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President of the United States

The Blunt Approach to Lowering US Drug Prices

Strategic Insights

— 1 min read

A longstanding issue in the US is the high prices of prescription pharmaceuticals, with the average cost being 2.8 times higher than in other OECD countries, including estimated discounts and rebates. President Trump has vowed to lower drug prices by as much as 80 percent, and his latest executive order aims to cut out middlemen and communicate price targets to pharmaceutical manufacturers. However, the pharmaceutical industry is likely to resist these changes, and the impact on global companies' earnings is uncertain. Despite the challenges, experts believe that the US could cut the profit pool of pharmaceutical companies without stifling innovation.

Key Takeaways:

  • The US pays a multiple of what comparable products cost in other countries, with gross prices being 2.8 times higher than in 33 OECD comparison countries in 2022.
  • The US is the biggest market for prescription drugs, accounting for roughly $600 billion of annual sales out of a global $1 trillion or so.
  • Huge US companies, such as AbbVie, Eli Lilly, and Pfizer, derive between 70 and 90 percent of their sales from the US market.
  • A less lucrative US market might strengthen the hand of drug companies in their negotiations with European national health services.
  • Cutting the profit pool of pharmaceutical companies in the US could weaken their ability to negotiate prices in other countries.
  • The US has a thriving ecosystem and a big market, but there is room to cut the profit pool before innovation takes a nosedive.

Statistics:

  • Gross prices for prescription pharmaceuticals in the US were 2.8 times higher than in 33 OECD comparison countries in 2022. (Source: RAND Corporation)
  • The US is the biggest market for prescription drugs, accounting for roughly $600 billion of annual sales out of a global $1 trillion or so.
  • Huge US companies, such as AbbVie, derive between 70 and 90 percent of their sales from the US market. (Source: Berenberg analysis)
  • The profit pool of pharmaceutical companies in the US is substantial, with companies such as Pfizer and Johnson & Johnson earning significant revenue from US sales. (Source: UBS)
  • A study by RAND Corporation suggests that the US could cut the profit pool of pharmaceutical companies without stifling innovation.

Sources:

  • RAND Corporation study on prescription drug prices in OECD countries
  • Berenberg analysis on pharmaceutical sales data
  • UBS analysis on prescription drug prices and profit pools
  • President Trump's executive order on lowering drug prices

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