JP Morgan and UBS have downplayed the likelihood of lasting damage from Donald Trump’s renewed push to slash US drug prices, even as European pharmaceutical stocks fell sharply on Monday in response to his latest executive order.
In a note to clients on Tuesday, JP Morgan said the policy, which seeks to link US prices to the so-called 'Most Favoured Nation' pricing model, is likely to face significant pushback, limiting its eventual impact on large-cap European drugmakers.
JPM expects legal and political hurdles to water down any final proposals, particularly those involving Medicare pricing and reimportation schemes.
UBS also said it ultimately expects "both legal and implementation obstacles" and that "a comprehensive MFN pricing regime is unlikely to emerge from this rulemaking process".
Nevertheless, markets reacted swiftly to Trump’s announcement, made on Sunday via his Truth Social account.
AstraZeneca PLC (LSE:AZN)shares dropped the most among its peers, reflecting concerns about its heavy exposure to the US market, where it generates around 40% of sales. GSK PLC (LSE:GSK, NYSE:GSK) and Hikma Pharmaceuticals PLC (LSE:HIK, OTC:HKMPF) also posted notable losses.
In the past five trading days, the FTSE 350 Pharmaceuticals & Biotech index has fallen 3%.
The executive order instructs the US Department of Health and Human Services to present drug companies with MFN price targets within 30 days.
If those targets are not met, the department will propose rules to Congress mandating MFN pricing across key government programmes and allowing cheaper drug imports from abroad. It also directs the Commerce Department to examine whether foreign countries are unfairly suppressing prices.
"Without much detail, it’s hard to assess this structure," said UBS. "However, it seems unlikely that a drug company would sell its branded drug in the US through any DTC [direct to consumer] channel at the lowest price available globally."
UBS also noted that foreign countries do not have sufficient supply of branded drugs to reimport and supply the US market at scale, while pharma companies will not sell excess product outside the US such that it could be reimported at scale.
"At the micro level, such as a busload of people headed for Canada, sufficient supply can exist within one Canadian pharmacy to meet that US busload’s needs, but there is not sufficient supply for reimportation to meaningfully impact the overall US market. We do not view drug reimportation as a viable path for drug pricing reform."
While the order lacks detail and will face strong industry opposition, the timing and political tone have reminded investors of the volatility that can come with US healthcare policy, especially around elections.