Drugmakers Avoid Worst-Case Scenario as Trump Targets Price Cuts

President Donald Trump is attempting to slash drug prices for Americans by more closely aligning their costs to lower prices paid abroad, renewing and expanding upon a failed push from his first term.

Trump aims to do so by bringing drugmakers to the negotiating table. He signed an executive order Monday asking them to lower prices voluntarily or else face regulatory measures.

Pharmaceutical companies had expected — and feared — action on drug prices. However, the order was far weaker than they’d anticipated. Shares of major drugmakers initially fell after Trump teased drug-price action on social media Sunday night, then rose as details on the order emerged throughout Monday morning.

“The executive order is vague with little detail on implementation,” Michael Yee, a Jefferies analyst, wrote in a note to clients. The stock “reaction is positive, with the interpretation being ‘better than feared.’”

Eli Lilly & Co., Pfizer Inc., Bristol Myers Squibb Co. and Merck & Co. were all up in New York trading Monday.

Americans pay more for medicines than any other country in the world, fueling innovation and driving the growth of the pharmaceutical industry.

Trump said at the White House Monday this means Americans “subsidize the health care of foreign countries.”

In his first term, Trump used a similar negotiating tactic to try to goad drugmakers into lowering prices. He signed an executive order on a drug pricing policy, then hid it from the public to try to use it as negotiating leverage. The eventual follow-through came too late in his term, and ultimately collapsed under the weight of legal challenges.

The new approach goes beyond what Trump did in his first administration by cutting across different programs used to access medicine.

White House officials said they’ll focus on Medicare, the government health program for the elderly, and weight-loss drugs. Officials said they want to see lower drug prices across insurance markets, too.

The administration could also bring in more medicines from abroad as a method to gain leverage on drugmakers.

While it’s generally illegal to import pharmaceuticals, exceptions have been made for personal use and many Americans buy medicines from Canada. The administration may look to start bringing in drugs from other nations if the industry doesn’t begin negotiating sufficiently, officials said.

Beyond asserting that the US should pay less for drugs, Trump suggested that other countries should pay more. In the order, he directed the US Trade Representative and the US Department of Commerce to take action on what White House officials said are unreasonable or discriminatory policies that suppress drug prices overseas.

Trump also took aim at pharmacy benefit managers, which serve as middlemen between drugmakers and insurers. The order directed the US Department of Health and Human Services to find ways to allow drugmakers to sell directly to patients at lower prices, though there were no details on how that would happen.

CVS Corp., which has one of the largest US pharmacy benefits units that negotiates drug prices, fell as much as 5.7%. In a statement, a CVS representative touted the work the company did to lower prescription costs while saying the pharmaceutical industry “continues to price-gouge the American consumer.”

Spokespeople for Merck and Novo declined to comment.

Representatives for Lilly said the company agreed prices should be shared “more fairly across developed countries,” and the best way to cut costs for Americans is “if intermediaries take less for themselves.”

Johnson & Johnson, Pfizer and Bristol Myers didn’t respond to a request for comment.

The executive order is one of many political pressures on the drug industry, with the Trump administration also expected to announce tariffs on pharmaceuticals at some point in the future.

(Updates with additional information throughout.)

--With assistance from Ike Swetlitz and Madison Muller.

To contact the reporter on this story:
Rachel Cohrs Zhang in Washington at rzhang698@bloomberg.net

To contact the editors responsible for this story:
Cynthia Koons at ckoons@bloomberg.net

Michelle Fay Cortez, Kelly Gilblom

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