Barclays fact-checked Trump comments on pharmacy benefit managers

Barclays analyst Andrew Mok said that while the existential risk to pharmacy benefit managers is low, President-elect Trump’s comments yesterday point to additional headline risk and greater support for legislation. Trump said he planned to “knock out the middleman” which is the latest in a string of negative headlines that drove PBM-owned stocks Cigna (CI), CVS Health (CVS) and UnitedHealth (UNH) lower, the analyst told investors yesterday in a research note. The firm believes PBMs “are the only market-based check on drug pricing that exists today,” and eliminating the “middleman” would effectively put the government in charge of negotiating drug prices for both private and government-sponsored health plans. Trump, said, “The horrible middleman that makes more money frankly than the drug companies and they don’t do anything except they’re a middleman, we’re going to knock out the middleman.” Barclays fact-checked this and notes the average EBIT margins of the top six U.S. pharmaceutical companies is 37%, nearly 8-10 times PBM margins, which are closer to 3%-5%. Four of the six largest drug manufacturers, Johnson & Johnson (JNJ), AbbVie (ABBV), Merck (MRK), Pfizer (PFE) are estimated to earn more operating profits this year than the “Big Three” PBMs combined, according to Barclays.