Does Trump's MFN Policy Put Pharma ETFs in the Crosshairs?

Pharma giants Eli Lily (LLY) and Novo Nordisk (NVO) have signed deals with U.S. President Donald Trump to slash the prices of some of their obesity drugs, including upcoming pills, as per a White House announcement made late last week. This comes as part of the Trump administration’s Most-Favored-Nation (“MFN”) drug pricing policy that aims at forcing U.S. drug prices to match the lowest prices available in other advanced countries.

Such price cuts pose a direct financial challenge to the pharma industry, putting certain pharmaceutical companies and, by extension, their associated exchange-traded funds (ETFs), under immediate scrutiny.

Now, to understand the extent to which these price cuts might impact pharma ETFs, let’s delve deeper into the specifics of the deal, their expected impact on individual pharma stocks, and, in turn, how they may affect the ETFs that hold them.

The News: A Push for MFN Drug Pricing

On Nov. 6, 2025, the Trump administration announced that it has reached a major deal with Eli Lilly and Novo Nordisk to slash prices for highly popular GLP-1 drugs like Ozempic, Wegovy and Zepbound.

Through the TrumpRx program, these drugs will cost consumers around $350 per month, down from list prices over $1,000. Medicare prices will drop even lower to $245, with beneficiaries paying only a $50 co-pay. This reduction enables Medicare to cover obesity drugs for the first time.

The agreement also includes price cuts for other medicines, such as insulin (to $35/month), and mandates MFN pricing on all new products. In exchange for the guaranteed market access, both companies committed to massive new U.S. manufacturing investments, totaling tens of billions of dollars, to expand domestic drug production. While NVO has committed an additional $10 billion investment to strengthen its domestic footprint, LLY has announced at least $27 billion in new U.S. manufacturing investments.

The Impact: Short-Term Shock vs. Long-Term Adaptation

The immediate financial impact of the implementation of MFN pricing—especially for high-cost, single-source brand-name drugs mentioned in the news—is expected to lead to significant and immediate revenue and earnings compression for major pharmaceutical firms, at least over the next few years.

Companies like Pfizer (PFE), Eli Lilly, and AbbVie (ABBV), which are often cited in discussions of high U.S. drug prices, would likely see their profit margins decline as they are forced to align domestic prices with lower international benchmarks. In fact, last month, PFE signed a deal with Trump to lower its U.S. drug prices.

To this end, a JP Morgan report released in July 2025 estimated that if the Most Favored Nation policy approach were adopted, drug prices could decline 5-10% and U.S. large-cap pharma earnings might drop 9% by 2031.

This sudden pressure on their bottom line could lead to a sharp stock price loss for these pharma companies and ETFs with significant exposure to these companies, particularly NVO and LLY, a trend we are already witnessing lately. Evidently, shares of NVO slipped 1.8%, while those of LLY dropped 1.4% during the last trading session following last week’s White House announcement.

However, over the long term, the scenario might improve for the pharma companies, at least the large-cap ones. To mitigate these losses, large pharma companies are already adopting strategies to regain their profitability over the long run, like increasing prices in other markets. For example, Eli Lilly raised the UK price for its weight-loss drug, Mounjaro, by up to 170%, for private patients, effective Sept. 1, 2025.

Moreover, these pharma companies may pivot research investments toward drug categories like biologics, which often have longer exclusivity periods and may be less vulnerable to certain pricing policies.

Further, to manage international price referencing, drug makers may delay or alter launch strategies in countries with lower prices to protect their U.S. pricing.

Pharma ETFs Under Microscope

For investors, the direct impact of the MFN policy on individual pharmaceutical companies translates into an indirect risk for Pharmaceutical ETFs.

If large-cap pharma stocks like those named in the MFN context experience a significant price decline due to the expected revenue hit, ETFs with heavy exposure to these specific companies might see their Net Asset Value (“NAV”) and share prices fall.

The current climate thus necessitates a close examination of pharma ETFs like those mentioned below, which have heavy weightage in companies like LLY, PFE, ABBV and NVO, and are thus likely to be most impacted by the new pricing mandate.

iShares US Pharmaceuticals ETF (IHE)

This fund, with net assets worth $625.7 million, offers exposure to 43 U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Of its top 10 holdings, LLY gets the first spot (25.69%), while PFE gets the fifth spot (4.17%).

IHE has gained 16.9% year to date. The fund charges 38 basis points (bps) as fees.

VanEck Pharmaceutical ETF (PPH)

This fund, with net assets worth $1.06 billion, offers exposure to 26 companies involved in pharmaceuticals, including pharmaceutical research and development as well as production, marketing and sales of pharmaceuticals. In this fund, LLY gets the first spot (23.37%), NVO holds the fourth spot (6.19%), PFE gets the seventh spot (4.67%) and ABBV gets the 11th spot (4.38%).

PPH has gained 10.7% year to date. The fund charges 36 bps as fees.

Invesco Pharmaceuticals ETF (PJP)

This fund, with NAV worth $96.92 per share, offers exposure to 31 U.S. pharmaceutical companies. Of its top 10 holdings, LLY gets the first spot (5.94%), ABBV holds the fifth spot (4.94%) and PFE gets the eighth spot (4.94%).

PJP has surged 18.4% year to date. The fund charges 57 bps as fees.

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This article originally published on Zacks Investment Research (zacks.com).

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