Lowering drug prices is a political move that makes both Trump and drug companies 'look good,' says analyst

Key Points
  • Increased pressure from President Trump is causing drug companies to lower prices.
  • But Wall Street analyst Michael Yee says many of the medications being lowered are not widely used and that the move is aimed at making both Trump and the pharmaceutical companies "[appear] to look good, at least on the surface."
Merck reduced prices of small and insignificant drugs: Analyst

Cheaper prescription drugs might seem like a good thing. But Wall Street analyst Michael Yee told CNBC that the trend of recent companies announcing they will lower or are considering lowering prices is not all it's cracked up to be.

"The important takeaway that investors should understand about the recent developments is that while there are either no price increases or in some cases, with Merck, price decreases, very interestingly, the drugs that they reduced prices on were either small drugs or very insignificant drugs," Yee, an analyst at Jefferies, said Friday on "Power Lunch."

In Merck's case, the U.S. pharmaceutical giant announced on Thursday that it would limit price hikes on select drugs or lower the price of some treatments, including a 60 percent price cut on hepatitis C treatment Zepatier.

But Yee pointed out that the medication had declining sales in its last earnings report, bringing in less than $300 million in sales, compared with $468 million in a previous report.

Merck declined to comment to CNBC on Yee's statements.

"Both the administration is trying to look good [and] drug companies are trying to look good," Yee said.

The price cuts follow President Donald Trump's recent pressure on drug companies to lower prices, slamming companies such as Pzifer on social media.

On July 9, Trump tweeted: "Pfizer & others should be ashamed that they have raised drug prices for no reason. They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere. We will respond!"

Pfizer responded to the tweet by saying that it would postpone price increases until after the CEO and the president spoke.

Other drug companies, Yee said, are now lowering prices because they "do not want to be publicly shamed on Twitter."

As a result, both Trump and drug companies are "appearing to look good, at least on the surface," Yee said.

The analyst is not optimistic that any major legislative changes will occur to how drugs are priced. Instead, he reasons, a compromise will be the likely outcome.

"People will feel better about [a compromise]," Yee said. "Midterm elections will pass, and we’ll go into [20]19 feeling a lot better about these things."