still intact” despite a 20% drop in footwear sales and 17% drop in apparel sales during the holiday Q4.
• Pfizer (PFE) posted a Q4 profit today. It wasn’t a big one (47 cents per share), and it was 3 cents below estimates, but it beat last year’s quarterly loss. Several of its drugs will go off-patent this year, but it is hoping for approval of a new cancer drug along with approvals to expand three existing drugs’ uses. Shares gained 1.3%.
• Apple (AAPL) returned to sales growth in its fiscal Q1. Shares dipped 0.3% during the day but shot 3% higher after-hours. EPS came in at $3.36 vs. $3.21 estimated thanks to surging iPhone 7 sales.
Good luck and happy investing,
Uncommon Wisdom Daily