Drug Sector on a High as 9 Drugmakers Strike Drug Pricing Deals

On Friday, President Trump announced that his administration has signed separate drug-pricing agreements with several large-cap drugmakers to lower drug prices in the country. These companies include Amgen AMGN, Bristol Myers BMY, privately-held Boehringer Ingelheim, Genentech (a member of the Roche Group), Gilead Sciences GILD, GSK plc GSK, Merck MRK, Novartis and Sanofi.

Under the agreement, these companies have agreed to reduce the prices of their prescription drugs to match those in comparable developed countries, supporting President Trump’s Most Favored Nation (MFN) pricing proposal. The company’s products will be available at significant discounts through direct-to-consumer channels and on TrumpRx.gov, a federal purchasing platform scheduled to go live next month.

In return, each drugmaker will receive a three-year exemption from import tariffs on pharmaceutical ingredients, contingent upon expanding their domestic manufacturing operations. In this regard, the companies have already committed billions of dollars toward U.S.-based manufacturing and R&D investments.

In addition, some of these drugmakers have also agreed to donate active pharmaceutical ingredients (API) for key products to a government stockpile reserve aimed at ensuring American supply chain resilience during emergencies. In this connection, Bristol Myers has agreed to contribute around 6.5 tons of apixaban, the API used in the blood thinner Eliquis. While Merck plans to donate about 3.5 tons of an antibacterial medication called ertapenem, GSK will supply nearly 99 kgs of albuterol API used in many asthma inhalers.

These nine pharma giants join Pfizer, AstraZeneca, Eli Lilly, Novo Nordisk and Merck KGaA, which earlier signed similar deals with the government over the past few months. With the latest announcement, the Trump administration has now reached deals with 14 out of 17 large drug manufacturers that were called out in July to lower drug prices in the country.

The remaining three companies — AbbVie, J&J and Regeneron — are yet to sign similar deals and remain in active discussions with the government.

Investors Express Optimism Around Big Pharma

The Trump administration’s deals with Big Pharma address the two biggest concerns that plagued the pharma companies this year — drug pricing and tariffs. In our opinion, the announcement has improved investor outlook for the overall pharma sector, as it signals a more cooperative stance between the government and drugmakers.

We view these deals as a turning point that could ease regulatory and pricing pressures that have weighed on the industry since the start of Trump’s second term, and expect deals from the remaining three companies to follow soon.

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

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