The healthcare sector is in the spotlight again due to exorbitant drug pricing. President Donald Trump, in a tweet on Monday, criticized pharmaceutical giant, Pfizer, Inc. (PFE - Free Report) for its recent price increases of several prescription drugs.
Last week, the New York based company announced an increase in list prices of several drugs. This is the second time this year that Pfizer has increased prices of its medicines. Pfizer raised prices of its medicines by an average of 9% which is within the agreed limit of 10% price rise a year. However, prices of a few drugs like Xalatan, Viagra and Chanix have already increased in double digits including the January hike.
Pfizer defended the price rise by stating that the list price does not reflect the actual price, which includes a discount. It also mentioned that it has hiked prices of only one-tenth of its drug portfolio and reduced prices of five drugs by 16% to 44%.
Pfizer’s announcement of the price hike came only a few weeks after Trump’s claim in May that pharma companies would soon take massive price cuts voluntarily. However, there have been no signs of such price cuts.
Pfizer faced criticism for the price hikes as there is a concern that price hike by one company may soon trigger a market-wide increase in drug prices by other pharma bigwigs like Merck (MRK - Free Report) , J&J and others.
In his latest tweet, Trump warned that the administration will act in response and Pfizer and other U.S. drugmakers should be “ashamed” that they have raised drug prices for “no reason.” The tweet also said that by raising drug prices in the United States, these drug companies are offering “bargain basement prices” overseas.
Pricing Controversy a Lingering Issue?
The healthcare industry has always been in the spotlight for high drug prices. The sector, previously a Wall Street favorite, was hit hard by political rhetoric and increasing media and public focus on the high prices of drugs. The drug pricing controversy has grabbed headlines since September 2015 when several companies were criticized for overpricing drugs. These included Mylan (MYL - Free Report) , which increased the price of EpiPen, and Valeant Pharmaceuticals International, Inc. , for its strategy of acquiring companies and selling their drugs at higher prices.
Trump, during his election campaign, had pledged to take steps to lower prescription drug prices and ensure affordability of high-cost drugs. However, no concrete policy changes have been announced to decrease drug prices since Trump took office.
Though the industry has been constantly warned by Trump to keep prices of drugs affordable, it is probably not doing anything about it. On his part, the President can take several steps in this direction. He can push for faster generic - cheaper “copycat” versions of the branded drugs – approval, which he is already doing. He can also ask for discounted rebates to be disclosed, put limitations on promotions/advertisements of the drugs, and mandate Medicare to negotiate drug prices with the manufacturers.
It is high time drug companies take steps to provide relief to consumers by keeping cost of medicines affordable. Until then, the drug pricing controversy will remain an overhang on the space.
Though Pfizer’s shares did take a dip after Trump’s tweet, it closed the day in the green.
Pfizer 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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