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More pain may be coming for health care stocks

Teva Pharmaceuticals  pill bottles
Teva Pharmaceuticals is a leading generic drug manufacturer. Photo: Uriel Sinai/Getty Images

Monday was a rough day for pharmaceutical companies on Wall Street. The SPDR S&P Pharmaceuticals ETF fell more than 4%, and that was a relief.

Driving the news: Generic drugmakers were hit by a price-fixing lawsuit filed by 44 states alleging 20 corporate defendants conspired to fix prices of more than 100 generic drugs, raising prices by more than 1,000%.

  • Teva Pharmaceuticals shares fell more than 15%, with Mylan off 9%, and Endo International opening 10% lower after a downgrade by JPMorgan analysts, and then falling another 10% during the day. (Endo was already reeling from news it reported a wave of over 20,000 fatalities related to its drugs to the FDA.)

Why it matters: Health care stocks overall have had a terrible 2019 and it may just be beginning. A verdict or settlement in the lawsuit is likely years away, but the new spotlight the case puts on drug makers "spells trouble for investors," writes WSJ's Charley Grant, as the Trump administration looks to further dismantle the Affordable Care Act and take on high drug prices.

  • "The ACA is an ideal framework to make money: It maximizes access to health services without meaningful cost-control tools. The sector, which trails the S&P 500 this year, will suffer more if the risk of disruption increases."

The bottom line: Grant notes that lower drug prices are bad for every element of the health care sector. "Members of the supply chain, such as drug distributors, pharmacies and benefits managers, are generally paid for their services as a percentage of a drug's list price."

Go deeper: Wall Street is still freaking out over health care stocks