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“The first wealth is health” – Ralph Waldo Emerson

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Good morning!

President Donald Trump signed an executive order on Monday that he claimed would significantly lower the prices Americans pay for their prescription medications. That’s an objective that has broad bipartisan and populist support. 

Drug prices in many countries are significantly lower than what Americans pay, a widely known fact that Trump has correctly pointed out. To rectify that situation, he wants to force pharmaceutical manufacturers to sell to U.S. patients at prices that match the lowest prices they are charging abroad – and to enable them sell directly, letting patients bypass retail pharmacies and pharmacy benefit managers. 

It’s not entirely clear that the president has the authority to issue an order like that, and it’s not entirely clear that Congress does either. What is clear is that the pharmaceutical industry will launch an exhaustive, deep-pocketed, and long-lasting legal challenge to any attempt by either or both branches of government to do so.  

Since Franklin Roosevelt’s presidency, at least six of Trump’s predecessors (from both parties)  have tried to bring drug prices under control. (The count is seven if you include Trump 45.) Obviously, those efforts largely failed. Notably, those attempts failed even though unlike Trump, those other presidents weren’t simultaneously threatening wide-ranging tariffs on imports from most countries. 

As it turns out, the active pharmaceutical ingredients (APIs) (i.e., the part of the pill, capsule, or injection that actually treats a disease or illness) in our medicines are largely imported. A 2021 study by Washington University’s Olin Business School found that there is no U.S.-made source for the APIs in 97% of antibiotics, 83% of the top 100 generic meds, and 92% of antivirals. The majority of facilities approved by the FDA to manufacture the active pharmaceutical ingredients (APIs) that go into medicines are located outside the U.S. – particularly India and China. The case is similar for branded (non-generic) medicines: when looking at the top 100 brand-name prescription treatments (based on Medicare Part D data), 78% of the APIs (and 68% of finished drug formulations) were made outside the U.S. 

That complicates things. It means that the president is effectively trying to force price cuts on products that his own policies will likely make more expensive. 

The Wall Street Journal acknowledged that the administration could use the removal of proposed tariffs and its M&A approval authority as levers to persuade drug companies to fall into line voluntarily. It also suggested that Trump could simply use “the already enacted IRA negotiating powers passed under Biden” to achieve some limited wins. Nevertheless, the Wall Street Journal argued that Trump’s drug-price crackdown was likely to ultimately end up being “more bark than bite,” resulting in “negotiated settlements with minor concessions that allow him to declare victory” without any meaningful benefit for most Americans. 

It appears that equity investors are still worried. Though Monday’s broad-based stock rally (in response to U.S.-China trade news) likely helped pharmaceutical stocks (XPH) rise slightly immediately after the news broke, the sector took a hit on Tuesday, falling 1.94%. So did biotech stocks (XBI -1.44% ), declining 2.39%.

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📧✍️Here’s what a reader commented📧✍️

Question: What should be done to improve the quality of federal data used by policymakers, businesses, and investors?

Answer: If there is any hint whatsoever of political influence, directly or indirectly, the data is suspect. Many suggest BLS data has become murkier over time as well as data coming from a host of other agencies. If we suspect the DOJ, the FBI, and more having been politicized, then surely data collection and manipulation is not immune. How to correct it? That’s the $64,000 question. If man is involved some level of corruption is certain. Maybe AI has an answer.

Catch up with FS Insight

This is not a popular opinion, but we believe the risk/reward for stocks is better today than it was on Feb 18, 2025 (when the S&P 500) was at all-time highs. We believe multiple factors support an expanding P/E.

Technical

Short-term trends in US Equities remain bullish. Despite having entered a price zone where reversals “could” happen, the price has not given any indication of an imminent pullback. We discuss some signs that could signal a pullback if they emerge.

Crypto

While the market has repriced quite substantially to reflect optimism over trade, we believe further upside could come from ensuing changes in tax and regulatory policy.

News We’re Following

Breaking News

• Global shares are mixed amid cautious relief over U.S.-China agreement AP
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Markets and economy

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• China economy hopes rise after US trade reprieve SEM
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Business

• Apple to support brain-implant control of its devices WSJ 
• Microsoft laying off about 6,000 people, or 3% of its workforce CNBC
• American Eagle tumbles after pulling financial guidance for 2025 AP

Politics

• Republican tax plan boosts SALT deduction, ends green-energy breaks WSJ 
• Trump trade war faces legal challenge as businesses, states argue his tariffs exceeded his power AP
• Harvard expands lawsuit against US as Trump funding feud deepens BBG

Overseas

• Trump pledges to lift Syria sanctions as he seals $142bn arms deal on Saudi visit BBC 
• The world is wooing U.S. researchers shunned by Trump NYT
• Israeli Prime Minister Benjamin Netanyahu says military to enter Gaza ‘with full force’ in coming days SEM

Of Interest 

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