The pharmaceutical sector is facing uncertainty after US President Donald Trump signed an executive order on May 12, requiring US drug companies to align their prices with those in other developed countries. This move could have a significant negative impact on the revenues and earnings of pharmaceutical companies, particularly those with a significant US footprint. Japanese brokerage firm Nomura believes that this order is “negative for the specialty/branded segment and a mixed bag for generics.”
The order mandates that pharmaceutical companies align their prices with those in other developed countries, where prices are often 2-5 times lower. This could lead to a significant reduction in prices in the US, which could impact the revenues of companies like Sun Pharma, which has a significant presence in the US market. Sun Pharma’s largest product, Ilumya, is particularly vulnerable to price alignment mandates, as its listed price in the US is approximately four times higher than in other developed countries.
The executive order also has implications for the generics market. While it may lower the addressable market for generics and biosimilars, it could also lead to better price realization and faster penetration of biosimilars if the trade channel’s dominance is weakened. However, commoditized generics are unlikely to see much impact, as their prices are already deeply discounted due to market competition.
The order instructs the administration to communicate targeted price levels to pharmaceutical companies within 30 days, and failure to comply could result in actions such as liberalizing drug imports and restricting exports. Trump has stated that US citizens pay massively higher prices for the same drugs as other countries, and that this order aims to address this issue.
However, Nomura believes that there are hurdles in the implementation of this order, as a similar executive move in 2020 faced multiple legal setbacks and was eventually blocked by US courts. The order’s impact on the pharmaceutical sector will depend on its implementation, and companies with a significant US presence, such as Sun Pharma, will be closely watching the developments. Overall, the executive order has introduced significant uncertainty in the pharmaceutical sector, and its impact will be closely monitored by investors and industry stakeholders.