For healthcare stocks that focus on prescription drugs, it’s about to be a fairly bad time in the weeks ahead. The government is planning to start negotiating prices for a range of different drugs covered under the Medicare health plan. Though this could mean some revenue losses in the near term, most drug companies seem largely unfazed, down fractionally or even up in light of the news.
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Some investors aren’t taking the news well. Eli Lilly (NYSE:LLY), Johnson & Johnson (NYSE:JNJ), and Pfizer (NYSE:PFE) were all down fractionally in Tuesday afternoon’s trading. Each of these three will face some level of trouble as a result of the negotiations, with Eli Lilly’s diabetes drug Jardinance, Pfizer’s blood thinner Eliquis, and Johnson & Johnson’s blood thinner Xarelto all on the block to face potential cuts. However, the impact from this should be comparatively small, analysts suggest, especially in light of just how substantial each company’s portfolio of available drugs is.
Amazingly, Bristol-Myers Squibb (NYSE:BMY) and Merck (NYSE:MRK) managed to gain in spite of the impending negotiations. Merck’s Januvia, a diabetes treatment, will be on the block. Squibb, meanwhile, has a stake in Eliquis with Pfizer. The negotiations are part of the Inflation Reduction Act and produce a wide range of potential benefits for consumers but not so much for drugmakers. One of the Act’s key provisions is a hard price cap of $35 for a monthly supply of insulin, as well as the negotiations for Medicare. Those negotiations are expected to save around $100 million per year, but over a range of drugs, which should mean a mild hit to drug companies.
The drugmakers’ stocks, meanwhile, are an oddly mixed bag. Only two of these five are considered Strong Buys by analyst consensus: Eli Lilly and Merck. The other three are Moderate Buys. Yet, despite this, Eli Lilly has the smallest upside, with its $564 price target giving it 2% upside. Meanwhile, Merck’s $125 average price target gives it the second-highest upside at 14.63%.
