May 16, 2025
Source: drugdu
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According to a research report by CITIC Securities, on May 12th, Trump signed an executive order titled "Providing Most Favored Nation Prices for Prescription Drugs to American Patients," aimed at lowering prescription drug prices in the US market. Trump proposed "most favored nation" prices in the executive order, requiring pharmaceutical companies to sell their drugs in the United States at prices equal to the lowest prices in comparable developed countries. At the same time, Trump also proposed to increase the transparency of drug prices in the United States and reduce the profit margin of middlemen represented by PBM. CITIC Securities believes that the implementation of this administrative order is difficult and the short-term impact on the industry is expected to be limited.
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Drugs and Innovation | Trump signs executive order to lower prescription drug prices, expected to have limited short-term impact
On May 12, 2025, Trump signed an executive order titled "Providing Most Favored Nation Prices for Prescription Drugs to American Patients," aimed at lowering prescription drug prices in the US market. Trump proposed "most favored nation" prices in the executive order, requiring pharmaceutical companies to sell their drugs in the United States at prices equal to the lowest prices in comparable developed countries. At the same time, Trump also proposed to increase the transparency of drug prices in the United States and reduce the profit margin of middlemen represented by PBM. We believe that the implementation of this administrative order is difficult and the short-term impact on the industry is expected to be limited.
Trump signs executive order aimed at lowering prescription drug prices in the United States.
On May 12, 2025, Trump signed an Executive Order (EO) titled "Providing Prescription Drug 'Most Favored Nation' Prices to American Patients". The article points out that the United States has been paying unreasonably high drug prices for a long time in the past, and the purpose of this EO is to address this phenomenon. Therefore, Trump proposed the "most favored nation" policy, requiring pharmaceutical companies to sell the same drugs in the United States at prices comparable to the lowest prices in other developed countries. EO proposed that HHS (Department of Health and Human Services, US Department of Health) establish a system that allows patients to directly purchase drugs from pharmaceutical companies at most favored nation prices, thereby bypassing middlemen and earning price differentials. Within 30 days after the EO is signed, the Secretary of HHS should communicate with pharmaceutical companies regarding the "most favored nation" price target; If the most favored nation price is not implemented, HHS will further introduce mandatory policies, including directly importing low-priced drugs from other developed countries.
On the evening of May 12th, Trump held a press conference to announce the signing of the EO.
At the press conference, Trump repeatedly emphasized that high drug prices in the United States are unreasonable (citing multiple examples to prove that the price of the same drug in the United States is several times higher than in other developed countries). The high drug prices borne by the US government and the public are shifting towards "subsidizing" other countries, allowing them to obtain the same drugs at lower prices. Therefore, Trump hopes to level the price difference by lowering drug prices in the United States while raising drug prices in other countries. Trump has also targeted the "middleman" and will focus on reducing the space for intermediaries represented by PBM (Pharmacy Benefit Management).
We believe that the implementation of Trump's EO this time is difficult and has limited short-term impact.
1) There is a significant buffer between the net and listed prices of drugs in the United States: according to IQVIA data, in 2023, using WAC as the scale measure, the drug expenditure in the United States will reach 910 billion US dollars, but the net expenditure measure will be around 650 billion US dollars, and the drug market size reported by pharmaceutical companies will be 430 billion US dollars; There is a large buffer space from the WAC caliber to the pharmaceutical company report caliber;
2) There are no detailed implementation rules in this EO, making it difficult to implement policies;
3) Trump had issued a similar EO in September 2020, but it was eventually suspended due to strong opposition from the industry, and the Biden administration subsequently revoked the EO.
Risk factors:
Risk of policy implementation exceeding expectations; Risk of unexpected decline in drug prices; Geopolitical risks; Risk of drug development failure; The risk of unexpected progress in tariff policies.
Investment Strategy:
On May 12, 2025, Trump signed an executive order titled "Providing Most Favored Nation Prices for Prescription Drugs to American Patients," aimed at lowering prescription drug prices in the US market. Trump proposed "most favored nation" prices in the executive order, requiring pharmaceutical companies to sell their drugs in the United States at prices equal to the lowest prices in comparable developed countries. At the same time, Trump also proposed to increase the transparency of drug prices in the United States and reduce the profit margin of "middlemen" represented by PBM. We believe that the implementation of EO this time is difficult and the short-term impact on the industry is expected to be limited. Maintain the rating of "stronger than the market" in the innovative pharmaceutical industry.
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