Shares of S&P 500 and Dow Jones pharmaceutical stocks boomeranged Monday after President Donald Trump signed an executive order tying drug prices in the U.S. to international price tags.
But analysts and portfolio managers noted the order is light on details. One analyst said Trump's order is "all bark" and "little bite."
Pharmaceutical stocks rebounded after Trump signed the executive order. Though they initially fell premarket, shares of S&P 500 stocks AbbVie, Gilead Sciences and Pfizer rebounded 3%, 7.1% and 3.6%, respectively.
On the Dow Jones Industrial Average, Amgen shares jumped 3.4%, while Johnson & Johnson stock yo-yoed and eventually closed down a fraction.
Shares of insurers and pharmacy benefit managers tumbled. Shares of Cigna and CVS toppled 5.3% and 3.2%, respectively.
Can Trump Lower Drug Prices?
The policy, often referred to as a Most Favored Nations approach, aims to ensure that Americans "get the best deal," Trump wrote in his order. It directs the administration to "communicate price targets to pharmaceutical manufacturers."
If drugmakers refuse to play ball, the order directs Health Secretary Robert F. Kennedy Jr. to propose rules that impose Most Favored Nations pricing and "take other aggressive measures" to cut drug prices in the U.S.
It also allows Food and Drug Administration Commissioner Marty Makary to outline circumstances under which drugs can be imported from developed nations with lower-cost medicines. But that proposal comes at a time of heightened tensions around global trade.
Leerink Partners analyst David Risinger noted the order also seemingly pushes an "unprecedented focus on the direct-to-consumer market." It's likely what shook Cigna and CVS. Jeff Jonas, a portfolio manager with Gabelli Funds, also noted the pressure on insurers and pharmacy benefit managers, or PBMs. PBMs are the middlemen in charge of handling rebates.
"The unexpected focus on the direct-to-consumer market comes as a surprise," Risinger said in a note. "Most Americans have medical insurance that covers prescription drugs."
A White House official said insurers and PBMs would continue to have a role in U.S. health care, but was vague on the specifics, Risinger said.
Immediate Price Lowering? Analysts Say No
In a Truth Social post Sunday night, Trump suggested the order would lower drug prices in the U.S. by 30% to 80% "almost immediately."
But analysts are doubtful.
RBC Capital Markets analyst Brian Abrahams called the order "all bark" and "little bite." It's unlikely to rattle the sector, he said in a report.
The Trump administration touted the changes in a news conference Monday morning.
"The conference's tone appeared much more punitive towards 'freeloading' EU countries than to biopharmas," Abrahams said. "Trump hopes to empower biopharmas to bring ex-U.S. drug prices closer to U.S. levels, though the (executive order) does incorporate threats of FDA withdrawal for noncompliant drug companies (though this would be difficult to carry out)."
Negotiating Is Key
A White House fact sheet said Americans pay three times more for branded drugs than people in other Organization for Economic Cooperation and Development nations. The U.S. has less than 5% of the world's population, but funds roughly 75% of global pharma profits.
"In essence, Americans are subsidizing drug-manufacturer profits and foreign health systems, despite drug manufacturers benefiting from generous research subsidies and enormous healthcare spending by the U.S. Government," according to the fact sheet.
Trump expects the Most Favored Nations plan to help drug companies. In some ways, that's true, says RBC's Abrahams. The threat of U.S. trade action against some countries could, indeed, give drug companies more negotiating leverage over the prices of their meds in other countries.
"We could envision some potential for moderate price increases ex-U.S. and decreases in the U.S. to optically satisfy the concept," he said. But "this would be net neutral for biopharmas."
He noted important distinctions between the U.S. and Europe. Europe is more centralized and more willing to not have novel therapies. There are also some drug price contracts outside the U.S. that aren't readily changeable.
Not Trump's First Drug Pricing Rodeo
Jeff Jonas, a portfolio manager at Gabelli Funds, notes there's still not a lot of detail in the order.
"I'm skeptical that this will ever happen, given Trump's first attempt at this and how Congress just rejected adding it to the reconciliation bill," he said in an email to Investor's Business Daily. "I also think it's hard to get Europe to increase their prices given their budget situations and defense spending needs."
Trump tried implementing a Most Favored Nations approach to drugs prices during his first term. But judges halted it on procedural grounds. There were also questions about implementing the policy without congressional approval, Leerink Partners analyst David Risinger said in a report.
Importantly, the order focuses on Medicare- and Medicaid-reimbursed drugs.
The pharma companies with the biggest Medicare exposure to their top line include Bristol Myers Squibb, Amgen, J&J, Pfizer and Merck, Risinger said.
The lowest exposure comes from Vertex Pharmaceuticals, Novartis, Sanofi, Takeda Pharmaceutical and Roche.
Pharma Group Pushes Back
Pharmaceutical companies are likely to push back on Trump's plans. While they've mostly stayed quiet on the threat of tariffs on drug imports and mass firings at U.S. health agencies, drugmakers consistently say drug price controls tamp down innovation.
The most recent example comes from the implementation of the Inflation Reduction Act, which gave Medicare the ability to negotiate the prices of an initial 10 expensive drugs. Those prices will go into place next year. More drug prices are set to be negotiated this year.
Drugmakers argue cutting drug prices puts a chill on innovation, forcing companies to abandon experimental medicines that won't become smashing commercial successes. That often includes drugs that treat rare and ultrarare conditions.
"Government price-setting policies come in a variety of forms, but they all lead to the government inserting itself between patients and providers, threatening access to treatments and chilling research and development of new medicines," major trade group PhRMA said in a written statement.
An AstraZeneca spokesperson noted high-income nations often pay a heftier price for pharmaceutical innovation. The U.S. "should not continue to shoulder this burden alone," the spokesperson said in an emailed statement.
But "a Most Favored Nation pricing policy would need to be implemented with thorough stakeholder engagement and robust systems to avoid it risking disrupting patient care, undermining U.S. leadership in biotechnology, and stifling the innovation that drives global health advancements," the spokesperson said.
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
