Short seller calls Trump out to fight drug pricing. How? By ‘firing’ Express Scripts

Short seller Andrew Left sent Express Scripts shares reeling Thursday afternoon by invoking the wrath of President-elect Donald Trump.

Taking Trump at his word on drug prices—he promised to lower them in a Time interview published this week—Left urged the president-elect to go after Express Scripts, calling the pharmacy benefits manager the “culprit behind pharmaceutical price gouging.”

“When @realdonaldtrump tells $ESRX ‘you’re fired’ heads will roll,” Left tweeted Thursday afternoon.

In blaming Express Scripts for drug price increases that have inflamed public debate for more than a year, Left echoed some analysts and drugmakers, who’ve defended their own hikes by pointing to the large share of revenue that makes its way into PBM coffers via rebates. Mylan CEO Heather Bresch, for one, used PBM rebate demands to defend her company’s repeated-and-large price hikes on anaphylaxis injector EpiPen. 

Left, however, is a different voice altogether. He wreaked havoc at Valeant Pharmaceuticals last year, when he accused the company of using a closely linked specialty pharmacy, Philidor, to gin up fake revenue. Price target at the time? $50. Trading price, $177. Then, when Left took a new short position in Valeant in July 2016, that took yet another bite out of those already beaten-down shares.

Left went after another specialty drugmaker, Mallinckrodt, which makes pricey anti-inflammatory drug H.P. Acthar Gel, calling it “worse than Valeant”; just last month, he pointed to Medicare’s high spending on that very drug. “Big Problems ahead,” he tweeted. Now, he’s calling Express Scripts, which trades under the symbol ESRX, the “Philidor of the pharma industry.” 

With his propensity for inflammatory tweets, one might call Left the Trump of the short-selling business.

Not that there’s no basis for worry about the opaque U.S. drug pricing system, which leaves drug coverage decisions in the hands of insurer and PBM committees that deliberate behind closed doors, and deems all rebates and discounts trade secrets. Pharma analysts have repeatedly pointed out that net prices—after rebates are subtracted from list prices—are growing far less than the rebate spread is.

Amid the pricing brouhaha—which Trump fed this week with his comments—Big Pharma executives have been urging some sort of systemic overhaul, partly because they feel unfairly blamed for patients’ costs at the pharmacy. In a blog post last month, Novo Nordisk’s North American chief, Jakob Riis, detailed the way his company’s list price increases on insulin—which have drawn criticism—were eaten away by rebates that increased at the same time. Riis has since promised Novo will limit its own price increases and push for changes in the pricing system.

And as Pfizer CEO Ian Read pointed out at a recent conference, consumers see list price increases and they see their own costs going up, and don’t see what’s happening in between, where PBMs and wholesalers live. 

“[I]t behooves all of us in the system, insurers and the hospitals and ourselves, to look for a better system where the consumer can understand the relative values of what they’re paying,” Read said.

The core of the PBM rebate argument is this: Whose bottom line is benefiting from ever-growing rebates, ultimately? PBMs, including Express Scripts, have said they’re not; insurance giant Anthem, one of Express Scripts’ clients, has sued alleging otherwise. But as Read noted, PBMs and their employer-clients’ savings from rising rebates have not been passed along to consumers in the form of lower copays.

This is the vulnerable spot Left is pointing to. Federal and congressional investigators are already looking into the PBM industry. U.S. Rep. Buddy Carter (R-GA), the only pharmacist in Congress, called PBMs “the man behind the curtain in drug pricing.” If President-elect Trump and Congress do delve into it next year—and discover they can win points by putting PBMs and other payers in their sights—then Express Scripts and its peers might need to worry.