Cut out middlemen and offer drugs at rock - bottom prices. Trump plans to implement a U.S. version of centralized drug procurement.

Text | Hu Xiangyun

Editor | Hai Ruojing

The United States, which has the highest drug prices in the world, can no longer sit still.

On the evening of May 12th Beijing time, Trump held a White House press conference and announced the official signing of an executive order titled "Providing Most-Favored-Nation Prescription Drug Pricing for American Patients". The order requires relevant departments to negotiate a most-favored-nation pricing within 30 days, that is, to align drug prices with those in other developed countries.

The executive order points out that although the US population accounts for less than 5% of the world's total, it bears up to 75% of the global pharmaceutical profits. In terms of drug prices, compared with countries like France and Canada, the average price of prescription drugs in the US is 2 - 4 times higher. After the implementation of this order, the prices of some prescription drugs may "drop directly by 50% to 80%, or even 90%".

Although there is no final conclusion on the practical implementation level, in the past two days, the global pharmaceutical industry has once again been fluctuating with Trump's "drama of reducing prescription drug prices".

The core controversy lies in whether the executive order will lead to a "shrinkage" of the US $700 billion pharmaceutical market, thereby affecting the revenues of pharmaceutical companies and even subverting the global pharmaceutical investment logic that has been centered around the high - priced US market.

Especially for Chinese pharmaceutical companies, under the policies of drug procurement and medical insurance, seeking greater profit margins across the ocean has been a core issue in the past two years. Now, how will the potential changes in the terminal market affect the overseas expansion of Chinese enterprises?

The new order implies an intention to "increase prices abroad and reduce them at home",

Targeting middlemen

After taking office again, the Trump administration seems determined to tackle the issue of drug prices.

In mid - April this year, he also signed an executive order aimed at reducing the prices of prescription drugs. He even specifically stated that the price of insulin should be reduced to $0.03 and that of injectable adrenaline to $15. In addition to drug prices, a wider range of medical subsidy regulations and measures to restructure the medical distribution process should also be implemented simultaneously. Now, just one month later, Trump has brought up the concept of "most - favored - nation pricing" again and once again targeted drug prices.

For a long time, the US has had high medical expenditures. This is mainly due to the complex and deeply - intertwined interest groups in the US medical pricing system: pharmaceutical companies, PBMs (Pharmacy Benefit Management Organizations, which are responsible for a large amount of drug pricing, prescription management, insurance claims, etc.), payers such as insurance companies, and medical institutions such as pharmacies. Through mechanisms such as designing insurance contracts and PBM agreements, they jointly drive up the high prices of prescription drugs.

"Interest groups including PBMs, insurance companies, and pharmacies extract more than 40% of the final drug selling price," said Zhang Xiao, the founder of Syneron Bio.

This structure has formed because in the US, drug price negotiations are mainly carried out among these major interest groups, and the price - adding process is not transparent.

Industry insiders who have dealt with US medical insurance mentioned that due to free pricing, the discount ranges of pharmaceutical factories for different payers and purchasers vary greatly. It is even possible for the same drug to have a discount ranging from 10% off to no discount at all. For specific drug varieties, large - scale biopharmaceuticals such as tumor immunotherapy drugs and exclusive varieties naturally have more bargaining power. These drugs with greater "maneuvering" space and higher profit margins naturally have more room for price reduction.

Therefore, eliminating middlemen has become the primary goal of Trump's new order. At the White House press conference on the 12th, Trump even said bluntly that he wanted to completely eliminate these "unknown but entrenched roles that have existed for at least several decades".

However, these deeply - entrenched interest groups may not be easily shaken. In the future implementation of the executive order, determining whether it will squeeze the profits of pharmaceutical companies or middlemen may be a "relatively complex game process".

Firstly, from an implementation perspective, the US insurance market is dominated by commercial insurance. The scope covered by government - run medical insurance such as Medicare, which the government can control, is very limited, accounting for less than half of the prescription drug market. Moreover, this involves a mature insurance and claims process that has been in operation for decades. Changing the payment end may not necessarily affect the whole situation.

On the other hand, the "50% - 90%" price - reduction range mentioned by Trump is also a attention - grabbing statement. "It should only apply to a very small number of varieties, and there is also great uncertainty about its final implementation. The so - called 'most - favored - nation' pricing does not mean that the government directly sets a price limit for drugs. Instead, it aims to reduce costs by equalizing drug prices with those in other developed countries, so that the US will not become an 'island of high drug prices'. Therefore, the policy itself also implies the meaning of 'increasing prices abroad and reducing them at home', making other countries, especially developed economies, jointly bear the cost of innovation," Zhang Xiao believes.

