US Drug Prices

Historically drug prices are the highest in the US. Even for the same products available in other countries, US has been paying more. Most of the pharmaceutical companies do not manufacture their drugs in the US and the US ends up importing them. India has a big trade deficit with the US because it exports a lots of pharmaceutical products and drugs, including generic drugs to the US. Singapore, I just learnt, falls into that category as well.

There are several reasons for this. One the US can afford it. There were and are many rich people there who can afford the high medical fees and drugs. Their insurance companies and Medicare are prepared to pay high prices to the pharmaceutical companies for the drugs. This is eventually funded by higher premiums paid by US citizens and the US government which funds Medicare. This premium charged to the US has allowed the pharmaceutical companies to fund their research and innovation in this field.

Trump has now come up with 2 ideas to bring down the drug prices in the US.

One is for the high tariffs on imported medical products and drugs into the US. Whilst the immediate impact would be to drive up the prices of drugs in the US, including the prices of generic drugs, Trump says this would eventually force the pharmaceutical companies to start manufacturing these drugs in the US. Whilst it may be difficult to sort out the established supply chains currently in place and it may not make sense for the manufacturing of the cheaper generic drugs, it may make sense for the pharmaceutical companies to move manufacturing for the higher end drugs and products to the US.

I can understand the frustration. The biggest consumer market is paying the highest prices for the products in the world and does not have any high end manufacturing capabilities in their own country.

The second idea which was announced this morning was that Trump would sign a directive today directing that the US will only pay the lowest price the drug companies charge for the same drugs to the other countries.

This will have a huge impact . Currently the cheapest prices charged are for the drugs sold in the poorer parts of Africa and Asia. And if the US is only prepared to pay the same price as what these countries are charged, several scenarios are possible.

One, the pharmaceutical companies refuse to sell to the US at these prices and the supply of drugs in the US dries up creating a outcry there. Possible but can that go on for long? The US is also the biggest buyer and how long can the stand off last? The pharmaceutical companies will also lose out on their biggest market.

The other is that to appease Trump, they bring manufacturing back to the US and negotiate to bring down the current high prices to a more manageable level. I think this is what will eventually happen. There will be lower drug prices in the US and more manufacturing will take place there.

But to offset the lower margins from the US market, the pharmaceutical companies will end up increasing the prices of drugs everywhere else. We may bear the brunt of this as we are seen as able to pay. It’s like how we end up paying so much more to watch the World Cup than our neighbors simply because we are small and seen as able to pay whatever is charged.

The other is that countries which currently do manufacturing of pharmaceutical products and drugs may see the manufacturing from their countries move to the US.

In that respect I did not realize the potential impact on Singapore. In 2022, pharmaceutical manufacturing contributed to about 4% of our GDP and is about 13.7% of our total manufacturing value add on. Total employment arising from this industry alone is 24,000 skilled jobs. All the top pharmaceutical companies have manufacturing facilities here

So if any of this goes to the US, we will feel the impact.