On Holding on Fire | The Motley Fool

In this podcast, Motley Fool analyst David Meier and host Ricky Mulvey discuss:

• On Holding‘s blistering sales growth.
• Why pharma investors aren’t reacting to President Donald Trump’s executive order on drug prices.
• If Alphabet‘s stock deserves to be in value town.

Then, Motley Fool personal finance expert Robert Brokamp joins Ricky to discuss why investors should consider buying individual bonds.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. When you’re ready to invest, check out this top 10 list of stocks to buy.

Ricky Mulvey: Does Alphabet deserve a grocery store multiple? You’re listening to Motley Fool Money.

I’m Ricky Mulvey, joined today by the smirking David Meier. David, thanks for being. What are you smirking about? What’s so funny?

David Meier: Oh, it’s all good today. All good.

Ricky Mulvey: Good. Just making sure I don’t look funny or anything. That’s why we do a audio only podcast for today. Politics keeps mixing with markets, and we have some earnings from a fast growing apparel later in this segment, Dylan and Ja-mo hit the trade deal-ish trade agreement question mark between the US and China yesterday. But there’s another move from the White House that could have significant implications for markets. President Trump signing an executive order that Americans must get a “Most favored nation price for prescription drugs.” David, when I saw this, my first reaction was sweet. You know what? I bet the big drug makers stocks are going to dive on this. They did not flinch. The US is where a lot of their profits come from. What’s going on here?

David Meier: The reason they didn’t flinch is because the market doesn’t believe that those profits are going away. It’s as simple as that. If we look a little bit under the hood at what the executive order actually says, it does lay out some cases where other countries around the world pay lower prices than we do in the US. Well, they negotiate differently. The market for drugs is way more open in the United States than it is in other countries. Governments tend to negotiate on behalf of their people because they’re the ones making the purchases. They have some negotiating power. We here in the United States tend to let markets determine prices. There are other players. There’s PBMs and things like that. But this is basically the market saying that the US markets will withstand higher prices. Basically, with the stocks not really moving on the news, the market says, Well, we look ahead and we don’t see how you’re going to do this. Basically, the other thing that the executive order said was, Health and Human Services Secretary, go out and put together a plan in 30 days for what you think the prices will be. There’s a negotiation that’s going to happen in between, so we’ll see what happens, but as of right now, I think that’s what the market is saying.

Ricky Mulvey: Well, the pharma lobbyists are saying something else, David, they’re certainly sweating a little bit. According to Bloomberg, the brand drug lobby, PHRMA my old employer had an emergency call on Sunday and said that this could cost the pharma industry one trillion dollars over a decade. You look at a drug like Ozempic. This was mentioned in the press conference with President Trump, where a month of is almost $1,000 in the United States, about 60 bucks in Germany. That’s not great if you need Ozempic. That’s also a huge profit margin for Novo Nordisk. Novo Nordisk CEO trying to defend the practice in Congress a little while ago saying, don’t look at me. Look at the pharmacy benefit managers. Those are the ones that are really screwing up prices here. The lobbyists are certainly concerned here, and is this a time where if you own stock in a drug maker, especially one making weight loss drugs, is this a time to revisit your thesis?

David Meier: The short answer is yes. Should you panic? I don’t think so, but you should go back given how this all tends to work. Regulation does play a part in many industries, but in pharma specifically. The lobbyists are going to have to basically make the case to the HHS secretary to say this is why we think these drugs should be priced here. Again, this is about pricing power, this is about bargaining power. The lobbyist pharma is going to have to roll up their sleeves and do some work over the next 30 days and beyond that because if I read everything correctly, there’s some other milestones at 180 days and a year out and multiple years out. This is going to take a while to play out. They’re going to have to do some work to basically say, look, there’s a reason that we one should be able to charge these prices, and two, there are benefits to our industry as a result. Because you got to remember, a lot of that gets plowed back into research and development of all kinds to bring the next generation of drugs and next generation of care. I don’t think anybody would want higher prices just for the sake of higher prices. We should want our healthcare to be reasonably priced. But at the same time, we don’t want to disrupt the long term innovation that happens here as a result.

Ricky Mulvey: I think the administration is saying and I would actually agree on this point. I’ve been accused of being too liberal and too conservative on this show, so we’ll see what complaints I get this time. The administration would basically say, we don’t want to stifle innovation necessarily, but it shouldn’t be on Americans alone to fund that innovation when you have other developed countries in the European Union, Australia, for example, paying significantly less for the exact same drug coming out of the exact same factory.