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Biotech Slammed as Investors Ignore the Fine Print
Politicians are taking aim at biotech giant Gilead.
David Miller    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Biotech is down again this morning as financial news outlets zero in on the letter Congress sent to Gilead (NASDAQ:GILD) asking why the company priced its Solvadi hepatitis treatment at $84,000. Watching and reading some of the media coverage can be painful for anyone who knows anything about drug pricing in the US.

With the exception of some specific programs for veterans and other small groups, Congress has specifically prohibited Medicare and Medicaid from negotiating prices. Generally speaking, Congress has forced Medicare and Medicaid to cover any drug the FDA has approved, and that the medical establishment has placed in a "compendia", or a list of drugs and treatment modalities recommended for the treatment of a disease. The only pricing power Congress has given Medicare and Medicaid is the ability to refuse to pay any more than what "the market" pays for a specific drug.

The Affordable Care Act (ACA) didn't change this. In fact, Congressional prohibitions against price negotiation and mandates for drug coverage were restated and emphasized in the ACA. Thus, there is no legal mechanism for the Federal government to do anything about the price of Solvaldi.

Private insurers are limited from negotiating steep discounts by competitive pressures, the ACA, and state-level rules. What private insurers, and Medicare and Medicaid for that matter, can do is make choices about the order in which drugs are reimbursed. Private insurers will also shift drugs among "formularies," effectively governing reimbursement rates to the patient. More rarely than most people expect, private insurers and drug companies will negotiate lower prices for some high-use drugs (millions of patients covered) in exchange for prescribing preference.

So, what are Representatives Waxman, Pallone, and DeGette up to with their letter? They're using the only mechanism they have, given all the above: The Bully Pulpit. They're calling Gilead on the carpet in the hopes of drawing attention to runaway pricing of new drugs. They're hoping to embarrass Gilead (and likely, the next drug company that prices a new drug) into slowing the astonishing upward path of drug pricing. At the very least, they hope to slow the very common 5-15% per year price increases companies are laying on top of already high-dollar drugs.

There is no widespread will in Congress to institute drug price controls. The Republicans are certainly not going to go there. Democrats will likely avoid the fight even if some of the voter base may support the idea.

That said, I have no doubt we will eventually institute some form of price controls or permissions for Medicare and Medicaid to negotiate drug prices. Otherwise, drug pricing will bankrupt our healthcare system.

That said, it won't come in the remainder of the Obama administration. It also won't come in the next President's first term (at least) if a Democrat wins, and won't come at all in a Republican administration. It also won't initially cover oncology (cancer) drugs, and may not ever cover orphan diseases.

The Federal government instituting pricing controls is not this decade's problem and probably won't be the next decade's problem. All that's left is the Bully Pulpit. Those using it simply hope to scare drugmakers into bending the pricing curve.

Biotech has been on a heck of a run over the last few years and it's no surprise the sector is pulling back. If you think the stocks are declining because of worries over price controls, I'd humbly suggest you perform further analysis. It just isn't going to happen here in the US in the next decade.

Twitter: @AlpineBV_Miller

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Biotech Slammed as Investors Ignore the Fine Print
Politicians are taking aim at biotech giant Gilead.
David Miller    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Biotech is down again this morning as financial news outlets zero in on the letter Congress sent to Gilead (NASDAQ:GILD) asking why the company priced its Solvadi hepatitis treatment at $84,000. Watching and reading some of the media coverage can be painful for anyone who knows anything about drug pricing in the US.

With the exception of some specific programs for veterans and other small groups, Congress has specifically prohibited Medicare and Medicaid from negotiating prices. Generally speaking, Congress has forced Medicare and Medicaid to cover any drug the FDA has approved, and that the medical establishment has placed in a "compendia", or a list of drugs and treatment modalities recommended for the treatment of a disease. The only pricing power Congress has given Medicare and Medicaid is the ability to refuse to pay any more than what "the market" pays for a specific drug.

The Affordable Care Act (ACA) didn't change this. In fact, Congressional prohibitions against price negotiation and mandates for drug coverage were restated and emphasized in the ACA. Thus, there is no legal mechanism for the Federal government to do anything about the price of Solvaldi.

Private insurers are limited from negotiating steep discounts by competitive pressures, the ACA, and state-level rules. What private insurers, and Medicare and Medicaid for that matter, can do is make choices about the order in which drugs are reimbursed. Private insurers will also shift drugs among "formularies," effectively governing reimbursement rates to the patient. More rarely than most people expect, private insurers and drug companies will negotiate lower prices for some high-use drugs (millions of patients covered) in exchange for prescribing preference.

