Trump boasts of a "great victory": Nine major pharmaceutical companies reach a price reduction agreement in exchange for a three-year tariff exemption

On the 19th, Friday Eastern Time, U.S. President Donald Trump announced that he had reached a drug price reduction agreement with nine pharmaceutical giants. The pharmaceutical companies have made progress in a series of agreements to lower the prices of certain drugs in the U.S. in exchange for a three-year tariff exemption.

According to the latest agreement, nine pharmaceutical companies, including Merck, Genentech (a subsidiary of Roche), Novartis, Bristol-Myers Squibb, Gilead Sciences, Boehringer Ingelheim, Amgen, GSK, and Sanofi, have committed to lowering drug prices for the Medicaid program for low-income and disabled individuals, selling discounted drugs directly to consumers, and launching new drugs in the U.S. at the same prices as in overseas markets.

Trump claimed during an event in the Oval Office that these new agreements represent the "biggest victory" in reducing burdens for patients in the history of the U.S. healthcare industry, expressing optimism that "drug prices in America will drop rapidly and soon become the lowest among developed countries."

According to Trump, 14 of the 17 pharmaceutical companies targeted by his administration this summer have agreed to "significantly" lower prices. Among the companies that received a threatening letter from Trump in July, only AbbVie, Johnson & Johnson, and Regeneron Pharmaceuticals have not yet reached an agreement with the Trump administration.

U.S. Secretary of Commerce Wilbur Ross hinted on Friday that the remaining three companies would announce similar agreements after the year-end holidays. Meanwhile, Trump plans to launch a direct sales website called TrumpRX in the new year, where the drugs promised to be discounted by pharmaceutical companies will be sold.

These agreements will have a significant impact on the U.S. healthcare market. A 2024 study by the RAND Corporation shows that the average price of prescription drugs in the U.S. is nearly three times that of overseas markets, with brand-name drug prices being more than four times higher. However, Democratic lawmakers have recently called for companies to provide more details to prove that these confidential agreements can genuinely save costs for the U.S. government.

Core Terms of the Agreement

Under the agreement, the nine pharmaceutical companies have agreed to take multiple measures to lower drug prices in the U.S. These include selling existing drugs to Medicaid patients at "most favored nation" prices and listing their most popular drugs on the TrumpRx direct sales website launching in January.

These agreements are similar to those reached earlier this year between Pfizer and AstraZeneca. Including previously signed agreements with Eli Lilly and Novo Nordisk, the Trump administration has now reached price reduction agreements with 14 major pharmaceutical companies. These companies had previously received letters from the Trump administration in July, requesting them to lower prices as part of the "most favored nation" policy.

In return, these pharmaceutical companies will receive a three-year tariff exemption and other benefits, such as expedited approval for new drugs. Some companies have also agreed to donate six months' worth of drug raw materials, including production materials for antibiotics and inhalers for respiratory diseases, to the national strategic reserve and commit to producing finished drugs in emergencies.

Challenging the Global Pricing System

In May, Trump signed an executive order to restart the so-called "most favored nation" policy, requiring drug prices in regions outside the U.S. to be increased, aiming to "end global freeloading." This policy directly addresses the issue of the U.S. bearing excessively high costs for global drug research and development Pharmaceutical companies have long argued that high prices in the U.S. market fund their research and development, and that the operation of the U.S. market differs from that of other countries. The industry association PhRMA, representing several large pharmaceutical companies, stated that most-favored-nation pricing is not the best way to reduce drug costs in the U.S. and attributed price differences to pharmacy benefit managers.

However, the importance of the U.S. market to these pharmaceutical companies is undeniable. Even large pharmaceutical companies headquartered in Europe heavily rely on this market. Among the top ten pharmaceutical companies in continental Europe, half of them derive more than half of their sales from the U.S., making it difficult for these industry giants to refuse the demands of the Trump administration.

Market Impact and Outlook

Trump stated on Friday:

"As of today, 14 of the 17 largest pharmaceutical companies have agreed to significantly lower drug prices, benefiting the American public and American patients. This is undoubtedly the biggest victory in U.S. healthcare history regarding patient affordability, and every American will benefit from it."

The Trump administration plans to launch the TrumpRx website in the new year, where discounted drugs will be available for consumers to purchase directly.

However, the actual effects of these agreements remain to be seen. Due to the confidentiality of the agreement details, Democrats have recently called for companies to provide more information to verify whether these tariff reduction agreements can truly save money for the U.S. government.

Trump revealed that the remaining uncontracted Johnson & Johnson will announce an agreement next week.

As more pharmaceutical companies join in, the U.S. drug pricing landscape may undergo significant adjustments, but the specific extent of price reductions and implementation details still need to be further disclosed