While the Trump administration’s threat of pharmaceutical import tariffs and most favored nation (MFN) drug pricing has weighed heavily on the pharmaceutical industry in recent months, many branded drugmakers are well-positioned to handle the pressures.
That was the perspective offered in a new report by S&P Global, which suggests that many global pharma companies can endure pricing pressures, trade duties and more, and that some of the most concerning policies floated by President Donald Trump are unlikely to materialize as planned.
Still, Trump’s ambition to impose a most favored nation (MFN) drug pricing policy—which would attempt to close the gap between the costs of U.S. drugs and those in other countries—would be “highly negative” to branded drugmakers’ credit quality if enacted, the S&P team cautioned.
Additionally, the administration’s desire to boost biopharma competition and potentially impose pharma-specific tariffs could take an unintended toll on smaller generics companies, allowing bigger outfits like Teva Pharmaceutical and Amneal Pharmaceuticals to scoop up market share, the analysts said.
Given broad bipartisan support for corralling high U.S. drug costs, the team at S&P figures that some form of drug price reform will advance “within the coming year.” That said, the analysts don’t believe that “highly disruptive initiatives” like MFN pricing will take hold as currently outlined, given the risk such a policy would pose to continued investment in U.S. drug development.
Trump attempted an MFN approach during his first term but was quickly met with opposition from the pharma industry in court. If the second administration continues to push its new MFN policy, a legal battle is likely to ensue once again, S&P added.
Further, Congress may not actually play ball on Trump’s intended price reforms if it comes down to that.
“[T]here is a slim Republican majority in both houses, and Republican members of Congress have expressed concern over the degree to which [an MFN policy] would slow innovation,” the analysts said.
Regarding tariffs, however, the situation is a bit more complicated.
If pharma-specific duties are imposed, branded drugmakers may be able to pass on cost increases for drugs with limited competition, the S&P team said. Drugs included in Medicare, however, cannot have their prices increase past the rate of inflation, and some of those therapeutics will additionally be subject to price negotiations under the Inflation Reduction Act.
Ultimately, depending on tariff rates, it may make sense for large drugmakers to shift more production to the U.S. Naturally, though, those efforts come with steep costs and the risk of operating under a less competitive tax rate, S&P said.
Generic manufacturers, on the other hand, could be “significantly affected” by potential tariffs, especially considering how steep the Trump administration’s reciprocal tariffs on China have been. Many generic drugmakers host production operations in or source raw materials from China, S&P pointed out.
“Since price points of generic drugs are much lower, margins thinner, and competition fiercer than that of branded drugs, some generic companies, especially those reliant on China, may find certain drugs unprofitable,” the analysts warned.
While this would weigh heavily on standard generic pharma companies, it could present an opportunity for bigger copycat drugmakers, such as Teva and Amneal, to scoop up some of the competition from those without U.S. production capacity, the S&P team added.
The Trump administration has also telegraphed an interest in accelerating competition in the industry by speeding up generic and biosimilar drug approvals. But again, this would likely have unintended consequences for the generic companies that produce the majority of drugs used by American patients.
In fact, when the FDA accelerated its generic approval process under the previous Trump administration, generics companies suffered thanks to price deflation caused by a heightened number of competitors for a single drug, S&P explained.
S&P’s report comes at a time of protracted uncertainty for the industry. Since taking office, Trump and his administration have quickly set to work overhauling key federal health agencies under the Department of Health and Human Services (HHS)—most visibly through thousands of layoffs.
Meanwhile, the administration has continued to tease the prospect of import tariffs tied directly to pharmaceutical products or their related raw materials.
As part of that plan, the administration launched a Section 232 investigation last month to assess potential national security threats related to pharmaceutical imports. The process will allow the president to impose trade restrictions if threats are identified under the Trade Expansion Act of 1962.
On the pricing front, Trump in mid-May inked an executive order instructing the HHS to enforce the president’s MFN ambitions by tying government purchase prices for drugs to the lowest prices paid by other economically advanced countries. HHS has subsequently shed more light on the plan, indicating that "all brand products across all markets that do not currently have generic or biosimilar competition” must align their prices with those of select peer countries.