Analysts are “cautiously optimistic” about Trump’s executive order, noting that changes to the IRA drug price negotiation program will still require Congressional action before being implemented.
President Donald Trump issued an executive order on Tuesday to “improve” the drug price negotiation program under the Inflation Reduction Act, with the goal of lowering the prices of prescription drugs.
Analysts across the board lauded the move, particularly the order’s focus on the controversial “pill penalty,” which gives small molecule drugs only a 9-year window before qualifying for Medicare price negotiations, whereas biologics are exempted for 13 years. The pharmaceutical industry has argued that this takes a significant bite out of a small molecule drug’s potential revenue. “Finally, some good news from DC,” BMO Capital Markets wrote to investors on Wednesday.
“Given the sea of negative headlines for the sector, we are cautiously optimistic around the potential change here,” the BMO analysts wrote, noting that this disparity in exclusion from negotiations “inappropriately undervalued” small molecule drugs, which they argued “are the backbone of medicine.” Legislation, according to BMO, should continue to encourage investment in small molecules rather than disincentivizing R&D into these drugs.
Guggenheim analysts likewise commended the move, writing to investors, “FINALLY, something that could actually HELP!” The executive order (EO), the note argued could help “reinvigorate innovation and benefit biopharma broadly.”
Still, there is reason to be cautiously optimistic about Trump’s executive order, according to Truist Securities, which pointed out that “changes to pricing negotiation cannot be implemented through [executive order] and we believe will need an act of Congress.”
Tuesday’s executive order comes in what has been a difficult period of waxing and waning tariff threats for biopharma. After narrowly escaping Trump’s ‘Liberation Day’ announcement earlier this month, pharma was rocked last week when the president revealed that “major” tariffs on the sector are coming “very shortly.” Over the weekend, Commerce Secretary Howard Lutnick doubled down on these plans, telling ABC News that the additional duties will come “in the next month or two.”
On Monday, the Department of Commerce opened a probe into imports of “pharmaceuticals and pharmaceutical ingredients,” looking at their potential threat to national security. The investigation, launched under Section 232 of the Trade Expansion Act of 1962 and which will culminate in a report to the president, could be a pretext for Trump to impose certain trade restrictions on pharma, including tariffs.
“We assume that tariffs are still on the table, as is fundamental reshaping of FDA,” BMO analysts wrote on Tuesday, wondering if the executive order “is a give ahead of broad tariffs.”
