While the Trump administration continues to promote drug pricing reforms and threaten pharmaceutical import tariffs, a recent report from S&P Global suggests that large branded pharmaceutical companies are well-equipped to endure these challenges. According to the report, “many global pharma companies can endure pricing pressures, trade duties and more,” and several of the more controversial policies proposed by President Donald Trump may not fully materialize.
A central concern for the pharmaceutical industry is the administration's proposed Most Favored Nation (MFN) pricing policy, which seeks to align U.S. drug prices with the lowest prices found in peer nations. S&P warns this could be “highly negative” to the credit quality of branded drugmakers if implemented. The firm further notes that the policy would pose significant risks to ongoing investment in U.S. pharmaceutical development.
Trump’s previous attempt to enact MFN pricing during his first term was met with immediate legal opposition. The report anticipates that a renewed push could spark another legal confrontation: “If the second administration continues to push its new MFN policy, a legal battle is likely to ensue once again.”
In contrast to branded drugmakers, generic pharmaceutical companies face a more precarious situation. The administration’s strategies to enhance biopharma competition and impose pharma-specific tariffs could disadvantage smaller generic firms, according to S&P. These moves may create openings for larger companies like Teva Pharmaceutical and Amneal Pharmaceuticals to gain market share. The analysts point out, “some generic companies, especially those reliant on China, may find certain drugs unprofitable.”
Because generic drugs typically operate with slimmer profit margins and greater price sensitivity, tariffs could significantly disrupt this sector. Many generics rely on Chinese production or raw material sourcing, exposing them to higher costs under reciprocal tariffs. Moreover, past efforts to accelerate generic approvals under Trump’s first term inadvertently led to price deflation, squeezing profit margins even further.
Regarding pharma-specific import duties, S&P analysts suggest branded drugmakers may mitigate some of the cost pressures by passing them on to consumers—particularly for drugs with limited competition. However, drugs included in Medicare cannot have prices rise faster than inflation, and new Medicare price negotiations under the Inflation Reduction Act could constrain companies’ flexibility.
The report notes that, depending on tariff rates, it might be prudent for larger drugmakers to shift more manufacturing operations to the U.S., albeit at higher operating costs and potentially less favorable tax rates. “Naturally, though, those efforts come with steep costs and the risk of operating under a less competitive tax rate,” the S&P report cautions.
The Trump administration has taken steps to overhaul key health agencies, including the Department of Health and Human Services (HHS), resulting in widespread layoffs. These moves add to the climate of uncertainty within the pharmaceutical industry. Additionally, a Section 232 investigation initiated last month aims to assess national security threats tied to pharmaceutical imports, potentially paving the way for import restrictions under the Trade Expansion Act of 1962.
In May, President Trump issued an executive order mandating that HHS implement his MFN pricing vision by pegging government drug purchasing costs to the lowest rates paid by economically advanced nations. HHS clarified that “all brand products across all markets that do not currently have generic or biosimilar competition” must adhere to these international price benchmarks.
Despite the administration’s aggressive policy stance, congressional support for MFN pricing remains tepid. The report emphasizes that a “slim Republican majority in both houses” makes legislative approval uncertain. Many Republican lawmakers are wary of stifling innovation through aggressive pricing reforms.
Nonetheless, with bipartisan concern over high drug prices, S&P anticipates some form of reform will proceed “within the coming year,” albeit likely in a less disruptive form than MFN pricing as currently outlined.
