Pharma Stocks Hit by Trump's Vow to Cut US Prescription Drug Costs

President Trump has released a social media post before markets open on Monday, stating that the government will sign an executive order today that will result in a 30% to 80% decrease in prescription drug prices in the United States.

The President claims he is taking this step as he feels that the cost of prescription drugs in the United States is higher than in any other country, sometimes even five to ten times higher.

The price cuts, some of which he mentioned could be effective immediately, would see that U.S. consumers pay the same amount as the nation that pays the lowest price for that drug. He termed this policy as the “most favored nations’ policy.”

Though specifics of the order were not clear, shares of all large drugmakers, J&J JNJ, Eli Lilly LLY, Pfizer PFE, Merck MRK, Gilead, Bristol-Myers, Amgen AMGN, and several other U.S. pharmaceutical stocks were on the decline in pre-market trading on Monday in response.

Trump also stated that the cuts in U.S. prescription drug costs could lead to price increases worldwide, resulting in a decline in the stocks of pharmaceutical companies globally. In Europe, stocks of Novo Nordisk, GSK, AstraZeneca and Sanofi fell while their ADRs also fell in U.S. markets in pre-market trading.

The U.S. government is already trying to control healthcare costs through its federal health insurance program under the Inflation Reduction Act (“IRA”) passed in 2022 under Joe Biden. Every year, Medicare spends billions of dollars on reimbursing medicines. The IRA has made significant changes to how drugs are covered and paid for under Medicare. Under the IRA, the U.S. government gave authority to Medicare to negotiate the price of some prescription medicines directly with drug manufacturers, hoping to save the government billions of dollars. Before the IRA was passed, Medicare was not allowed any such negotiations with drug manufacturers.

Under the U.S. government’s drug price negotiation program, the Medicare Part D program was redesigned to require drugmakers to bear more of the liability for certain drug benefits and government price-setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028).  The program also included penalties for significant increases in the prices of drugs.

The list for Medicare price negotiations released by the Centers for Medicare & Medicaid Services (CMS) mostly includes expensive medicines for cancer, diabetes, autoimmune conditions and blood thinners, with more drugs expected to be added every year. These medicines, covered under Medicare Part D, are taken by millions of Americans and account for a huge portion of Medicare spending annually.

Though the so-called “most favored nations’ policy” will save the government trillions of dollars, it will hugely affect the sales and profits of big drugmakers. Drug companies are expected to challenge any such executive order. Trump’s post did not specify whether the order would apply to Medicare, Medicaid or other government health programmes, nor did it provide any implementation timing. The global pharma industry will wait eagerly for more details on the order.

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

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