US price curbs force cuts, narrow options
Big Pharma investor meetings emphasize operational and capital efficiencies.
For decades, pharma’s high profit margins left little incentive to change. Yet over the last several years, harsher competition and payer pushback has driven portfolio streamlining and optimization as these large, overhead-heavy organizations fight for growth. This streamlining has ramped up as government-backed drug price cuts reach the large, lucrative US market, leaving manufacturers, payers and pharmacy benefit managers scrambling for leftovers.
AbbVie, Merck & Co., Novartis and GlaxoSmithKline are among those to have slashed headcount in the last six months. Big Pharma investor meetings emphasize operational and capital efficiencies, often with share buy-back sweeteners. Pharma’s R&D spend growth is set to halve over the rest of this decade, according to World Preview forecast data; expenses as a share of net sales are now trending well below 20%, with AbbVie and Pfizer reporting 13.8% and 16.6%, respectively, in 2Q 2025.
With portfolio-trimming comes greater focus, as attention shifts to surviving assets. “We need to focus on fewer things, and do them better,” said Novo Nordisk’s incoming CEO in July 2025, as the Danish group struggles against Eli Lilly for dominance of the obesity market. Single compounds with multi-indication potential – “pipeline-in-a-product” drugs – are popular focal points, particularly those addressing widespread diseases like obesity, heart disease and auto-immune conditions. They enable economies of scale across development and commercial channels and help fill the gaping revenue holes left as many big drugs lose patent protection this decade and next. The most valuable pharma firms today, including Eli Lilly, Novo Nordisk, AbbVie and Johnson & Johnson, each have a $20 billion-plus blockbuster (tirzepatide Mounjaro, semaglutide Wegovy; daratumumab Darzalex; risankizumab Skyrizi).
Yet some of these mega-blockbusters are in the crosshairs of the Inflation Reduction Act’s price curbs, designed to hit products with the highest Medicare sales. IRA, signed into law in 2022, is just one of several weapons designed to deflate US pricing, including state-level upper drug price limits, attempted PBM reform (which could narrow margins) and, most recently, President Trump’s most-favored nation (MFN) policy.
IRA hits drugs at the back end of their life-cycle – negotiated prices come into force after 9 and 13 years on the market, respectively, for small and large molecules. MFN hits drugs up front: it seeks to link US launch prices to those in other, lower-cost OECD nations.
Announced by executive order in May 2025, MFN has yet to take shape (it is now intertwined with tariff policy). IRA’s impact is also evolving: Trump’s more recent “Big Beautiful Bill” includes a provision to protect several large drugs with orphan designations, like Keytruda and Darzalex, from Medicare negotiations.
Still, whatever its final form, MFN “is not happening in isolation, cautions Michael Ciarametaro, managing director at advisory firm Avalere. The IRA is said to be influencing which indications developers prioritize for a given molecule – larger ones will likely take precedence given the post-launch time limit – and moves to develop several similar compounds in parallel. MFN may feed into decisions on where to launch first, and in what indication: pursuing smaller, higher-value populations ex-US, for example, might help create higher MFN reference prices.
Meanwhile, on the cost side of the equation, onshoring of drug manufacturing – a response to another of Trump’s MAGA calls - leaves less room to lower costs there. Most Big Pharma have announced increased investment in new or existing US facilities, in the face of potential import tariffs.
The upshot? Manufacturers have fewer options to adjust their strategies.
