[Modified loosely based an Adobe Stock image]
Trump described that two-sided approach at a Sept. 18 White House announcement on Medicaid drug pricing. “We went way down and they went a little bit up,” he said of U.S. and foreign prices. He also described the pressure behind the negotiations: “If they didn’t agree, we were going to use tariffs to make sure they did it.”
Those were Trump’s claims about the agreements. The research question is how much they change drugmakers’ expected worldwide revenue, and what that change buys in additional medicines.
Launch plans shift
Some drugmakers are delaying European launches or demanding U.S.-level prices to protect their U.S. revenue. For medicines subject to international price benchmarks, a lower overseas price can also reduce the price a company receives in the U.S. Insmed postponed the German launch of its lung disease drug Brinsupri in February, citing uncertainty over MFN, even though the drug had won European approval the previous November. Industry-wide, drug launches in the EU fell by some 35% in the 10 months after Trump’s May 2025 executive order, compared with the prior 10 months, according to a GlobalData analysis that Reuters highlighted. Other companies have proposed higher overseas launch prices. Bristol Myers Squibb said it planned to launch its schizophrenia drug Cobenfy in the U.K. at a list price equal to its U.S. price, and its commercial chief said the company was prepared to walk away if U.K. health authorities couldn’t recognize the drug’s value.
Prices move unevenly in the U.S.
The MFN deals have not stopped U.S. list-price increases, though cuts on a few heavily used drugs offset them in Medicaid. By mid-January, drugmakers had raised list prices on 872 brand-name drugs at a median 4%. All 16 companies that had signed MFN deals by then were among those raising prices, Pharmaceutical Executive reported, citing NPR. But 46brooklyn also counted 18 price decreases. Weighted by prior-year gross Medicaid spending, those decreases outweighed the increases.
In September, Trump held a press conference announcing that all 50 states would join a program set to provide MFN pricing to some drugs within program.
Last December, Britain agreed to invest 25% more in new medicines, partly by raising the cost-effectiveness threshold NICE uses to recommend them for NHS use. In Japan, where regular price revisions have constrained drug prices, ING economists warned that MFN could add upward price pressure and discourage launches. If the extra revenue from higher foreign prices outweighs the revenue lost to U.S. price cuts, drugmakers’ expected worldwide returns rise.
As a sector, pharmaceutical’s R&D investment remains fairly consistent over time. Thus, revenue gains can lead drive similar increases in new drug development. In a 2000 study in the Journal of Evolutionary Economics, Duke economists Henry Grabowski and John Vernon examined 11 major drugmakers from 1974 through 1994. Expected returns and cash flow helped explain how much the companies spent on R&D relative to sales. Higher anticipated earnings make additional research projects financially attractive, while cash flow helps companies finance the work.
A 2004 study in the Quarterly Journal of Economics examined the next link, whether larger markets produce more medicines. Daron Acemoglu and Joshua Linn used changes in the age distribution of the U.S. population to identify shifts in demand for different drug categories. Categories with growing potential markets attracted more new drugs, including new molecular entities. Their approach used demographic changes to help separate the effect of a larger market from the sales growth a successful medicine creates.
Later estimates found the response to be smaller than Acemoglu and Linn’s work suggested. In a 2015 paper in the RAND Journal of Economics, Pierre Dubois, Olivier de Mouzon, Fiona Scott-Morton and Paul Seabright analyzed pharmaceutical sales in 14 countries from 1997 through 2007. Their estimate put the elasticity of new chemical entities reaching the market with respect to expected market size at 0.23. In practical terms, a 10% increase in expected revenue implies roughly 2.3% more new chemical entities.
The authors translated their estimate into approximately $2.5 billion in additional revenue per additional new chemical entity, using their historical data. That figure measures the market reward needed to induce an additional innovation. The authors described the modest response as consistent with rising development and regulatory costs and increasingly difficult scientific opportunities. Their estimate implies that drug output grows more slowly than expected revenue.
The seesaw math
A back-of-envelope scenario, not a forecast.
Start with $100 in worldwide sales of new medicines. Of that, $74.10 comes from the U.S. and $15.60 from Europe’s five largest markets, according to EFPIA’s 2026 data book, citing IQVIA. The figures cover 2025 sales, at ex-factory prices, of medicines first launched worldwide in 2020–2024. The European group comprises France, Germany, Italy, Spain and the U.K.
1. Europe’s end goes up
Suppose revenue from new medicines in those five markets rises 25%, with sales elsewhere unchanged. That adds $3.90 to worldwide sales for every original $100. The 25% figure is inspired by Britain’s spending commitment, and the deal’s effect on individual prices and sales will vary.
25% × 15.6% = 3.9% more global revenue
2. Apply the elasticity
Apply Dubois and colleagues’ estimate of 0.23, assuming the sales gain translates into a lasting increase in expected revenue. The approximate result is 0.9% more new chemical entities than would otherwise arrive, above the growth already expected.
3.9% × 0.23 ≈ 0.9% more new drugs
3. Put that in perspective
On an illustrative baseline of 50 new drugs a year, 0.9% equals 0.45 additional drugs annually, or roughly one every two years once the effect works through. CDER approved 50 novel drugs in 2024, but that count includes biologics and differs from the study’s innovation measure. Newly initiated research can take a decade or more to reach patients, while existing projects could respond sooner.
4. Check the American end
A roughly 5.3% fall in U.S. revenue from the same new-medicine base would remove that $3.90 gain. This is an average revenue decline across the U.S. base. A price cut applying to a subset of medicines would have a smaller overall effect.
3.9 ÷ 74.1 ≈ 5.3% U.S. revenue decline to break even
Assumptions: The calculation holds market shares and other regions’ revenue fixed and uses historical ex-factory sales as a proxy for expected future net revenue. Launch timing, volumes, rebates and policy durability could change the result. The elasticity reflects firms’ historical investment responses, including their allocation of revenue, and comes from 1997–2007 data. Applying it to today’s development costs and opportunities adds uncertainty.
Filed Under: Drug Discovery
