President Donald Trump on Friday signed four executive orders aimed at lowering the high cost of prescription drugs in the United States in what would make sweeping changes to the prescription drug market in the U.S. if they are finalized.
Industry trade group PhRMA, the Pharmaceutical Research and Manufacturers of America, called them a “reckless distraction” to the Covid-19 pandemic. The orders, which are subject to the regulatory review process, are designed to bring U.S. drug prices at least on par with their costs overseas. Trump said Americans often pay 80% more for prescription drugs than Germany, Canada and other nations for some of the most expensive medicines.
“The four orders I’m signing today will completely restructure the prescription drug market in terms of pricing and everything else to make these medications affordable and accessible for all Americans,” Trump said at the White House. “Under my administration, we’re standing up to the lobbyists and special interests and fighting back against a rigged system.”
The first order targets high insulin prices, requiring federal community health centers to pass discounts they receive on the drug and EpiPens directly to patients. The president said those providers shouldn’t receive those discounts while charging their patients “massive, full prices.”
The second order would allow states, pharmacies and wholesalers to import drugs from Canada where they typically cost less than in the U.S. In most circumstances, it is illegal to import medications from other countries for personal use, according to the Food and Drug Administration.
The pharma industry and regulators have said importing drugs could threaten consumer safety. Supporters, including Sen. Bernie Sanders, say importing drugs from other countries would increase competition and substantially lower prices.
The third order is aimed at preventing “middlemen,” also known as pharmacy benefit managers, from pocketing “gigantic discounts,” Trump said. PhRMA has argued that drug price hikes over the years have been modest and has cited concerns with the nation’s rebate system.
Alex Azar, secretary of the Department of Health and Human Services, told reporters on a conference call after the signing ceremony that drug companies currently pay about $150 billion in undisclosed kickbacks to middlemen often in exchange for more favorable insurance coverage for their drugs.
“The new rule would require those kickbacks be passed through to our seniors when they walk into the pharmacy,” Azar said, adding that it would reduce prescription drug costs for senior by about 26% to 30% or $30 billion a year.
White House meeting
The fourth order, which Trump said he may not need to implement, would allow Medicare to purchase drugs at the same price other countries pay. The order would specifically allow Medicare to implement a so-called international pricing index to bring drug prices in line with what other nations pay.
“Everyone will get a fairer and much lower price,” Trump said. “Under our ridiculous system, which has been broken for decades, we’re not even allowed to negotiate the price of drugs.”
Trump signed the fourth order, but said he was holding it until Aug. 24 to give the industry time to “come up with something” to reduce drug prices. Pharmaceutical company executives are scheduled to meet at the White House on Tuesday, he said.
Prescription drug spending in the U.S. far exceeds that of other high-income countries, increasing to $335 billion in 2018, according to U.S. data. Many Republicans have previously opposed such a proposal, calling it “price controls.”
Trump made lowering drug costs one of his key health-care issues early in his term. But drug pricing has taken a backseat over the last year as the Trump administration has shifted its focus to other priorities such as the teen vaping epidemic and now the coronavirus, which continues to rapidly spread through the United States with more than 4 million cases as of Friday, according to data compiled by Johns Hopkins University.
Trump also announced that the U.S. has secured 90% of the world’s supply of remdesivir, an antiviral drug used to treat Covid-19. Earlier this week, the president warned that the coronavirus pandemic in the U.S. will probably “get worse before it gets better” and urged the public to wear face masks to help curb the spread of the virus.
The pharmaceutical industry immediately pushed back on Trump’s proposed rules.
Dr. Michelle McMurry-Heath, president and CEO of the Biotechnology Innovation Organization, said “adopting foreign price controls by executive fiat will cripple the small, innovative companies developing the vaccines and therapies that will help end this pandemic and get the American people back to work.”
PhRMA President and CEO Stephen J. Ubl said Trump was opening the country up for socialized health care. Ubl called the changes to drug prices “a radical and dangerous policy to set prices based on rates paid in countries that he has labeled as socialist, which will harm patients today and into the future.”
