Does Trump's MFN Policy Put Pharma ETFs in the Crosshairs?

Core Insights - Eli Lilly and Novo Nordisk have agreed to reduce prices for obesity drugs under the Trump administration's Most-Favored-Nation drug pricing policy, aiming to align U.S. drug prices with the lowest prices in other advanced countries [1][3][4] - The price cuts will significantly impact the pharmaceutical industry, particularly affecting major companies and their associated ETFs [2][6] Price Reduction Details - The agreement includes a reduction of GLP-1 drug prices to approximately $350 per month from over $1,000, with Medicare prices dropping to $245 and beneficiaries paying a $50 co-pay [4][5] - Insulin prices will also be capped at $35 per month, and the deal mandates MFN pricing for all new products [5] Financial Impact - The implementation of MFN pricing is expected to compress revenue and earnings for major pharmaceutical firms, particularly those with high-cost, single-source brand-name drugs [6][9] - Companies like Pfizer, Eli Lilly, and AbbVie are likely to see profit margins decline as they adjust domestic prices to lower international benchmarks [7][8] Stock Market Reaction - Following the announcement, shares of Novo Nordisk and Eli Lilly fell by 1.8% and 1.4%, respectively, indicating immediate market reactions to the news [9] Long-Term Strategies - In the long term, large-cap pharmaceutical companies may adapt by increasing prices in other markets and shifting research investments towards biologics, which have longer exclusivity periods [10][11] - Companies may also alter launch strategies in countries with lower prices to protect U.S. pricing [11] ETF Exposure - The MFN policy poses indirect risks for pharmaceutical ETFs that hold significant positions in affected companies, potentially leading to declines in Net Asset Value (NAV) and share prices [12][13] - ETFs such as iShares US Pharmaceuticals ETF, VanEck Pharmaceutical ETF, and Invesco Pharmaceuticals ETF have substantial exposure to companies like Eli Lilly, Pfizer, and AbbVie, making them vulnerable to the new pricing mandate [14][15][16]