Pharma Companies Working to Make Deals with U.S. & Avoid Tariffs

The Trump administration is hitting pause on new pharmaceutical tariffs as it negotiates deals with drug makers, starting with a major agreement with Pfizer.

Under the deal, Pfizer will invest $70 billion to expand US manufacturing and also join a new platform called TrumpRx.gov, offering Americans deep discounts on many primary care drugs.

And in return, Pfizer gets a 3 year break.

From the proposed tariffs, now Trump called the agreement a model for future deals.

Well, joining me to weigh in this morning is Arthur Wang, healthcare managing director of S&P Global Ratings.

Arthur, good morning.

Thank you so much for joining me.

So first and foremost, tell us what impact Pfizer's deal could have on broader drug pricing policy here in the US, especially if other companies follow suit.

Yeah, I think it's, it's a, it's a good first step toward lowering drug prices in the US, though there's still a lot of details that really haven't been, haven't been known yet.

And in terms of the Pfizer deal itself, I mean, it's a big positive for Pfizer and for the industry, assuming a lot of other pharma companies can strike similar deals and that it does sidestep. the tariff dollars are going out that now could be reallocated to R&D and manufacturing.

But in terms of actually lowering the drug prices for the US consumer, that remains to be seen.

I think in terms of how, for example, when they, when the proposal of setting up the TrumpRX website where consumers can go directly and buy drugs directly from Pfizer.

You know, they talked about upwards of 85% discount, but on average it's going to be a 50% discount.

But that discount is off of those very high list prices for pharmaceuticals, and I think it's, it's only really beneficial for consumers that don't have insurance.

So as you know, in the US there's over 90% of the population does have insurance, whether through private insurance or Medicare or Medicaid, and they negotiate discounts from the drug companies that approximate about at least 50%.

Uh, so it remains to be seen, so it's really more for consumers that don't have insurance or have insurance, but they don't cover their insurance doesn't cover that drug.

And Arthur, you mentioned pricing, so I do want to ask you how significant the most favored nation pricing model is when it comes to Medicaid, and do you think it could expand to commercial insurance markets?

I, I think again, it remains to be seen because there's not a lot of detail.

I guess from our best estimates, uh, there are some, some studies out there that says the US prices on average are about 270, almost 280% higher than, than uh than other countries, but that's again on list prices, right?

So, and again, if you're assuming that Our payers usually get about a 50% on average discount.

Uh, so you're really only talking about 135% and then on top of that, Medicaid gets the best uh discounts.

So I, I think again, it depends on the details, but how much of a on what drug and what level of discount does Medicaid get already that, uh, that would, that account that would drive the future savings.

I think the other point that you bring up, I think that's the big wildcard for us is that.

These, uh, MFN prices that are being negotiated for Medicaid, let's say, if they get expanded and applied to all other payers, I think that's where the big impact is going to be, but at this point, it's not that, that's, that's not in the details.

And you mentioned manufacturing earlier, so I do want to get your take on pharma manufacturing coming back to the US.

So in the case of Pfizer, does the $70 billion investment signal a long-term shift when it comes to manufacturing, or do you think it's more about tariffs?

I, I think it's it's, it's about both.

I think if, if, if you're coming out of the pandemic, I think the, the industry was already shifting, uh, its supply chains to more of a US focus just with the, with the learnings that they came out of the pandemic.

In terms of the tariffs though, it did potentially, but definitely accelerated their focus in terms of shifting that manufacturing back.

I think the what was the big win for in terms of the announcement with with in terms of the Pfizer announcement was that the Trump administration has given the industry.

And now right in terms of just to at least sidestep or delay the tariff impact if they refocus their manufacturing in the US and just not just the manufacturing, it's also the R&D, but that was something that the industry was already doing that is something that the industry was has to do anyway.

In terms of the heavy investment in R&D and manufacturing, it just now has to refocus it more into the US, so that may be a little bit disruptive, but it was already spending that they were already planning to do, and I think it's good for the industry that they, if anything, they had to spend more in terms of expanding their capacity and also increasing the amount of R&D.

And finally, Arthur, before I let you go, what risks or unintended consequences should investors actually be watching for as more pharma companies engage with some of these federal pricing uh demands here?

I think you, you, you highlighted one of them already is that if, you know, in terms of, uh, giving the, the federal government, whether it be Medicaid, Medicare, uh, better prices that are more closely resemble MFN prices, does that spill over into the private pay or into other markets as well, because that, that could be significant.

I think the other thing that Pfizer promised uh.

In terms of for future drugs, future sales that uh new, new launches that they would, the prices for overseas would more closely match the US prices.

I think that, that, that would, that would be interesting to see if they could actually pull that one off.

And Arthur, we have about 60 seconds here, so you are joining us this morning from Toronto, Canada, and you have a unique perspective when it comes to healthcare as well as pharma here in the US.

So as we head into your end and into 2026, what are some trends that you are watching?

And I think the, the major trends for the broader healthcare industry is with the reconciliation bill that was passed this summer, uh, what's happening with the enhanced subsidies under, uh, For the exchanges if they actually expire at the end of this year, and do we, do we see an accelerated push for M&A within the farming industry?

OK, Arthur, it was wonderful talking to you today.

Thank you so much for joining me and thank you so much for sharing your insights as well as your perspective.

Thank you for having me on.