Successive American governments have grappled with the need to contain spiraling healthcare costs while sustaining the USA’s well-earned reputation as the number one launch market for breakthrough medical innovations. “The most difficult question of our time in our sector relates to how to fund access to advanced therapies,” explains Marwan Fathallah, president and CEO of the Drug Information Association (DIA). “Cell and gene therapies, including CAR-T, can cost several million dollars per patient. For families, they may represent the difference between a lifetime of treatment and a potential cure, and understandably, patients are pressing policymakers to make them accessible. Yet the financial question of who pays simply cannot be ignored,” he explains.
Many representatives of research-driven, originator drug developers agree that some form of structural adjustment to the American healthcare system for financing access to next-generation medicine is inevitable, and that trying to maintain ‘business as usual’ no longer constitutes a realistic option.
“The healthcare system will only remain able to sustain medical innovation if new treatments effectively help people live longer, stay out of hospitals, and have a better quality of life. If innovation only adds cost without tangibly improving outcomes, the model no longer becomes financially viable,” reasons Michael Petroutsas, president and head of Japanese specialty player, Astellas’ American affiliate. “We frankly can’t continue to increase the burden on Medicare, private insurance, and patients without seeing corresponding health improvements,” he insists.
“We detect an overwhelming desire on the part of all stakeholders – from drugmakers and medical practitioners to policymakers and payers – to recalibrate and reduce inefficiencies within the healthcare system and rethink pricing frameworks,” agrees Fathallah. “If resources can be used more effectively, savings can be redirected to fund breakthrough therapies, which in turn supports continued innovation. Insurers increasingly wish to pay for outcomes, drug developers need to recover the costs of development, and healthcare providers are under pressure to demonstrate value for resources expended,” he adds.
MFN Stipulation
Meanwhile, the incumbent Trump administration has seized this inflection point to enact radical policy reforms on a scale and of a nature that is simply unprecedented. “I can only describe this as a thoroughly tumultuous time where the very fabric of biomedical innovation, and the foundational assumptions we have operated on successfully for a generation, have been thrown aside and upended,” says Paul Kim, Principal at Kendall Square Policy Strategies and a former Health Policy Counsel to Senators and Congressmen.
Under the Inflation Reduction Act (IRA) provisions enacted by the previous Biden government, the Centers for Medicare & Medicaid Services (CMS) had been empowered to negotiate prices for select high-expenditure, single-source drugs and pharmaceutical developers were compelled to pay Medicare rebates if they raised prices faster than inflation. The Trump administration, while continuing to deploy the IRA’s negotiation framework to secure cuts on 15 additional drugs for 2027, has instead tended to prioritize aggressive tariff threats and its own executive actions over the IRA’s statutory process to address drug pricing for newer or high-demand medications.
A Presidential Executive Order on Most Favored Nation (MFN) drug pricing, signed in May 2025, aims to ensure American drug prices do not exceed those in other developed nations with the target price defined as the lowest price paid in an OECD country with a GDP per capita of at least 60 percent of the US level. Under the new rules of the game, a 100 percent tariff on patented pharmaceutical products and active ingredients has been put in place, but which will be entirely waived for those drug companies willing to sign both an ‘onshoring agreement’ to build US plants, and an MFN pricing agreement. 20 percent tariffs will meanwhile be imposed on drug developers that commit only to onshoring manufacturing without signing an MFN pricing deal.
Many industry figures are actually sympathetic to the underlying principle of levelling the playing field of international drug pricing and leveraging trade negotiations to try and correct a perceived scenario of ‘global freeloading’ whereby American patients and the US healthcare system have been subsidizing the bill for global R&D. “I do think there is room for a more balanced global contribution to biopharma innovation. Today, the US shoulders a disproportionate share of R&D investment and that clearly needs to change,” proclaims Thomas Gibbs, executive vice president, and president of the American affiliate at Danish developer Lundbeck.
Nonetheless, most market insiders remain sceptical that the specific policy measures enacted represent the right way forward and have expressed major misgivings. “We see an administration prepared to take extra-legal actions that defy standing law, disregard congressional oversight, and, in some cases, ignore the courts to force through misguided and ill-thought-out policy reforms,” regrets Kim.
