Price Controls Will Not Help Patients

D uring the State of the Union address, President Trump said, “I took prescription drugs . . . from the highest price in the world to the lowest.” While Trump is trying to address patients’ frustration with high drug prices (indeed, he has recently secured some discounts through direct bargaining with drug companies), he has enacted a policy that will ultimately cause patients to suffer.

Announced last May, Trump’s “most favored nation” drug policy (MFN) will make the biggest companies, often known as “Big Pharma,” even bigger by putting smaller companies at a disadvantage. That will mean less drug innovation, as smaller companies are responsible for the lion’s share of new drugs.

The Trump administration has, in the past, been wary of Big Pharma. For example, Vice President JD Vance has criticized large pharmaceutical companies for playing a substantial role in the opioid crisis and profiting from gender transition surgery on children. The administration should realize that MFN will only increase the power of the large drugmakers they have decried in the past.

Under MFN, the price drugmakers can charge for a medication cannot exceed the lowest price among selected high-income countries. Many of those countries are in Europe, where drug prices are lower due to price controls.

Anthony Lo Sasso of the University of Wisconsin-Madison warns that price controls will give larger pharmaceutical companies a significant advantage. “Even well-intentioned price controls can sometimes reshape market structure in unintended ways,” Lo Sasso said. “Firms with diversified portfolios and global operations may be better able to adapt than smaller companies reliant on only a few products. Generally, policymakers need to consider whether MFN could inadvertently increase concentration even as it attempts to reduce prices.”

Price controls make it harder to make a profit on a drug because governments often impose prices that don’t cover the cost of producing a drug. For larger companies that sell many different drugs, that’s not a big hurdle. If the prices of some of their drugs are not profitable, the prices of others can make up the difference, keeping the companies in the black. Additionally, large companies can absorb MFN compliance costs and the costs of lobbying or lawyering up to avoid regulation much more easily than smaller competitors.

For a smaller company that sells fewer drugs, unprofitable drugs can easily put the company in the red. That is good for Big Pharma: Larger drugmakers will increase their market share as smaller companies in financial distress either go out of business or are acquired by larger competitors.

Not surprisingly, the 16 pharmaceutical companies that have agreed to Trump’s MFN policy —  including Pfizer, AbbVie, and GSK — are among the biggest names in Big Pharma. All of them either rank in the top 20 in annual revenue among all drug companies or are subsidiaries of companies that do. Of the 15 that are or belong to publicly traded companies, all rank in the top 15 for market capitalization.

Tilting the playing field against smaller companies will reduce the number of new drugs available to patients. In recent years, smaller companies have accounted for over 60 percent of drugs that are in the development stage. Smaller companies originated 46 percent of the first-in-class cancer drugs the U.S. Food & Drug Administration (FDA) approved between 2010 and 2020, versus 14 percent from larger companies. Larger companies tend to focus on making incremental improvements to existing drugs rather than developing new ones.

Patients benefit from newer drugs, which improve health, work productivity, and longevity. A recent study in The Lancet found that patients using new drugs gained an average of half a year of full health. Patients who take new drugs are less likely to miss work, resulting in an extra $233 billion in wages annually. Between 40 percent and 66 percent of the increase in life expectancy in the U.S. since the mid-1980s is attributable to new pharmaceuticals. Additionally, newer drugs help patients avoid costlier and riskier hospitalizations and surgeries.

In the late 1980s, European pharmaceutical companies accounted for the majority of global drug research and development. But as European governments imposed more price controls, they squeezed out the profitability of investing in new medications. Over time, R&D shifted to the U.S., which avoided price controls. In 2024, worldwide R&D was $288 billion. U.S. drug companies account for 55 percent of that investment, while Europe’s total is 29 percent. The higher prices Americans pay for drugs, and the profits that result, are responsible for most drug innovation.

President Trump has called it unfair. He’s right. However, the answer isn’t to adopt new regulations. A better approach to lowering drug prices for Americans that Trump should consider is reducing the length of the drug approval process. Currently, it takes ten to 15 years for the FDA to approve a new drug. He can also pressure Europe to bear a greater share of the cost of drug innovation by relaxing price controls. That should be part of any future trade negotiations with Europe.

MFN will reduce incentives to innovate. If making drugs isn’t profitable, investors will take their money where they can get a better return, and the pipeline of new drugs will dry up. It will be the very patients that Trump is trying to help who will suffer.