9 Implications of Trump’s Tax-Cut and Spending Bill for the Bio/Pharmaceutical Industry

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On July 3, 2025, the US House of Representatives passed President Donald Trump’s sweeping tax-cut and spending bill (1). Branded by supporters as a “pro-growth economic catalyst,” the legislation includes provisions that will reshape the strategic and operational landscape for the pharmaceutical and biotechnology sectors.

While headline impacts focus on tax relief and economic stimulus, the bill has deeper implications for drug discovery, development, and manufacturing alongside secondary effects on investment flows, clinical infrastructure, and global supply strategies.

1. R&D tax expensing restored

A cornerstone of the bill is the permanent reinstatement of full expensing for domestic R&D activities. This provision, originally introduced in the 2017 Tax Cuts and Jobs Act, had been scheduled to sunset but is now extended indefinitely (2).

The pharmaceutical industry, which typically allocates more than 20% of revenue toward R&D, stands to benefit significantly. Trade associations such as PhRMA have argued that the change will support continued investment in preclinical discovery, platform innovation, and early-stage clinical pipelines (4). However, economists Larry Summers and Michael Linden cautioned that the incentive may disproportionately enhance profits without guaranteeing proportional increases in innovation output (5).

2. Favorable capital deductions and domestic signals

The bill expands accelerated deductions for capital expenditures, a measure favorable to pharmaceutical manufacturers building or upgrading US-based facilities (2). These incentives could benefit producers of complex biologics, sterile injectables, and high-volume generics.

Although the bill itself does not impose trade restrictions, it aligns with prior Trump administration goals to reduce US dependency on foreign pharmaceutical ingredients. Officials have signaled interest in future tariffs or tax adjustments targeting imports from China and India, potentially reshaping where and how APIs and finished dosage forms are sourced (6).

3. Medicaid cuts pose risks

One of the most controversial components of the bill is its proposed reduction in federal Medicaid spending. The legislation introduces work requirements, tightens eligibility, and restructures funding formulas, which the Congressional Budget Office estimates could remove up to 12 million Americans from coverage by 2034 (7).

For biopharmaceutical companies, this poses several risks:

• Lower drug utilization among low-income populations could constrain revenue from both generics and branded therapies.
• Reduced real-world evidence generation due to budget-strained hospitals and safety-net systems.
• Increased trial site stress at academic medical centers dependent on Medicaid reimbursement (3,8).

While the Medicaid program represents a smaller portion of revenue compared with Medicare or commercial payers, these changes could have an outsized impact on market access for innovative therapies and rare disease drugs; Medicaid disproportionately covers vulnerable populations—such as children, low-income patients, and those with rare diseases—who rely on early access to innovative and high-cost therapies.

In addition to these core operational areas, the bill is likely to influence the industry in several less immediately visible but strategically critical ways (Table).

4. Increased mergers and acquisitions

Lower corporate tax rates and greater cash reserves may incentivize pharmaceutical firms to pursue acquisitions of emerging biotech companies, platform developers, and contract development and manufacturing organizations, or CDMOs. This replicates the post-2017 tax cut trend, which saw a surge in life sciences deal activity (4,5).

5. Boost to early-stage biotech funding

Lower capital gains taxes increase the after-tax return on successful biotech investments, making high-risk, high-reward startups—like those in messenger RNA, gene editing, and AI-driven discovery—more attractive to venture capital (2). Increased investor liquidity from corporate tax cuts further amplifies available funding for early-stage innovation.

6. Clinical trial infrastructure shifts

With reduced Medicaid funding and pressure on academic hospitals, sponsors may move trials to commercial centers or global sites (8). Academic and safety-net hospitals, which often serve underrepresented racial, ethnic, and low-income populations, are key recruitment sites for diverse clinical trial participation. If trials shift to commercial centers or affluent regions, access barriers may exclude these groups, reducing population diversity in study data.

7. Global supply chain realignment

Policy signals around reshoring and API self-sufficiency may lead to preemptive changes in global manufacturing strategies (6). Firms may diversify sourcing across geographies or build redundancy to guard against future tariffs or national security-driven restrictions.

8. Pressure on regulatory agencies

As deficits expand (projected at more than $3.4 trillion in the next decade), future political efforts may target cost containment through National Institutes of Health, FDA, or Centers for Medicare & Medicaid Services budget scrutiny (5). There could also be increased calls to streamline drug approval processes, which may affect review timelines and regulatory expectations.

9. Drug pricing scrutiny

Given the industry's gains from tax relief and capital incentives, lawmakers and advocacy groups may intensify pressure on drug pricing policies, particularly around Medicare negotiation and pricing transparency (7).

Table: Strategic outlook summary.

A blend of opportunity and complexity

Trump’s tax and spending legislation introduces a blend of opportunity and complexity for the pharmaceutical industry. While companies may benefit from increased financial flexibility, they also face strategic risks tied to reduced public coverage, supply chain fragility, and growing societal expectations. Those in the industry should view this moment as one of recalibration, balancing fiscal gains with long-term planning for regulatory, political, and access-related shifts.

References

1. Congress. H.R.1. – One Big Beautiful Bill Act (accessed July, 7 2025).
2. Baker, M. Economic Policy That Might Boost U.S. Drug Manufacturing. AmericanActionForum.org, May 9, 2025.
3. S K, Sneha; Sunny M; Wingrove P. Key Healthcare Provisions in Trump's Tax Bill. Reuters.com, July 3, 2025.
4. Grant, E. Pharma Tax Dilemma: Trump Push Cuts Redefine Industry. AInevst.com, May 2, 2025.
5. Wendler, J. Summers, Miran Highlight Worst- and Best-Case Scenarios for Trump's Megabill.Politico.com, July 6, 2025.
6. Wosinska M. How Pharmaceutical Tariffs Could Play Out.Brookings.com, March 27, 2025.
7. Mosbergen, D.; Walker, J.; Essley Whyte, L. How Healthcare Cuts in the ‘Big, Beautiful Bill’ Will Affect Americans. WSJ.com, July 6, 2025.
8. Wilkerson, J.; Payne, D.; Cirruzzo, C. Senate’s Trump Tax-Cut Bill Passes: Healthcare Impacts Include Medicaid Cuts, Health Insurance Coverage Losses. STATNews.com, July 1, 2025.