By Victor Reklaitis, MarketWatch
There won’t be a big impact on the pharmaceutical industry from President Donald Trump’s latest executive order, which requires the U.S. government buy “essential” drugs from American companies, analysts are predicting.
Trump signed the “Buy American” order on Thursday while visiting the swing state of Ohio.
“Our quick read is that, much like the other drug EOs, the Buy American component is full of exceptions and safety valves that essentially render it toothless,” said Capital Alpha Partners analyst Kim Monk and Rob Smith in a note.
“Specifically, the order states that federal agencies must prioritize U.S. manufactured essential medicines, counter measures, and their critical inputs unless it 1) would be inconsistent with public interest; 2) U.S. produced medicines and products are not of sufficient quality or quantity; or 3) it would increase procurement costs by more than 25%.”
Hunter Hammond, Height Capital Markets analyst, also was dismissive toward the order.
It “follows similar EOs in recent weeks by adding a talking point for future campaign stops without significantly altering industry dynamics or meaningfully reducing the price of prescription drugs in our view,” he wrote.
“The federal government directly purchases a relatively small amount of drugs (roughly 3% of the $355 billion spent on prescription drugs in 2018), and those purchases are already subject to certain ‘U.S.-made’ restrictions under the Buy American Act (BAA) and the Trade Agreements Act (TAA). Additionally, the EO includes several qualifications, which will dampen its impact.”
In RealClearPolitics averages of polls as of Friday, presumptive Democratic presidential nominee Joe Biden is leading Trump by 6.4 percentage points in nationwide surveys and by 4.9 points in top swing states . Trump and his re-election campaign have said pollsters are getting the 2020 race wrong.
Meanwhile, SVB Leerink analysts said the order is "another step forward in the Trump Administration’s focus on domesticating at least some aspects of the pharma manufacturing supply chain,” but it “will need to be followed by a lot more specifics around regulatory changes implementation, prioritization, as well as structural changes to the market place before we can start to get a line of sight into how this will impact the industry in the foreseeable future.”
“In general, we continue to believe that generic manufacturers such as Teva /zigman2/quotes/205657894/composite TEVA -1.12% , and Amneal /zigman2/quotes/209301288/composite AMRX -2.93% are well positioned to support the initiative,” SVB Leerink’s team added. “However, as echoed in recent comments by several companies, we will need to see structural changes in the marketplace which provide visibility into sustained volume and pricing before we see some of the existing drug manufacturers get involved.”
Pharma stocks, as tracked by the Invesco Dynamic Pharmaceuticals ETF /zigman2/quotes/200345932/composite PJP -0.61% , have gained 3% this year, while the broad S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.16% also is up 3%.