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Health care stocks rally on Trump's modest drug reform plan

Trump announces plan to lower drug prices
Trump announces plan to lower drug prices 07:17

Health care stocks rebounded during President Trump's Friday announcement that his administration is taking steps to make drug prices more affordable. The plan shies away from some of the more drastic steps he had earlier said he would take.

After falling at the start of the speech, the health care sector ended the day higher. The XLV Health Care ETF, the largest health care exchange-traded fund, gained 1.5 percent.  

Health insurance provider Aetna rose 2.3 percent and UnitedHealth gained almost 2 percent. Drug maker Pfizer's shares rose 1.3 percent while Merck's stock increased 2.8 percent. 

"The market's reaction initially was to sell off...and then by the end of the speech we saw the rally across the health care sector. I think it's indicative of investors not having learned anything new that hasn't already been discounted in share prices at this juncture," Janney Montgomery Scott chief investment strategist Mark D. Luschini said in an interview on CNBC. 


Trump called his plan the "most sweeping action in history to lower the price of prescription drugs for the American people." 

But his plan shies away from his campaign pledge to use the massive buying power of the government's Medicare program to directly negotiate lower prices for seniors.

Instead, the administration plans to pursue a raft of old and new measures intended to improve competition and transparency in the notoriously complex drug pricing system. Those include a proposal requiring drugmakers to disclose the cost of their medicines in their television advertisements. Health Secretary Alex Azar said the Food and Drug Administration would immediately examine requiring that information in TV ads.

The proposals also include banning the pharmacist "gag rule," which Trump said prevents druggists from telling customers about lower-cost options so they can save money, and speeding up the approval process for over-the-counter medications so patients can buy more drugs without prescriptions.

Drug companies engineer price hikes 01:24

It's an approach that avoids a direct confrontation with the powerful pharmaceutical lobby, but it could also underwhelm Americans seeking relief from escalating prescription costs.

"We support the administration's efforts to tackle out-of-control drug costs, which include addressing the root cause: skyrocketing list prices set by pharmaceutical companies," Aetna CEO Mark Bertolini said in a statement following the president's address. "For Aetna, the average price of brand name drugs has increased by 40 percent over the past three years. "

Some in the pharmaceutical industry are concerned the proposals may end up restricting consumer access to certain treatments.

"We look forward to working with the administration on solutions that help provide all patients access to prescription drugs with out-of-pocket costs they can afford," Jim Greenwood, CEO of biotech trade association BIO said in a statement. 

Greenwood added, "However, we have concerns that some of the ideas proposed today could, if adopted, hurt patient access to the medicines they need today and the future cures and treatments they're desperately waiting for America's biopharmaceutical innovators to discover."

--CBS News' Jillian Harding contributed to this report

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