The much-anticipated Congressional hearing over unfair drug pricing is slated to take place on Feb 26. The hearing will establish ground rules for fair drug pricing in America and make way for more government involvement. Such events are widely expected to mar healthcare sector performance this year.
However, the reference pricing model, due to be established in 2020, will propel gains for the sector. Moreover, healthcare IPOs and venture funding will take centerstage this year. Therefore, the hearing isn’t expected to do much damage this year. Under such circumstances, investing in drug stocks seems like a wise choice.
One of the top priorities of President Trump’s administration has been drug pricing. As a matter of fact, both Congress and Trump have come together to deal with this. Expected to disrupt the pharma sector, a congressional hearing is set to take place today.
The hearing, called "Drug Pricing in America: A Prescription for Change, Part II," seeks to lower the unnecessarily high healthcare costs in America. Currently, an American citizen spends about $11,212 on average per year on healthcare. Further, drugmakers might face legislative actions over steep drug pricing practices over the past few years.
The House Oversight and Senate Finance committees will be led by senators Chuck Grassley and Ron Wyden. Both the leaders opined that prescription drug costs are excruciatingly high and the current trend increase in drug prices is "unsustainable."
Reference Pricing Model to Benefit Both Parties
Per the terms of the latest proposal by the Centre for Medicare and Medicaid Services (CMS), a new drug pricing model is to be established. To be in use from 2020 through 2025, this model will be a reference pricing model.
The model will use the International Pricing Index (IPI) to reach a consensus by referring to international prices for selected Part B drugs. Further, new drugs will be assessed by a joint committee of providers, insurers and hospital organizations. Further, patient groups will have a non-voting position in the committee.
In case a new drug does not have any available alternatives, the committee will discard any patient cost-sharing on the drug. This will significantly reduce the out-of-pocket (OOP) costs for the patient.
However, if an alternative to the new drug is available and the joint committee believes that it does not offer more benefits than the available options, the drug will be allotted to a specific therapeutic class on which the reference pricing will then apply. Thus, a healthcare purchaser will have the freedom to establish the minimum price he/she is willing to pay out-of-pocket for the drug.
However, the customers will have to take into account the minimum as well as the median price of that drug in any therapeutic class. Such an arrangement distributes costs evenly between the manufacturer and the patient and establishes a fair pricing system which is beneficial to both parties.
4 Best Choices
A steady influx of foreign as well as domestic investments in U.S. healthcare has gone a long way in boosting gains for the space. Further, a burgeoning economy has necessitated diversification by the top players in the industry. Given such positives, any decision to lower drug prices will not hamper the space.
In this context, we have selected four drug stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Celgene Corporation CELG is engaged in the discovery and development of therapies for treatment of cancer and inflammatory diseases.
The company is based out of Summit, NJ and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 20.51%. The Zacks Consensus Estimate for the same has improved 5.3% over the past 60 days.
Charles River Laboratories International, Inc. CRL is a provider of drug discovery, non-clinical development and safety testing services.
The company is based out of Wilmington, MA and has a Zacks Rank #2. The expected earnings growth rate for the current year is 7.43%. The Zacks Consensus Estimate for the same has climbed 1.6% over the past 60 days.
Catalent, Inc. CTLT is engaged in the development of solutions for drugs, biologics and other health products.
The company is based out of Somerset, NJ and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 5.37%. The Zacks Consensus Estimate for the same has risen 1.7% over the past 60 days.
Aeterna Zentaris Inc. AEZS is engaged in the development of pharmaceutical therapies used in oncology and endocrinology.
The company is based out of Somerset, NJ and carries a Zacks Rank #2. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the same has moved 15.8% up over the past 60 days.
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Celgene Corporation (CELG) : Free Stock Analysis Report
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