While industry groups decried the Trump administration’s new drug pricing order, analysts say it lacked details and the teeth to make a major impact without an act of Congress.
President Donald Trump’s executive order on drug pricing contains little detail about how exactly it will be implemented but may still fall in the “better than feared” category for the biopharma industry, according to analysts.
The splashy announcement from the White House left Wall Street wanting more details. BMO Capital Markets analysts suggested that the order was “more bark than bite,” with questionable legal roots.
“The announcement represents more of a headline risk vs. the industry sea change some had feared,” BMO’s Evan David Seigerman said in a Monday afternoon note. “Overall, most-favored-nation pricing could be more rhetoric than actual implementable policy.”
Truist Securities said the initial roll out will likely focus on branded drugs, but White House officials on a pre-announcement call said no particular drug or class will be exempted. Trump did specifically point to drugs for breast cancer, weight loss and asthma. BMO expects drugs under Medicare to be the only target of the new policies, as longer-term pricing reform will require an act of Congress.
The immediate action will be for pharma companies to negotiate with the Department of Health and Human Services over the next few months before the agency actually imposes a rulemaking, according to Jefferies analysts.
HHS Secretary Robert F. Kennedy will set target prices tied to the Most Favored Nations rule within 30 days. Companies will be encouraged to voluntarily step up to meet those targets. If they do not, the government will then explore importing drugs from other nations.
“Any specified country the U.S. chooses to import product at lower prices would likely not be able to support the manufacturing demands for the entire U.S. pharmaceutical patient population,” BMO noted.
BioSpace has reached out to the government of Canada for comment on the drug import proposal.
‘Patriotic Americans’
Even if the order lacked details, Bloomberg Intelligence said the directive adds to policy challenges that have repeatedly hit the pharma industry since Trump took office in January.
“Drugmakers’ year of uncertainty is intensifying, as tariff threats and a cloudy outlook for regulatory relief weigh on the industry,” wrote Bloomberg’s senior government analyst Duane Wright on Monday.
But the immediate policy impact means at least temporary relief for companies like Bristol Myers Squibb and AbbVie, which may have been brought into the government’s cross hairs with a tougher order. If fully implemented, drugmakers could face billions in lost revenue, Wright said.
“We expect drugmakers, physicians and other stakeholders to pursue legal challenges given the billions of dollars in revenue at stake,” Wright said.
Jefferies also does not expect the industry to go along with Trump’s plans easily. A legal challenge defeated the last MFN rule during Trump’s first term. That effort was much narrower, impacting just drug pricing under Medicare Part B, which is a smaller proportion of government spending on medicines, particularly biologic drugs. Jefferies expects the industry to fight just as hard this time around.
“I have great respect for these companies and the people who run them, they did a great job convincing people that this way a fair system. No one knew why, but I figured it out,” Trump said during his press conference.
But the administration also appeared sympathetic to drugmakers during the press conference, which featured the signing of the order, offering encouragement as they negotiate drug prices with European nations he said pay too little for innovative medicines.
“We’re going to defend American drug companies in Europe, where they’re being forced to sell for lower prices,” said Jay Bhattacharya, director of the National Institutes of Health, who joined Trump at the press conference.
Mehmet Oz, administrator for the Centers for Medicare and Medicaid Services, added: “They’re patriotic Americans. They want what’s right.”
Lowering drug prices is a bipartisan issue, despite differing proposals between Republicans and Democrats.
“The rising tide of conservative support for direct government involvement in setting drug prices can’t be glossed over,” Wright said. “Conservatives have typically shied away from importing overseas price controls, but some see the approach as a mechanism to force higher prices in other countries.”
Socialized Medicine in Disguise
The markets reacted better than expected to the executive order. The S&P biotech index, called the XBI, was up about 2.5% Monday morning. The index has been in steady decline over the past few months, dropping 13% year to date on tariff threats from the Trump administration.
Still, the Biotechnology Innovation Organization slammed the proposal as “socialized medicine.”
“Most favored nation is a deeply flawed proposal that would devastate our nation’s small- and mid-size biotech companies—the very companies that are the leading drivers of medical innovation in the United States and the cornerstone of America’s biotechnology leadership,” BIO CEO John Crowley said in a statement Monday morning.
Pharmaceutical Research and Manufacturers of America (PhRMA) CEO Stephen Ubl similarly rejected the idea of importing medicines from other nations and said such a policy would make the U.S. more reliant on China for innovative medicines.
“Importing foreign prices from socialist countries would be a bad deal for American patients and workers,” Ubl said in a Monday statement.
Crowley said the drug pricing proposal would “empower China and our other adversaries and undermine our economic and national security.”
Ubl echoed that sentiment and supported the general narrative of the executive order that other nations should raise their prices.
“The administration is right to use trade negotiations to force foreign governments to pay their fair share for medicines. U.S. patients should not foot the bill for global innovation,” he said.
White House officials insisted that Trump’s impending order on pharmaceutical tariffs was completely separate from the drug pricing policy, but Crowley linked the policies as punitive for patients.
“Patients and families are not a bargaining chip in a trade war, but that’s exactly how they are being treated,” he said.
Instead, Crowley lobbied for investments into the biotech industry, streamlined policies and addressing “middlemen” that profit from the sales of drugs. The industry has long pointed the finger at pharmacy benefit managers, which manage prescription drug insurance benefits. These entities negotiate drug prices between drug manufacturers and pharmacies and establish the drug formularies that pick the preferred medicines used under insurance plans.
Ubl similarly blamed the middlemen, asserting that “the U.S. is the only country in the world that lets PBMs, insurers and hospitals take 50% of every dollar spent on medicines.”
But BMO said the White House also has no authority to interfere with private contracts, so PBM reform may be outside the scope of the order. “We maintain that the federal government has little to no ability to impact contracts entered in by private parties,” the analysts wrote.
