Investors, Brace Yourselves for More Drug-Price Drama


The next leg of the Trump administration’s plan to lower the cost of drug prices could get ugly for investors.

As soon as Thursday the Food and Drug Administration plans to publish a database of complaint letters from generic drug companies to the agency alleging anticompetitive activities from branded pharmaceutical companies. It is likely that some complaints will pertain to high-price blockbuster drugs that investors watch most closely.

At issue are FDA rules under a program called REMS, which often call for limited distribution of drugs to protect against possible safety issues. Generic drug companies have long contended that branded companies game the rules to withhold sufficient samples needed to develop cheaper alternatives.

For example, Mylan sued

Celgene

for allegedly thwarting efforts to develop a generic version of blood cancer drug Revlimid back in 2014. Mylan alleged that those tactics have helped stave off cheaper competitors and boosted Celgene’s profits, resulting in higher costs for health plans and patients. Revlimid sales topped $8 billion last year, accounting for more than half of Celgene’s revenues.

Now regulators are getting involved. “We know that certain brand-name manufacturers are abusing the system by blocking access to samples, and hiding behind FDA’s rules when they do it,” Health and Human Services Secretary

Alex Azar

said in a speech on Monday.  He said the agency has received more than 150 complaints from generic manufacturers regarding challenges accessing drug samples.

While the FDA doesn’t have the authority to halt this practice entirely absent new legislation, that is false comfort for investors in the owners of the patents. The likelihood of congressional action only needs to increase for stock prices to come under pressure.

Unwanted regulatory attention can affect more than just a few companies. Investors should recall that the surging Nasdaq Biotechnology Index plunged by nearly 40% from its July 2015 peak when price-gouging headlines begat promises from politicians to crack down on the sector. At issue was pricing practices from companies like Turing Pharmaceuticals and Valeant Pharmaceuticals international, which weren’t even in the index.

This time, the biotech index is roughly flat so far this year, which should cushion any blow from new scrutiny.

Still, with midterm elections looming in the fall, investors shouldn’t be surprised if a sequel is in store.

Write to Charley Grant at charles.grant@wsj.com



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