Drug policy in the Trump era: Expected and observed consequences for the United States and Europe

The starting point: large international price differences

The prices of branded medicines in the US are 4.2 times higher than in a group of 33 OECD countries, and the prices of the top 60 drugs by sales volume are five times higher.¹ In contrast, the prices of generic drugs are lower on average (in the US, 67% of the average level in that group of developed countries).

The causes of these differences lie in the market and regulation. Market rules operate freely in the US, while Europe is governed by price regulation based on value, according to criteria of cost-effectiveness, budgetary impact and others, and by negotiation with large buyers.

Trump's drug policy

In mid-2025, President Trump began to introduce highly disruptive regulatory changes. Public intervention bursts onto the scene and interferes with the market. The US is seeking to join the international reference pricing system (IRP), according to which the price of a new drug in one country is based on the price at which it entered other countries, which thus act as referents. Trump also attempts to establish the principle of communicating vessels. Trump's “argument” is that the US is subsidising Europe, which benefits from the R&D incorporated into high US prices. The solution is for Europe to raise prices “so that the US can lower them”, as if it were a zero-sum game in which the industry must maintain its revenues, and what it loses on one side of the Atlantic it gains on the other.

To understand the consequences of the new policy, we must differentiate between new medicines seeking market access, with patent protection; branded medicines already on the market, whether in monopolistic competition with others or not; and generics and biosimilars.

In the case of new innovative patented medicines, the monopolist behaves as predicted by economics textbooks: since it is the only supplier, it can decide, and does decide, the level of production that will yield the maximum profit, for which it systematically applies price discrimination: charging different prices across markets and setting higher prices where demand is less price-elastic. Demand is more elastic in low- and middle- income countries, and in countries where a monopsony (the large public purchaser) has the purchasing power to negotiate one-on-one with the supplier, as is often the case in Europe, depending on the therapeutic value of the new drug. In the US, by contrast, demand is highly fragmented, with drug purchasing organisations (PBMs, Pharmacy Benefit Managers) capturing a significant share of revenues. Moreover, Medicare was expressly barred from negotiating prices under the 2003 “non-interference” clause. This changed with the 2022 Inflation Reduction Act, which introduced direct Medicare price negotiation for the first time, initially covering roughly ten high-cost medicines.² The negotiated prices take effect in 2026.

Pharmaceutical companies are global. They think globally and act locally. The entry of innovative medicines into the market is sequential and strategically guided by the industry. They progressively jump from countries with higher prices to those with lower prices. The US was the starting point, as there was no negotiation, no delays, and its launch prices were optimal for the monopolist. From the US, they jumped to Europe, starting with countries that were most willing to pay, such as Switzerland, and gave highest priority to rapid access, with revisable prices, such as Germany. The prices of new medicines spread with each jump, with the PRI system.

Now Trump is joining the PRIs dynamic, but that would mean that the US could not be the first to access new therapies, as is currently the case, as it would lack reference prices from other countries. On the other hand, it could force something even more disruptive, forcing pharmaceutical companies to launch new drugs simultaneously in several countries. This scenario is, however, highly implausible. Since 2020, only 14 new medicines have been marketed first in Europe and then in the US.³

For drugs that have lost their patent protection and those that compete with other patented drugs for the same indication, market forces determine price dynamics. One example is the GLP-1 market (drugs for diabetes and obesity based on semaglutide and tirzepatide), which entered an open price war between Novo Nordisk and Eli Lilly. Novo Nordisk lowered the price of Ozempic when Mounjaro entered the market.

The combination of market forces and regulation determines the speed and extent of price falls for drugs when they lose their patent protection to generic competition.⁴ In the US, price falls are immediate and sharp, following market laws, while in Europe the process is generally slower and varies between countries depending on their regulations.

It is also important to distinguish between prices for large insurers or public health systems and retail prices for the end consumer.

