Public policies could affect pharmaceutical issuers' credit quality. We think U.S. policymakers will continue to draft regulations to address drug affordability and see possible further price reform in the coming year. However, we don’t expect laws to severely reduce investment in drug development.

Why it matters: At $1,448 per capita annually, the U.S. pays more for medicines than any other Organisation for Economic Co-operation and Development country. Pharmaceutical data provider IQVIA predicts overall spending on medicines will continue to rise in the U.S. And although Americans have access to the broadest array of drugs, not all can afford them. Thus, drug affordability measures have gained support across the political spectrum, which could weigh on creditworthiness in the industry.

Chart 1

U.S. Government Aims To Cut Pharmaceutical Prices

The Trump administration is making its drug-pricing priorities clear. It has issued two executive orders addressing drug affordability. These new directives could put additional pressure on pharmaceutical revenue growth, investment, and credit quality. However, any impact on pharmaceutical companies and their credit quality would depend on subsequent specific actions, their scope, and timing.

Executive orders: Intentions outlined

The two orders pertaining to drug pricing were Executive Order 14297 and Executive Order 14273. The announced policy priorities include:

• Mandating most favored nation (MFN) pricing, reducing the gap between prices in the U.S. and those in other developed countries;
• Expanding programs to allow for the importation of drugs;
• Increasing generic and biosimilar competition;
• Possible changes to the Inflation Reduction Act (IRA) to reduce potential disincentives for the development of small-molecule drugs;
• Improving upon the previous administration’s reduction of drug prices under the Medicare drug price negotiation program; and
• Pharmacy benefit manager (PBM) reform.

Most investment-grade branded pharmaceutical companies are well positioned, with prospects for revenue growth over the next few years. These companies have cushions for some margin erosion for our ratings. They can also maintain creditworthiness by prioritizing conservative leverage.

Our sector outlook and most ratings on pharmaceutical companies remain stable. That said, government-led initiatives could constrain revenue and profit growth. This might fuel mergers and acquisitions as companies look to support revenue growth. Further industry consolidation is also a risk. This could pressure ratings. Multiples in the sector tend to be high, and larger transactions financed with debt can materially increase acquirers’ leverage.

Chart 2

MFN pricing and broader import directives: Potential legal challenges

MFN pricing could highly constrain pharmaceutical companies’ profitability. This would, in turn, hinder credit quality. However, we have not factored such pricing into our base case. Executive Order 14297 directed the Secretary of Health and Human Services (HHS) to communicate MFN pricing to pharmaceutical companies within 30 days. After that, if significant progress is not made, the administration will act. It suggests the administration could “impose a rulemaking plan to impose MFN pricing.”

Attempts by the executive branch to implement MFN pricing may face legal challenges. In the previous Trump presidency, the administration tried to use HHS’ authority to test MFN pricing on 50 Medicare Part B drugs. However, this approach was met with opposition from the pharmaceutical industry and blocked by courts.

The administration could encourage Congress to enact new laws. We believe it is unlikely for Congress to enact legislation that would effectuate MFN, given its concerns over the degree to which it would slow innovation or limit access.

Drug importation would have a relatively limited credit impact. The executive orders mention streamlining the process to allow states to import drugs from other countries. For medicines to be imported into the country safely, this would require the consent of the exporting country. It is unclear which countries would be willing to export drugs to the U.S. Also, potential participating countries would be cautious about jeopardizing their own supply of medicines. This likely limits the scope of such a program and its effect on issuers.

Generics And Biosimilar Reform Could Be A Headwind

In Executive Order 14273, the Trump administration has indicated it will investigate ways to increase competition by accelerating generic and biosimilar approvals.

Branded pharmaceuticals do not face a competitive market while patents are in effect. Branded pharmaceuticals enjoy the benefits of patent and regulatory protection for a period. They may face competition from substitute products for a disease, but a generic manufacturer cannot copy the drug molecule until patent protection ends. Patents are typically issued for 20 years or more after they are filed. However, an innovator must then conduct clinical trials, which can take an average of 6-8 years, and extensions are permitted up to 14 years from the initial patent expiration date.

