After just a little over one month in office, President Donald Trump has successfully loosened the big pharma industry's grip on exorbitant drug price increases.
January is traditionally the month that sees the highest list price hikes from prescription drugmakers. But on Feb. 27, The Wall Street Journal reported that pharma companies did not raise prices for as many drugs as last year and imposed fewer boosts of 10% or greater.
In fact, January saw the lowest increases of drug prices in three years, with hikes over 10% limited to just 5.5% -- 15% fewer than in 2015.
The reason for the pullback: Big pharma execs are hoping to stay out of the spotlight at a time when President Trump has called for stronger Medicare authority in negotiating prices and a "total overhaul" of the healthcare system.
However, this pause on price hikes won't last long...
Big Pharma Depends on Price Hikes
Producers raised the U.S. list prices of 2,353 prescription drugs in January -- about a quarter fewer than in January 2016, reported WSJ.
Industry analysts predict these producers are keeping their price boost numbers low in an effort to curb public anger and appease President Trump.
At least, for now...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
The curb on price hikes is a short-term fix to a longstanding problem.
"We as an industry have used price increases to fill gaps in innovation," the CEO of Regeneron Pharmaceuticals Inc. (Nasdaq: REGN), Leonard Schleifer, admitted at the Forbes annual health summit in November.
New Report: Grow Your Wealth Effortlessly with These Five High-Yield Stocks
You see, this fall back on price hikes has caused big pharma companies to become increasingly dependent on the practice.
"Price increases have become an industrywide practice, especially since 2010, when reliance on higher price increases for revenue growth intensified," Goldman Sachs Group Inc. (NYSE:GS) wrote in a note to clients this past September, adding that such self-policing "has never been long-lasting."
Moreover, this move towards self-regulation has been seen before. WSJ reported that early in the Clinton administration, amid worries over the risk of price controls, big pharma companies pledged to limit increases to the consumer inflation rate - and failed.
To date, the median drug price increase stands at around 8.9% -- still far above the U.S. inflation rate of 2%.
Up Next
If you want to aim your family toward wealth and security for years to come, this is an opportune time to be focusing on biotech stocks.
Money Morning Director of Tech & Venture Capital Research Michael A. Robinson has discovered a small San Diego-based pharmaceutical company with an impressive business model that you can't overlook.
Robinson predicts you could turn a 50% profit in just 12 months with this stock.
Follow Money Morning on Twitter @moneymorning or Facebook.