Merck's currency impact predicted to worsen in future projections
In the ever-evolving landscape of the pharmaceutical industry, Merck, a prominent player in the sector, is feeling the heat as President Trump pushes for drastic reductions in drug prices.
The recent policy initiative, which includes an executive order signed in August 2025, mandates drug prices in the U.S. to fall by at least 59% and up to 80% in some cases. This aggressive price reduction demand is part of Trump's broader push to lower healthcare costs and improve drug price transparency.
For Merck, as a major U.S.-based pharmaceutical company, this translates into significant pricing pressure. Lower drug prices directly compress revenue and profit margins for companies like Merck.
In response, Merck is exploring direct distribution to patients in the U.S. as a means to reduce the burden on patients. CEO Belen Garijo of Merck has announced this strategy, following the example of other companies like Roche, Pfizer, and Bristol Myers Squibb, who are also exploring direct distribution to patients in the U.S.
However, the impact of these price cuts is not limited to Merck alone. The policy creates uncertainty about future earnings and investment returns, likely causing volatility in pharmaceutical stocks and impacting R&D spending decisions industry-wide.
The Electronics division of Merck, which benefits from the AI boom, continues to grow. However, the second quarter saw a decrease in the division's operating income, partly due to a provision for potential customer claims due to a supplier problem. Despite this, organic revenue grew by 2% and earnings by 4.6% in the quarter.
The company has revised its annual targets downward, with expected revenue of €20.5 to €21.7 billion and adjusted operating income (Ebitda) of €5.9 to €6.3 billion for 2025. Merck's Lab division is also implementing price increases as part of its strategy to offset the impact of tariffs.
President Trump's unspecified measures if the demands for cheaper drugs are not met add to the industry's uncertainty. The U.S., being the world's most important market for the pharmaceutical industry, with patients paying nearly three times the OECD average for medicines, will continue to be a focal point in the ongoing discussions.
In the face of these challenges, Merck, like other pharmaceutical companies, is adapting and responding to the changing landscape, aiming to maintain its position in the industry while addressing the President's demands for more affordable medicines.
- Despite the turbulence in the pharmaceutical industry caused by the price reduction demands, Merck's Electronics division, driven by the AI boom, managed to grow in the second quarter, albeit with a decline in the division's operating income.
- In an attempt to reduce the burden on patients, Merck, along with other pharmaceutical companies such as Roche, Pfizer, and Bristol Myers Squibb, is considering direct distribution to patients in the U.S.
