President Trump’s new executive order aims to lower drug prices in the United States by tying them to those paid in other wealthy countries — a move that has sparked sharp division among biotech leaders, investors and trade groups.
The White House Executive Order signed Monday, May 12, instructs federal agencies to seek the lowest prices offered by drug companies in other wealthy countries, known as “most-favored-nation” (MFN) pricing, and to take action if those prices aren’t extended to Americans. It also calls for direct-to-consumer programs, drug importation from countries with lower costs, and antitrust enforcement against companies that block price competition.
“Americans should not be forced to subsidize low-cost prescription drugs and biologics in other developed countries, and face overcharges for the same products in the United States,” the executive order states. “My Administration will take immediate steps to end global freeloading and, should drug manufacturers fail to offer American consumers the most-favored-nation lowest price, my Administration will take additional aggressive action.”
Within 30 days, the Department of Health and Human Services is expected to share pricing targets with drugmakers. If they don’t respond with voluntary price reductions, the order authorizes federal officials to propose formal rule changes, consider expanded drug importation, and evaluate whether to revoke approvals of drugs deemed unsafe or improperly marketed. It also calls for coordination across federal agencies to pressure foreign governments and crack down on anticompetitive practices.
Industry Reactions Decry Foreign Reference Pricing
The policy could harm entrepreneurs and small to medium-sized biopharma companies, said the Biotechnology Innovation Organization (BIO) in a statement.
“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,” said John F. Crowley, President and CEO of BIO. “Importing socialized medicine will not make Americans healthier or our economy stronger. It will only serve to empower China and our other adversaries and undermine our economic and national security.”
Stephen J. Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), was less antagonistic to the proposal. He blamed middle men such as pharmacy benefit managers, insurance companies and hospitals for taking half of the drug price paid by patients.
“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,” Ubl said in a statement. “To lower costs for Americans, we need to address the real reasons U.S. prices are higher: foreign countries not paying their fair share and middlemen driving up prices for U.S. patients.”
Scott Gottlieb, MD, former FDA Commissioner, commented on X.com (formerly Twitter) that the executive order “appears to empower the U.S. Trade Rep to make pharmaceutical pricing a matter of trade agreements, which could help reduce the risk of threats of compulsory licensing when U.S. firms negotiate a single world price for a drug, or tiered pricing based on relative GDP of nations.”
Investors Hold On to Biotech and Pharma
Investors didn’t sell off shares of biotech and pharma companies, as some analysts assumed. On Wall Street, the SPDR S&P Biotech ETF (XBI) jumped 4 percent on Monday following the White House announcement. A comparable ETF for pharma companies, iShares US Pharmaceuticals known as IHE, rose 2 percent.
Analysts at banking firm Jefferies had initially predicted stocks would trend down on the news, but revised their thoughts on the matter after the executive order was released with details that weren’t available earlier.
“Bottom line: The Executive Order around MFN is out and overall it's OK. Net net, we'd say this is positive vs expectations heading into the event,” Jefferies analysts wrote.
Executives at biopharma companies have been asked their thoughts on the potential for Trump to implement European pricing, price controls or MFN status during first quarter earnings calls. Vas Narasimhan, MD, CEO of Novartis said such policies would be “devastating" to the industry, during an April 29 earnings call.
“I think it’s really important that we keep advocating that the United States should not import European price controls,” Narasimhan said. “I don’t think that will serve patients well.”