In this sense, the most - favored - nation pricing is not entirely a negative conclusion. In the future, it may even give pharmaceutical companies more bargaining chips when negotiating with developed countries in Europe. After the signing of the executive order, the stock prices of large multinational pharmaceutical companies such as Merck, Pfizer, and BMS have rebounded to some extent, which also shows the attitude of the capital market to a certain degree.

It is worth noting that this price - reduction measure mainly targets "equivalent developed countries" in Europe and other regions and has not yet spread to developing countries such as China. Therefore, the drug prices negotiated in the medical insurance catalog for domestic innovative drugs should not be affected in the short term. In the future, if the "most - favored - nation pricing" is extended to developing countries such as China, it is foreseeable that large multinational pharmaceutical companies will face a market choice of "choosing sides". They may abandon the Chinese medical insurance market to maintain high prices in the US.

Potential impact on Chinese pharmaceutical companies:

BD prices may be pressured, and generic drugs may gain a price advantage

It is worth mentioning that in addition to the most - favored - nation pricing and eliminating middlemen, Trump also specifically mentioned that the US market will be further opened up, "allowing the legal import of affordable drugs from other countries". Therefore, some voices in the domestic pharmaceutical industry believe that this may be beneficial to Chinese pharmaceutical companies with both efficiency and cost advantages.

Is this really the case?

Compared with multinational pharmaceutical companies or US - based companies, the impact of Trump's new order on Chinese pharmaceutical companies is actually relatively indirect.

In terms of product categories, innovative drugs are the most - watched in the overseas expansion of Chinese pharmaceutical products. The high - pricing space offered by overseas markets such as the US has indeed enabled some Chinese original innovative drugs to achieve successful commercialization in the past few years. For example, in 2024, the sales of BeiGene's BTK inhibitor, Zanubrutinib, in the US reached $2 billion (the US price is about 16 times that of the Chinese market), accounting for 3/4 of the global sales of this single product. Legend Biotech's CAR - T product, Ciltacabtagene autoleucel, is also about to enter the ranks of "billion - dollar molecules".

However, overall, only a very small number of domestic innovative drugs can be directly sold overseas. As of the end of last year, the number of original innovative drugs approved overseas in China was less than 20. The main way for more innovative drugs to enter the overseas market is still through product licensing transactions (BD) with multinational pharmaceutical companies or pharmaceutical funds.

In the first quarter of this year alone, the disclosed amount of overseas product licensing by domestic pharmaceutical companies exceeded $36 billion.

Many interviewees agreed that with the improvement of domestic innovation capabilities and cost advantages, the international demand for Chinese drug molecules will not change in terms of quantity. To some extent, the increase in the number of out - license deals for Chinese new drug pipelines after the introduction of the Biden bill also illustrates this point. However, in terms of price, "there is a possibility that the scale of single - transaction amounts will be reduced".

Some insiders from innovative pharmaceutical companies mentioned that from a BD perspective, the current global drug value system "is basically supported by the ability to sell at high prices in the US". If the future terminal drug sales prices are to be reduced, the discounted cash - flow valuations of current in - development drugs will also decrease accordingly.

"In the short term, when innovative pharmaceutical companies are still facing survival difficulties, the quotes from MNCs can still hold up for a while. The long - term impact will depend on the implementation of the new executive order and how MNCs may adjust their pricing strategies."

On the other hand, for biosimilars and fast - follow products, which account for a larger proportion, the situation may be a bit more complicated. This is because in addition to the most - favored - nation pricing, there may also be some impacts from the "after - effects" of tariffs.

Zhang Xiao explained: "According to the Trump administration's idea, the production of such products should preferably return to the US. This will inevitably lead to an increase in costs. The fundamental purpose of the most - favored - nation pricing is to reduce medical expenditures. Supplying cheap products from China and India to the US market can increase competition and help reduce the cost of drug use. These two demands are fundamentally contradictory, and the trade - off between them may make things quite tricky."

An undeniable phenomenon is that Trump's previous "proposals" have always had a "internet celebrity" effect. They are often quite radical in the early stage of policy proposal but are greatly watered down when implemented later. This time's most - favored - nation pricing may not be an exception, and its actual impact may not be determined until 30 days later.