Conflicting Federal Policies Complicate the Drug Pricing Outlook

Drug prices are a kitchen-table issue for every American, making it a recurring topic for politicians of all stripes.

The first notable U.S. Senate hearings on high drug prices date to the 1950s. Similar hearings have been held every decade since. Presidents have also tried to reduce these costs. Lowering drug prices might be the single issue on which both major political parties agree..

This historical perspective is crucial because it reminds us just how challenging it is to move the needle on drug prices, given the complex nature of the U.S. health care system.

But things may finally be starting to change. In 2022, Congress and President Joe Biden collaborated in passing the Inflation Reduction Act (IRA). This law gave Medicare the authority to negotiate drug prices for a list of brand-name medications each year.

The Trump administration has defended the IRA against several legal challenges from drug companies, indicating its intention to proceed with Medicare drug price negotiations for a limited list of eligible medicines.

In an additional effort to reduce U.S. drug prices, President Donald Trump has taken several steps that are sometimes contradictory. By one count, he issued more than 40 executive orders touching on health care as of mid-October 2025.² This tally doesn’t include the various tweets and public statements the president made on these topics.

This article outlines the government’s numerous, often conflicting drug policies. Then, we’ll explore what these policy proposals are likely to mean for Americans. Finally, we’ll examine the potential business and investment impacts on biopharma stocks.

Understanding the U.S. Prescription Drug Pricing System

U.S. consumer drug prices are driven by a complex system of marketing, distribution, research and manufacturing that interacts with patients, doctors, hospitals and insurance companies. Each link in the chain between drug producers and consumers involves frictions that drive up costs.

In contrast, other developed economies typically have nationalized health care systems with a single national drug payer. This gives them significant leverage and negotiating power over drug companies’ access to their markets.

In addition, countries with national health care systems evaluate drugs for safety, efficacy and economic value before granting entry into their markets. This means that pricing and value are built into their approval processes.

Food and Drug Administration (FDA) criteria, on the other hand, focus solely on safety and efficacy. The idea is that competition will encourage greater efficacy and lower prices, much like the market for TVs and cars. It’s debatable how well this system leads to more effective iterations of drugs.³ However, what’s undeniable is that U.S. drug prices tend to be many times higher than those outside the U.S.⁴

We also need to clarify that more than 90% of U.S. drug prescriptions are for generic drugs. These are mostly manufactured in China and India. As of this writing, generics are exempt from tariffs. For these unbranded drugs, U.S. prices are comparable to those in other developed countries.⁵

When we’re talking about high drug prices, we mean those for brand-name prescription medications. Only 15% of all U.S. prescriptions are written for branded drugs, but they account for almost 90% of drug spending.⁶

Trump’s Prescription Drug Tax and Tariff Policies

Tariffs, trade policies and the One Big Beautiful Bill (OBBB) are all integral parts of the administration’s prescription drug policy toolkit.

Tariffs and trade are significant factors in determining U.S. drug prices because most medicines are manufactured overseas and imported.⁷ In addition, U.S. drug companies often hold patents, trademarks and other intellectual property overseas for tax advantages.

We detailed these mechanics in a previous article about strategies drugmakers might use to navigate the new tariff regime.

Both Trump’s tariffs and OBBB tax incentives aim to restore pharmaceutical manufacturing in the U.S. This has been partially successful. Companies such as AstraZeneca, Eli Lilly, Pfizer and Johnson & Johnson have announced billions of dollars in domestic manufacturing commitments.⁸

What Is ‘Most-Favored-Nation’ Drug Pricing?

Another key concept is most-favored-nation (MFN) pricing, where the president aims for drug prices in the U.S. to be comparable to those in the country with the lowest costs (or the "most-favored” country).

To that end, the administration contacted 17 leading pharmaceutical companies directly. It warned that failure to meet its stated pricing objectives could lead to antitrust prosecution or other legal and regulatory actions.

This approach explains the president’s proposed “TrumpRX” website, which would provide drug makers with an avenue to sell directly to patients. As of mid-October, Pfizer, AstraZeneca and Merck had agreed to sell select drugs at a discount through the site.

