Pfizer CEO: There will be a grace period for drug tariffs, which will be relatively low in the first few years, and the company is preparing to implement price reductions

Pfizer is trying to leverage the direct communication channels established with the Trump administration to address potential high tariffs and drug pricing pressures. The company's CEO Albert Bourla revealed that ongoing negotiations may provide some buffer for the industry.

On Tuesday, Bourla disclosed during a conference call that he is having "productive" discussions with the Trump administration regarding drug tariffs and the "Most Favored Nation" pricing policy. In a subsequent media interview, Bourla shared details about the discussions with Trump on drug tariffs. He stated that according to the latest communications, the initially imposed tariffs "will be very small," and the president has "opened a window for a grace period." According to CCTV News, Trump threatened in an interview on Tuesday to impose tariffs of up to 250% on imported drugs.

In addition to tariff issues, Bourla also confirmed that Pfizer has received a letter from the White House requesting significant reductions in drug prices for federal Medicare and Medicaid programs based on the "Most Favored Nations" principle. He stated that the company is preparing to implement price reductions while also seeking solutions to mitigate negative impacts, emphasizing that relevant details are still being discussed with the president.

However, Bourla has repeatedly emphasized that whether it is tariffs or new pricing policies, "the devil is in the details," and the final form of the policy will determine its real impact on the industry.

Despite Bourla's optimistic view of the dialogue with the Trump administration, Bank of America analysts believe that the details of policy implementation remain fraught with uncertainty.

According to reports from the Wind Trading Desk, Bank of America noted in its latest report that most of the questions during Pfizer's earnings call were about policy issues, particularly regarding the potential impact of the "Most Favored Nation" policy and drug tariffs, but "not many answers were provided." Bank of America also stated that although Pfizer's company valuation remains relatively low compared to its peers, many of the company's large business segments still face uncertainty regarding their long-term prospects due to upcoming patent expirations and competitive threats.

Policy outlook remains uncertain, company does not clearly respond to related questions

According to a previous article from Wall Street Insight, Pfizer's second-quarter earnings report was impressive. The earnings report showed that Pfizer's second-quarter revenue was $14.65 billion, a year-on-year increase of 10%, exceeding the market expectation of $13.5 billion. The adjusted earnings per share were $0.78, significantly higher than the expected $0.58. Based on strong performance, Pfizer raised its full-year adjusted earnings per share guidance for 2025 to a range of $2.90 to $3.10, while maintaining its revenue guidance of $61 to $64 billion The focus of this conference call was on policy issues, but investors did not get the answers they wanted.

Bank of America Merrill Lynch analyzed that when asked about the impact of the Inflation Reduction Act (IRA) on its two drugs, Ibrance and Xtandi, which are about to enter price negotiations, Pfizer stated that it "cannot really comment," only adding that these two drugs are close to patent expiration, with limited impact on the company's net present value (NPV).

Regarding the Most Favored Nation (MFN) treatment and tariff issues, management revealed that they are having "productive" discussions with various government parties, including communications with Robert F. Kennedy Jr. and Dr. Oz, as well as direct exchanges between Pfizer's CEO and President Trump, Treasury Secretary Mnuchin, and Secretary of Health and Human Services Azar. However, the company refused to quantify the specific financial impacts of these policies, stating that it is still modeling various scenarios, and discussions are ongoing with high uncertainty.

Pfizer maintained its revenue guidance for 2025, partly because the revenue from COVID products in the third and fourth quarters is difficult to predict, but this guidance has already taken into account the potential tariff impacts from countries like Canada and Mexico, as well as pricing changes that may arise from the "Most Favored Nation" policy.

Details of Tariff Implementation Still to Be Determined, API Source is Key

The Trump administration is threatening to impose high tariffs on imported drugs, citing high drug prices and overseas production. Bourla believes that his discussions with Trump and other government officials have been "productive":

"I don't want to speak for the president, but what he said today is very important, that there will only be very low tariffs in the initial years. Then he opened a window for a grace period."

Bourla stated that he has his own understanding of the ongoing discussions and believes the president "understands the dynamics of the industry." He revealed that during discussions with the president and several government officials, they suggested the possibility of initially low tariffs with a grace period. Analysts interpret this statement as indicating that the Trump administration may adopt a gradual tariff policy rather than immediately imposing high tariffs.

Currently, the pharmaceutical industry is waiting for the government's investigation results on how to implement tariffs. A key detail is how to define "country of origin." Bourla stated:

"We need to understand whether the source of the active pharmaceutical ingredient (API) determines the country of origin, or whether it is the place of production of the final product."

This is crucial because over 90% of prescription drugs in the U.S. are typically lower-priced generics, while high-priced branded drugs are mostly produced domestically, but their key chemical components (APIs) are often produced in Europe or Asia.

Pricing Pressure from Most Favored Nation Treatment

Pfizer is also facing direct pricing pressure from the White House. Last week, the company received a letter from Trump requesting that it lower drug prices to match the lowest prices paid by other developed countries, known as the "Most Favored Nation" pricing principle.

This request poses a direct challenge to the profitability of pharmaceutical companies. Bourla responded that the company is already planning for the implementation of price reductions while also researching how to mitigate the negative impacts it may bring He emphasized that the details of this policy are still under discussion:

"We are still discussing this matter with the president... the devil may be hidden in the details of these stages."

Short-term upward catalysts may be limited

Bourla emphasized on Tuesday that the company is "rebuilding its growth engine," laying the foundation for medium- to long-term development through new product launches, business integration, and cost optimization.

Bank of America maintains a "neutral" rating on Pfizer, with a target price of $27.00. Analysts state that while Pfizer's current expected price-to-earnings ratio of about 8 times for 2025 (industry average about 11 times, excluding Eli Lilly) and approximately 7% dividend yield support its stock price, the long-term outlook for many of the company's large businesses remains uncertain considering the upcoming patent expirations and competitive threats.

The report also adds that Pfizer's current capacity for business development is approximately $13 billion, and future mergers and acquisitions are expected to focus on smaller transactions, with key areas of focus being oncology, vaccines, and internal medicine (including cardiovascular metabolism, obesity, and immunology)