Newsletter · · Ashutosh Agarwal

Pharma's 100% Tariff Lands September 29 With No Rulebook - Drug Pricing & IRA Round 2: Weekly - Week of September 21-28, 2026

Drug Pricing & IRA Round 2 for the week of September 21-28, 2026. Podcast synthesis on the 100% pharma tariff due September 29 with no implementation guidance issued, most-favored-nation pricing deals spreading to mid-cap biotechs, Lilly's court fight to have retatrutide classed as a biologic, the FDA's warning letter to compounder Empower Pharmacy, and PBM economics under fire from states and employers.

Drug Pricing & IRA Round 2: Weekly

Week of September 21 – September 28, 2026: Pharma's 100% Tariff Lands September 29 With No Rulebook

Tomorrow, September 29, the US government is supposed to start charging a tariff of up to 100% on imported patented drugs and the ingredients used to make them.

A week before the start date, the person who covers this most closely in Washington could not tell you which drugs it applies to.

"Yeah, it's a mess... nobody knows which products are going to be affected, which companies are exempt, which products are exempt, or how the process is going to work." Steve Usdin, BioCentury's Washington editor, on BioCentury This Week (Sept 22)

That is the story of the week. Big pharma bought its way out months ago with pricing-and-factory deals. The companies left exposed are the small and mid-sized ones, and this week one mid-cap biotech executive said openly that he expects the government to come to his door next.

Beneath the tariff noise, three quieter stories matter for the numbers. Eli Lilly is in court arguing that its next obesity drug should count as a "biologic," which would lengthen its protection from price negotiation and copycats. The FDA sent a warning letter to one of the biggest compounding pharmacies making cheap GLP-1 copies. And doctors on the front line say the government's new ~$245-a-month GLP-1 price still isn't cheap enough for state Medicaid budgets.

TL;DR

  • The 100% pharma tariff starts September 29, and as of the Sept 21 recording no implementation guidance had been issued. 13 companies with "most favored nation" (MFN) pricing and US-factory deals are exempt. Generics and biosimilars are exempt "for now." Some countries face 15% or 20% instead. Small and mid-sized biotechs with factories in China or India carry the most risk. (BioCentury This Week, trade journalist)
  • MFN is heading for the mid-caps. An executive on Biotech Hangout (Ep. 197, Sept 25) said his company doesn't have an MFN agreement yet, but "I suspect... it's sort of coming for the mid-caps," and he would be "open" to one. He also flagged a new wrinkle in the published deal terms: a revenue share with the US government when companies win higher prices abroad. (operator)
  • Lilly's fight to have retatrutide classed as a biologic reached oral arguments on Sept 24. The Justice Department filed a last-minute letter backing the FDA's side. A Lilly win would block compounded copies and extend exclusivity. Per the host, it could also affect Novo Nordisk's next-generation peptides. (On The Pen, GLP-1 commentator)
  • The FDA escalated against mass GLP-1 compounding with a warning letter to Empower Pharmacy, which the host says fills "hundreds of thousands" of prescriptions. The FDA's line: adding B12 or niacinamide to semaglutide or tirzepatide doesn't turn a copy into a custom drug. That supports branded pricing for $LLY and $NVO. (On The Pen)
  • At $245 a month, GLP-1s are still too expensive for some states. Two obesity-medicine doctors said four states, California among them, have dropped Medicaid obesity coverage over budget overruns, even at the government-negotiated price. Medicare's GLP-1 bridge program, meanwhile, is "the easiest prior auth we do." (The Dr. Francavilla Show, clinicians)
  • PBM economics came under fire from three directions: Mark Cuban on how rebates inflate GLP-1 list prices, benefits consultants who found $1.4M of savings on a $9M drug spend by leaving a broker's "PBM collective," and an Iowa lawmaker walking through one of the toughest state PBM laws in the country. (Fixing Healthcare, The Business of Benefits, Pharmacy Podcast Network)
  • IRA negotiation itself: quiet, no updates. No Round 2 or 2028-list news and no "pill penalty" legislation this week, except that the retatrutide case is a live test of the same small-molecule-vs-biologic line.

What's new

Ranked by how much it matters for a pharma long/short book.

