Trump's Drug Price Cuts: Boom or Bust for These 3 Pharma Giants

When investors hear that a company will lower prices on its products, their instinctive reaction is to expect a sequential decline in margins and profits, which is not entirely incorrect. However, sometimes these price decreases end up attracting new business, expanding market share, and more than making up for the lost ticket price in the top-line revenue.

With increased volume and demand, suppliers also receive better deals, which significantly lower costs, among other benefits. Ultimately, a price discount can end up being a blessing in disguise. As President Trump just announced his proposal to lower drug prices among the most prominent players in the space, this is precisely what healthcare investors are hoping for.

With several elements already taking shape and others still in flux, investors are wondering: Can these price cuts actually fuel growth and margin upside for names like Pfizer Inc. (NYSE: PFE), Eli Lilly Co. (NYSE: LLY), and Johnson & Johnson (NYSE: JNJ)? Or will they trigger a profit collapse?

Pfizer: Tariff Waivers in Exchange for Price Cuts

On Sept. 30, Pfizer agreed to pricing cuts under Trump’s plan and received a three‑year waiver from new tariffs on drugs manufactured abroad—a benefit worth billions if fully enacted. In addition, Pfizer pledged to invest roughly $70 billion in capital expenditures for U.S. drug manufacturing facilities, as part of a broader plan to further onshore the industry.. If executed, that could further mitigate margin pressure over time.

The market clearly approved, as PFE jumped 14% in the week following the announcement. Prior to this, the stock was trading around 70% of its 52-week high. That surge was one of its strongest rallies in recent years, and suggests investors believe the savings and volume potential could outweigh the impact of lower sticker prices. 

Institutional buying following Pfizer’s rally could signal confidence in the deal’s long-term benefits. Canada Life Assurance, for example, increased its stake to $207.7 million in August, a 19.6% rise from prior holdings, suggesting that major investors see the tariff waiver and pricing concessions as net positives for the stock’s future trajectory.

Eli Lilly: Onshoring as a Defensive Moat

Eli Lilly doesn’t currently have a set agreement in place, but investors shouldn’t be surprised if a price reduction request also comes for this name. The real benefit of Eli Lilly’s business model is that its leading weight loss drug is rapidly shifting its footprint to the United States.

In fact, over the past five years, the company has invested over $50 billion in manufacturing facilities within the country, with the most recent commitment being a $6.5 billion site in Texas for their obesity products. This gives it a built-in buffer against tariff risk.

This may be a reason why Wall Street analysts maintain a consensus price target of $933 on the stock, implying a 14.5% upside from its current trading price—even after a one-week rally of 13.2% that matches Pfizer’s.

Investors are also seeing some capitulation emerging from short sellers. Eli Lilly’s short interest declined by 8.9% over the past month, crystallizing the fact that this company is well-positioned to avoid tariffs in the long term and tap into the ability to share its facilities with others looking to expand their onshore footprint.

Johnson & Johnson: The Potential Explosive Upside

With Pfizer's locked-in deal and Eli Lilly onshoring manufacturing way before these tariffs were on anyone’s mind, it seems Johnson & Johnson has truly fallen behind. Because most of its manufacturing capacity and supply chain is in Europe, Johnson & Johnson is the company most exposed to tariff risk on this list.

However, given the real benefit of lowering prices in America in exchange for tariff relief, an explosive (but speculative) scenario could unfold if President Trump decides to extend the same deal to Johnson & Johnson This would render most bearish scenarios worthless at that point.

That possibility may be driving some optimism and explain why JNJ is now trading at a new 52-week high. It could also explain why Wall Street analysts were willing to place a price target above the current consensus of only $187 per share, making today’s price fair value. Guggenheim analyst Vamil Divan assigned JNJ a $206 price target, implying a new 52-week high and 10% additional upside, potentially leading to much more if this deal scenario unfolds.

In its latest earnings, JNJ beat expectations and raised full-year guidance, which supports the view that the company has underlying momentum even amid tariff uncertainty.

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The article "Trump’s Drug Price Cuts: Boom or Bust for These 3 Pharma Giants" first appeared on MarketBeat.