“The administration’s proposal today is a reckless distraction that impedes our ability to respond to the current pandemic – and those we could face in the future,” Ubl said in a statement. “It jeopardizes American leadership that rewards risk-taking and innovation and threatens the hope of patients who need better treatments and cures.”
The trade group has previously argued that drug price hikes over the years have been modest, and have cited concerns with the nation’s rebate system. Those are the discounts drugmakers give to middlemen often in exchange for more favorable insurance coverage for their drugs. The group has favored changes to Medicare, including capping the amount seniors would pay for on their own at the pharmacy counter every year.
Policy analyst Lindsay Greenleaf said there are potential unintended consequences that could actually drive prices higher on Part B Drugs, which are administered by physicians, because the drugmakers could favor large volume buyers like hospitals over physician practices.
“The way that that model was previously proposed, there is a risk of driving consolidation because (individual) providers weren’t going to be able to compete as well as they do currently,” she said.
The SPDR S&P Pharmaceuticals ETF (XPH), which tracks drug stocks, closed down 1.4% on Friday.
Even though Trump issued the executive orders, it may take months for the administration to finalize them.
Investors have more faith in bonds issued by airports than might be expected
With airlines suffering from low traffic and billions in losses, investing in airports right now may seem unwise.
But, in fact, airport bonds have been outperforming the broader municipal bond market. Strategists say it’s because airports went into the Covid crisis with a lot of cash on hand and that should help them weather the storm.
According to Moody’s, airports had an average 659 days worth of cash.
“I would describe that as a very good cushion of liquidity,” said Tom Kozlik, head of municipal strategy and credit at Hilltop Securities. He said that data on cash holdings was from fiscal year 2018, and the airports were able to build up their hordes even more in 2019.
“They’ve had several years since the end of the last recession, where enplanements were relatively higher. But plenty of them also had infrastructure upgrades they wanted to do,” said Kozlik. “It seems they took advantage of a situation where activity was higher-than-expected, but they also socked some money away.”
Airport bonds were among the hardest hit when the credit markets seized up in February and March, as investors feared the worst for air travel. While air traffic is still weak and enplanement, or passenger boardings, are low, the airport bonds have been able to recover.
“Right now, investors are leaning toward the larger airports,” said Kozlik. “I think the reason is because the market opinion is such they feel there’s less risk in a situation where enplanements might continue to be lower than what we’ve seen pre-Covid. I think folks believe those large airports aren’t going anywhere. There’s just more positive sentiment for those larger airports as a result.”
A $460 billion offering Thursday for Dallas-Fort Worth International Airport, for instance, was met with strong demand. The cities of Dallas and Fort Worth issued the Series 2020B joint revenue refunding bonds for the airport. According to Bond Buyer, they were repriced to yield from 0.27% with a 5% coupon in 2021 to 1.97% with a 4% coupon in 2040. The 2045 maturity was repriced to yield 2.12%, with a 4% coupon.
There were also bonds issued for the airport last week. The spread on the 10-year revenue bond issued was just 63 basis points above the AAA rated muni benchmark, according to Kozlik. The bonds were rated A1 by Moody’s and A by Standard and Poor’s. Another $1.14 billion offering is expected for the Dallas-Fort Worth next week.
“Along with the boarder market, the airport sector has tightened up quite a bit,” said Jeffrey Lipton, head of municipal research and strategy at Oppenheimer. “We are seeing evidence that a number of airport bonds are being priced tighter than some other higher end credits.”
While airlines were given relief under the CARES Act, Congress also gave funds to airports. Kozlik said the funds amounted to 22% of revenues for a list of airports he follows.
Still, rating agencies have a negative outlook on the sector, and strategists warn there could be downgrades. Not all airports are attractive, and investors should pick among the better rated, bigger airports.
“Heading into Covid-19, I was a fan of the airport sector, and I’m still a fan of the airport sector,” said Lipton. “But we have to be more selective now. If you look at gateway airports, those aren’t going anywhere.” Gateways would be Los Angeles or San Francisco or New York.
Moody’s warns that airports could be at risk if they have a high concentration of service by one airline, since an airline can cancel where it travels to and from. They also are at risk if an airline undergoes massive layoffs.
