Securing the Future of the U.S. Biopharmaceutical Industry: The Most-Favored-Nation Paradox

Commentary by Sujai Shivakumar and Anne Pritchett

Published January 13, 2026

The Trump administration is pursuing lowering prescription drug costs primarily to end what it describes as "global freeloading" and to ensure U.S. patients pay prices comparable to those in other developed nations. The administration argues that while the United States represents less than 5 percent of the world's population, U.S. taxpayers fund roughly 75 percent of global pharmaceutical profits, effectively "subsidizing socialism abroad" through higher domestic prices for the same medications.

In its May 2025 executive order Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients, the Trump administration issued letters in July 2025 to the heads of 17 biopharmaceutical companies demanding that the firms offer U.S. patients so-called most-favored-nation (MFN) prices. The directive extends the lowest international prices to Medicaid, guarantees MFN for new drugs, and creates direct purchase options, aiming to cut U.S. drug costs by making them match other wealthy nations' prices within 60 days.

The Pharmaceutical Industry Response to MFN

Backing up the MFN executive order, the Trump administration has stated that it is prepared to use "all tools available," including significant pharmaceutical tariffs, to enforce compliance with its order. U.S. pharmaceutical companies have responded to this executive order by both negotiating deals to voluntarily lower some drug prices in exchange for tariff exemptions and through a broader strategy involving investments in U.S. manufacturing and the expansion of direct-to-consumer sales platforms.

Following an agreement with the Trump administration in September 2025, Pfizer announced it would reduce prices for certain medicines and offer discounted drugs on the government-launched, direct-to-consumer website, TrumpRx.gov, expected to launch in January 2026. The deal also provides state Medicaid programs access to MFN pricing on Pfizer products. Pfizer also announced plans to invest $70 billion in the United States over the next few years, in return for a three-year waiver from any pharmaceutical tariffs. AstraZeneca, Eli Lilly, and Novo Nordisk recently announced similar agreements with the administration.

In all, according to a new investment tracking tool from We Work for Health, the United States' research-based biopharmaceutical companies (i.e., not producers of generics and biosimilars) have announced in recent months more than $425 billion in new U.S. research and development (R&D) and manufacturing investments, including the following:

• Merck has begun construction on a $3 billion center for manufacturing excellence in Virginia.
• AbbVie will invest $195 million to construct a new active pharmaceutical ingredient facility in Chicago, Illinois.
• Johnson & Johnson has announced a $2 billion manufacturing facility commitment in North Carolina.
• Eli Lilly plans to build a $5 billion manufacturing plantin Richmond, Virginia, as part of a long-term plan to invest an additional $50 billion into the United States.

Despite these and other recent announcements of planned investments in biopharmaceutical research, development, and manufacturing in the United States, concerns remain that the necessary infrastructure, materials, and skilled workforce inputs are not in place domestically, primarily due to persistent labor shortages, a significant skills mismatch for advanced manufacturing roles, and supply chain fragilities for critical components.

Disruptions to Biopharma R&D

In addition to these implementation-related concerns, MFN also raises fundamental questions about its impact on a complex innovation system that supports U.S. leadership in biopharmaceutical innovation.

MFN Imposes Price Controls

By benchmarking prices for innovative prescription medicines to the lowest prices paid by a set of developed countries, the executive order effectively imposes price controls on the U.S. pharmaceuticals market.

Given that the U.S. industry relies on profits from the U.S. market to sustain its innovation lead, forcibly lowering prices to match those of other countries will reduce profits and lead pharmaceutical companies to decrease investments in high-risk drug development. According to the University of Southern California's Schaeffer Center, "the United States market accounts for 64 to 78 percent of worldwide pharmaceutical profits. These profits drive drug innovation that ultimately benefits patients around the globe."

Price controls will further disrupt the ecosystem supporting pharmaceutical innovation by harming the innovative small biotech firms, which depend on partnerships and funding from larger pharmaceutical companies. Reduced profitability among major players means fewer resources for acquisitions, collaborations, and venture investments that fuel early-stage innovation.

MFN Devalues Intellectual Property

Revenues generated in the United States and secured through well-enforced intellectual property (IP) rights help drive R&D investment and maintain global competitiveness by limiting the proliferation of cheap copies. In turn, this attracts investors and fosters continuous innovation for new treatments. Recent research confirms that secure IP rights are "one of the most potent economic force multipliers known . . . since World War II" and that "IP-protected, R&D-derived inventions have been responsible for much of the economic growth experienced by both the U.S. and the world."

Price controls undermine these "rewards" of the U.S. IP system. They would effectively devalue pharmaceutical innovations by setting arbitrary limits on the economic returns that can be earned from patented discoveries. In this way, MFN policy would potentially stifle the development of new medicines.

By undermining the economic rewards that secure IP rights provide, MFN erodes investor confidence and discourages companies from pursuing long-term, expensive innovation strategies.

Sustaining U.S. Innovation in Pharmaceuticals

The continued vitality of the U.S. pharmaceutical industry is necessary for the nation's economic security. It drives the discovery of new drugs and ensures the availability of essential medicines. Furthermore, the U.S. biopharmaceutical industry is a major economic engine with a market size estimated to be around $600-640 billion in 2024, with a total annual economic output exceeding $1.65 trillion. The industry directly employed approximately one million workers as of 2022 in roles such as scientific research, manufacturing, and technical support, while having a substantial employment multiplier.

The Trump administration's MFN policy presents a paradox. On one hand, it has stimulated significant new plans to reshore pharmaceutical manufacturing. Manufacturing is crucial to innovation because it's where ideas become tangible products, driving economic growth, fostering new skills, creating jobs, and creating real-world value and efficiency. On the other hand, by benchmarking U.S. drug prices to comparable international levels, MFN reduces profits that fund high-risk R&D, threatening the industry's ability to develop breakthrough medicines.

Building on the new investments in pharmaceutical manufacturing, policymakers need to strengthen the U.S. biopharmaceutical innovation system through targeted investments and policy actions in workforce development, manufacturing infrastructure, and cross-sectoral collaboration.

• Investing in the Skilled Technical Workforce: Support for STEM education programs and job training initiatives is crucial to developing a talent pipeline for the biopharmaceutical sector, ensuring a skilled workforce capable of meeting the demands of advanced R&D and manufacturing processes.
• Building Public Infrastructure: Strategic investment in research facilities, manufacturing testbeds, and other critical infrastructure aids in the ongoing reshoring of pharmaceutical production, reducing reliance on foreign supply chains, and boosting domestic capacity.
• Fostering Cross-Sector Collaboration: Policies that encourage collaboration among academia, private industry, and government research agencies (such as the National Institutes of Health) can accelerate the pace of research, development, and commercialization of new pharmaceutical innovations within the United States.

The administration's success in securing massive investment pledges from the industry to reshore manufacturing needs to be reinforced. Its positive impact will be undermined if the long-term consequence of its MFN pricing policy weakens the IP foundations of U.S. leadership in biopharmaceutical innovation.

Sujai Shivakumar is the director and senior fellow of Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Anne Pritchett is a senior associate (non-resident) with Renewing American Innovation at CSIS.

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