Morningstar

Biopharma Industry: Trump’s Executive Order Could Help Innovation, but Range of Scenarios Still Open

We’re not changing any valuations or ratings as a result of the order, which was light on detail.

President Donald Trump issued an executive order on April 15 listing several potential policy changes aimed at lowering US drug prices.

Why it matters: Biopharma has been holding its breath as it awaits Trump’s plans for reducing drug costs, with a range of possible policy changes that could help or hinder innovation.

  • In a worst-case scenario, international price benchmarks could significantly lower US drug pricing and reduce economic incentives for innovative drug development globally.
  • On a more positive note, correcting the “pill penalty,” which only gives small molecule drugs nine years of protection from Medicare negotiation (biologics get 13), could encourage innovation regardless of treatment modality.

The bottom line: We’re not making any changes to our valuations or uncertainty ratings as a result of the executive order, which was light on details and could be construed as positive or negative for the industry.

  • Trump wants US Department of Health and Human Services Secretary Robert F. Kennedy Jr. to work with Congress to correct the pill penalty, although this relies on congressional action and does not specify how long the protection period should be.
  • Another goal is for Kennedy to begin a new Medicare payment model to lower drug prices within one year, which could revive Trump’s international price benchmarking model, which was finalized under Trump in 2020 but halted by President Joe Biden in 2022.

Big picture: We think the biopharma industry looks undervalued, as innovation and a promising M&A environment support long-term pricing power and help to counter potential near-term tariff pressure, long-term rising tax rates as US manufacturing increases, and likely approval delays.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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