Patent protection and the ability to charge higher prices during the patent period serve as incentives for companies to make the risky and often significant investment to develop new medicines . New drug development has a high failure rate and can be expensive. One 2018 study, led by Chi Heem Wong, et al., published in the journal Biostatics, found that from 2000 to 2015, only about 13.8% of drugs that began Phase I clinical trials were approved. Between 2008 and 2019, the average research and development spending per product was estimated at $1.1 billion, a 2020 study led by Olivier J. Wouters, et al., published in the Journal of the American Medical Association, found. Thus, pharmaceutical companies often charge high prices during patent-exclusivity periods to recoup investment costs.

Once a drug loses patent and regulatory exclusivity, there can be generic or biosimilar competition. Market forces usually cause prices to decline at this point, sometimes up to 85%, depending on the number of competitors. Biosimilars, drugs deemed as safe and as effective as the brand-name reference drug, are like generics. However, they replicate biologic drugs, or treatments that are not chemically synthesized, but more complex and can even involve living cells.

The launch of biosimilars can cause the price of the innovator drugs to decline. However, biosimilars tend to be priced at lower discounts over the reference brand drugs compared with generic drugs. This is because approval processes are more stringent for biosimilars, they have less competition, fewer drugs achieve interchangeable status, and there are differences in reimbursement dynamics. However, we have seen some biosimilars priced at an 85% discount over the reference drug. In the U.S., the adoption of biosimilars has been slower than in Europe, which has prompted proposed legislation to accelerate adoption and increase market competition.

Current bills intended to accelerate biosimilar competition mechanisms could reduce industry growth rates. However, this would have a relatively moderate impact on creditworthiness. Currently, there are several proposals to spur competition for biologic drugs by speeding up the adoption of biosimilars (i.e., drugs considered equivalent to biologic drugs). One act will try to prevent “patent thickets” on biologics. This refers to the practice of using multiple patents to avoid biosimilar entry. Another seeks to eliminate the need to conduct studies for a drug to be considered an interchangeable biosimilar. These are biosimilars that can be automatically switched for the innovator’s drug, as is permitted in Europe. This bill, if passed into law, could make biologics more affordable, potentially giving patients access to therapies for lower prices. Still, these initiatives would affect older drugs. Also, as of March 31, 2025, only 69 biosimilars are approved in the U.S. We therefore believe that if these bills became law, their impact would be moderate.

The executive order mentioned more approvals of generic drugs, which could increase credit risk for generic drugmakers. In the last Trump administration, the Food and Drug Administration (FDA) accelerated the approval of generic drugs. This hurt generic drug companies more than it did branded drug companies.

Faster FDA approvals increased generic price deflation because there were more generic competitors for drugs. Price erosion and revenue declines followed for several generic companies, a factor in several downgrades. We will wait and see how the administration plans to implement this directive, especially since it recently cut FDA staff.

