Trump stated that the principle of this executive order is to have Americans pay the lowest prices for pharmaceuticals that other developed countries pay, saying, "Some prescription and drug prices will be reduced by nearly 50% to 80% or even 90% almost immediately.” The U.S. Department of Commerce will begin investigating how the EU "extorts" pharmaceutical companies, stating that unless the EU agrees to sell its drugs at "very low" prices, the entry of EU drugs into the USA will be blocked.$Eli Lilly and Co (LLY.US)$As U.S. pharmaceutical companies began to rise during the trading session, analysts stated that the wording of the executive order is vague and lacks specific implementation details.
It appears that U.S. President Trump is more aggressively targeting drug prices than during his first term, but the relevant executive order has left pharmaceutical companies feeling that the outcome is not as bad as they expected, as pharmaceutical stocks narrowed their losses or turned upwards during the trading session.
On May 12, Eastern Time, Trump signed an executive order. He announced at the White House, "Starting today, the USA will no longer subsidize foreign Medical Care," and that the U.S. "will no longer tolerate large pharmaceutical companies profiting excessively and raising prices," implementing the so-called "Most Favored Nation" drug pricing. Trump said:
"Basically, what we are doing is creating equality. We will pay the lowest drug prices in the world. We will take the lowest bid, that’s what we are aiming for."
"We will reduce intermediaries and promote that drugs be sold directly to American citizens at Most Favored Nation prices."
After the details of Trump's executive order were released, during the early trading session, the stock prices of major pharmaceutical companies either narrowed their losses or turned upwards. Media commentary noted that pharmaceutical companies had anticipated that the Trump administration would take action on drug prices and felt concerned about it. However, the strength of the executive order on Monday seemed far below their expectations.
Analyst Michael Yee from Jefferies wrote in a report: "This executive order is vague, with almost no specific implementation details." Therefore, the pharmaceutical company's stock price is "reacting positively, as the (executive order) is interpreted as 'not as concerning as expected.'"
The Secretary of Health is required to set clear price reduction targets within 30 days.
The announcement released by the White House stated that Trump's executive order "instructs the U.S. Trade Representative and the Secretary of Commerce to take action to ensure that foreign entities do not engage in intentionally and unfairly driving down U.S. market prices and raising U.S. drug prices." The order directs the government to convey pricing goals to pharmaceutical companies to ensure that the USA, as the world's largest purchaser and funder of prescription drugs, receives the best prices.
The announcement stated that the U.S. Secretary of Health and Human Services (HHS), Alex Azar, "will establish a mechanism that allows American patients to buy drugs directly from manufacturers selling to the USA at ‘most favored nation’ prices, bypassing intermediaries." The executive order from Trump instructs that once pharmaceutical companies do not provide the most favored nation price, Alex Azar will: (1) propose rules to implement most favored nation pricing; (2) take other proactive measures to significantly reduce prescription drug costs for American consumers and terminate anti-competitive practices.
White House officials stated that Trump's executive order directs the U.S. Trade Representative's Office (USTR) and the U.S. Department of Commerce to combat foreign "unreasonable discriminatory policies" that "undercut" drug prices overseas and requires Secretary Alex Azar to set clear price reduction targets for all U.S. markets within 30 days. This move will initiate a new round of negotiations between Azar and the pharmaceutical industry. If the negotiations do not achieve "sufficient progress," Azar will enforce the aforementioned most favored nation pricing through rulemaking.
Begin investigating the EU for "extorting" pharmaceutical companies.
Although the executive order did not specify which countries are targeted, Trump hinted that he would focus on other developed countries outside the USA, as "some countries need a little extra help, and that's okay." Trump said,
The principles of this order are simple—regardless of what the lowest prices paid by other developed countries for pharmaceuticals are, that is what Americans will pay. Some prescription drugs and medication prices will almost immediately drop by 50% to 80% or even 90%.
Trump also mentioned the European Union.
Trump stated that the USA Department of Commerce will now begin to investigate how the European Union is "extorting" pharmaceutical companies, threatening to block the entry of EU drugs into the USA unless the EU agrees to sell its pharmaceuticals at "very low" prices. He indicated that,
the EU's actions have unfairly shifted the Medical costs burden onto American patients. "I will protect pharmaceutical companies from this perspective. They are receiving pricing from the EU and other countries."
Last Sunday, Trump posted on Social Media announcing that he would sign a significant executive order on Monday, forcing USA prescription drug prices to match those of countries with the lowest prices globally, anticipating that prescription and drug prices would nearly drop by 30% to 80% almost immediately. The new policy will "unprecedentedly" lower Medical Care costs in the USA.
Commentary noted that Trump has revived his "Most Favored Nation" drug pricing policy that he had attempted to implement at the end of his first presidential term but was halted by the courts. This version is more broadly radical, targeting not only Medicare Part B drugs but also extending to medications covered by Medicaid and private Insurance.
While the Trump administration has not specifically clarified the categories of drugs that will be discounted, White House officials indicated on Monday that GLP-1 class drugs are likely to be included. In other words,$Novo-Nordisk A/S (NVO.US)$the popular weight loss drugs semaglutide, branded as Ozempic and Wegovy, along with its competitors — Eli Lilly and Co's Zepbound — will be included in the price reduction category.
Last Sunday, Trump announced plans to order a reduction in the cost of prescription drugs in the USA, leading to a drop in the stock prices of overseas pharmaceutical companies.
On Monday, the Pharmaceutical Index in the Industry Index of the Tokyo Stock Exchange in Japan fell by 3.9%, marking the largest single-day decline since August. Japan, which heavily relies on the USA market,$Takeda Pharmaceutical (4502.JP)$closed down 5.5%. Otsuka Pharmaceutical$Otsuka Holdings (4578.JP)$closed down about 5.4%,$Astellas Pharma (4503.JP)$closed down about 3.9%.
In Europe, Novo-Nordisk A/S, the European pharmaceutical company with the highest market cap listed in Denmark, initially fell 8.6%, then continued to narrow its losses, ultimately closing down 0.65% against the market trend.$AstraZeneca (AZN.US)$The stock initially fell nearly 5.8%, but turned to rise towards the end, closing up 0.3%.
Eli Lilly and Co and other American pharmaceutical companies turned to rise during the trading session. Eli Lilly and Co increased over 3% after turning to rise in the early trading session, closing up nearly 2.9%; those that turned to rise initially.$Pfizer (PFE.US)$and$Merck & Co (MRK.US)$Closed up approximately 3.6% and 5.9%, respectively. Additionally, Novo-Nordisk A/S listed on the NYSE also turned to rise during the early trading session, closing up 3%.
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