“Though large airports can bear the risk of high airport concentration, they also benefit from being essential to the airline’s network and are typically highly profitable for airlines,” Moody’s wrote. “However, small airports with high airline concentration do not share this benefit. We expect the hubs that are the most profitable for airlines to see quicker recovery from the effects of the coronavirus because of their outsized contribution to the airlines’ route networks and profitability.”
In a note from earlier this month, Moody’s said Charlotte, N.C. Airport Enterprise, which it rates Aa3 stable, and Dallas-Fort Worth are among the airports with the best recovery in enplanements so far.
“Small airports in highly competitive markets are likely to face some service consolidations by the airlines into larger airports, as demonstrated by JetBlue’s decision to consolidate its West Coast operations in Los Angeles Departments of Airports- Los Angeles International Airport Enterprise (Aa2 stable) and moving away from LGB (Long Beach Airport),” Moody’s wrote.
Hawaiian airports, which posted the sharpest overall drop in passenger volume in April and May, are likely to see the slowest recovery in passenger volume as long as the state’s stringent travel restrictions remain in place,” noted Moody’s. Hawaii requires that travelers to the state be quarantined for two weeks.
Lipton said airports are difficult to analyze because they have very different revenue streams that go into their debt service.
“Revenues come from parking, revenues can come from hot dogs being sold, alcohol and various products you see in the airports. Often times, they have minimum guarantee revenue agreements” with concessions, he said. They also collect landing fees, and can pass along some of their costs by raising fees.
Lipton said there could be downgrade activity affecting airport bonds. “I think it’s going to be confined to a single notch. We’re not ruling out downgrades, but those downgrades would probably be confined to a single notch as opposed to multiple notch downgrades. I think the sector overall will display relative resiliency throughout this cycle,” Lipton said.
Kozlik said it helps airports to have strong carriers. In the years before Covid, airports were breaking financial records as enplanements grew. Kozlik said the airports that will be better positioned to take advantage of the recovery will be those that stress sound finances and are located in regions and cities with industries and demographic bases that are growing.
In addition to different revenue sources, airports also had widely different amounts of cash. For fiscal year 2018, Miami International, for instance, had 318 days worth of cash, while Boston’s Logan Airport had 628 days, according to Moody’s data. Hartsfield-Jackson in Atlanta had more than 1,000 days worth of cash. This is based on fiscal year 2018 data.
Kozlik said some investors are avoiding airports because of the hit to travel. “That may not be the way to look at it. Look at the underlying credit fundamentals,” he said. Airports, like water and sewer or toll roads issue revenue bonds.
“Typically, a revenue bond, all things being equal … you’re going to get a little more spread compared to the general obligation bonds, and then when you go out the risk spectrum, that’s going to increase the amount of spread you’re going to get,” said Kozlik.
Lipton said munis overall so far are returning 1.21% month to date, based on Bloomberg Barclays data. The transportation sector, including airports, has returned 1.29% in the same period , through July 22. Health care, which outperformed in June at 2%, is returning 1.60% in July so far.
Revenue bonds typically lag general obligation bonds, but because of the outsized hit to revenue bonds earlier in the year, their comeback has helped them outperform GO debt.
Dr. Scott Gottlieb: ‘We don’t want to find out’ what happens if as many kids get coronavirus as flu
Dr. Scott Gottlieb on Friday warned against comparing the risks of the coronavirus for children with those from the seasonal influenza, stressing that much remains unknown about Covid-19.
“The reality is that flu last year infected 11.8 million kids. We have not infected anywhere near that number of kids with Covid, and we don’t want to find out what it might look like if we did,” Gottlieb said on “Closing Bell.”
The U.S. has nearly 4.1 million confirmed cases of Covid-19, according to a Johns Hopkins University tally.
Gottlieb’s comments come as school districts across the U.S. prepare plans for fall classes amid the nation’s ongoing coronavirus epidemic. The Trump administration has in recent weeks been intensifying its calls for schools to fully reopen for in-person class. In early July, President Donald Trump threatened to withhold federal funding to those that do not open.
