Pharmaceutical stocks took a big hit after US President Trump signed an executive order on lowering drug prices, which could see between 30-80% price declines in the US.
The move is intended to make US drug prices the same as other nations that offer them at lower prices. This triggered selloffs in pharmaceutical stocks globally.
Why Trump Signed the Executive Order
President Trump’s executive order created a policy called “Most Favored Nations”, which is designed to ensure that US citizens would pay less for prescription drugs than the lowest price offered globally. Trump also stated that prescription drugs are being sold higher than they should, five to ten times more than other countries, which he is aiming to eliminate. ⁽¹⁾
While some price reductions could take effect immediately, the specifics of the policy, including its nature and implementation timeline, remain unclear. The policy has fueled uncertainty, which led to sharp declines in pharmaceutical stocks worldwide.
How Could This Policy Impact the Pharma Industry?
The price cuts could hit pharma stocks’ revenues. Drug prices in the US market are higher than other nations, which has been a driving factor for revenues and growth in pharma stocks. Sudden price cuts could lead to big losses, leading to concerns about the industry’s ability to fund research and development. ⁽²⁾
Trump also stated that the cuts in US prescription drug costs could lead to price increases worldwide, resulting in potential declines across pharmaceutical stocks. Global pharma stocks slid alongside their competitors in the US following the news. ⁽³⁾
Major US drugmakers are expected to put on legal pressures to the executive order, as they did during Trump’s first term when a proposal of reducing Medicare drug prices was struck down in federal court. The lack of clarity on whether the order applies to Medicare or other government health programs adds to the uncertainty, leaving the industry bracing for potential upheaval. ⁽⁴⁾
Market Reactions
The announcement triggered swift reactions in global financial markets. In the US, shares of major drugmakers such as Johnson & Johnson (JNJ), Eli Lilly (LLY), Pfizer (PFE), Merck (MRK), Gilead, Bristol-Myers Squibb, and Amgen (AMGN) declined sharply. European pharmaceutical giants, including Novo Nordisk, AstraZeneca, GSK, and Sanofi, also experienced significant drops.
In Asia, Japan’s Topix Pharmaceuticals Index recorded its largest single-day loss since August 2024, with companies like Takeda Pharmaceutical and Astellas Pharma hit hard due to their reliance on US sales.
The declines were not caused only by stock declines. Novo Nordisk, for instance, faced additional pressure after a study revealed that Eli Lilly’s obesity drug Zepbound outperformed Novo’s Wegovy, compounding the Danish company’s challenges.
The broader European pharmaceutical sector, where companies like Roche and Novartis generate 40% to 60% of their revenue from the US, also missed out on a rally in other sectors, underscoring the policy’s far-reaching impact. ⁽⁵⁾
Reshaping Healthcare
The US 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.
Medicare spends billions annually on drug medicines reimbursement. The IRA has made changes to how drugs are covered and paid for under Medicare.
Under the IRA, the US government gave authority to Medicare to negotiate the price of prescription drugs directly with drug manufacturers, hoping to save the government billions of dollars, but instead costed more money for the government, which is another reason why President Trump considered the order. Before the IRA was passed, Medicare wasn’t allowed in any negotiations with drug manufacturers. ⁽⁶⁾
What’s Ahead for Pharma
The” most favored nations” policy might save a huge amount of money for the US government and is likely to affect the sales and profits of major drugmakers.
Drug companies are expected to challenge any such executive order. Trump’s social post on Truth did not specify whether the order would apply to Medicare, Medicaid or other government health programs, nor did it provide any timing. The global pharma industry will be monitoring the situation for more details on the policy.