1. The tariff arrives with no instructions

Who's talking: Steve Usdin, Washington editor at BioCentury This Week ("Ep. 388 – Biotech IPOs, CAR T safety & pharma tariffs," Sept 22). He is a specialist trade journalist, so he belongs on the commentator side of the ledger, but he is the best-sourced one on this beat.

Last week the tariff was "days away." This week we learned how little of it is actually defined. What is known:

  • The rate: "up to 100% on patented pharmaceuticals and their ingredients, APIs [active pharmaceutical ingredients, the chemical core of a drug], starting on September 29th."
  • Exempt companies: "companies that have done MFN agreements and on-shoring agreements with HHS. There's 13 of those companies."
  • Exempt products, for now: "generics and biosimilars." Last week tariff advisers said pulling generics in was an open question. For the moment, it isn't happening.
  • Country tiers: "some countries that have a 15% tariff... some that have a 20% tariff... some that are going to be affected by the 100% default rate."
  • Category carve-outs: the administration says "orphan drugs, nuclear medicines, plasma drug therapies, fertility treatment, cell and gene therapies, antibody drug conjugates, all of them will be exempt."

The catch is in the fine print. Lawyers can't agree whether those categories are exempt automatically or only if the product also comes from a country with a trade deal, or meets an "urgent U.S. health need." Neither condition has been defined. Usdin's reading is that one version grandfathers today's products while future products have to qualify.

"The administration said earlier this year that guidance would be issued before September 29th... But today is the 21st. It's in the middle of the afternoon on the 21st. So who knows?"

He also raised a wildcard: how President Xi's upcoming visit to Washington "plays into all of this," and whether the start date slips.

Who gets hurt: not big pharma. BIO CEO John Crowley wrote to the Commerce Department warning that the tariffs will "disproportionately affect small and mid-sized companies." In Usdin's words: "The big companies have gotten themselves exempt through the MFN and onshoring deals." The most exposed are small companies "that rely on manufacturing... in China or in India."

Why it moves numbers: for the large caps on our list ($PFE, $JNJ, $MRK, $BMY, $LLY, $AZN, $ABBV, $NVO), the tariff mostly functions as the stick that pushed them into MFN deals. Their exposure shows up in pricing concessions, not customs bills. The real P&L hit falls on small and mid-cap biotechs with outsourced manufacturing in Asia. Generic makers like $TEVA and $VTRS dodged it, at least for now.

2. MFN comes for the mid-caps, and the deal terms have a new twist

Who's talking: "Matt," a biotech company executive on Biotech Hangout ("Episode 197 – September 25, 2026"). He speaks for a company that hasn't signed yet, so this is operator commentary, set against a European-based investor host.

The panel went through a recently published, partly redacted MFN agreement. One clause drew the most discussion: a revenue share with the US government on higher net prices companies win in other countries. The logic: if Washington pressures Europe to pay more for drugs, taxpayers get a cut of the upside.

Matt was surprisingly positive:

"I think we don't have an MFN agreement with the government today. I suspect given what we're seeing around us that like it's sort of coming for the mid-caps and it may be a conversation we have to have at some point. And I think we'd be open to them from what I've seen other people sign. They seem like they're constructive."

He called the revenue-share idea "very like Trumpian... there's this desire to like get a deal for the U.S." and admitted he "wish[ed] less of it was redacted so that we could know what was going on better."

He also laid out the basic arithmetic. If US prices fall, one of three things has to happen:

"U.S. biotech, global biotech investors could get smaller returns on drugs that sell for less money globally... Fewer drugs could be developed... Or there's got to be some equalization... mechanically, that's math. The rest is like a policy question."

The host's pushback (investor view) is the best bear case on "equalization" we've heard. Europe is squeezed by energy costs, defense spending and slow growth, so "the reality, unfortunately, may end up being that the Europeans just can't afford to pay the extra cash." If that happens, Europe rations access and "the only option left is to raise prices in the U.S." He added a second worry: cheap, branded Chinese PD-1s and ADCs (including Keytruda biosimilars) could do to drugs what Chinese EVs are doing to European carmakers.

Why it moves numbers: MFN spreading from the top 13 to mid-caps widens the list of names with capped US pricing on some products. The ex-US revenue-share clause also means the "raise prices abroad" offset, which bulls count on, now comes with a partner taking a slice.