Stephen Ubl, president and CEO of PhRMA, representing the nation’s leading biopharmaceutical research companies, bemoans that “successive reforms have seemingly focused on short-term political headlines rather than long-term patient benefit.” He notes that the IRA looks backward rather than forward, requiring the CMS to negotiate prices based on historical spending data rather than emerging ‘budget busters’ projected to drive future spending. Moreover, Ubl considers the MFN pricing model a “bad deal for Americans because it effectively imports socialist-style price controls.”
PBMs: The Elephant in the Room
Other industry stakeholders point out that the reforms somewhat miss the point and that the real culprits of high drug prices are Pharmacy Benefit Managers (PBMs) and insurers, rather than manufacturers. “It’s important to remember that the structure of the US market is very different from that of other countries. Ours is the only system where roughly 50 percent of the value is captured by intermediaries rather than by the innovators. Insurers and PBMs collect billions in rebates while often still charging patients based on list prices,” highlights Lundbeck’s Gibbs.
“If the goal is to meaningfully lower patient costs, the first step is fixing the rebate system. Rebates should flow to patients at the pharmacy counter. PBMs, who play an important role in the ecosystem, should operate on a flat-fee model rather than being financially incentivized by higher list prices. Without addressing these structural issues, price-setting policies like the IRA will not reduce the actual costs to patients,” he adds.
Indeed, in the absence of simultaneous PBM reform, negotiated prices could potentially trigger unintended consequences. “Our concern is whether negotiated prices translate into real patient benefit. We worry that, post-negotiations, our breakthrough prostate cancer drug could be disadvantaged in the Medicare formulary should PBMs change their rebating practices,” concedes Astellas’ Michael Petroutsas. “With this new program, we hope that all parties act responsibly and that patients ultimately benefit from these negotiations. However, we are concerned about the possibility of a medicine with a lower negotiated price becoming disadvantaged compared to a higher-priced competitor because of higher rebate incentives, which is why parallel PBM reform is imperative,” he argues.
While the Trump administration has taken some steps to try and curb the influence of middlemen, these efforts have largely been symbolic. For instance, a federal government-run prescription drug pricing and direct-to-consumer sales platform, TrumpRX, has been established to much fanfare. However, because purchases typically do not count toward insurance deductibles or out-of-pocket maximums, only an extremely narrow population can currently benefit – namely uninsured patients or those seeking drugs outside the scope of their insurance policies.
Industry Fears
Midcap innovators, meanwhile, remain nervous about the effect MFN criteria might have on their margins. They argue that, unlike the giants of Big Pharma, they lack the scale to absorb the massive price cuts and that the reforms may destroy biotech innovation. “For companies like us, the level of exposure to such policies depends heavily on whether products are reimbursed through government channels or commercial insurance. Products with a high proportion of Medicare or Medicaid patients now carry additional risk,” confides Duane Barnes, president for North America at the Swedish biotech and rare disease specialty outfit, Sobi.
“When you look at the rare disease space, the scale is completely different from other therapeutic areas. We are not dealing with multi-billion-dollar markets like those for GLP-1s, for example,” Barnes continues. “Our therapies are targeted to small, severely ill patient groups, and the revenues are much more conservative by comparison. Moreover, implementing reference pricing or similar mechanisms across such specialized products would be complicated and have a much lower saving potential,” he conjectures.
Not wanting to risk missing out on a USD 800 billion market, which – regardless of pricing changes – remains the golden goose for Big Pharma and represents 40 percent of the global market, many US headquartered and foreign firms have nonetheless been falling into line. As of February 2026, 14 out of the 17 largest global pharmaceutical companies have reached voluntary agreements to slash prices in exchange for tariff exemptions lasting three years. To earn these exemptions, companies like Pfizer, AstraZeneca, and J&J have all committed, on a quid pro quo basis, to investing billions in new US manufacturing facilities and to offering MFN pricing to Medicaid and through the TrumpRx.gov platform.
“We cannot escape the reality that the US plays an absolutely critical and essential role in showcasing the importance of our work. It’s the market where innovation is adopted earliest, where access to new therapies is broadest, and where our ability to demonstrate patient impact is strongest,” explains Petroutsas. “To put everything into comparative perspective, Europe only enjoys access to about half of the innovative medicines available in America and in Asia, that figure drops to roughly one-third,” he adds.
