Trump’s Good-Bad Pharma Agenda

Trump’s Good-Bad Pharma Agenda

Faster generic approvals make sense, but tariffs will counter the gains.

By The Editorial Board, WSJ

April 28, 2025 5:34 pm ET

The President’s order is a grab-bag of smart and misconceived policies. The former include accelerating approvals of low-cost generics and biosimilars, as well as streamlining the process by which some medicines like treatments for skin conditions can safely be provided over-the-counter. This is how his first Administration reduced drug prices.

The order also proposes eliminating the Inflation Reduction Act’s “pill penalty” that makes lower-cost small molecule drugs subject to Medicare price-controls four years earlier than biologics. This “discrepancy threatens to distort innovation by pushing investment towards expensive biological products,” the order notes. Yes, it does.

Republicans can fix this in the tax bill—even if they can’t muster the courage to repeal the IRA’s price controls, which have done nothing to reduce overall drug prices. Prescription drug prices have increased more since the IRA passed in August 2022 than in the five previous years, in part owing to market distortions caused by price controls.

The controls have also led to cuts in pharmaceutical research and development. That’s one reason investors have sold off pharma and biotech stocks. Nasdaq’s biotech index has risen only 10% over the last five years while the Nasdaq is up more than 100%.

Health and Human Services Secretary Robert F. Kennedy has also put a pall on innovation. He recently accused Food and Drug Administration employees of being a “sock puppet” for drug makers and vowed the “era of rubber-stamping” is over. The FDA has never “rubber-stamped” drug approvals, far from it.

Declining biotech investment has some Republicans fretting about the U.S. losing its competitive advantage to China. “We lost our leadership in semiconductors, and we are close to losing that position in biotech if we don’t act now,” said Indiana Sen. Todd Young last week.

One way to act would be to stop Mr. Trump’s mooted 25% tariff on imported medicines. Most generics and active drug ingredients are made in India or China because of lower manufacturing costs. The U.S. doesn’t want to depend on China for critical drugs, and many manufacturers have been shifting production to other low-cost countries.

But moving production back to the U.S. would require years and tens of billions of dollars in investment. It would also drive up prices for generics, which account for most medicines. The tariffs could also lead to drug shortages because government-mandated rebates for Medicaid would render most generics unprofitable in the U.S.

As for branded-drugs, Eli Lilly CEO David Ricks recently warned that tariff costs would cause companies to reduce R&D spending. Advantage China. Lilly has announced $27 billion in investment in four new U.S. factories, but Mr. Ricks said that making the 2017 tax reforms permanent, including bonus depreciation, is “essential” to that investment.

Johnson & Johnson CEO Joaquin Duato attributed the company’s recently announced $55 billion investment in the U.S. to the 2017 tax reform and said tax policy, not tariffs, is the most effective way to encourage manufacturing in the U.S. Tariffs, he warned, “can create disruptions in the supply chain, leading to shortages.”

If Mr. Trump opposes importing drugs at lower cost, why does his order propose letting states import drugs from Canada and other countries with socialized health systems at their government-controlled prices? This is a hoary Democratic idea that has recently found support among Republicans, but Canada has refused to export its medicines lest this result in domestic shortages.

If the President wants to reduce drug prices while boosting U.S. investment and innovation, he could follow his successful first-term playbook: Ease regulation, cut taxes and accelerate approvals. And drop the tariffs.