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Stock market rebounds following 'fiscal cliff' compromise

However, drug sector stocks could soften as the fiscal debate continues to unfold on the Hill

NEW YORK — Wall Street on Wednesday celebrated the "fiscal cliff" compromise as stocks across the board were trading up by some 200 basis points. As of noon, the Dow was up 1.7% and Nasdaq 2.3%. 

And that meant a recovery of sorts for many pharma companies, who saw their stock values decline last week as the "fiscal cliff" deadline approached. Analysts speculated that the mandated sequestration cuts in government programs like Medicare would lead to tougher negotiations on drug acquisition costs and possibly lowered reimbursement rates for providers. 

Take Merck for example — in the weeks leading up to Dec. 31 Merck's stock was off 6.7% according to an analysis posted by The Motley Fool. Today Merck is trading up slightly by some 15 cents to $41.09 per share.  

The stocks of CVS, Walgreens and Rite Aid were faring a little better in afternoon trading. CVS was up 1.9% to $49.27; Walgreens up 2.6% to $37.97; and Rite Aid up 2.6% to $1.40. 

However, the euphoria may soon wear off, especially for companies in the drug sector. 

The bill delays automatic sequestration cuts for only two months, noted Carol Kelly, SVP government affairs and public policy in an email to NACDS members. "If sequestration cannot be avoided, pharmacies would experience reimbursement reductions for Medicare Part B drugs and immunizations as well as payments for durable medical equipment," she wrote. "In addition, Medicare Part D plans facing cuts would likely reduce pharmacy reimbursement, too."

And a provision in the fiscal cliff legislation applies mail-order reimbursement rates to retail pharmacy-provided supplies on April 1. It's a provision that may drive many independent pharmacies out of serving Medicare diabetes patients noted the National Community Pharmacists Association earlier Wednesday morning

For retailers and suppliers overall, other positives included the fact that the full package of such temporary business tax cuts as the Work Opportunity Tax Credit will be extended for one year, Kelly noted. And scheduled Medicare cuts to physicians will be delayed for one year. 

According to a Reuters report, about $46 billion in business tax breaks were included in the compromise, such as an extension through 2013 of research and development tax credits and the 50% bonus depreciation where businesses can write off half the value of new investments immediately.

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