Nothing beats pricing power as a measure of a good business. Warren Buffett’s dictum suggests the drugs industry is unwell. In recent days, pharmaceuticals companies such as Novartis, Pfizer and Allergan have all warned investors about their inability to charge more for their drugs. Pricing is not going to be a growth driver now, or in the future, said Pfizer’s boss Albert Bourla.

If true, it would be a dramatic change. US price rises accounted for 80 per cent of the industry’s earnings growth in 2017, says Credit Suisse. Those days are gone, President Donald Trump boasted in the State of the Union address. He said that last year prices fell by the most for 46 years. He promised more to come, including a swipe at “global freeloading”. The drugs industry hates talk of pegging prices to those paid abroad.

Scepticism is justified. The measure cited by President Trump, which showed a 0.6 per cent fall in 2018, is flawed. The drugs companies announced large price increases last month. And despite the political rhetoric about price gouging in the US, which accounts for the lion’s share of industry profits, shares have out-performed. Over the past two years, the MSCI US healthcare index has risen 26 per cent, a third more than the S&P 500.

A mooted crackdown could actually help the industry. The administration has proposed outlawing the billions of dollars in annual rebates that drugmakers give middlemen known as pharmacy-benefit managers. It would redirect those discounts toward patients. Amid heavy lobbying, there is no certainty the rule will be adopted.

If it goes ahead, it might be good news for the industry. Novartis boss Vas Narasimhan said it would correct a distortion. His company channels almost half its gross revenues into rebates. Reducing patients’ out-of-pocket costs would lessen public anger towards Big Pharma. Cutting out the middlemen might allow them to raise net prices unobtrusively. The shake-up could even leave drugs companies better off.

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