President Trump signed an executive order directing pharmaceutical companies to slash U.S. drug prices to match “most favored nation” rates abroad. The order sets 30-day price targets and threatens tariffs of up to 90% on non-compliant manufacturers, while empowering the FTC to investigate anti-competitive practices in pricing and patent strategies.
Despite initial skepticism over feasibility, major drugmakers saw their shares rebound on Monday. Merck (MRK) rallied 5.2%, Pfizer (PFE) gained 3.2%, Gilead Sciences (GILD) jumped 6.7%, and Eli Lilly (LLY) rose 2.4% as investors weighed the order’s long-term impact against potential near-term relief.
Market Overview:- Executive order demands price cuts of 59%–90% to align with foreign rates.
- Threat of steep tariffs and import/export restrictions on non-compliant drugs.
- FTC directed to pursue stronger antitrust enforcement in pharma sector.
- “Most favored nation” pricing historically blocked by courts due to statutory limits.
- Proposal includes broad importation of cheaper medicines from abroad.
- Industry groups warn of reduced innovation and investment in U.S. R&D.
- Legal challenges expected to target statutory authority for cross-border imports.
- FTC hearings on patent tactics and exclusivity deals to ramp up in coming months.
- Drugmakers may accelerate price negotiations or seek legislative relief.
- The executive order aims to dramatically reduce U.S. drug prices, potentially by 50% to 90%, by aligning them with the lowest prices paid by other developed nations, which could lead to significant cost savings for American patients and government programs like Medicare.
- By threatening tariffs of up to 90% on non-compliant manufacturers and empowering the FTC to investigate anti-competitive practices, the order could compel drugmakers to adopt fairer pricing and patent strategies.
- The initiative includes provisions for the broad importation of cheaper medicines from abroad, further increasing competitive pressure to lower domestic prices.
- The order addresses long-standing concerns that U.S. patients effectively subsidize global pharmaceutical innovation by paying significantly higher prices than consumers in other affluent countries.
- Despite initial skepticism, the rebound in pharmaceutical stocks (Merck, Pfizer, Gilead, Eli Lilly) suggests investors may anticipate manageable long-term impacts or even some near-term relief or clarity from the order.
- The administration believes this approach will not undermine drug company profitability but rather compel other nations to contribute more to global drug development costs.
- The executive order faces significant legal and practical challenges, with experts warning that its "most favored nation" pricing and broad drug importation provisions likely exceed existing statutory authority and could be blocked by courts.
- Pharmaceutical industry groups (PhRMA, BIO) strongly oppose the order, arguing it will stifle innovation, reduce investment in U.S. research and development, and disproportionately harm small and mid-sized biotech companies.
- Implementing "most favored nation" pricing is complex because many drugs available in the U.S. are not sold elsewhere, some countries do not disclose their prices, and the U.S. lacks a national health system that directly negotiates prices like many other developed nations.
- Analysts have described the executive order as vague with little detail on implementation, and it is uncertain how the administration can enforce its 30-day price targets without new rulemaking that could also face legal challenges.
- The order could inadvertently support pharmaceutical industry goals to weaken the Inflation Reduction Act's (IRA) Medicare negotiation program by aligning drug exemption timelines in a way that benefits drug manufacturers.
- The threat of steep tariffs on non-compliant manufacturers could disrupt drug supply chains and potentially lead to shortages or increased reliance on foreign manufacturing, including from China.
Legal experts caution the order’s ambitious importation provisions exceed existing statutes, raising the likelihood of court injunctions. Health policy attorney Paul Kim noted that direct-to-consumer import programs and export curbs venture beyond permissible executive action.
As the FTC prepares listening sessions on anti-competitive conduct, the pharmaceutical industry faces pivotal decisions on pricing, patent strategies, and investment commitments. The ultimate test will be whether regulatory and legal systems can translate the order’s aggressive goals into sustainable cost savings without undermining innovation.
