Novartis Comes Under Fire: Consider Newer Startup Imprimis Instead
Rising Drug Prices Bring Negative Headlines
Novartis Pharmaceuticals (NYSE: NVS) is one of a string of pharmaceutical companies that have recently come under fire for what appears to be the arbitrary raising of prices, a move viewed by the public as being evident of rampant price-gouging in the industry. Many historically cheap generic drugs have increased in price by many times in just the last year. While Novartis and other drug-makers insist they have good reason to raise the prices, their reasoning appears to be little supported by the evidence. As people struggle with the increased costs of healthcare in general, rising drug prices have increased the public's ire about the pharmaceutical companies who have raised their prices. As the Wall Street Journal pointed out, Novartis's price increases for skin conditions have far outpaced inflation, making the medications unaffordable for many who need them.
One example is clobetasol, a generic medication used to treat very common skin conditions such as eczema. Novartis significantly raised the price of this generic drug, causing a lot of anger. In response, other companies offering the same generic medication did the same, resulting in spiraling upward costs to the consumer.
Political Backlash
The backlash against companies like Novartis drastically increasing the prices of generic drugs is not limited to the general public alone. Politicians, both in Congress and in this election cycle, have seized on the issue. It is likely that governmental regulation will be implemented to control how these drugs are priced. This could have a very negative impact on the stock prices for Novartis and other drug companies that have engaged in this sort of activity. As the problem seizes the public imagination, it has increasingly become a bipartisan issue, making new regulations likely within the next year or two.
Comparison With Competitors
Novartis share prices are falling, as are those of other pharmaceutical companies who have been in the news for drastically raising prices of generic drugs.
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Innovative companies such as Imprimis Pharmaceuticals (NASDAQ: IMMY) have seized on the political and public controversy of the large pharmaceutical companies raising drug prices. In response to Turing Pharmaceutical's raising the price of Daraprim from $13 per pill to $750, Imprimis said it will offer the identical compound for $1 per pill instead. They have also said they will offer several other medications that have experienced similar price hikes for greatly reduced prices. Following their announcement, their price per share rose 1.9 percent in a single day.
Recommendations: Consider Imprimis Instead
The current political and public climate regarding pharmaceutical companies and increasing healthcare costs in general have the potential to greatly impact the stock values of many of the larger companies. Newer startups, such as the 3-year-old Imprimis, may offer a better investment option for investors interested in getting in on the pharmaceutical industry. It appears likely that governmental regulations will be put into place in reaction to public anger.
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Imprimis posted revenues increases of over 500% in Q3 2015 as compared with Q3 2014 - and up 36% from Q2 2015 - as gross margins increased to 55% from 46% (same time last year).
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Disclosure: None.