Table 1

Proposed bills to improve drug affordability, enhance transparency, or amend the Inflation Reduction Act
Bill number	Bill name	Bipartisan sponsors	Details
S. 142	Preserve Access to Affordadble Generics and Biosimilars Act	Yes	Give the Federal Trade Commission (FTC) the power to investigate whether settlements between branded and generic drugs are anti-competitive.
S. 150	Affordable Prescriptions for Patients Act	Yes	Prevent “patent thickets” on biologics.
S. 1114	Expanding Access to Low-Cost Generics Act of 2023	Yes	Allows the Food and Drug Administration (FDA) to approve a subsequent generic drug application before the first applicant begins marketing, provided certain conditions are met.
S. 1067	Ensuring Timely Access to Generics Act of 2023	Yes	Allows the FDA to deny citizen petitions aimed at delaying generic drug or biosimilar approvals that do not present scientific or regulatory concerns or meet other criteria.
S. 148	Stop Significant and Time-wasting Abuse Limiting Legitimate Innovation of New Generics Act or the Stop STALLING Act	Yes	Prohibits submitting baseless petitions to the FDA to obstruct competitors' drug approvals, allowing the FTC to sue offenders for civil penalties of up to $50,000 per day of FDA review.
S. 79	Interagency Patent Coordination and Improvement Act of 2023	Yes	Creates the Interagency Task Force on Patents to enhance coordination between the Patent and Trademark Office and FDA regarding patents for human drugs and biological products, facilitating information sharing and support for patent examination and approval processes.
S.2305	Biosimilar Red Tape Elimination Act	Yes	Streamlines the designation of biosimilars as interchangeable by presuming interchangeability upon approval, eliminating exclusivity periods for the first interchangeable biosimilar, and allowing the FDA to mandate safety studies only after briefing specific congressional committees.
H.R. 1492	Ensuring Pathways to Innovative Cures (EPIC) Act	Yes	To bring parity to small molecule drugs, on which Centers for Medicare & Medicaid Services can negotiate drug prices four years earlier than biologics.
H.R.5539	ORPHAN Cures Act	Yes	To exempt orphan drugs approved for more than one indication from drug price negotiation.
S. 1250	Drug-price Transparency for Consumers (DTC) Act of 2023	Yes	Sets new standard in the transparency of prescription drug advertising by mandating the inclusion of the list price of prescription drugs in all direct-to-consumer advertisements, providing consumers with pricing information upfront.
S. 113	The Prescription Pricing for the People Act of 2023	Yes	Mandates the FTC to report on anticompetitive practices and trends in the pharmaceutical supply chain affecting drug costs, along with recommendations to enhance transparency and prevent such practices.

IRA: Good For Some, But Negative For Credit Quality

The IRA will constrain some companies’ growth and profitability, but the act is helping address several of the biggest problems with drug affordability, at least for seniors. This demographic is often on fixed incomes and heavy users of medications. The law prevented high drug price increases by penalizing companies for raising prices at a rate higher than inflation and capped copays on insulin to $35 for seniors.

The IRA introduced a mechanism for government drug price negotiation for the first time, but it is not sweeping. It applies to Medicare only and is being phased in, starting with 10 drugs in 2026, gradually increasing in number. It also only applies to products already on market for seven years (11 years for biologic drugs) and focuses on preventing companies from extending patent protection beyond a reasonable period.

The law also reduces copayments for seniors, improving drug affordability. Drug companies must now fund a larger portion of the copayment, which has reduced pharmaceutical growth this year. Still, by making drugs more affordable for seniors, the law may also be making it less likely they abandon prescriptions due to price.

Chart 3

There's potential relief for pharma issuers

We expect the IRA’s drug pricing provisions will generally remain intact. However, some changes are possible and could affect pharmaceutical issuers.

Some changes to the law could be credit positive for rated issuers. For example, the budget reconciliation bill that recently passed the House of Representatives seeks to modify the exclusion to allow orphan drugs treating more than one disease to be excluded from price negotiations. Only orphan drugs treating one rare disease are currently excluded from drug price negotiations This could save companies making drugs for rare diseases or companies with highly successful orphan drugs such as Johnson & Johnson with its drug Darzalex from drug price negotiation.

Another bill seeks to equalize the timelines for Medicare drug price negotiations for small-molecule drugs and biologics. The Ensuring Pathways to Innovative Cures Act, proposes to bring parity to small molecule drugs with biologics by lengthening the time for small-molecule drug negotiation. There is currently a four-year difference. This would be positive for the industry, especially for companies that produce successful small molecule drugs. Executive Order 14273 suggests the administration would support advancement of this bill. However, the administration only stated that it wanted to decrease the distortion between small molecules and biologic drug price negotiation. It is not clear if the administration would support decreasing the period under which biologics cannot undergo drug price negotiation. A reduction would constrain the industry’s growth prospects.

Incremental pressure could be on the way

The Trump administration has stated its intention to improve upon savings achieved by the previous administration through Medicare drug price negotiations. This will be incrementally negative for the branded pharmaceutical industry and depends on the new administration’s achieved discounts. For the first 10 drugs, the Centers for Medicare and Medicaid Services stated that had the law been in effect in 2023, it would have saved 22% in spending (net of rebates) in aggregate.

