Trump Pharma Deals Heighten Pricing Pressure on Amgen's Volume-Driven Strategy

What happened

Nine major pharmaceutical companies, including Pfizer, AstraZeneca, Eli Lilly, and Novo Nordisk, have voluntarily agreed with the Trump administration to lower U.S. drug prices by linking them to cheaper international rates, signaling intensified political scrutiny on industry pricing. This move amplifies existing regulatory headwinds such as the Inflation Reduction Act (IRA), which Amgen's filings already cite as a risk to net selling prices. For Amgen, which reported 1H25 product sales growth of 10% driven by 14% volume increases but offset by 4% price declines, such industry-wide price cuts threaten to exacerbate margin compression beyond current forecasts. The company's reliance on biosimilar ramps (e.g., Stelara, Eylea) and oncology launches like Imdelltra to counter pricing erosion may be undermined if broader market pressures accelerate. Investors must now watch for whether Amgen faces similar political pressure or voluntary participation, potentially impacting its revenue stability and cash flow durability.

Implication

The voluntary price deals highlight a regulatory shift toward aggressive cost containment, which could spill over to Amgen and intensify the pricing headwinds already flagged in its reports, such as IRA impacts and biosimilar competition. Amgen's recent financials show volume growth partially offsetting price declines, but if industry trends force deeper cuts, its top-line growth of 10% in 1H25 could be at risk, especially for key products like denosumab facing erosion. Biosimilar and oncology launches, central to the growth thesis, may see reduced profitability if price competition intensifies, challenging the company's scale advantages and cash generation. Strong operating cash flow of $11.5B in 2024 provides a buffer, but sustained pricing pressure could delay deleveraging post-Horizon and squeeze free cash flow, impacting capital returns. Investors should closely monitor management's guidance updates and pricing strategies in upcoming quarters, as failure to navigate this environment could invalidate the BUY thesis reliant on volume offsets.

Thesis delta

This news does not fundamentally alter the DeepValue BUY thesis, which already incorporates pricing pressures from IRA and competition as key risks. However, it introduces additional political uncertainty that could accelerate price erosion beyond current models, particularly if Amgen is compelled to participate in similar deals. Thus, while the core investment case based on volume growth, biosimilar execution, and cash flow remains, it now requires even tighter monitoring of pricing trends and regulatory developments.