And on Thursday, the U.S. Centers for Disease Control and Prevention released updated guidelines for school districts, placing a heavy emphasis on the social and emotional costs of not reopening for in-person class. The CDC guidelines said the best available evidence indicates children have a lower risk of contracting the disease than adults.
As of data from mid-July, people under the age of 18 make up less than 7% of confirmed cases and under .1% of deaths related to Covid-19, according to the CDC.
But Gottlieb said the CDC guidelines also “rather grimly” compare the number of deaths in children from Covid-19 to the number of deaths in children caused by seasonal flu. “So far in this pandemic, deaths of children are less than in each of the last five flu seasons, with only 64,” the CDC guidelines state.
That is true, said Gottlieb, the former Food and Drug Administration commissioner under Trump. “The actual incidence of hospitalizations and deaths thankfully is low” for children with coronavirus, Gottlieb said. “But the reality is that most kids probably haven’t been infected with Covid.”
For that reason, he said, “we really do want to prevent outbreaks in the school setting.”
Gottlieb has consistently emphasized he believes it is possible for schools to safely reopen for in-person class during the pandemic. But he also has sought to paint the decision as a localized one that requires consideration of the region’s Covid-19 outbreak.
“It’s going to be very hard for communities to open schools for in-class learning against the backdrop of really epidemic, uncontrolled spread,” he said. “The good news is a lot of parts of the country the epidemic is under some semblance of control. … I think those states are going to have the opportunity to try to open their schools in the fall, at least for a period of time.”
Disclosure: Scott Gottlieb is a CNBC contributor and a member of the boards of Pfizer, genetic-testing start-up Tempus and biotech company Illumina.
Here comes one of the newsiest and most critical weeks of the summer for markets
In a summer of unending news, we may be heading into what could be the newsiest week of all.
The Nasdaq’s sputtering rally could be put to its biggest test yet, as tech bellwether Apple and other stalwarts of the tech rally report earnings. Early in the week, Republicans will unveil their stimulus package proposal, which will then be debated as Friday’s deadline nears for the expiration of enhanced unemployment benefits.
The Federal Reserve also meets on and is likely to discuss other steps it can take. It’s not likely, however, to make any moves as it wraps up on Wednesday, other than to assure markets it will continue to use extraordinary programs to help the economy.
Then on Thursday, the government will release a big number many investors have been dreading — the first official reading of second quarter gross domestic product, which which should show how hard the economy crashed when it was abruptly shut down.
Economists expect a contraction of about 35% in the second quarter, followed by a bounce back in the third quarter. But the size of that comeback could be directly impacted by how much stimulus Congress gives the economy, and how much the coronavirus continues to impact businesses and economic activity.
“I think there’s a clear understanding of how much the economy has leaned on the crutch of government stimulus, both fiscally and monetarily,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. “Everyone will be watching for what will replace the $600 a week, and that will be the most important component of whatever plan they come up with.”
The $600 weekly payment to about 30 million unemployed Americans expires Friday, and it is unlikely Congress will have a plan before that date. Strategists expect the amount to be cut in half, and Boockvar said the amount of that payment will directly impact the size of the boost to the economy
The stimulus and tech earnings could both be catalysts for stocks in the week ahead.
“What the package looks like will be a huge deal, particularly on the unemployment benefits side, and whether tech companies can exceed the bar,” said Boockvar. “That’s very hard for them right now. So if they miss, does that mean it’s going to be a negative for tech and not the whole market? Are we going to keep rotating to value from growth because tech has been so dominant it could take everything down?”
Earnings for the S&P 500 companies are expected to decline by 40.3% for the second quarter, based on the results of companies that have already reported and estimates, according to Refinifiv’s I/B/E/S. Technology earnings are expected to have one of the smallest profit declines, at just 4.4% on average.
The Nasdaq, which had rallied to record highs this summer, ended lower for a second week, while the Dow and S&P 500 were higher. The Nasdaq was down 0.9% at 10,363, but it is still up 15.5% for the year so far. The S&P 500 finished the week at 3215 , after a decline of 0.3%, its first negative week in four. The S&P is down a half percent year-to-date.
