America’s biopharmaceutical industry is already great. President Trump’s new proposal to cut drug prices will make it not nearly as great.

The administration has issued an executive order that seeks to cut drug prices by directing the secretary of Health and Human Services (HHS) to establish a mechanism through which American patients can buy their drugs directly from manufacturers who sell to Americans at a “Most-Favored-Nation” (MFN) price, or to otherwise have HHS “propose rules that impose most-favored-nation pricing.” This approach will be even more damaging than the drug-price controls that the Biden administration implemented under Medicare as part of the Inflation Reduction Act (IRA), because price controls have already led to significant declines in U.S. biopharmaceutical innovation—and whereas the IRA only applies to a selected list of drugs, Trump’s MFN proposal would apply to virtually all medicines.

At a time when China is becoming an increasingly fierce competitor in this industry, policymakers should stop approaching America’s biopharmaceutical industry with price controls and tariffs and instead start supporting it in two key ways:

1. by insisting that other countries pay their fair share for medicines—thereby raising the floor instead of racing to the bottom; and

2. by investing in public-private partnerships to develop the technological innovations that can help companies cost-competitively manufacture medicines in the United States (generic and innovative alike).

IRA Drug Pricing Has Already Caused Significant Harm

The Trump administration should have learned from the Biden administration that drug price controls directly lead to fewer innovative drugs. The IRA, signed into law by President Biden, became the first legislation to grant the Centers for Medicare & Medicaid Services (CMS) the authority to control the prices of drugs. Specifically, it allowed CMS to “negotiate” prices—although this really meant to set prices—for specified drugs covered under Medicare Part B and Medicare Part D prescription drug coverage. The legislation distinguished between two major classes of drugs—chemically derived “small molecule” drugs and “large-molecule” biologic drugs derived from living tissues—and mandated that negotiated prices would apply to small molecules after they have been on the market for 9 years, and apply to biologic drugs after 13 years. Twenty-two drugs have been selected for price setting so far, 19 of which are small molecules.

Unfortunately, the IRA’s deleterious effect on biopharmaceutical innovation began almost immediately. In fact, small-molecule drug funding by venture capitalists has dropped 70 percent since the legislation that would become the IRA’s drug pricing provisions was first drafted in September 2021. A survey PhRMA conducted among its member companies found 78 percent expect to cancel early-stage small-molecule pipeline projects. Sixty-three percent reported they expect to shift research and development (R&D) investment focus away from small-molecule medicines. Another study found the number of therapies in phase I and phase II of development declined 35 percent from 2021 to 2023 among small and midsize biotech companies, predicting that this will lead to a “considerable reduction in the number of FDA [Food and Drug Administration] approvals in roughly 5 to 6 years.”

This is particularly concerning for seniors because small-molecule drugs can cross the blood-brain barrier and penetrate cellular walls, making them essential in treating a wide spectrum of neurogenerative and cardiovascular diseases that disproportionately affect elderly populations. Ultimately, drug price controls lead to less biopharmaceutical innovation being produced in the United States.

A recent study from a closely related industry produced further evidence of the deleterious effects of price controls on innovation, in this case in the medical device industry. The research found that following price reductions, there was a 25 percent decline in new medical device product introductions, and a 75 percent decrease in patent filings, as firms had less incentive and revenue to invest in R&D. Calculations in the study suggest that the value of lost innovation in the medical device industry may have fully offset the direct cost savings from the price cuts.

Drug price controls are particularly concerning at a time when China is running headlong to become a major competitor in the global biopharmaceutical industry. China’s share of global value added in the pharmaceutical industry has increased over four-fold, from 5.6 in 2002 to 24.2 percent in 2019. Meanwhile, its global share of new drugs under development grew from 1 percent in 2005 to 12 percent in 2020. In that same period, its share of oncology drugs under development increased from 2 to 18 percent. In 2019, China published more new biological targets for medicines than the United States. (A biological target is a specific molecule, usually a protein or other biomolecule, that a drug is designed to interact with and modulate to produce a desired therapeutic effect.) In 2023, the FDA approved three new Chinese drugs. And, over the past year, Chinese companies filed 30 percent of Initial Drug Applications to the FDA compared to American companies’ 35 percent share. At a time when Chinese competitors are becoming increasingly significant global competitors, the last thing the United States should be doing is introducing new drug price controls.

There Are Better Solutions

It is true that other nations do not pay their fair share for medicines. For decades, the United States has shouldered the lion’s share of global R&D in the life sciences. Meanwhile, virtually all other Organization for Economic Cooperation and Development (OECD) countries impose high price controls on pharmaceuticals, often paying far less than is needed to sustain the very innovation pipeline they benefit from. ITIF has estimated that if 32 OECD countries had lifted pharmaceutical price regulations in 2018 the world would have benefitted from 25 additional new drugs per year. Moreover, many of these countries’ price controls contribute to a higher U.S. pharmaceuticals trade deficit than would otherwise be the case because they refuse to pay what they should for U.S. drug exports. The Trump administration should redouble its focus on insisting that other countries pay their fair share for innovative medicines.

Certainly, managing drug affordability is important, but the best way to achieve this would be to target the middlemen in the system—pharmacy benefit managers (PBMs), insurers, and wholesalers—who extract margin from the system but don’t contribute to biopharmaceutical innovation. For instance, as total expenditures on brand drugs grew by $268 billion between 2013 and 2020, only 31 percent of the increase accrued to manufacturers, while 69 percent accrued to other stakeholders. And over that time, the share of drug expenditures going to manufacturers decreased by 13 percent, to a point where by 2020—for the first time—over half of drug expenditures accrued to non-manufacturers. Several pieces of congressional legislation are currently circulating that would introduce significant PBM reforms, such as requiring them to eliminate unfair pricing schemes or to disclose details about rebates and fees.

But perhaps the best way the administration can help simultaneously revitalize U.S. biopharmaceutical R&D and manufacturing and address systemic costs is by doubling down on public-private partnerships that would drive technological innovation forward. That’s exactly what the National Security Commission on Emerging Biotechnology determined in its April 2025 report, concluding that “the U.S. government should dedicate a minimum of $15 billion over the next five years to unleash more private capital into our national biotechnology sector.”

To that end, ITIF hosted an event on May 7 titled “Making Medicines in America” which explored how innovative new digital technologies and novel biomanufacturing processes and approaches can make U.S. biopharmaceutical manufacturing cost-competitive. It also noted that a whole new generation of drugs—e.g., those based on siRNAs (small-interfering RNA), conjugated medicines, genetic therapies, etc.—will need entirely new factories constructed to support their manufacture. America should concentrate on leading the development of this next generation of biopharmaceutical innovation and manufacturing. Of course, the United States has to get other factors right to sustain its world-leading life-sciences innovation sector—tax policy, regulatory and permitting policy, education and workforce skills, R&D investments, etc. But it’s these types of constructive policies—not price controls or tariffs—the administration should be focused on to achieve the goals of revitalizing U.S. drug manufacturing, reversing pharmaceutical trade deficits, and producing innovative and affordable drugs for Americans.

America doesn’t have to watch another flagship industry drift away. Policymakers can protect patients, taxpayers, and national security by saying no to MFN drug price controls and yes to policies that reward science and save lives.