Table 2

Products selected for Medicare drug price negotiation under the IRA (effective starting 2026-2027)
Company	Effective date	Product	Key indication(s)	Company-reported 2023 global product revenue (bil. $)	Gross revenue from Medicare (bil. $)§
AbbVie/Astellas Pharma	2027	Linzess	Irritable bowel syndrome with constipation	1.2	2
AbbVie/Recordati/Gedeon Richter	2027	Vraylar	Schizophrenia; manic episodes associated with bipolar 1 disorder	2.8	1.1
Abbvie/Johnson & Johnson	2026	Imbruvica	Blood cancers	4.9	2.4
Amgen/Pfizer	2026	Enbrel	Autoimmune conditions	4.5	3
Amgen	2027	Otezla	Psoriatic arthritis	2.2	1
Astellas Pharma	2027	Xtandi	Metastatic castration-resistant prostate cancer	5.2	3.2
AstraZeneca/Ono Pharmaceutical/Daewoong Pharmaceutical	2026	Farxiga	Diabetes; heart failure; CKD	6.5	4.3
AstraZeneca	2027	Calquence	Mantle cell lymphoma	2.5	1.6
Bausch Health/Norgine	2027	Xifaxan	Travelers' diarrhea caused by E. coli	1.9	1.1
Boehringer Ingelheim	2027	Ofev	Idiopathic pulmonary fibrosis	3.8	2
Boehringer Ingelheim	2027	Tradjenta	Type 2 diabetes mellitus	1.8	1.1
Boehringer Ingelheim/Eli Lilly/Yuhan	2026	Jardiance	Diabetes; heart failure	8.1	8.8
Bristol Myers Squibb	2027	Pomalyst	Multiple myeloma	3.4	2.1
Bristol Myers Squibb/Pfizer	2026	Eliquis	Anticoagulant	12.2	18.3
GlaxoSmithKline	2027	Trelegy Ellipta	COPD	2.7	5.1
GlaxoSmithKline	2027	Breo Ellipta	Airflow obstruction and reducing exacerbations in COPD patients	1.4	1.4
Johnson & Johnson/Bayer	2026	Xarelto	Anticoagulant	6.2	6.3
Johnson & Johnson/Mitsubishi Chemical	2026	Stelara*	Autoimmune conditions	11.3	3
Merck & Co./Ono Pharmaceutical/Almirall/Daewoong Pharmaceutical	2026	Januvia	Diabetes	2.4	4.1
Merck & Co.	2027	Janumet; Janumet XR	Type 2 diabetes mellitus	1.2	1.1
Novartis/Laboratorios Farmaceuticos ROVI	2026	Entresto	Heart failure	6.1	3.4
Novo Nordisk	2026	Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen, NovoLog PenFill	Diabetes	N.A.	2.6
Novo Nordisk	2027	Ozempic; Rybelsus; Wegovy	Diabetes; obesity	21.2	14.4
Pfizer/Sino Biopharmaceutical	2027	Ibrance	Breast cancer	4.8	2
Teva Pharmaceuticals	2027	Austedo; Austedo XR	Chorea associated with Huntington's disease; tardive dyskinesia	1.2	1.5
As of Jan. 22, 2025. IRA--Inflation Reduction Act. CKD--Chronic kidney disease. COPD--Chronic obstructive pulmonary disease. N.A.--Not applicable. The Centers for Medicare and Medicaid Services (CMS) will add up to 15 drugs annually for 2028 and 20 drugs annually thereafter. A reduction in price has a disproportionate impact on profitability as it flows straight through to EBITDA. *We expect Stelara to have meaningful biosimilar competition starting 2025 and therefore be excluded from price negotiation. §While product revenues shown above reported by the companies is global and net of rebates, revenues relating to Medicare are gross (before rebates). For products subject to negotiation in 2026, the Medicare revenues shown are for calendar-year 2023; products subject to negotiation in 2027 refer to revenues for fiscal 2024 (ended October 2024). CMS indicated its price negotiation on the initial 10 products resulted, on average, in a 22% reduction in price. Sources: S&P Global Ratings estimates, Evaluate Pharma, CMS, and The Hill.

