Merck's projected earnings decrease due to currency fluctuations predicted
In a significant shift for the pharmaceutical industry, the Most-Favored-Nation (MFN) drug pricing policy, revived by the Trump administration in 2025, is set to drastically reduce U.S. pharmaceutical costs. This policy mandates that U.S. drug prices must match the lowest price paid in comparable developed countries.
The policy, which aims to lower U.S. pharmaceutical costs by approximately 30% to 80%, according to official statements, has significant implications for major pharmaceutical companies such as Merck, Roche, Pfizer, and Bristol Myers Squibb.
Key impacts on these companies' revenues include pressure to lower U.S. drug prices to levels often much lower than current prices, which may reduce U.S. revenues substantially since the U.S. is currently a high-price market. The requirement to extend MFN pricing to all Medicaid patients and newly launched drugs broadens the impact beyond just government programs to commercial markets as well.
Additionally, companies may be obliged to reinvest excess profits earned from higher foreign prices back into U.S. patient care or taxpayers, potentially affecting international revenue strategies. Implementation of direct purchasing options at MFN prices could disrupt existing distribution channels and intermediaries like pharmacy benefit managers (PBMs).
In response to these changes, pharmaceutical companies are likely to reassess launch and pricing strategies for new drugs, possibly constraining innovation incentives or prompting changes in R&D investment plans due to lower expected returns in the U.S. market. Companies may also lobby and legally challenge the policy, reflecting resistance from industry stakeholders concerned about profitability and innovation impact.
Strategies to mitigate these impacts may include restructuring supply chains and contracting models, including direct-to-consumer or direct-to-business sales to align with government demands. Companies may also engage in intensified negotiations with the government to seek exemptions, given the short 60-day compliance timeline imposed by the administration.
Investor reactions have included stock price declines among these firms, indicating market concern over revenue and profit margin compression resulting from enforced MFN pricing.
Beyond the financial implications, broader industry concerns include the risk that such policies could slow drug innovation and hinder development of new treatments due to reduced revenues in the world’s largest pharmaceutical market, disproportionately affecting older adults and vulnerable populations reliant on new therapies.
Despite the challenges in the Electronics division, Merck is open to cooperation with the U.S. government and is following the example of other companies like Roche, Pfizer, and Bristol Myers Squibb, who aim to lower patient costs by bypassing powerful Pharmacy Benefit Managers (PBMs) in the U.S. Merck's CEO, Belen Garijo, stated that the company is considering anything that can reduce the burden on patients.
In the second quarter, Merck's organic revenue grew by 2%, and earnings by 4.6%. However, the operating result in the Electronics division fell by almost half, contributing to an overall adjusted operating profit (EBITDA) of €1.46 billion, a 3% decrease from the previous year and missing analysts' expectations. Despite this, the business with semiconductor materials, which benefits from the AI boom, continues to grow.
Trump has set a deadline of late September and threatened unspecified measures in letters to numerous pharmaceutical companies, including Merck and Boehringer Ingelheim. Merck has raised its organic earnings growth forecast to 4 to 8%, up from previously 2 to 7%.
In summary, the MFN policy aims to drastically lower U.S. drug prices by tying them to the lowest international prices, directly impacting the revenues of companies like Merck, Roche, Pfizer, and Bristol Myers Squibb, and forcing them to evolve their pricing and market access strategies, with uncertain consequences for future innovation and access.
- The MFN policy, due to its potential to lower U.S. drug prices, may significantly affect the financial performance of major pharmaceutical companies like Merck, Roche, Pfizer, and Bristol Myers Squibb, as they may experience reduced U.S. revenues and be obliged to reinvest excess profits into patient care or taxpayers.
- In response to the MFN policy, pharmaceutical companies, such as Merck, may explore new strategies like direct-to-consumer or direct-to-business sales to align with government demands and reduce costs for patients, which could ultimately impact their business models and innovation incentives.
