Fears over Trump's drug price cuts overblown but risks remain for Korean biotechs
U.S. President Donald Trump signs an executive order that he promises will lower the cost of prescription drugs in the Roosevelt Room of the White House, Monday. EPA-Yonhap
U.S. President Donald Trump sent jitters through Korea’s biotechnology industry by announcing plans for drug price cuts of up to 90 percent. The announcement dragged down shares of major Korean biotech firms amid fears over the potential impact, but the actual executive order he signed Monday (local time) is now prompting views that those concerns may have been overblown.
Resurrecting a drug price policy from his first term, Trump signed an executive order centered on a “Most-Favored-Nation” pricing model, which would require drugmakers to lower prices to match those paid in other countries. Pharmaceutical companies have been given a 30-day window to voluntarily reduce their prices.
The order also allows patients and hospitals to purchase drugs directly from manufacturers, bypassing intermediaries such as pharmacy benefit managers and insurers. However, analysts have raised questions over the order’s feasibility, pointing out the lack of detailed implementation measures and legal grounds to support Trump’s claim that the policy could cut prices by up to 90 percent.
“While the U.S. government is expected to provide guidance on the pricing model and engage with pharmaceutical companies over the next 30 days, key details such as the scope of drugs covered and specific implementation rules have yet to be disclosed,” NH Investment & Securities analyst Han Seung-yeon said. “It will take time before a concrete framework is established and enforced.”
Similar to their U.S. counterparts, major Korean biotech stocks fell following Trump’s social media post on Sunday, in which he called the upcoming measure “one of the most consequential executive orders in history.”
On Monday (KST), Samsung Biologics dropped 4.71 percent, while Celltrion fell 3.92 percent from the previous session. SK Biopharmaceuticals and SK Bioscience also declined by 2.1 percent and 1.86 percent, respectively, during the same period.
After the executive order unfolded, however, Samsung Biologics inched up 1.21 percent on Tuesday. Celltrion also showed a 1.38 percent improvement, and the two SK Group biotechs also gained during the same period.
Celltrion on Tuesday sent a letter to its shareholders and claimed that “the executive order could potentially offer a more favorable business environment.”
In the letter, the biosimilar company said the gist of the executive order is the streamlining of intermediary distribution channels. The order will weaken the market dominance built by big pharmaceuticals having high-margin original drugs through their close ties with intermediaries, opening up the market for biosimilar firms that compete on price and value, Celltrion said.
It added that Trump’s push to bring down expensive prescription drugs will benefit Celltrion’s U.S. sales. Celltrion claimed that biosimilars are often priced as high as their originals in the U.S. at the point of prescription due to the rebate structures tied to intermediaries.
“If the executive order improves the intermediary system, it could effectively lower the prescription costs of biosimilar drugs, delivering tangible cost savings for both the government and patients,” Celltrion said. “This is expected to accelerate biosimilar expansions in the U.S.”
Celltrion's Remsima SC / Courtesy of Celltrion
Other biotech industry officials remained relatively calm, saying too many details of the executive order remain uncertain, but noted that the initial market fears seem to be overblown.
“The details of the executive order remain vague, but the goal seems clear — to provide cheaper drugs to American citizens,” an industry official said. “From that perspective, the policy can be interpreted as favoring the biosimilar sector within the broader biopharmaceutical industry.”
NH analyst Han also noted that the executive orders’ primary beneficiaries are U.S. consumers, and its main target is insurers and intermediaries because the policy aims to lower end costs by tapping into rebates.
Reflecting on similar views, shares of companies owning pharmacy benefit managers showed a decline. From Friday to Monday, Cigna fell 5.31 percent, CVS Health declined 3.23 percent and UnitedHealth Group slipped 0.5 percent.
As biosimilar firms are estimated to expand their market presence, contract manufacturers are also expected to enjoy favorable outlooks.
“The extent of the impact may vary depending on each company’s product portfolio, but (drugmakers’) strategic shifts are expected,” Daishin Securities analyst Lee Hee-young said. “These may include greater use of contract development and manufacturing organizations (CDMOs) for cost reduction.”
Lee noted that the policy may present opportunities for CDMOs and new drug developers in the short term, but could lead to pricing pressure on contract manufacturers in the long term.
Various prescription drugs are stocked on a shelf at a pharmacy in Los Angeles, Calif., Monday (local time). EPA-Yonhap
Another biotech industry official also noted that the current situation should not be seen as an outright positive for the industry.
“If an original drug was sold for 100 won, it is now mandated to be sold for 70 won,” the official said. “Then, biosimilars which were priced at 70 won will have to go down to 60 won to stay competitive… In that sense, the policy in the long term could also be unfavorable for contract manufacturers, as drugmakers will likely try to cut costs, ultimately pushing CDMOs into price competition for contracts.”
The Trump administration’s planned announcement on the pharmaceutical tariff is also a reason prompting biotech firms' caution.
“Since drug tariffs are also part of the picture, it’s too early to call the executive order a clear upside,” a third official said. “With expectations that global pharmaceutical companies will engage in lobbying and legal challenges, the landscape remains uncertain and unsettled.”