President Donald Trump signed an executive order on Monday implementing a "Most Favored Nation" (MFN) drug pricing policy that aims to align U.S. pharmaceutical prices with the lowest prices available in comparable countries. The policy, which threatens to impose tariffs on imported medicines if pricing targets aren't met, has created significant uncertainty in the global pharmaceutical market, particularly affecting German drug manufacturers.
The executive order lacks implementation details but has already impacted market performance. Shares of German pharmaceutical giant Merck closed 0.74 percent lower on Friday despite the benchmark DAX index rising by 0.3 percent. This decline followed Merck's downward revision of its full-year sales forecast for its life science division, now projecting revenue between €8.8 and €9.4 billion (US$10.6-11.3 billion), down from the previous €9.1 to €9.8 billion outlook.
Potential Market Impact
While President Trump claims the MFN policy could reduce U.S. drug prices by 30 to 80 percent, industry analysts paint a more concerning picture for pharmaceutical companies. According to a study by German consultancy Simon-Kucher published Monday, such pricing regulations could lead to a devastating 64 percent drop in pharmaceutical sales in the United States and a 37 percent decline globally.
The consultancy further warned that a collapse in U.S. sales might force German pharmaceutical companies to either raise prices in domestic and European markets or exit these markets entirely to protect their profit margins in the United States. This could fundamentally disrupt the pharmaceutical industry's current business model, which has traditionally relied on U.S. revenues to fund new medicine research and development.
Sebastian Guth, chief operating officer of Bayer Pharmaceuticals, expressed concern at last month's Semafor World Economy Summit, stating, "Every dollar we spend on tariffs is a dollar we can't spend on research and development."
German Pharmaceutical Industry at Risk
For Germany's pharmaceutical sector, the risks are particularly pronounced. A recent Deloitte study estimated that a 35 percent U.S. tariff on drug imports could slash German pharmaceutical exports to the U.S. by 53 percent, potentially resulting in industry losses of up to €13.4 billion over three to four years. Even a modest 10 percent tariff could reduce German pharmaceutical exports by 2 percent compared to their 2023 levels.
Bayer, another major German pharmaceutical company, reported modest growth in its pharmaceutical division in the first quarter of 2025, with prescription drug sales rising 4.1 percent and adjusted EBITDA up 12.4 percent. While Bayer CEO Bill Anderson stated on Tuesday that the immediate impact of U.S. tariffs on the company is limited, he acknowledged that Bayer remains vigilant regarding geopolitical and economic uncertainty.
Broader Industry Implications
The MFN policy represents a significant shift in how pharmaceutical pricing has traditionally operated across global markets. Historically, the U.S. market has accepted higher drug prices, effectively subsidizing lower prices in other countries and funding a substantial portion of global pharmaceutical research and development.
If implemented as proposed, the policy could force a fundamental restructuring of pharmaceutical pricing strategies worldwide. Companies may need to reconsider their research and development investments, potentially leading to fewer innovative treatments reaching the market in the coming years.
The lack of implementation details in the executive order has created additional uncertainty, leaving pharmaceutical companies and investors struggling to prepare for potential outcomes. Industry stakeholders are closely monitoring developments, with many hoping for clarification on how the policy will be executed and what specific measures will be taken to enforce the new pricing standards.
