On May 12, 2025, the Trump Administration issued an Executive Order regarding Favored Nation Pricing. What are its potential impacts to the U.S. pharmaceutical market?

Favored Nation Pricing

The Executive Order seeks to reduce the price Americans pay for prescription drugs primarily in two ways. The first method is to level the pricing that the U.S. pays as compared to other countries. This tries to address what happened in the 1990’s when European countries installed price controls to reduce their costs of socialized medicine. As a result, European countries and consumers pay less for drugs.

Brand companies then shifted their substantial Research and Development costs to the U.S. payer (consumers, insurers, the government, etc). This is the reason why France, Spain and Canada spend a fraction for the same drug sold in the U.S. The assertion in the Executive Order is not wrong – the U.S. essentially is subsidizing the drug consumption of other countries. The trade association PhRMA agrees and is on-board with the policy.

Direct Purchase

One challenge with the policy is the fact that the U.S. government purchases only a portion of the drugs sold in the United States. Private purchasers such as insurance companies and pharmacy benefit managers negotiate their own pricing with the brand companies. While the U.S. portion of drug purchasing is substantial for entities like Medicare or the Department of Defense, the U.S. government can only control so much involving pricing.

The suggested work-around solution in the Executive Order is for consumers to purchase product directly from brand manufacturers and possibly generics as well. This solution has an added benefit of “cutting out the middleman” (wholesalers, insurers, and pharmacy benefit managers) which adds to costs for the payer. However, direct purchasing might be really tricky given restrictions to access for prescribed drugs and may be subject to legal challenges.

Possible Impacts

As PhRMA is in-line with this policy, the U.S. consumer just might see prices of branded pharmaceuticals decline as brand companies re-negotiate their pricing with other governments and reduce pricing in the U.S. Of course, the cynical view is that they might re-negotiate better ex-U.S. pricing but keep prices at the same (high) level here. This could happen but may be dependent on the actual drug and whether there are viable in-class alternatives which could force lower pricing through competition.

Moreover, the consumer might also see some opportunities to purchase prescription pharmaceuticals directly from the manufacturer. This will depend on the regulatory changes – and possibly in the U.S. Code – necessary to enable direct purchasing. While it took brand manufacturers some time to warm up to direct-to-consumer advertising in the 1990’s, they fully embrace it now and may embrace direct purchasing. Watch for the innovative manufacturers to get in front of this possible opportunity. The bottom line for brand manufacturers likely won’t change or may even increase with these policies; the positive response from PhRMA is not coincidental.

As for generic manufacturers, they might just get swept up in direct sales if brands create a wave. Otherwise, we may not see much market change for generics from this Favored Nation Executive Order, but other Trump Administration pharmaceutical policies might impact them more, a topic to be discussed in a later blog post.