Drug-Middlemen Stocks Rise, Bucking Wider Market Slump -- WSJ

By David Wainer

Pharmacy benefit-manager reform may have arrived, yet investors in the drug industry's middlemen were breathing a collective sigh of relief on Wednesday.

Shares in Cigna, CVS Health, and UnitedHealth Group, owners of the country's largest PBMs, were traded more than 2% higher Wednesday despite a sharp market decline touched off by the Federal Reserve's latest interest-rate forecast.

There are other headwinds for the sector, specifically a bipartisan spending deal that included provisions aimed at lowering drug prices by more tightly regulating PBMs.

The bipartisan budget agreement contains PBM measures with some teeth. The stopgap funding bill includes language that will force PBMs to pass through 100% of the rebates they collect from drug companies to employer health plans, rather than pocket some of it, while banning "spread pricing" in Medicaid, a practice in which the PBMs bill more for drugs than what they reimburse pharmacies.

Additionally, the bill adds more transparency to the system by requiring PBMs to report more detailed data while prohibiting PBMs from linking their payments to rebates in Medicare.

But because PBMs have been shifting their business away from rebates in recent years, investors are betting that the damage will be limited. "The year-end health package should be viewed as a clearing event for the space," wrote Chris Meekins, an analyst at Raymond James. "While some headline risks remain, the actual policy risks are far lower."

"Investors bailing on the names for fear some 'Policy Grinch' is going to steal away all of their earnings, should realize the earnings remain and will likely remain," he added.

The risk, at this stage, is whether this becomes a stepping stone to broader reform. "We're going to knock out the middleman," Trump told reporters in a press conference on Monday, sending insurer stocks down sharply. Last week, a bipartisan group of lawmakers introduced legislation that would force PBMs to divest their pharmacy businesses.

Investors are betting this could be it, at least for now. But policy uncertainty will likely not go away anytime soon.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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(END) Dow Jones Newswires

December 18, 2024 16:21 ET (21:21 GMT)

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