Recently, President Trump declared that he would help tackle the high price of drugs in the United States. That sounds great, however, his policies actually loosened the reins on drug companies and expanded their ability to keep patents on drugs—thereby actually helping companies keep their steel-fisted grip on their corners of the market.
According to Forbes, Trump’s policy would also force drug companies to end their typical practice of increasing drug prices by double digits every year. The policy would also curb the amount costly drugs that Medicare will keep on its formularies.
Along with these issues, Trump will ask Congress to "examine" two laws that were known for helping drive up pharmaceutical prices—the Orphan Drug Act and Biologics Price, Competition, and Innovation Act. With hope, this would reduce medication prices as a whole.
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That being said, a lot of these policies still protect pharmaceutical companies’ profit. Not much will be done to enforce cheaper prices, nor will anything be done in terms of actual consumer prices or insurance prices.
So, what does this mean for the stocks involved in Big Pharma? Here’s what you need to know.
1. Trump’s avoidance of tackling monopolies means that stocks will remain stable.
You don’t have to worry about dealing with companies suddenly folding due to government intervention. This makes stocks involving pharmaceuticals a safer bet, and stocks have surged upon the news of Trump’s action.
2. Since much of Trump’s proposal will not actually affect prices, Big Pharma considers this a win.
The stocks have begun to steadily climb upwards with the apparent presidential nod in terms of business practices. Much of the worries that company executives have had are now shown to be gone.
3. Basically, since Trump’s policy doesn’t challenge the pharmaceutical industry, stocks are going to continue to climb.
Trump is looking for ways to reduce the prices of prescription drugs—sort of. Maybe. Most of what he did actually just expanded the roles of the middlemen who were involved in pharmaceutical price gouging.
That being said, the overall effect is a positive one for investors who had decided to plunk down cash for pharmaceutical stocks. Most stocks rose an average of 2 percent after his speech, with some scaling as high as 8 percent or more.
Here’s the takeaway…
We’ve got some good news and bad news for you.
Investors worried about stocks dropping, shouldn’t be. Trump didn’t actually touch Big Pharma and stocks rallied pretty heavily after his speech unveiled the plan.
The bad news is that there’s a good chance that consumers won’t see the prices of prescriptions getting lowered, and when individuals are economically suffering, eventually the economy as a whole will suffer as well.