3. Lilly vs. FDA: is retatrutide a biologic? (The "pill penalty" in a courtroom)

Who's talking: Dave Knapp, host of On The Pen GLP-1 News ("Retatrutide in Court, Compound GLP-1 Under Fire," Sept 22). He is a close follower of GLP-1 litigation: a commentator, but a detailed one.

Some background. US law treats "biologics" (large, complex molecules) better than ordinary "small-molecule" drugs. Biologics get longer protection from copies and, under the IRA's Medicare negotiation program, more years on the market before they can be picked for negotiation. That gap is the "pill penalty" debate in one sentence.

Lilly wants its next-generation obesity drug, retatrutide, classified as a biologic. As Knapp put it: "That would mean no compounding. And it'd mean it'd be more expensive for longer a period of time... Biologics command a higher price. They get longer exclusivity." The FDA said no. Lilly sued, a lower court sent the question back to the FDA for a better explanation, and Lilly appealed.

Oral arguments were set for Thursday, Sept 24. On Sept 21, three days earlier, the Justice Department filed a short letter pointing the judges to Franco v. Chobani, a recent Seventh Circuit case (yes, the yogurt company) about how much weight courts should give the FDA's reading of scientific terms in its own rules.

Knapp's read: he thinks Lilly probably wins ("They've just said too many things publicly that give me the impression they have a degree of confidence"). He also argues the DOJ filing undercuts the "government is bought and paid for" narrative: "if they wanted to give Lilly everything they want, they could have just given them biologic designation."

The read-through to Novo is the underappreciated part. At Novo Nordisk's Capital Markets Day on Monday, Knapp noted, Novo discussed a single-molecule GLP-1/amylin drug (he pronounced it "xenogamtide"; spelling unconfirmed) that is "68 amino acids long. So it falls well within the FDA's framework for a biologic." In his words, a Lilly win "has implications beyond retatrutide" for "the entire peptide and obesity landscape."

Why it moves numbers: biologic status for next-generation incretins would mean longer runways before IRA negotiation, no compounded copies, and higher sustained net prices for $LLY, and potentially for $NVO's pipeline too. It's the most direct test of the small-molecule-vs-biologic line anywhere on this beat this week.

4. FDA fires a warning shot at mass GLP-1 compounding

Who's talking: the same On The Pen episode.

The FDA sent a warning letter to Empower Pharmacy, "one of the largest and one of the most recognizable compounding operations in our country." The core issue is whether products like "tirzepatide with niacinamide or semaglutide and cyanocobalamin [B12]" are really made for individual patients, or whether the add-in is "a cover to mass produce."

The numbers explain the fight. The FDA has said it generally won't enforce the "copy" restriction when a compounder fills "four or fewer prescriptions of that compound product during a calendar month." Knapp: "that's like none of the compounders, especially not Empower. We're talking hundreds of thousands of prescriptions."

He also cautioned against reading too much into it: "a warning letter is not going after them." He pointed out that Catalent, which Novo owns, has received warning after warning from the FDA "and we've seen no meaningful action." Still, "this is the next step in the escalation."

Why it moves numbers: each step against scaled compounding moves cash-pay patients back toward branded Zepbound and Wegovy. Enforcement is gradual, though, and a warning letter alone doesn't shut anyone down.

5. The $245 GLP-1 price meets state budgets, and loses

Who's talking: two obesity-medicine physicians on The Dr. Francavilla Show ("GLP and Obesity Treatment Coverage with Dr. Doug Maready," Sept 21). Operators: they prescribe these drugs every day and have worked directly on state coverage analysis.

The negotiated federal price is real and far below list. People "keep quoting these prices of $1,300, $1,000," but the price for Medicare and Medicaid is "$245 exactly."

It still doesn't pencil out for states:

  • Arizona's preliminary Medicaid analysis puts obesity coverage at "between $7 and $20 million a year," rising over five years. The new federal price concessions would cut Arizona's existing diabetes GLP-1 costs "by $8 million," which roughly covers year one. The catch: "it's hard for legislators... to take that $7 million and put it into some kind of new budget. There's just no money for it."
  • Four states "have rescinded coverage because of budget overruns. California was one of the big ones... more and more people started using it and their budget just went berserk."
  • The core problem is scale: "even if you have a med that's $260 a month, but half of your population could qualify for it, the math adds up really quickly."