On 12 May 2025, an executive order by President Trump defined the concept of Most Favoured Nation (MFN), which should bring down drug prices in the US to the level of lower-priced European countries. That same month, Trump called on the industry to voluntarily lower prices within 30 days, under vaguely defined threats (mainly tariffs). So far, 16 companies have agreed to reduce the price of some drugs, but this is a small number in relation to the total of medicines marketed. For the end consumer, this price reduction is reflected in the TrumpRx web platform,⁵ created in 2026, which offers large discounts on some GLP-1s, insulins, and treatments for infertility, smoking cessation, asthma, COPD and osteoporosis.⁶ Some of these drugs (GLP-1) would have fallen in price anyway due to competition. Patients must download a coupon from the platform and take it to the pharmacy to receive the discount, subject to certain conditions.

In November 2025, Trump launches a five-year pilot programme for Medicaid through the Centres for Medicare & Medicaid Innovation (CMMI), called GENEROUS (GENErating cost Reductions for U.S. Medicaid), which implements the MFN policy, linking prices in the US to those in eight countries: the United Kingdom, France, Germany, Italy, Canada, Japan, Denmark and Switzerland.

Expected consequences

If brand-name drug prices were to fall significantly in the US, there could be a contraction in R&D investment as incentives for innovation are reduced, particularly in certain therapeutic areas. Paradoxically, this scenario could have negative net effects on US GDP.⁷ The “centrality” of the United States in the pharmaceutical industry is evident: between 64% and 78% of the sectors global profits are generated in that country, so the impact on innovation would be global.

However, if a substantial share of the reduction were absorbed by intermediaries – through lower margins and more efficient distribution – these effects could be significantly mitigated.⁸

In Europe, governments and other healthcare funders are under substantial pressure to raise prices. Echoing President Trump's arguments, the industry has threatened to delay or withhold the launch of new medicines in some European countries unless prices increase, or to supply them only through the private sector. If such threats prove credible, this could lead to a systematic rise in prices for certain new medicines and, potentially, for branded products already on the market in some countries. At the same time, a greater uptake of generics and biosimilars is likely, which would improve market efficiency in Europe. It should be noted, however, that generic prices are not under comparable upward pressure.

We can also expect greater price opacity as a way of easing pressure without bearing the political and reputational costs. One mechanism is dual pricing, with a “notified” price and a “financed” price: the former is the official list price that circulates internationally through external price referencing systems, while the latter -the price actually paid by the NHS- is negotiated and kept confidential. At the same time, demands for price transparency are growing, particularly from the political left. In France, the National Assembly voted in favour of greater transparency, although the Senate subsequently rejected it. Finally, more complex arrangements that move beyond a single fixed price are also likely, including risk-sharing agreements (RSAs). However, information systems are not always ready to implement RSAs, and they are not appropriate for all medicines and indications; they are most justified where clinical uncertainty is high.

A side effect of Trump's drug policy is that countries “off the radar” (those not included in the eight benchmark countries mentioned above) may gain an unexpected comparative advantage in negotiating drug prices.

Observed consequences (until the end of February 2026)

The United Kingdom has increased the cost-effectiveness threshold (willingness to pay for a Quality-Adjusted Life Year) by around 25%,⁹ reportedly as a government response to pressure and threats from the US. Because this shift appears driven more by politics than by scientific evidence of an alleged increase in the opportunity cost of healthcare spending, this change of direction could have negative consequences for the health of the population and it may set a precedent that other countries could follow.¹⁰

In the US, there has been a one-off reduction in the prices of some medicines for uninsured people, purchased directly from pharmacies, particularly off-patent drugs with generic competition or branded drugs under strong competition pressure. However, it remains unclear whether there has been a general reduction in prices for the population as a whole or for Medicare¹¹ (although additional Medicare reforms are in the pipeline).¹²

Overall, Trump's drug policy changes the rules of the game: it strengthens the role of government in the US (or, at least, reduces the industry's unilateral pricing power) while simultaneously seeking to increase the industry's bargaining power vis-à-vis governments in Europe – ostensibly in the name of international price convergence. The result is greater regulatory uncertainty and volatility, as well as heterogeneous expectations across firms depending on the composition of their product portfolios.

So far, pharmaceutical companies’ stock market, prices suggest that expectations remain high.¹³ In addition, the stock market is an excellent indicator of market expectations, as it deals with “perfect information”.