Additionally, a pharmaceutical industry group has launched its own website, AmericasMedicine.com. Certain other drug companies have established their own direct-to-consumer sales and discount options for certain therapies.

TrumpRX and Access for Uninsured Americans

Efforts to reduce drug costs and expand access for Americans are commendable. However, we believe the effect of these direct-distribution sites on prices will probably be limited. That’s because insurance companies, pharmacy benefit managers (PBMs), pharmacies and doctors facilitate access to drugs. Furthermore, most Americans have their prescription drug costs subsidized in some way by U.S. taxpayers.⁹

This means that only the uninsured and perhaps the underinsured (those with very high deductibles), who buy only the specific drugs available, will see any real benefit from these sites. While these drugs may appear to be cheaper than the full sticker price, there’s no guarantee that even these discounted prices will be affordable for uninsured Americans on their own.

Moreover, if you have insurance, your prescriptions are included in your plan, and your spending counts toward your deductible. Once you reach this out-of-pocket maximum, health insurers usually cover additional care costs. As a result, people with decent private health insurance are heavily discouraged from purchasing drugs outside their plans.

Could These New Federal Policies Increase U.S. Drug Costs?

Tariffs are the president’s favored pressure tactic. However, tariffs have the unfortunate side effect of increasing costs, rather than decreasing them.

As of mid-October, the Trump administration appeared to be considering applying 100% tariffs to imports of brand-name pharmaceuticals.¹⁰

Next, the lion’s share of active pharmaceutical ingredients (APIs) comes from China, India and the European Union. Tariffs on imported APIs could lead to higher consumer drug costs.

Companies like Pfizer and others have announced plans to develop factories in the U.S., doing so with assurances that they would be exempt from these tariffs.

This only highlights the unpredictable nature of tariffs, which can fluctuate daily. What we still don’t know is how much of the tariff burden will be borne by drug companies, insurers or other parties involved in drug distribution, and how much will be passed on to consumers.

Setting aside the issue of tariffs, it also seems unlikely that bringing drug production back onshore would result in a widespread and lasting decrease in drug prices. Drug manufacturing often occurs overseas due to lower costs and more efficient supply chains. In other words, companies produce drugs abroad when it’s cheaper and more cost-effective to do so.

Moving manufacturing to the U.S. almost certainly results in higher production costs. Companies might cover that expense themselves, but we believe they would likely pass some of these costs to insurers and consumers.

If insurers have to pay higher prices for prescription drugs, it makes sense to think that consumers will ultimately cover these costs through increased premiums.

What Do Policy Changes Mean for Drug Manufacturers?

It’s essential to recognize that this is the industry’s second encounter with Trump. The company management teams we’ve spoken with remain confident in their ability to navigate the current political and business environment, based on their experience during the president’s first term.

Just as the policy environment is in flux, so too are corporate strategies for success in these changing conditions. Key coping strategies include:

• Localizing manufacturing — investments in U.S. production sites in a “U.S. for U.S.” approach.

• Minimizing API dependencies — efforts to keep raw material manufacturing in the U.S.

• Leveraging special tax programs to offset cost impacts.

• Boosting drug prices outside the U.S.

Local regulations impact price increases in developed countries. In nations like Canada and Japan, where pricing is less regulated, this approach may work. Most other developed countries, however, have strict price caps and/or value assessments in place. In these countries, any price hike could risk reducing sales volumes, as health systems try to balance a drug’s economic and therapeutic benefits. Therefore, companies must carefully weigh the trade-off between sales price and volume.

We also believe that companies with more flexible supply chains and pricing power are likely to fare better under the current tax and trade regime. Of course, some companies will be more effective at using these approaches to defend their margins and earnings than others.

While the effects of these policies will vary for each company, the market is reacting to the TrumpRX/Pfizer announcement as a definitive event. That is, investors see this as the breakthrough that has eliminated regulatory risk for the entire drug industry. This helps explain the sharp rally in drug company stocks we’re observing in 2025.

We hope it’s clear that, just as policy effects on U.S. drug prices are likely to be mixed, so too are the companies’ strategies and results. That’s why we believe that fundamental analysis will be crucial in distinguishing which drug companies are likely to succeed or fail in the future.