Why It Might Be Good for the Pharmaceutical Industry in the Long Run
A Different Take on Business Acumen and Market Dynamics
The headlines flashed like lightning:
“Trump Says He Will Sign Executive Order Aimed at Lowering Drug Prices”
“U.S. Drug Prices Will Be Pegged to International Rates”
And predictably, the immediate reaction across the pharmaceutical industry and markets was panic.
The initial narrative was straightforward from a business acumen perspective: this move would slash revenues, limit pricing flexibility, and discourage investment in research and development (R&D).
But at Advantexe, where we develop business acumen simulations for global pharmaceutical companies, the reaction was different. Our team started texting immediately, not with fear, but with questions. How do we help clients navigate this curveball? How do we reframe the conversation?
We’ve been simulating this very scenario for months, introducing it as a “wobbler” in our learning experiences. And here’s the surprising conclusion we’ve come to:
This Executive Order, although it may be painful in the short term, may ultimately serve as a catalyst for a stronger and more sustainable pharmaceutical industry.
A Quick Background: The Pricing Distortion No One Talks About
Pharmaceutical companies take enormous financial risks to bring new therapies to market. R&D investments often exceed $2 billion per successful drug, with timelines that stretch across 10–15 years. Despite those efforts, only about 1 in 10 compounds that enter clinical trials ever reach patients.
While U.S.-based pharma companies drive global innovation, they’ve also been trapped in a distorted global pricing model. Countries with nationalized health systems negotiate dramatically lower drug prices, often 50%–70% lower than U.S. list prices. Why? Because pharmaceutical firms want access to these markets and are willing to accept steep discounts to participate.
The result is a highly unbalanced system:
- U.S. patients and payers disproportionately fund global R&D.
- Middlemen, PBMs, wholesalers, and insurers extract at least 10–20% margins in a complex system that lacks transparency.
- True pricing equity doesn’t exist.
The Contrarian View: A Path to Pricing Equity and Market Reset
If implemented effectively, this Executive Order could rebalance the global pricing landscape. Here’s how:
1) International Reference Pricing (IRP) levels the field.
If U.S. pricing is indexed to the lowest prices in developed markets, pharma companies will be forced to rethink their global strategies. That might mean raising prices slightly abroad while moderating them at home. The net result?
- A global equilibrium where pricing is more uniform and predictable.
- Improved long-term planning for manufacturers, leading to more sustainable margins across regions.
2) Disintermediation of Middlemen.
The current U.S. model is riddled with opaque rebates and multi-tiered markups. If price controls or price transparency eliminate the need for aggressive price negotiation by pharmacy benefit managers (PBMs), the industry may shed layers of inefficiency.
- 10%–20% of costs could return to manufacturers or be passed on to patients.
- Pharma companies regain control of their own pricing narratives.
3) Acceleration of Value-Based Contracting.
If governments tie pricing to outcomes, pharma companies will be incentivized to invest in patient support programs, adherence tools, and diagnostics. This shift from “volume to value” supports a broader evolution in healthcare.
- Better patient outcomes.
- Stronger payer-manufacturer partnerships.
Business Impacts for Today and Tomorrow
Let’s break it down into what pharmaceutical leaders should focus on now and what’s coming.
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Today |
Tomorrow |
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Reframe internal narratives: Train commercial, access, and leadership teams to understand the strategic implications, not just the tactical losses. |
More uniform global pricing: Expect convergence of U.S. and ex-U.S. prices, likely leading to price increases abroad and moderation domestically. |
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Audit supply chain inefficiencies: Identify where PBMs, wholesalers, and other middle layers erode value and explore direct-to-patient models. |
Shift to value-based pricing: Contracts tied to real-world outcomes will become the norm. Be ready to quantify and track therapeutic impact. |
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Communicate purpose and value: The narrative around innovation, patient impact, and risk-sharing must be loud and clear to all stakeholders, especially regulators and investors. |
Greater investment in real-world data (RWD): Tracking longitudinal outcomes will become a strategic capability and differentiator. |
Final Thought: The Strategic Reset We Didn’t Know We Needed
Great industries evolve under pressure. The tech sector did after the dot-com crash. The automotive industry did after the Great Recession. The financial industry did after the mortgage fiasco, and all of us did after COVID. This Executive Order, whether in its current form or as a precedent, may be the trigger that forces the pharmaceutical sector to rebuild its pricing model from the ground up.
And while that may hurt in the short term, the long-term benefits could be transformational:
- Pricing equity
- Innovation sustainability
- Closer alignment between the value delivered and the value captured
So, yes, this may appear to be a threat. But with business acumen and strategic thinking, it could turn out to be one of the best things to happen to the industry in a generation.