“The earnings numbers overall, they’ve been pretty good. It’s just the basic problem with the stock market right now is that valuations are still pretty high,” said Ed Keon, chief investment strategist at QMA. “Other parts of the market that maybe look cheap on a price-to-book basis, their earnings have been hit. In the case of certain retailers, airlines, you have to worry about when their business is going to come back, if ever.”
About 80% of the companies already reporting have beaten Wall Street estimates. That is well above the average beat rate of about 65%, since 1994.
Dozens of major companies report in the coming week, including Facebook on Wednesday and Alphabet and Amazon on Thursday. Pharmaceuticals Merck, Pfizer and Eli Lilly are expected to report, and consumer products names Starbucks, McDonald’s and Procter & Gamble also release results. Big oil, Exxon Mobil and Chevron report Friday.
Stimulus from Congress and the Fed
Strategists expect Congress to ultimately adopt a new stimulus package of between $1 trillion and $2 trillion, but after the GOP plan is introduced it will have to be squared with Democrats’ proposals. The House has its own $3 trillion spending plan. It is unlikely an agreement can be approved before unemployment benefits expire Friday.
“Bipartisan negotiations between the White House, House, and Senate are officially underway, but we expect brinkmanship before passage. Trump administration officials also diverge on their expectations on timing, which remains optimistically by the end of July, and possibly stretching into August under the more ‘realistic’ case,” writes Ed Mills, Washington policy strategist at Raymond James.”
Mills expects the $600 weekly payment to be cut to $300 or $400, and he said it’s possible there would be more funds given to a Payroll Protection Program, to help small businesses.
“Overall, momentum is building for the next package and the final price tag is arguably moving up (closer to $1.5 -2 trillion),” Mills noted. Congress has already allocated $2.4 trillion in prior spending.
The Fed will be discussing its own stimulus, and some economists expect it could again be talking about new tactics to keep interest rates low. One idea is a policy of forward guidance, where the Fed would steer market expectations more explicitly. Another is the Fed would use targeted Treasury purchases to control specific interest rates. But no new programs are expected to be announced.
“They pretty much told us, they’re all in. They told us they’re willing to do whatever else it takes,” said Keon. “The Fed is not going to be our problem. The Fed just told us they’re going to do anything they can do to soften the blow from the virus.”
Week ahead calendar
8:30 a.m. Durable goods
Earnings: Amgen, Visa, 3M, Pfizer, McDonald’s, Starbucks, Mondelez, Chubb, Aflac, DR Horton, Raytheon, Invesco, MSCI, Rockwell Automation, Altria, Laboratory Corp, Martin Marietta, Roper Tech, Harley-Davidson, Canon, Nissan, Centene, Polaris, Sherwin-Williams, Corning, Boyd Gaming, Akamai, Lattice Semiconductor, Advanced Micro Devices, Visa, Juniper Networks
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9:00 a.m. S&P/Case-Shiller home prices
10:00 a.m. Consumer confidence
10:00 a.m. Housing vacancies
Earnings: Facebook, General Electric, Boston Scientific, Anthem, Sanofi, Barclays. General Dynamics GlaxoSmithkline, Boeing, General Motors, Norfolk Southern, Qualcomm, Yum China, PayPal, Cheesecake Factory, Spotify, Owens Corning, Barclays, Deutsche Bank
8:30 a.m. Advanced economic indicators
10:00 a.m. Pending home sales
2:00 p.m. FOMC statement
2:30 p.m. Fed Chairman Jerome Powell briefing
Earnings: Apple, Amazon, Alphabet, Procter and Gamble, Comcast, Ford, Shake Shack, Dunkin Brands, Cigna, Dupont, Eli Lily, Northrop Grumman, Textron, Valero, ConocoPhillips, Comcast, Kellogg, AstraZeneca, Kraft Heinz, Southern Co., Stryker, Generac, Stanley Black and Decker, Marsh and McLennan, Electronic Arts
8:30 a.m. Initial claims
8:30 a.m. Real GDP Q2
8:30 a.m. Personal income
8:30 a.m. Employment cost index
9:45 a.m. Chicago PMI
10:00 a.m. Consumer sentiment
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