So, what are Representatives Waxman, Pallone, and DeGette up to with their letter? They're using the only mechanism they have, given all the above: The Bully Pulpit. They're calling Gilead on the carpet in the hopes of drawing attention to runaway pricing of new drugs. They're hoping to embarrass Gilead (and likely, the next drug company that prices a new drug) into slowing the astonishing upward path of drug pricing. At the very least, they hope to slow the very common 5-15% per year price increases companies are laying on top of already high-dollar drugs.

There is no widespread will in Congress to institute drug price controls. The Republicans are certainly not going to go there. Democrats will likely avoid the fight even if some of the voter base may support the idea.

That said, I have no doubt we will eventually institute some form of price controls or permissions for Medicare and Medicaid to negotiate drug prices. Otherwise, drug pricing will bankrupt our healthcare system.

That said, it won't come in the remainder of the Obama administration. It also won't come in the next President's first term (at least) if a Democrat wins, and won't come at all in a Republican administration. It also won't initially cover oncology (cancer) drugs, and may not ever cover orphan diseases.

The Federal government instituting pricing controls is not this decade's problem and probably won't be the next decade's problem. All that's left is the Bully Pulpit. Those using it simply hope to scare drugmakers into bending the pricing curve.

Biotech has been on a heck of a run over the last few years and it's no surprise the sector is pulling back. If you think the stocks are declining because of worries over price controls, I'd humbly suggest you perform further analysis. It just isn't going to happen here in the US in the next decade.

Twitter: @AlpineBV_Miller

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Daily Recap
Biotech Slammed as Investors Ignore the Fine Print
Politicians are taking aim at biotech giant Gilead.
David Miller    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Biotech is down again this morning as financial news outlets zero in on the letter Congress sent to Gilead (NASDAQ:GILD) asking why the company priced its Solvadi hepatitis treatment at $84,000. Watching and reading some of the media coverage can be painful for anyone who knows anything about drug pricing in the US.

With the exception of some specific programs for veterans and other small groups, Congress has specifically prohibited Medicare and Medicaid from negotiating prices. Generally speaking, Congress has forced Medicare and Medicaid to cover any drug the FDA has approved, and that the medical establishment has placed in a "compendia", or a list of drugs and treatment modalities recommended for the treatment of a disease. The only pricing power Congress has given Medicare and Medicaid is the ability to refuse to pay any more than what "the market" pays for a specific drug.

The Affordable Care Act (ACA) didn't change this. In fact, Congressional prohibitions against price negotiation and mandates for drug coverage were restated and emphasized in the ACA. Thus, there is no legal mechanism for the Federal government to do anything about the price of Solvaldi.

Private insurers are limited from negotiating steep discounts by competitive pressures, the ACA, and state-level rules. What private insurers, and Medicare and Medicaid for that matter, can do is make choices about the order in which drugs are reimbursed. Private insurers will also shift drugs among "formularies," effectively governing reimbursement rates to the patient. More rarely than most people expect, private insurers and drug companies will negotiate lower prices for some high-use drugs (millions of patients covered) in exchange for prescribing preference.

So, what are Representatives Waxman, Pallone, and DeGette up to with their letter? They're using the only mechanism they have, given all the above: The Bully Pulpit. They're calling Gilead on the carpet in the hopes of drawing attention to runaway pricing of new drugs. They're hoping to embarrass Gilead (and likely, the next drug company that prices a new drug) into slowing the astonishing upward path of drug pricing. At the very least, they hope to slow the very common 5-15% per year price increases companies are laying on top of already high-dollar drugs.

There is no widespread will in Congress to institute drug price controls. The Republicans are certainly not going to go there. Democrats will likely avoid the fight even if some of the voter base may support the idea.

That said, I have no doubt we will eventually institute some form of price controls or permissions for Medicare and Medicaid to negotiate drug prices. Otherwise, drug pricing will bankrupt our healthcare system.

That said, it won't come in the remainder of the Obama administration. It also won't come in the next President's first term (at least) if a Democrat wins, and won't come at all in a Republican administration. It also won't initially cover oncology (cancer) drugs, and may not ever cover orphan diseases.

The Federal government instituting pricing controls is not this decade's problem and probably won't be the next decade's problem. All that's left is the Bully Pulpit. Those using it simply hope to scare drugmakers into bending the pricing curve.

Biotech has been on a heck of a run over the last few years and it's no surprise the sector is pulling back. If you think the stocks are declining because of worries over price controls, I'd humbly suggest you perform further analysis. It just isn't going to happen here in the US in the next decade.

Twitter: @AlpineBV_Miller

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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