President Donald Trump announces a bold plan to slash U.S. prescription drug prices by up to 80% through international price benchmarking, sending pharmaceutical stocks tumbling worldwide.
Quick Takes
- Trump plans to sign an executive order implementing a “Most Favored Nation’s Policy” to align U.S. drug prices with the lowest international rates
- The proposed policy could reduce prescription drug costs by 30-80%, potentially saving “trillions of dollars” according to Trump
- Billionaire investor Bill Ackman praised Trump’s plan, which mirrors his own suggestions to make it illegal for drug companies to sell medications cheaper abroad
- Pharmaceutical stocks fell sharply globally following Trump’s announcement
- The policy aims to end what critics call American subsidization of drug development for the rest of the world
Trump’s Executive Order Targets Drug Price Disparity
President Donald Trump announced plans to sign an executive order on May 12 aimed at dramatically reducing prescription drug prices in the United States. The order would implement a “Most Favored Nation’s Policy” tying U.S. drug prices to the lowest rates available internationally. This approach directly addresses the long-standing disparity where American consumers pay significantly more for medications than patients in other developed nations for identical drugs manufactured by the same companies. The policy could potentially reduce prescription drug costs by 30% to 80% according to Trump’s statements.
Trump highlighted the embarrassment and difficulty in explaining why Americans pay five to ten times more for medications than other countries. “For many years the World has wondered why Prescription Drugs and Pharmaceuticals in the United States of America were SO MUCH HIGHER IN PRICE THAN THEY WERE IN ANY OTHER NATION, SOMETIMES BEING FIVE TO TEN TIMES MORE EXPENSIVE THAN THE SAME DRUG, MANUFACTURED IN THE EXACT SAME LABORATORY OR PLANT, BY THE SAME COMPANY??? It was always difficult to explain and very embarrassing because, in fact, there was no correct or rightful answer,” Trump stated.
Billionaire Investor Ackman Endorses Trump’s Approach
Bill Ackman, CEO of Pershing Square Capital Management, publicly endorsed Trump’s drug pricing initiative, noting it closely mirrors suggestions he had previously made. Ackman has been vocal about the role pharmaceutical pricing plays in the growing national debt, which has now reached $37 trillion. The billionaire investor specifically praised Trump for being the “first president in history to rectify the situation” where American consumers effectively subsidize lower drug prices around the world.
“The best way to reduce drug prices in the US is to make it illegal for drug companies to sell the same drugs abroad for lower prices than they sell them for here. This will force a globally negotiated price that will be lower than the prices that US consumers pay now and higher than what foreigners pay now. Otherwise we are stuck with a system where American consumers subsidize drug development for the rest of the world. Ask any pharma company CEO. They will agree that the above approach will have the intended effect.” expressed Bill Ackman
Ackman later acknowledged the similarity between his proposal and Trump’s planned executive order, stating “President Donald Trump must have liked my idea” while sharing news about the announcement. The investor has consistently argued that forcing pharmaceutical companies to standardize their global pricing would create more equitable outcomes for American patients without destroying the industry’s ability to fund research and development.
Market Reaction and Economic Impact
Following Trump’s announcement, pharmaceutical stocks experienced significant declines globally. European pharmaceutical companies saw their shares drop, as did drugmakers across Asia and India. This market reaction reflects investor concerns about potential impacts on pharmaceutical industry profits if the executive order is implemented. The broader market showed mixed reactions, with the SPDR S&P 500 ETF Trust and Invesco QQQ Trust ETF seeing slight declines, while futures for major indices were trading higher ahead of market opening.
Trump claimed his drug pricing policy could save “trillions of dollars” in healthcare costs while bringing fairness to U.S. drug pricing. The proposal represents a significant potential shift in how prescription medications are priced in America. By benchmarking against international prices, the policy would effectively import price controls from countries with regulated pharmaceutical markets, forcing drug companies to adjust their pricing models to maintain access to the lucrative U.S. market while potentially reducing profit margins.
Implementation Challenges
While the proposed executive order has generated significant attention, questions remain about implementation timelines and potential legal challenges. Previous attempts to reform drug pricing have faced resistance from pharmaceutical industry groups and become entangled in litigation. The executive order would need to navigate regulatory requirements and potential court challenges before taking effect. The pharmaceutical industry has historically argued that higher U.S. prices help fund innovation and research for new treatments that benefit patients worldwide.
Healthcare costs continue to be a major concern for American voters, with prescription drug prices frequently cited as a particular pain point. The proposal comes amid ongoing national discussions about healthcare affordability and represents a dramatic approach to addressing one component of rising healthcare costs. The ultimate impact on patients, the pharmaceutical industry, and healthcare spending will depend on the specific implementation details and the ability of the policy to withstand expected legal and regulatory scrutiny.
Sources:
- Bill Ackman Slams Subsidies For Contributing To $37 Trillion National Debt, Hails Trump’s Drug Price Order
- Donald Trump to tether US drug costs to cheapest prices abroad: Bill Ackman says ‘must have liked my idea’
