Health insurance giant UnitedHealth Group is the best-performing stock in the Dow Jones Industrial Average, rising 4.8% in Thursday afternoon trading. Drugmaker Merck is the worst, falling 3.1%. It’s all because of the Trump administration’s decision to drop its drug rebate plan, which would have eliminated the rebates drugmakers pay to benefit managers working with Medicare and Medicaid.
Both UnitedHealth (ticker: UNH) and Merck (MRK) are huge companies, and the stock moves have shifted billions of market value—about $12 billion in the case of United and $7 billion in the case of Merck. That raises the question: How efficient is the market, anyway?
Turns out it’s pretty efficient.
The companies that buy and pay for drugs—pharmacy-benefit managers and health insurers—are the winners from today’s news. Companies that make and sell drugs are the losers.
“[The rebate plan] withdrawal is positive news for companies in the drug channel with economics tied to higher gross list prices, including PBMs,” Evercore ISI analyst Ross Muken explained in a Thursday research report.
The market has taken that information and adjusted values—quickly. In total, the pharmaceutical components of the S&P 500 are down about $26 billion in Thursday afternoon trading. Health insurers and pharmacy benefit manager owners, like CVS Health (CVS) have added almost $28 billion in market value. The two numbers are near-mirror images of one another.
It’s rare to get such a winner-take-all announcement in the stock market. Usually, there is nuance—and long-term implications. When something like this happens, though, it’s fun, and instructive, to see how the hive mind adjusts to the new reality.
Write to Al Root at firstname.lastname@example.org