PBM Reform Can Be Navigated By Issuers

From a credit perspective, potential reform will be manageable for many PBMs we rate. They are generally part of larger organizations that operate health insurance companies, pharmacies, and provide other services. In addition, rebates and spread pricing make up a modest portion of total PBM earnings. Most PBMs have been moving toward other fee-based earnings for some time.

In Executive Order 14273, the Trump administration has indicated support for tackling PBM legislatively to increase transparency and decrease drug prices. PBM reform made it to the latest budget reconciliation bill, which has advanced to the Senate. Proposals in the budget reconciliation bill include increasing transparency measures and delinking drug prices from PBM compensation in Medicare Part D. PBMs would earn a service fee, but that fee would not be linked to Part D drug prices. If PBM compensation were delinked from drug prices, this could reduce the incentives for PBMs to prefer higher-price drugs or push list prices higher. This could help patient affordability by reducing copays at the point of sale.

Other potential legislation could include the removal of spread pricing . Another proposal would require PBMs to pass through Medicaid rebates and/or require PBMs to pass through 100% of rebates and discounts, excluding service fees for employers or health plans regulated by the Employee Retirement Income Security Act.

How Tariffs Might Affect Credit Quality

Tariffs on pharmaceutical products or raw materials could reduce branded drug companies’ profitability. However, their impact to generic drugmakers is likely to be mixed. Although not part of the executive orders, the Trump administration has launched a Section 232 investigation, indicating that it is considering tariffs on pharmaceutical products. At the moment, pharmaceutical products and their raw materials are excluded from the administration’s newly announced tariffs.

Tariffs could pressure branded pharmaceutical companies’ margins if enacted. Many drug companies obtain raw materials and/or manufacture products outside the country. In commercial markets, branded pharmaceutical companies may be able to pass on some price increases for drugs with limited competition, reducing affordability. However, for Medicare, drugmakers cannot increase prices more than the inflation rate, and some drugs will be subject to price reductions as part of Medicare negotiations.

Some companies may choose to increase U.S. manufacturing. This could be driven by tariffs remaining in place, tariff rates, or for risk mitigation purposes. However, it could involve substantial capital investment or an increase in tax rates. If a company was manufacturing in a lower tax jurisdiction or had located intellectual property there, relocating to the U.S. would mean higher tax rates.

The credit impact of tariffs on generics manufacturers would likely be at least a short-term headwind. The U.S. administration’s tariffs levied on Chinese goods were particularly high, even after the recent reduction. If those tariffs levels are applied to pharmaceutical products from China, generic manufacturers could be affected. Many have significant manufacturing operations in China and/or may source raw materials from the country. Since prices of generic drugs are much lower, margins thinner, and competition fiercer than that of branded drugs, some generic drug manufacturers, especially those reliant on China, may find it unprofitable to produce certain drugs, possibly leading to supply shortages. However, over time, some larger rated generic manufacturers with significant U.S. manufacturing capacity such as Teva Pharmaceutical Industries Ltd. and Amneal Pharmaceuticals Inc. could gain market share from manufacturers without U.S. manufacturing capacity.

Related Research

• U.S. Health Care Access And Affordability: A Chronic Issue With Heightened Concerns For Credit, June 17, 2025

• Global Pharmaceutical Companies Ratings Are Unlikely To Be Highly Disrupted By Rising Risks, May 27, 2025
• Pharmaceutical Industry 2025 Credit Outlook Is Stable As Healthy Revenue Growth Mitigates Pressures, Feb. 3, 2025
• Industry Credit Outlook 2025: Health Care, Jan. 14, 2025
• Medicare Drug Price Negotiation Holds Long-Term Implications For Pharma, Aug. 22, 2022

External Research

•  The Global Use Of Medicines 2024: Outlook To 2028, IQVIA, May 2024
• Estimated Research And Development Investment Needed To Bring A New Medicine To Market, Wouters, O. J., McKee, M., & Luyten, J., JAMA Network, March 3, 2020
• Estimation Of Clinical Trial Success Rates And Related Parameters, Wong, C. H., Siah, K. W., & Lo, A. W., Biostatistics, April 2019

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