Trump’s Drug Pricing Order Targets Big Pharma Margins and Reshapes Market Outlook

On May 12, 2025, President Donald Trump announced an executive order mandating sweeping reductions in prescription drug prices under Medicare. The move, which applies a “Most Favored Nation” (MFN) clause, seeks to peg U.S. drug prices to the lowest rates paid by other developed countries. Trump framed the measure as a direct correction to what he called “global freeloading,” claiming it would slash U.S. drug prices by 30% to 80%, particularly under Medicare Part B, which covers physician-administered drugs such as cancer treatments, injectables, and immunotherapies.

The announcement adds a new layer of pressure to an already volatile pharmaceutical sector. It comes as part of Trump’s broader campaign to recast healthcare policy in populist terms ahead of the November elections. Under the executive order, the Centers for Medicare & Medicaid Services (CMS) will establish a pricing benchmark based on international price indices for select high-cost medications, most of which are biologics manufactured by multinational firms. The administration claims the policy will initially apply to 50 drugs with the highest Medicare Part B spend, with room for expansion pending review.

Immediate Market Impact

The equity market response was swift and decisive. Shares of U.S. pharmaceutical majors with high exposure to Medicare Part B revenue saw sharp declines within hours of the announcement. Pfizer (PFE) dropped 4.7%, Merck (MRK) fell 3.9%, and Amgen (AMGN) lost over 5% by the closing bell. These firms generate significant revenue from biologic therapies like oncology drugs and autoimmune disease treatments—precisely the types of products that fall under the new rule.

European pharma names were not insulated. GlaxoSmithKline (GSK) and AstraZeneca (AZN), both with U.S.-facing drug pipelines, saw declines of 2.1% and 2.9% respectively on the London Stock Exchange. The U.S. remains the most profitable pharmaceutical market globally, and even a partial reduction in prices under MFN logic risks margin compression across the sector.

Healthcare indices reflected the shift. The S&P 500 Health Care Sector Index (SP500-35) closed lower on above-average volume, while ETFs such as XLV and IHE experienced elevated outflows. Options activity surged in both U.S. and EU-listed drugmakers, with implied volatility spiking on the short end of the curve, indicating traders are pricing in continued uncertainty through the summer.

Strategic Risk for Pharmaceutical Majors

The MFN model represents a structural challenge to pharmaceutical firms that rely on U.S. pricing power to offset regulated price caps abroad. Under the current system, drugmakers frequently charge U.S. insurers multiples of what they earn in countries like France, Germany, and Canada. These margins have historically subsidized global R&D and commercial operations. The new framework not only compresses those margins but undermines the sector’s financial architecture.

Companies may be forced to reprice globally or pull select therapies from certain markets to avoid triggering lower U.S. benchmarks. Industry groups are already threatening legal action, arguing that the rule violates statutory protections on price negotiations. The Pharmaceutical Research and Manufacturers of America (PhRMA) has warned that innovation may slow if price controls are expanded further.

Nonetheless, bipartisan appetite for drug pricing reform remains high, and further policy pressure appears likely regardless of the outcome of this particular initiative. The MFN rule, even if delayed or litigated, has already shifted trader sentiment and repositioned risk profiles for health-sector equities.

Implications for Global Markets

Outside of equity valuations, the move carries FX implications as well. Countries with large pharmaceutical export sectors—such as Switzerland, Germany, and the UK—could see trade-weighted currency impact if U.S. pricing pressure limits drug revenues. USD/CHF, USD/EUR, and USD/GBP should be monitored for relative shifts in sentiment tied to pharmaceutical trade dynamics.

Commodity-linked currencies are less likely to be affected directly, though broader market risk-off moves tied to healthcare sell-offs may spill over into correlated asset classes. In fixed income, U.S. health insurers and hospital systems exposed to drug reimbursement policy will also see rating review risk in the coming months.

Tips for Traders

• Track PFE, MRK, AMGN, GSK, and AZN for further downside or rebound opportunities based on litigation news and CMS rollout timelines.

• Watch XLV and IHE for sector-wide sentiment shifts and fund outflows linked to defensive rotation.

• Monitor USD/CHF, USD/EUR, and USD/GBP for subtle FX movement as global pharma margins adjust.

• Be cautious with long equity exposure in pharma—volatility is likely to remain elevated through Q3.

• Use protective stops and manage leverage closely if trading names directly affected by Medicare policy risk.