Yesterday, the Trump administration unveiled a new proposal to substantially reduce the price of certain costly drugs administered under Medicare, by linking what Medicare pays for these drugs to what other industrialized countries pay.

It’s a stunning move that could entirely reshape the way the pharmaceutical and biotechnology industries think about their business model.

This difference between what other countries pay for costly, patented drugs and what Americans pay has long irked President Trump. “For decades, other countries have rigged the system so that American patients are charged much more—and in some cases, much, much more—for the exact same drug,” Trump said. “In other words, Americans pay more, so that other countries can pay less.”

The rise of costly orphan drugs

In the 1990s, the pharmaceutical industry poured most of its resources into developing “blockbuster” drugs that addressed large public health problems, like high blood pressure and high cholesterol. The most famous example is Pfizer’s cholesterol-lowering drug Lipitor, which went on to become the best-selling drug of all time, garnering global revenues in excess of $20 billion a year, before its patents expired.

But in the 2000s, a new strategy emerged, pioneered in large part by Swiss pharmaceutical giant Roche and its U.S. biotechnology subsidiary Genentech. The new approach would be to focus on so-called “orphan” or rare diseases, which affected fewer than 250,000 Americans, but where companies had more ability to charge higher prices with lower R&D expenditures.

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