Medicare is the bright spot. The GLP-1 bridge program that launched July 1 is, a couple of months in, "the easiest prior auth we do in our practice... we get an approval instantly if they meet the criteria." One gap: patients who qualify through other conditions (like sleep apnea) under traditional Medicare can face copays of "seven or $800 a month."

Why it moves numbers: volume is the offset to price for $LLY and $NVO. Medicare access is flowing. Medicaid access is going backwards in some states even at $245. Commercial plans are also pulling back: on InvestTalk (Sept 23, investment-adviser hosts, pundits) the hosts noted "a lot of employers actually dropping GLP-1 coverage in general because the costs are just too high," and framed the question as "whether volume growth at these lower prices... can outweigh margin compression."

6. PBMs: three different people, one conclusion

Mark Cuban (operator: founder of Cost Plus Drugs) on Fixing Healthcare ("FHC #229: Revisiting Mark Cuban's prescription for lowering healthcare costs," Sept 23, a revisit of the show's interview with him) explained why a GLP-1 has so many prices:

  • Cash price through LillyDirect or NovoCare: "$350 to $450."
  • A self-insured employer: "$1,300 against which you'll receive a rebate, or a lower price that might be $700 against which you'll receive a lower rebate."
  • The big three PBMs "control about 272 million lives" and "auction" formulary spots. In GLP-1s, one ran "a bidding war between Novo and Lilly" and dropped Lilly after Novo paid a bigger premium.
  • He says every company that has audited its PBM found it was under-paid rebates, by "10, 20, 30, 40%."
  • His sharpest claim, which he can't prove on paper: PBMs warn brand makers that working directly with Cost Plus on formulary drugs would get their "entire portfolio" disadvantaged.

Benefits consultants (operators) on The Business of Benefits (Ep. 87, Sept 24) described moving a client out of a big broker's PBM "collective" and going direct to the same PBM: "on a $9 million claim spend, their pricing was $1.4 million better outside of the collective." That's about 16%. The gross cost was identical. The difference was that "the rebates were increased significantly... so those dollars were there in the first place."

An Iowa state representative (a former senior policy adviser to the Iowa Pharmacy Association, so an insider) on Pharmacy Podcast Network (Sept 24) walked through Iowa's 2025 PBM law (Senate File 383). It includes a reimbursement floor at the national average drug acquisition cost plus a dispensing fee, bans on steering patients to PBM-owned or mail-order pharmacies, "any willing pharmacy" network access, and a ban on labeling drugs "specialty" to route them. He called it "as aggressive of a PBM bill as we could have run with" at the time, though Arkansas ("the full Arkansas") and Tennessee have since gone further. His framing of the fight: "DC hasn't been as active as we would like... a lot of this battle is being fought in our state capitals."

For a sense of what's at stake on the ground, a rural Mississippi pharmacist on The Trusted Pharmacist (Sept 24) described one homebound patient on 12 prescriptions: "I will be negative $50 every month."

Why it moves numbers: federal PBM reform keeps stalling, but state laws keep ratcheting tighter and employers keep finding rebate leakage when they look. That slowly erodes the spread and rebate retention at $CVS (Caremark), $CI (Express Scripts) and $UNH (Optum Rx).

7. 340B, explained by someone who helped write the rules around it

Who's talking: Deborah Williams on DarshanTalks ("Decoding 340B," Sept 23). She is a policy researcher who spent six years on House Ways & Means staff and six as an American Hospital Association lobbyist. Insider.

There's no new event here. The value is a clear explanation of why 340B, the program that makes drugmakers give deep discounts to safety-net hospitals, keeps ending up in court. It was written in the early-1990s "trust you" style, with few bright lines, and HRSA got "very little legislative authority to implement." Now that the Supreme Court has ended Chevron deference (courts no longer defer to agencies on vague laws), that vagueness pushes more disputes to judges.

Her most quotable line is aimed at hospitals:

"I really get irritated when 340B entities say it has no cost. No, it has no scored costs, but it has plenty of costs because you're taking away taxable revenue and you're giving it to non-taxed entities."

She also said 340B created "this huge incentive... for hospitals across the country to hire oncologists." Her example: a patient charged "$1,000 for an oral cancer drug, which... cost a penny."

