The AstraZeneca (LSE: AZN) share price slumped 5% when the market opened on Monday (12 May). Fellow UK pharma giant GSK dipped too, losing 3.5% in early trading. Both regained a bit, with AstraZeneca down 3.3% and GSK down 2.2% as I write.
The downturn has affected pharma companies around the world. And it’s all down to Donald Trump after the US president announced a plan to slash the prices of prescription drugs. It comes just after the UK and US trade deal announced last week made it seem UK pharmaceutical firms were set to avoid potentially punitive US import tariffs.
Saying he’ll bring US prices down level with “the nation that pays the lowest price anywhere in the world,” the president reckons the order he intends to sign should quickly bring down US prices by 30%-80%. With Americans currently paying among the highest prices for drugs in the world, the potential impact on profits seems clear.
Pharmageddon?
Is the immediate market reaction too much? The main response to anything like bad news these days does seem to be ‘Sell first, think later.’ So on that alone, maybe yes. But what might this new US move mean for the industry overall, and for AstraZeneca shares specifically?
Analyst Stefan Schneider at Bank Vontobel said it “has the potential to be very negative for the industry“. That suggests the sell-off might be justified, even conservative. But he did add: “Such a move will likely face lawsuits by the industry.” With the glacial pace that corporate law can move at, shareholders might at least have a decent bit of breathing space.
In 2024, as much as 44% of AstraZeneca’s revenue came from the US, its biggest market. So if any substantial price cuts do happen there, the bottom line could take a hit.
What should investors do?
We first need to keep cool heads. And then think on what tends to happen to President Trump’s grandiose pronouncements. Remember those 145% tariffs on China? After the weekend’s trade talks, they’re down to 10% — at least for the next 90 days, with more negotiating to come.
We can be sure US pharmaceutical companies will do their best to resist this latest move. And though the president suggests he can lower prices almost immediately following an update expected later on Monday, I don’t see anything happening overnight.
Forecasts suggest an AstraZeneca price-to-earnings ratio of 22 for the 2025 year. And earnings growth forecasts would drop it as low as 16 by 2027. That seems cheap to me. At Q1 time in April, CEO Pascal Soriot spoke of “an unprecedented catalyst-rich period for our company.” He added: “Already this year we have announced five positive Phase III study readouts.”
Is AstraZeneca still worth considering by long-term investors? We could be in for a shaky and uncertain time ahead and that could mean a volatile share price. But it’s still a yes from me.
