President Donald Trump announced a new executive order Monday to force drugmakers to lower prices, in some cases up to 80%, to match the lowest price paid by developed countries.
The policy, known as Most Favored Nation (MFN), is Trump’s second effort to lower drug costs based on international reference pricing, but analysts have pointed out that it could have limited impact — in part because the executive order is scant with details.
“Details are scant, suggesting notable work still yet to be completed, with companies now given 180 days to negotiate solutions. We believe sector multiple may see modest upside, but relief is likely capped given shifting focus to tariffs and potential MFN frameworks until details are announced,” Jefferies analyst Benjamin Jackson wrote in a note to clients Monday.
Both large-cap and biotech stocks were trading flat or positive following the executive action, signaling investors’ wariness around its immediate impact.
In 2020, Trump tried to implement a rule through the Centers for Medicare and Medicaid Services (CMS) that would have impacted only Medicare. It was struck down by the courts.
This time, Trump hopes to use international trade policies and direct negotiations domestically to impact the commercial market.
Executive order
Here are the various levers outlined in the executive order:
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The US Trade Representative (USTR) and US Department of Commerce would go after other countries to stop “discriminatory” practices against US-based drug companies by forcing them to set prices higher.
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The Department of Justice and Federal Trade Commission could go after anticompetitive practices, including mergers and acquisitions, and look at the role of pharmacy benefit managers (PBMs)
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The Food and Drug Administration (FDA) would be charged with expanding importation of drugs from other countries, similar to the current rules allowing importation from Canada (which Trump implemented in his previous administration).
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The Department of Health and Human Services (HHS) has 180 days to negotiate with drugmakers to set pricing in the commercial market at the lowest favored nation price. If they do not comply, they will be forced through “rule-making.”
Enforcement questions
But questions remain about Trump’s ability to mandate drugmakers to lower their prices.
“It’s unclear to us if negotiations fail after 180 days whether the president and RFK [HHS Secretary Robert F. Kennedy Jr.] have the power to implement MFN pricing without Congressional approval and ultimately legislation,” Jefferies analyst Michael Yee wrote in a note Monday.
There are also questions about the government’s legal authority to go after other countries and how they negotiate with drug companies.
Trump said if countries do not comply, he will investigate them and add new tariffs in response.
Read more: The latest news and updates on Trump’s tariffs
White House officials told reporters early Monday that there is legal authority within the USTR and Commerce Department to protect US companies from “discriminatory” practices by other countries.
“The President is dead serious about lowering drug prices,” the officials said.
Officials also said the executive order does not erase the threat of other pharmaceutical tariffs. A Section 232 investigation is currently ongoing into the threat to national security of the current drug supply chain. In response, drugmakers have pledged tens of billions, as high as $55 billion, to onshore manufacturing and help increase production of essential medicines domestically.
Pharma profits
Currently, the US government, through Medicare, Medicaid, and even Veterans Affairs, already gets lower prices than the average American — and Medicare is known as the largest payer of healthcare in the country because of the sheer volume of individuals covered.
Analysts and experts are concerned that, in some cases, the price paid by other countries could be higher. But they assume the area of greatest impact will be more in line with Trump’s 2020 attempt — that is, more impact on government costs than on consumers.
“We believe Bristol (BMY), Merck (MRK), and Pfizer (PFE) have the most exposure to government channels amongst the US names,” UBS analysts wrote in a note to clients on Monday.
“We think it could pose an average -10% net income headwind across the US group if reference pricing impacts the top 50 drugs. In a grey sky scenario, if it is total exposure across all drugs for each company assuming a 50% net price cut at 60% contribution margin, this would result in a -15% average net income cut,” the analysts wrote.
The goal of Trump’s effort is to force other countries to pay a greater share into pharma profits, he said Monday.
Trump spoke alongside his healthcare leaders on Monday, including HHS Secretary Robert F. Kennedy Jr., CMS Administrator Mehmet Oz, FDA Commissioner Dr. Marty Makary, and NIH Director Dr. Jay Bhattacharya.
They all defended the strategy as helping the drug industry and ensuring jobs and innovation stay in the US — a point experts say is debatable as it could actually result in more reliance on China.
Oz echoed Trump’s sentiment, saying the executive action should “course-correct profit that has gotten out of hand.”
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee as AnjKhem on social media platforms X, LinkedIn, and Bluesky @AnjKhem.
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