In a speech at the U.S. Department of Health and Human Services (HHS) on Oct. 25, President Trump detailed how he intends to reduce pharmaceutical prices. His administration plans to establish an "international pricing index" that links the price of certain drugs to what other developed nations pay.
The drugs under the microscope are only those generally administered in a doctor's office and covered under Part B of the Medicare program. Because pharmacy drugs are exempt from the plan at this stage, the impact on pharmaceutical companies is likely to be minimal. However, investors should keep up to date with further developments relating to the Trump administration's blueprint to lower drug prices, which was released in May.
Merck, with a market capitalization of $195.74 billion, manufactures therapeutic and preventative pharmaceuticals to treat cardiovascular disease, asthma, cancer and infections. The company's popular cancer immunotherapy drug Keytruda should continue to support the stock into 2019 – its sales increased 80.4% year over year (YoY) in the quarter ended September. As of Nov. 1, 2018, Merck stock has a year-to-date (YTD) return of 32.06% and pays investors a 3.02% dividend.
Merck's share price has traded steadily higher since April, with volume rising throughout October suggesting smart money accumulation. Investors may wish to buy the current breakout above $73 resistance or wait for a retracement to the uptrend line and 50-day simple moving average (SMA), where the stock should find support at the $70 level.
Headquartered in New York, Pfizer, with annual sales of over $50 billion, is one of the world's largest pharmaceutical companies. Prescription drugs and vaccines account for the majority of the company's sales. Although Pfizer's third quarter (Q3) revenue fell short of analysts' expectations ($13.3 billion vs. $13.53 billion), the company had healthy Q3 YoY earnings per share (EPS) growth of 27.45%. Trading at $43.06, with a market cap of $252.42 billion and a forward dividend yield of 3.17%, the stock is up 21.23% YTD, outperforming the industry average gain by roughly 12% over the same period as of Nov. 1, 2018.
Pfizer shares oscillated within a trading range for the first half of 2018 before starting a trending move higher in July. The stock sold off through most of October and is now trading below its 50-day SMA. Investors should look for an entry point at the $41 level, where the stock is likely to find support from the uptrend line dating back to May.
Eli Lilly is a pharmaceutical company that focuses on neuroscience, endocrinology, oncology and immunology. It has a market cap of $116.46 billion and pays a dividend yield of 2.08%. The company's flagship products include Alimta, Forteo, Jardiance, Trulicity, Humalog and Humulin. Eli Lilly recently took a stake in Dicerna Pharmaceuticals, Inc. (DRNA) to gain an interest in gene-silencing technology. As of Nov. 1, 2018, the stock has returned 30.39% YTD.
Eli Lilly shares gapped up on Jul. 24 after the company reported second quarter earnings that surpassed the Street's expectations. Since that time, the company's share price has continued to trend sharply higher. Those who want to buy should seek an entry between $105 and $107 – an area that finds support from a six-month uptrend line and the top of a September consolidation range.