Why it matters: this fits last week's story about manufacturers clawing back duplicate discounts. Post-Chevron courts plus better claims data both favor manufacturers in 340B disputes, which is a slow gross-to-net tailwind for branded pharma.

8. The FDA commissioner hearing: calmer than feared

Who's talking: a sell-side-style panelist ("Brian") on Biotech Hangout (Ep. 197), a pundit, alongside Usdin's preview on BioCentury.

Heidi Overton, the White House pick for FDA commissioner, had her Senate HELP committee hearing. Brian's takeaways: she focused on "speeding through innovation" and competing with China, and she said without hedging that "every vaccine on the market in the U.S. is safe and effective." That read as "a positive change relative to what we've had." She needs 11 committee votes and there are 12 Republicans, including chairman Bill Cassidy, who "after losing his primary... has not much to lose."

Usdin was more cautious. Upcoming FDA decisions include "bulk compounding of untested peptides," and the MAHA Summit on September 29, the same day as the tariff, features a session on "reforming FDA" with White House adviser Calley Means, who "attacks pharmaceutical companies, calls them corrupt."

The debate

Is US drug-price pressure a bounded headwind that's already in the models, or a structural squeeze on US branded margins that will push R&D away from small molecules? This week added evidence to both sides.

"It's manageable, and big pharma already paid."

  • The 13 largest companies are exempt from the tariff through their MFN and factory deals. Generics, biosimilars and whole categories (orphan drugs, cell and gene therapy, ADCs) are carved out (BioCentury).
  • Even a mid-cap executive who hasn't signed calls the MFN deals "constructive" and says his company would be "open" to one (Biotech Hangout). That sounds like a price companies can live with.
  • The courts may widen biologic protections (retatrutide), and the FDA is squeezing compounders. Both protect branded economics in the biggest growth category (On The Pen).

"It's structural, and the pressure is spreading."

  • MFN is moving down the market cap ladder, and the ex-US revenue-share clause means the "Europe pays more" offset is now shared with Washington (Biotech Hangout).
  • If Europe can't afford to pay more, "the only option left is to raise prices in the U.S.," which is exactly what MFN forbids. The squeeze has nowhere to go but lower returns and "fewer drugs."
  • Even at a negotiated $245, GLP-1 volume isn't guaranteed. Four states dropped Medicaid coverage, and employers are pulling back (Dr. Francavilla Show, InvestTalk).
  • The retatrutide case shows how much value depends on regulatory labels. Companies are fighting in court to have peptides classed as biologics, the same incentive that the "pill penalty" critics say is pulling R&D away from small molecules.

Net: big-cap P&L risk this week was contained. The pressure is moving outward to mid-caps, to ex-US pricing, and to payers deciding how much volume they'll fund. Watch who signs the next MFN deal and whether the retatrutide ruling moves the biologic line.

Stocks in play

Eli Lilly ($LLY)

  • Bull: A court win on retatrutide's biologic status would mean no compounded copies, longer exclusivity and a longer runway before IRA negotiation (On The Pen). The FDA's Empower warning letter helps protect Zepbound cash-pay volume. Medicare bridge approvals are "instant" (Dr. Francavilla Show). An MFN signer, so tariff-exempt.
  • Bear: The DOJ sided with the FDA days before arguments. State Medicaid programs are pulling obesity coverage even at $245 a month. Cuban describes a PBM having excluded Lilly's GLP-1 after a Novo bidding war (Fixing Healthcare).
  • Watch: The appeals ruling after the Sept 24 arguments.

Novo Nordisk ($NVO)

  • Bull: The same compounding crackdown helps Wegovy. Its single-molecule GLP-1/amylin candidate is 68 amino acids long, "well within" biologic territory, so a Lilly court win may also help Novo's pipeline (On The Pen).
  • Bear: Same Medicaid and employer coverage pullback. Its Catalent plant has drawn repeated FDA warnings. Pundits flag that generic GLP-1s are entering some markets "at a fraction of current prices" (InvestTalk).
  • Watch: Capital Markets Day follow-through on pipeline and pricing; tariff exemption details.

Mid-cap biotech (not yet MFN signers)

  • Bear: The most exposed group this week. They face the 100% tariff if they manufacture in China or India, and on-the-record expectations that MFN is "coming for the mid-caps" (Biotech Hangout, BioCentury).
  • Bull: Orphan drugs, cell and gene therapies and ADCs are named tariff exemptions, which shields rare-disease-heavy names.
  • Watch: Tariff guidance (or a delay) around Sept 29; the next MFN signing below the top 13.

