Drug Pricing Executive Orders Not Likely to Affect FVEs
We don’t expect these actions by President Trump to significantly affect our fair value estimates or moat ratings due to limited details, challenging implementation, and only minor impacts.
President Donald Trump’s executive orders targeting drug prices create modest pricing headwinds and slightly higher uncertainty for drug firms. However, we don’t expect these actions to significantly affect our fair value estimates or moat ratings due to limited details, challenging implementation, and only minor impacts.
Trump’s executive orders, signed July 24, targeted three areas with varying degrees of impact; a fourth order is pending. First, the order allowing the importation of drugs from Canada would significantly reduce U.S. drug prices (which are close to double international prices), but safely implementing this is challenging, given the different labels across countries, and drug firms are likely to limit Canada sales. Importation of drugs has been passed by Congress twice, only to fail in implementation largely due to safety concerns. Second, the order to eliminate rebates within the supply chain without increasing premiums seems difficult to implement, as those rebates are typically used to reduce overall premiums, and it is unclear what eliminating rebates would do to net drug prices in this complex system. Third, passing insulin and epinephrine discounts currently benefiting certain health centers to patients would likely reduce patients' out-of-pocket payments, but this isolated change would not likely affect drug firms significantly.
Trump also targeted the potential to use international benchmark pricing for certain drugs administered in the hospital setting under Medicare Part B, but this order has not yet been released, as he is open to discussion with drug firms until at least Aug. 24 to find alternative ways to lower drug prices. While details of this strategy are less clear, we estimate a 10% reduction to Part B drug prices would hit industry earnings by close to 1%, and higher for firms like Amgen and Regeneron. Implementing this looks challenging as well, partly due to complexities and ambiguities around international pricing.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.