Pharmageddon

Anyone working in the pharma industry banking on a quiet Monday to kick off their week had their hopes dashed on Sunday night by President Trump. The president took to Truth Social to announce that he would sign an executive order this morning to lower drug prices in the US, “almost immediately, by 30% to 80%.”

How will this work?

Here’s the key portion of the president’s post: “I will be instituting a MOST FAVORED NATION’S POLICY whereby the United States will pay the same price as the Nation that pays the lowest price anywhere in the World.”

This “most favored nation” policy is actually a throwback to Trump’s first term, when he proposed a Medicare pilot program in which the prices of certain expensive prescription drugs were pegged to the lowest price for those same medications that people in 22 other countries paid.

In a statement this morning, more details about how all of this will actually be executed were revealed:

• The Secretary of Health and Human Services, Robert F. Kennedy Jr., will be directed to “set targets for price reductions across all markets in the US within 30 days,” according to the White House.
• If drugmakers don’t move prices toward the White House’s targets during that period, the government will use its rulemaking powers to impose “most favored nation” pricing.
• The US Trade Representative and the Commerce Department will investigate policies in other countries that keep international drug prices lower than in the US.
• The Justice Department and Federal Trade Commission will investigate anti-competitive practices in the pharma industry.

Which stocks win and lose from this policy?

There’s one more key piece of the executive order that’s really making waves today: The HHS has been authorized to explore ways to provide patients with direct-to-consumer options to pay for their prescriptions. That effectively removes middlemen like drug distributors such as Cardinal Health (up 0.25%) and McKesson (down 0.82%), as well as insurers that operate pharmacy benefits managers like CVS Health (down 3.23%) and Cigna Group (down 5.35%), from the equation.

“We’re going to cut out the middlemen and facilitate the direct sale of drugs at the most favored nation price directly to the American citizen,” Trump said during a press conference this morning.

As for pharmaceutical stocks, an early drop gave way to an afternoon pop. Hims & Hers Health climbed 6.25%, likely because weight-loss drugs will be targeted for pricing cuts, though competitors Novo Nordisk rose 3% and Eli Lilly gained 2.86% as well. Other big pharma stocks rallied through the day, too: Pfizer rose 3.64%, Merck gained 5.90%, and AbbVie climbed 2.96%.

Who saw this coming?

Pretty much everyone, actually. The president has clearly telegraphed his desire to restructure the pharmaceutical industry for ages, particularly after the White House kicked off a tariff probe into pharma and semiconductor companies a month ago. Trump also signed an executive order earlier this month streamlining the process for pharma companies to move manufacturing stateside.

To that end, drugmakers like Merck, AbbVie, and Eli Lilly have already announced investments of tens of billions of dollars in new US-based production facilities. Conspicuously absent is Pfizer, whose CEO has cited tariff uncertainty as its reason to hold back on making any investments.

And since they can’t just snap their fingers and start pumping out drugs galore, these companies ratcheted up their pharma imports to record levels last month as they stocked up ahead of potential levies.

All that is to say: Pharma tariffs may still be coming, so expect even more upheaval ahead.

But wait: When the president rolled out a similar policy back in 2020, it was blocked in court. You better believe that every lawyer at every drugmaker in the country is gearing up to fight this version tooth and nail, so maybe don’t sell all your pharma stocks just yet.—MR