Large-cap branded complex ($PFE, $JNJ, $MRK, $BMY, $ABBV, $AZN)

  • Setup: No name-specific pricing news this week. As a group they're protected from the tariff by the 13-company exemption. The live risks are second-order: the ex-US revenue-share in MFN terms, and the host's warning about branded Chinese PD-1s, "including biosimilars of Keytruda," competing on price ($MRK). The 340B trend (post-Chevron courts, better claims data) is a modest tailwind for all of them.
  • Watch: Q3 earnings season (starting mid-October) for any quantified MFN or tariff impact.

PBMs / managed care ($CVS, $CI, $UNH)

  • Bear: State laws keep tightening (NADAC floors, anti-steering, any-willing-pharmacy). Employers who audit keep finding rebate leakage of "10, 20, 30, 40%" per Cuban, and a 16% pricing gap between broker collectives and going direct (Pharmacy Podcast Network, Business of Benefits, Fixing Healthcare).
  • Bull: Federal reform is still stalled ("DC hasn't been as active as we would like"). Formulary leverage over 272 million lives is intact.
  • Watch: More states copying the Arkansas/Tennessee model.

Generics / biosimilars ($TEVA, $VTRS)

  • Bull: Exempt from the 100% tariff "for now," which removes last week's biggest open risk (BioCentury).
  • Watch: Whether "for now" survives the final guidance.

Read-throughs

  • PBMs and managed care: The squeeze on rebate economics is coming from states, employers and transparent competitors all at once. Cost Plus Drugs now works with "30 and growing" pass-through PBMs, and the Iowa lawmaker says the real action is in state capitals. Expect slow margin erosion rather than a single event (Fixing Healthcare, Pharmacy Podcast Network).
  • Biosimilar and generic makers: The tariff exemption is the good news. The longer-term threat is the one raised on Biotech Hangout: cheap branded Chinese biologics (PD-1s, Nectin-4 ADCs) competing directly with Western brands and biosimilars.
  • Small-molecule vs. biologic R&D mix: The retatrutide case shows companies will litigate to get peptides treated as biologics, because the label brings longer exclusivity, no compounding, and later exposure to negotiation. That's the incentive behind the "pill penalty" debate, and a ruling will show where the line sits for the next wave of obesity drugs (On The Pen).
  • Ex-US launch and pricing strategy: MFN deals now include a revenue share on higher ex-US net prices. So the strategy of raising European prices to match the US is partly taxed, and Europe may not be able to pay anyway (Biotech Hangout). Expect more delayed or skipped European launches.
  • 340B-dependent providers: A former Ways & Means staffer and AHA lobbyist argues the program's vague drafting, now tested without Chevron deference, favors challengers (DarshanTalks). That's a headwind for hospital systems that rely on the 340B spread.

What changed vs. last week

  • Tariff: from "days away" to "tomorrow, with no rulebook." Last week we had the mechanics (0% to 100%, exemptions for deal signers). This week we have the count (13 exempt companies), the country tiers (15% / 20% / 100%), the category carve-outs, and the fact that guidance still hadn't been issued as of Sept 21.
  • Generics risk eased. Last week advisers flagged active "conversation" about pulling generics into the tariff. This week generics and biosimilars are exempt "for now."
  • MFN moved down-market. Last week was about carve-outs for Incyte and BridgeBio and deals being temporary. This week a mid-cap executive expects MFN to come to him, and a revenue-share clause on ex-US prices surfaced.
  • Lilly's legal story moved from compounders to the FDA. Last week was a ruling against a telehealth compounder. This week it's Lilly suing the FDA over retatrutide's classification, plus a new FDA warning letter to Empower.
  • New this week: evidence that GLP-1 volume at $245 is running into state Medicaid budgets; a cluster of PBM-economics discussion.
  • IRA Round 2 / 2028 list / EPIC Act: quiet, no updates.

Dates to watch: September 29 (tariff start and MAHA Summit); the retatrutide appeals ruling; Heidi Overton's committee vote; President Xi's Washington visit; Q3 earnings from mid-October; January 1, 2027 (340B changes and, likely, the Medicare MFN demos).