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President Donald Trump's new drug pricing executive order is the latest headwind brewing in biotech's cataclysmic Q2.

Why it matters: The EO undermines the hopes of biotech investors and entrepreneurs that private capital would fill R&D gaps created by dwindling NIH funding.

What they're saying: In the near-term, biotech investors could put deals on pause as they try to parse the order, Tomas Philipson, a professor at the University of Chicago's Harris School of Public Policy, tells Axios.

The policy could disincentivize investment in risky, early-stage drug development if investors project mediocre returns from selling products at lower prices, he says.

If required to close the gap between prices in the U.S. and abroad, pharma companies may try raising prices overseas, but if other countries refuse, they may pull out of those markets entirely, shrinking the global market.

"Those of us who invest in early-stage drug development will be forced to focus only on those programs where we believe that the U.S. market alone can generate enough ... to make the investment worthwhile, since we'll have to assume no meaningful sales in other countries," RA Capital Managing Partner Peter Kolchinsky says.

Context: U.S. drug prices are on average roughly double those in major international markets. Lowering them to European prices would cut U.S. drug revenue by 24%, per Morningstar.

Yes, but: So far, big pharma, which often buys early-stage biotech startups, doesn't appear particularly spooked by Trump's new policy, which runs in stark contrast to free-market ideology usually held by conservatives.

Pharma shares rose on the executive order's announcement.

"We think investors are encouraged by the vagueness of the order and the significant room for negotiations," Morningstar director Karen Andersen wrote in a note.

What we're watching: On the same day Trump signed the executive order, pharma giant Roche told Endpoints it would reassess a planned $50 billion domestic manufacturing investment if "legislation or regulations were implemented that would harm (the) industry's ability to operate and innovate in America."

State of play: Drug development and innovation is being threatened on multiple fronts, creating uncertainties for the sector's long-term prospects.

VC dealmaking in biotech and pharma fell 11% year-over-year in Q1 to $5.48 billion across 206 deals, per PitchBook.

"If you clamp down on innovation, I think you're going to really hurt patients in the long run," UChicago's Philipson says.

What we're watching: Biopharma observers have to wait for more details that come from the order, as well as a potential pharma-specific tariff.

Morningstar estimates a 25% pharma trade tariff between the U.S. and Europe could lead to a low-single-digit hit to earnings for most firms.

The bottom line: "If you go to any VC or PE meeting in the world, the first thing they talk about is the market size and earnings on the drug that they're investing in," Philipson says. "If that's less, they're going to invest less."

Biotech's back-to-back battles

Facing lower returns, biotech investors may pull back.

Illustration of a red MAGA-style hat with stitching that reads "Rx".

President Donald Trump&#x27;s new drug pricing <a class="gtmContentClick" data-vars-link-text="executive order" data-vars-click-url="https://www.axios.com/2025/05/11/trump-drug-prices-executive-order-pharmaceuticals" data-vars-content-id="97c31342-99d2-4e1d-b998-920afd0d49fb" data-vars-headline="Biotech&#x27;s back-to-back battles" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2025/05/11/trump-drug-prices-executive-order-pharmaceuticals" target="_self">executive order</a> is the <a class="gtmContentClick" data-vars-link-text="latest headwind" data-vars-click-url="https://www.axios.com/pro/biotech-deals/2025/04/28/fda-upheaval-vc-biotech-deals" data-vars-content-id="97c31342-99d2-4e1d-b998-920afd0d49fb" data-vars-headline="Biotech&#x27;s back-to-back battles" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/biotech-deals/2025/04/28/fda-upheaval-vc-biotech-deals" target="_self">latest headwind</a> brewing in biotech&#x27;s <a class="gtmContentClick" data-vars-link-text="cataclysmic Q2" data-vars-click-url="https://www.axios.com/pro/biotech-deals/2025/04/16/pharma-tariffs-dealmaking-biotech" data-vars-content-id="97c31342-99d2-4e1d-b998-920afd0d49fb" data-vars-headline="Biotech&#x27;s back-to-back battles" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/biotech-deals/2025/04/16/pharma-tariffs-dealmaking-biotech" target="_self">cataclysmic Q2</a>.Why it matters: The EO undermines the hopes of biotech investors and entrepreneurs that private capital would fill R&amp;D gaps created by dwindling NIH funding.

Biotech's back-to-back battles

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