JP Morgan: Pricing agreement between Pfizer Inc. (PFE.US) and the US government has "limited impact" and could become an industry "template"

On September 25th, US President Trump announced a new round of drug tariffs on social media, which played a key role in prompting an agreement between the White House and one of the world's largest pharmaceutical companies, Pfizer Inc. For months, Pfizer Inc. and the White House have been deadlocked in negotiations on how to address President Trump's most crucial issue, lowering drug prices in the US. These officials stated that since the beginning of Trump's second term, the President had made it clear to pharmaceutical company executives that he expected them to come to the negotiating table and produce results quickly. JP Morgan analysts stated that Pfizer Inc.'s deal could become a potential indicator for the industry, providing investors with reassurance that its impact is generally manageable. Starting in May, senior officials from the US White House and the Department of Health and Human Services began meeting with various companies to discuss possible solutions. Officials described the atmosphere at the initial meetings in June and July as tense and deadlocked. Many participants were strongly opposed to the idea of global uniform drug pricing, known as the "most favored nation pricing" principle. On July 31st, Trump sent letters to 17 of the largest pharmaceutical companies, including Pfizer Inc., Eli Lilly, Novo Nordisk, requesting that they immediately lower prices on existing drugs provided to healthcare plans. He also requested that these companies ensure that the prices of future new drugs are in line with overseas prices. These companies were given 60 days - until September 29th - to voluntarily comply. After months of negotiations and deadlock, an agreement between the US government and Pfizer Inc. was finally reached at the last minute. Pfizer Inc. agreed to reduce prices for certain drugs by up to 85% and sell them directly to the American public through a new website called TrumpRx, thus avoiding the tariffs long threatened by Trump. Pfizer Inc. also stated that it would provide a US insurance plan for low-income and disabled adults to ensure they enjoy prices comparable to other countries. The company also pledged to introduce new drugs at prices equivalent to those in other developed countries. In exchange, the company received a three-year grace period to avoid the impact of expected drug tariffs that the US government had threatened to impose. In the short term, Pfizer Inc.'s actions were well received on Wall Street. On the day the deal was announced, Pfizer Inc.'s stock price surged by 5.6%. Investors had previously been concerned that a series of stricter rules would result in the company losing billions of dollars in revenue. Medicaid is an insurance program provided by the US government for low-income individuals, comprising a small part of Pfizer Inc.'s business, and Pfizer Inc. has already received significant discounts from pharmaceutical manufacturers. The company's commitment to align future drug prices with those of other wealthy countries may sound like a grand promise, but analysts anticipate that it will have a minimal impact on Pfizer Inc.'s financial situation. This deal boosted the stock prices of other pharmaceutical companies in the following days. JP Morgan analysts stated that Pfizer Inc.'s deal could become a potential indicator for the industry, providing investors with reassurance that its impact is generally manageable. For Trump, this agreement allowed him to claim progress in ending what he perceived as foreign countries unfairly exploiting high drug prices for Americans. Officials stated that aligning drug prices with those of foreign countries is a top priority for Trump's healthcare agenda. Pfizer Inc.'s concession to Trump marks a major moment for the pharmaceutical industry, which has long been opposed to Trump's idea of linking domestic drug prices to those of foreign drugs. As the US government is actively negotiating with other companies, the specific details of this agreement have not been disclosed. However, government officials believe that the agreement will reduce expenditures on the government healthcare program Medicaid for low-income Americans. It is expected that more companies will follow suit. Officials stated that after the press conference, another deal was finalized, with a third deal set to be completed soon. Officials said that since then, several other companies have expressed their desire to sit at the negotiating table.