BiQ Journal: Yesterday's Executive Order to Reduce Prescription Drug Costs

Yesterday, President Trump issued an Executive Order directing Congress and HHS to explore ways to lower prescription drug prices. While I can understand why headlines like this often make biotech investors nervous, I don't see the current EO as having any immediate effect, and even over the longer term, it's impossible to predict what impact, if any, this EO may have.

Here's a link to the EO:

https://www.whitehouse.gov/presidential-actions/2025/04/lowering-drug-prices-by-once-again-putting-americans-first/

First, it's important to remember that the EO has no immediate legislative power; it mostly lays out timelines for Congress and HHS to prepare proposals to meet the EO's objectives. With regards to what the EO hopes to achieve, I see the following main objectives:

1. Reduce the fees and profits pocketed by PBMs and other middlemen, and pass savings directly to Medicare and patients. This is aimed at PBMs, not drug manufacturers.
2. Remove the "pill penalty", whereby small-molecule drugs are currently subject to price negotiations earlier than biologics.
3. Align Medicare drug pricing with Hospital drug acquisition costs. Currently, Hospitals often pay less than Medicare due to PBMs profiting from marking up Medicare pricing. Again, this is aimed at PBMs, not pharma companies.
4. Improve transparency in drug pricing. Again, this is aimed primarily at PBMs.
5. Align reimbursement rates between hospital and clinical settings. Currently, reimbursement rates are often higher for hospital settings as hospitals claim they need to charge higher fees to offset higher cost structures.
6. Improve access to lower-cost generics and biosimilars. Again, I see this aimed squarely at PBMs. PBMs are the gatekeepers to drug access and have no incentive to offer low-cost generics and biosimilars. This has made it very difficult for low-cost generics to gain formulary access. Primarily, this could negatively impact high-cost branded generics and off-patent drugs, which are often "protected" by PBMs that block access to low-cost alternatives.
7. Improving patient access to low-cost insulin and injectable epinephrine, especially for low-income or uninsured patients.
8. Streamline procedures for importing drugs from Canada; however, it's unclear what impact this would have, and whether tariffs might negate any potential cost savings.

Again, this has no immediate impact–for now, these are only directives to produce proposals, which will then be subject to debate and Congressional approval. Longer term, it's challenging to predict any specific impacts until we see actual proposals. As always, the devil is in the details.

So far, these are only broad objectives, and it remains to be seen if, and how, they might be enacted. While some biotech companies, such as manufacturers of high-cost branded generics and off-patent drugs, may potentially be negatively impacted, I don't currently foresee any significant adverse impacts to most biotech and drug development companies. These provisions seem primarily aimed at reducing the power and profits presently enjoyed by PBMs, which, in my opinion, may even be a long-term positive for the biotech industry, especially the type of innovative small-cap bios we typically follow at BiQ.

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