President Trump and Pfizer announced a deal to cut drug pricing yesterday. And it looks like the pharmaceutical giant got the better end of it. Signed at a showy news conference on Tuesday, the agreement gives CEO Albert Bourla and his company a reprieve from threatened tariffs and something of a truce from an Administration that he had been battling. It was a win so clear that the company’s shares have risen about 16% since its announcement.
The price of that stability, from Pfizer’s perspective, isn’t very much– a fraction of its revenue and one that isn’t expected to have much impact on its bottom line. “It’s worth noting that Pfizer’s news release didn’t change a single financial metric or piece of guidance,” Carter Gould, a Cantor Fitzgerald analyst, wrote in a Tuesday report.
With the agreement, the full details of which have not been disclosed, Pfizer agreed to significantly cut the prices on many of its primary care drugs for conditions like dermatitis, menopause symptoms and arthritis for Medicaid patients. It also agreed to abide by the President’s preferred “Most Favorite Nation” pricing on new products, meaning they won’t be sold at higher prices in the U.S. than in other wealthy countries. Crucially, the deal sets no caps on prices.
One tentpole of the deal is Pfizer’s agreement to list many of these medicines on a planned “TrumpRx” website, which the administration claims will enable Americans to pay cash for drugs at discount prices. In exchange, it has agreed to exempt Pfizer from tariffs, which Trump had said last week would be at a rate of 100%, for the next three years. That could have placed a heavy burden on the company, which operates nearly 30 manufacturing facilities outside of the United States; as part of the deal Pfizer also announced “$70 billion dedicated to U.S. research, development and capital projects in the next few years” but it’s not clear how much of that is new versus already allocated.
On the whole, Pfizer is facing very little downside risk on this deal, while gaining a guarantee of regulatory stability. That’s a big deal at a time when Trump has repeatedly threatened tariffs on drugs and pressured pharma companies to lower prices for Americans.
Wall Street saw the deal for what it clearly is: “This represents a win for Pfizer,” analysts at Jeffries wrote today. Rajiv Leventhal, an analyst at Emarketer, agreed. “This was a smart and savvy play,” he told Forbes. Part of the reasoning here: less than 5% of Pfizer’s $64 billion in annual revenue comes from Medicaid and only about 2% comes from consumers paying cash for drugs. The vast majority of Pfizer’s revenue comes from patients who have coverage through private insurance or Medicare, which aren’t affected by yesterday’s deal. And most people don’t pay list prices anyway because of the complexity of how drugs are priced with discounts and rebates. Plus, medicines offered on Medicaid are typically already steeply discounted.
Leventhal called the deal more about optics than results. “I don’t think it’s something that’s going to have a massive impact, but it will make for splashy press releases and headlines and announcements,” he said. “Trump can say that he lowered drug prices for millions and millions of Americans without actually validating that.”
Other pharma companies are almost certainly looking at Pfizer’s deal to guide their own: offering strategic price cuts in exchange for regulatory certainty. “I think other companies will see this as a replicable business model,” Leventhal said. If it plays out like Pfizer’s deal, there may be more fancy announcements, but little impact on Big Pharma’s operations. “They’re all coming in over the next week,” Trump said at the press event. “We’re making deals with all of them.”