Adapting to Reality
How then has biopharma been managing to adapt? “The name of the game lies in organizational speed and agility; creating a structure that can make decisions quickly, adapt to new models of healthcare delivery, respond to changes in regulation, and move with flexibility as a global organization. Building that capacity will be essential to navigating the US market successfully,” believes Brent Ragans, president at Ferring Pharmaceuticals.
Some firms have been strategically rebalancing their portfolios to prioritize orphan drugs, oncology, and rare disease treatments, which typically enjoy longer exclusivity and are less exposed to Medicare pricing. Lundbeck, for instance, has been deliberately evolving from a broad-based neuroscience approach to a specialized one, building what it calls a ‘neuro-rare’ franchise. “With the acquisition of Longboard Pharmaceuticals and the evolution of our pipeline, we will be expanding meaningfully in neuro-rare. This shift is bringing us back to the roots of our US business and positions us to build a more balanced and future-ready neuroscience portfolio,” confirms Gibbs. “At USD 2.6 billion, it constitutes the largest acquisition in our history and has brought us a breakthrough receptor agonist, which is one of the cornerstones of our late-stage pipeline and a potential best-in-class therapy in rare epilepsies,” he adds.
Ferring’s expansion into gene therapy for bladder cancer can be seen as another prime example of portfolio rebalancing toward high-value, specialized medicine by expanding from its traditional focus on reproductive health and gastroenterology into high-growth uro-oncology. “Ferring has always been defined by a willingness to innovate and to pioneer in new areas, and our first gene therapy is a clear example of that approach. As a breakthrough product, it has the potential to become a backbone therapy and standard of care for non-muscle invasive bladder cancer and represents an extension of our established expertise in the area,” says Ragans.
The reforms can even be said to have impacted R&D strategies. Companies like Eli Lilly and AstraZeneca, for example, have been shifting investment towards biologics, which have a longer exclusivity period before becoming subject to price negotiations compared to small-molecule drugs. Lilly sent a strong market signal when it scrapped a USD 40 million small molecule cancer program specifically to mitigate the financial impact of the IRA’s provisions, while AstraZeneca has adopted a ‘30 percent rule’ whereby at least 30 percent of its current pipeline must, from now on, be dedicated to exploring new modalities beyond small molecules.
Ripple effects have been felt too across international markets, with some companies threatening to alter their overseas launch and pricing strategies. Pfizer CEO Albert Bourla, for example, has suggested that his firm may delay launching new, innovative drugs in lower-priced markets to avoid setting a low global price that would trigger mandatory US price cuts. Moreover, he has warned that if countries such as France refuse to accept higher prices to match the US, then Pfizer may have little choice but to stop supplying those markets or remove drugs from their government reimbursement programs.
Generics: The Missing Piece
At the same time, it is being suggested in some quarters that America’s generic drugs sector has not been optimally factored into the prevailing cost containment strategies. As former FDA commissioner Robert Califf has observed, “the US faces a dual pricing problem of paying too much for branded medicines while paying too little for generics.”
Spiro Gavaris, president of US Generics at Lupin concurs. “It’s important to remember that roughly 90 percent of all prescriptions filled in the US are for generics, yet they account for only about eight to 10 percent of the total drug spend. In other words, the system is applying aggressive cost controls to the segment that is already the most affordable and has the least room to absorb them,” he opines.
Indeed, “In the US, discussions on prescription medicines often focus on high prices, yet a far more surprising and less appreciated fact is that we pay, on average, only 60 percent of what European countries pay for generics,” points out John Murphy III, president of trade body, the Association for Accessible Medicines (AAM). While this might outwardly appear advantageous from an affordability standpoint, it has actually contributed to significant market atrophy. Today, there are between 300 and 350 ongoing shortages of key generics, a situation not mirrored in Canada or Europe, both of which possess comparable regulatory frameworks.
“When broad, uniform downward pressure on pricing is applied to the commoditized end of the market where most generics sit, it can destabilize supply. These products require significant capital investment to manufacture, maintain, and distribute, yet they generate minimal margins. Many are already barely sustainable to produce. When pricing is pushed even lower without discrimination, the ecosystem becomes fragile, and manufacturers may be forced to rationalize products,” explains Gavaris. Moreover, “when just a few manufacturers exit a category, it triggers drug shortages that create far more cost, operational disruption, and patient risk than the marginal savings such price pressure was intended to achieve,” he sighs.
