Court Ruling Topples Trump Order, No Price Display In TV Ads

The pharma and the biotech sector gave investors a reason to cheer for when it received a welcoming news on Monday. A federal court passed a judgement in favour of the healthcare companies against the Trump administration in relation to drug pricing.

Per the ruling, pharmaceutical companies need not disclose the wholesale prices of their drugs in television advertising. The verdict comes as a blow to the US government’s crackdown on drug pricing.

A judge in the United States District Court in the District of Columbia sentenced in support of Merck (NYSE:MRK) , Eli Lilly (NYSE:LLY) and Amgen (NASDAQ:AMGN) determining that the Department of Health and Human Services (HHS) cannot compel pharma companies to reveal the wholesale acquisition cost of drugs in adverts. The companies argued that many patients subscribe to health insurance policies that lower the prices they pay for the required drugs.

Last October, the Trump administration determined that drug makers should mention the prices of drugs in television commercials that cost more than $35 a month. This proposal was a step forward by the government to regulate the rising drug prices as a high list price would act as a deterrent.

The rule was scheduled to be effective Jul 9, 2019.

However, the federal judge pronounced that the HHS cannot impose any such rule as it lacked authority from the U.S. Congress.

Drug pricing has been an overhang on the industry for long. The Trump government has been putting pressure on the pharma and biotech companies for quite some time through various means to lower the exorbitant prices of drugs and make healthcare affordable. The authorities had earlier proposed to do away with the drug rebates granted to middlemen and make the whole system more transparent.

Spending on drugs has reached an all-time high in recent times due to cost-intensive specialty drugs for complex conditions.

Earlier, companies like Gilead Sciences, Inc. (NASDAQ:GILD) were under scrutiny for the high costs of its blockbuster HCV drugs. Most recently, even Sanofi (NASDAQ:SNY) , Eli Lilly and Novo Nordisk (NYSE:NVO) were under vigilance on account of the staggering prices of insulin drugs. Even generic companies like Teva (NYSE:TEVA) and Mylan (NASDAQ:MYL) are on the radar for quoting inflated prices of generic drugs.

While all governments vow to go for a clampdown on high drug prices and make healthcare reasonable, little has been done in this regard. Meanwhile, the pharma and biotech companies contend the high research & development costs that bump up the prices of prescription drugs. Given the slowdown in growth of legacy drugs, most companies resort to hiking the prices of drugs to combat low volume growth.

We expect this contentious issue to persist as a headwind to the industry for a while now.

Merck currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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