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'Legislative risk' on drug prices is greater now, Citi says

Sen. Bernie Sanders, I-Vt., flanked by Sen. Cory Booker, D-N.J., Sen. Bob Casey, Jr., D-Pa., Rep. Elijah Cummings, D-Md., Rep. Lloyd Doggett, D-Texas, and Sen. Angus King, I-Maine, speaks during a news conference on legislation that will allow for drug importation while maintaining important safety standards on Tuesday, Feb. 28, 2017.
Bill Clark | CQ Roll Call | Getty Images
Sen. Bernie Sanders, I-Vt., flanked by Sen. Cory Booker, D-N.J., Sen. Bob Casey, Jr., D-Pa., Rep. Elijah Cummings, D-Md., Rep. Lloyd Doggett, D-Texas, and Sen. Angus King, I-Maine, speaks during a news conference on legislation that will allow for drug importation while maintaining important safety standards on Tuesday, Feb. 28, 2017.

Drugmakers may soon face renewed pressure on high prices, now that Republicans have pulled their American Health Care Act, Citi said.

"We anticipate that President Trump will seek a bipartisan 'repair bill' of ACA (Obamacare) using drug price legislation to secure the support of enough Democrats to secure passage," Citi analyst Andrew Baum wrote in a Monday note.

The Trump administration's failure to get enough votes to pass the GOP's health proposal "increases the legislative risk to pharma pricing," Baum said, citing political consultants at Capital Alpha. He sees drugs covered under Medicare Part B as having the most significant risk from federal policy.

The iShares Nasdaq Biotechnology ETF (IBB) dropped in the last 18 months as Hillary Clinton — then seen as the favorite to win the election — spoke out about tackling high drug prices. Donald Trump attacked the industry as well in speeches and interviews following his election win. As a result, the IBB has stayed in a range.

IBB 5-year performance

Source: FactSet

Citi's Baum said that more than government policy, the "far greater threat to pharma comes from market forces." Pharmacy benefit managers such as CVS Caremark and Express Scripts are restricting the kinds of drugs they will cover for customers, while generic drugs often sell for far less.

In this context, Baum likes Eli Lilly and Bristol-Myers Squibb in the U.S., and AstraZeneca, GlaxoSmithKline, Roche, Bayer and Merck KGaA in the EU. Citi has a buy rating on all those stocks.