President Trump has called on 17 pharmaceutical companies to lower drug prices in the U.S., which are reportedly higher than those in other developed countries. A new Executive Order aims to enforce Most-Favored-Nation (MFN) drug pricing for Americans, targeting Medicaid and newly launched drugs. The administration believes that lower drug prices internationally should benefit U.S. citizens. Companies must comply with these pricing guidelines by September 29, 2025. If they don’t, the administration will take action against what they describe as unfair pricing practices.

Key Demands and Compliance

The main demands include applying MFN pricing to Medicaid so that drug prices reflect the lowest rates globally. Newly launched drugs should also have MFN pricing across Medicare, Medicaid, and private insurance. Excess profits made abroad should be used to help American patients and taxpayers. The U.S. government intends to buy high-volume prescriptions at the same lower prices available internationally. Pharmaceutical companies, including Eli Lilly, Sanofi, Regeneron, Merck, AstraZeneca, GSK, Pfizer, Novo Nordisk, Amgen, Bristol Myers, AbbVie, Novartis, Gilead Science, Boehringer Ingelheim, and EMD Serono, have received notices about these requirements and the approaching deadlines. With this clear warning to 17 major drugmakers, we should expect increased uncertainty in the pharmaceutical sector. This could offer opportunities for derivative traders, especially for stocks like Eli Lilly, Pfizer, and Merck. The tight deadline of September 29, 2025, is likely to increase market anxiety in the coming weeks. Traders should consider protective put options for these specific stocks. This strategy will help safeguard against potential price drops if the market thinks these companies will have to reduce U.S. revenue. The market’s response to drug pricing talks under the Inflation Reduction Act in 2023 and 2024 showed significant challenges for the sector.

Market Reaction and Strategic Insights

The threat to drug prices is credible since U.S. prices are demonstrably higher than in other countries. A recent RAND Corporation study showed that U.S. prices for brand-name drugs were, on average, 2.78 times higher than in similar OECD countries. This data supports the administration’s tough stance. Considering that the U.S. market accounts for over 50% of pharmaceutical profits for many companies, any forced price cuts could hurt their profits. Demanding MFN pricing for Medicaid would have an immediate financial impact. Therefore, we expect the market to factor in this risk before the September deadline. Traders should look for option contracts that expire after September 29 to capture the full outcome of this situation. Contracts with expirations in October and November 2025 will be particularly important, as they will show either relief from a resolution or consequences from government actions. We anticipate that implied volatility will peak in the last weeks of September. This political pressure affects the entire sector, not just the 17 companies mentioned. Traders can also use derivatives on ETFs like the Health Care Select Sector SPDR Fund (XLV) to take advantage of broader market trends. Taking a bearish position on the sector index may be a smart way to reduce risks associated with specific company responses. Create your live VT Markets account and start trading now.

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