Most-Favored-Nation Drug Pricing: Policy Shift or Pressure Tactic?

Another week, another Executive Order directed at the pharmaceutical industry. The Most-Favored-Nation Drug Pricing Executive Order (EO) published 12th May, aims to significantly reduce the price of US drugs through international reference pricing. The call to action is the claim that ex-US countries are ‘free riding’ off the high prices that Americans pay for these drugs, the profits from which ultimately support R&D. The solution? Set US prices at the lowest level from amongst a basket of countries with similar GDP per capita. [1] 

Ordinarily an announcement of this kind would have sent pharma share prices crashing. Surprisingly they remained largely unchanged, indicating that at least in the eyes of investors this EO won’t have much impact at all. 

What should we make of all of this? Can the EO really be enacted? Are investors overconfident and downplaying the risks? We will explore these questions and aim to see where this is heading. We will also reflect on the difficult trade-offs that pharma is having to make, particularly regarding tariffs. 

We will argue in this article that whilst the EO faces substantial challenges there remains a reasonable likelihood that this or a similar policy will be enacted to reduce drug prices, and that margins will come under intense pressure. Legal challenges are to be expected and companies must plan for different policy scenarios.

Quick review of the EO:

• The EO provides for a 30-day period (up to June 11th) for the Secretary for Health and Human Services (HHS) to communicate the most-favored-nation price targets to pharmaceutical manufacturers. 
• The Department for HHS clarified May 20th that this will apply to all markets for all branded drugs that do not have generic or biosimilar competition. In addition, the reference price has been set as the lowest price in an OECD country with a GDP per capita of at least 60% of the U.S. No guidance is offered on how to address confidential discounts, and no explicit definition of ‘all markets’ is given, meaning Medicare, Medicaid and Commercial insurance could all be affected [2].
• Beyond June 11th, if no significant progress is made then a range of actions are threatened:
• The Secretary would propose a rule making plan of the Most-Favored-Nation pricing, 
• Steps would be taken to facilitate the imports of drugs at low cost,
• Action would be taken against anticompetitive practices,
• The FDA marketing approval for certain drugs may be reviewed and or revoked.
• It is worth noting that ‘lack of significant progress’ could refer either to individual companies or indeed the entire sector. As a result, individual companies that do decide to volunteer price reductions may still be caught in a wider more punitive policy if their peer companies do not decide to play ball.

Other key actions include:

• Establishing direct-to-consumer access of drugs at the most favored nation price, thereby cutting out the middlemen i.e., PBMs.
• Require ex-US countries to adjust their prices upwards to fair value. 

A way of getting pharma to voluntarily reduce prices…

The wording in the order is direct and strong-willed, reflecting the Administration’s determination to effect change. The key to navigating through the demands lies in the grace period offered by the Administration to pharma to proactively lower prices. Beyond this period, threats are stacked up to drive compliance with the spirit of the EO. 

This appears to be the approach that has been taken regarding tariffs on pharmaceuticals. Pharma responded to the Executive's proposal by announcing plans to reshore manufacturing to avoid incurring extra costs. Supposing the sector follows this approach again, pharma would ‘voluntarily’ lower prices in the US, raise prices in the rest of the world to offset those losses and as a result none of the aforementioned threats would be enacted. 

End of story, right?

Why this Executive Order may not play out as expected …

Despite the appeal of this line of thinking, there are multiple reasons why this policy will not play out as expected, which may explain why investors appear to have shrugged this off. 

Nevertheless, these reasons are not watertight, leaving at least a moderate chance that MFN could be implemented in some form: 

Legal challenges

In the first Trump presidency, the Administration tried to implement a similar MFN model in Medicare Part B. This was subject to several legal challenges for not following due procedure and was eventually dropped by the Biden Administration. Similar claims might be made this time again, in addition to concerns that the Executive is overstepping its authority, requiring Congress instead to legislate changes to pricing policies. The length of time required to address all these issues might mean there will be no short-term impact on pharma profitability.

Reasons for caution: 

• It is highly likely that the Executive will be prepared for any legal challenges based on the lessons from the previous attempt to introduce MFN pricing. 
• Should the Executive ultimately be unable to implement MFN, it is likely to resort to other measures to lower drug prices as laid out in the EO published April 15th [3] and discussed at length in my previous blog article [4].
• The Administration has demonstrated repeatedly that it is willing to challenge existing norms and push the legal process as far as it can go, by which time the damage may already have been done.

Offset US revenue losses by increasing prices in ex-US countries: 

This has been a popular comment amongst many reactions to the EO, highlighting this as the main way in which pharma revenue can be protected. 

However, it is deeply problematic on multiple fronts:

• Many ex-US countries use Health Technology Assessments to determine the fair value of the drug to their health systems. Often, countries have shown willingness to not reimburse drugs in reaction to prices significantly above what they consider the fair value benchmark. Without a proposed framework for establishing fair value, the US risks being unable to establish common ground for dialogue with other countries. 
• The majority of drug expenditure in ex-US countries is funded through public health systems which are subject to tight budget pressures. There is already significant concern within these systems over the high cost of drugs as a proportion of overall health spend, and so there will be a significant push back on any attempt to relax this policy.
• Finally, other countries are likely to turn the argument back to the US claiming that it should address its institutional cost drivers before discussions with them on what constitutes fair value. They are likely to point to the role of the middlemen ‘PBMs’ which according to the US lobby group PhRMA: 

        “The U.S. is the only country in the world that lets PBMs, insurers and hospitals take 50%             of every dollar spent on medicines” [5]

        If this figure really is true, then ex-US countries cannot be paying such low rates below fair         value as implied in the EO. Most of the premium paid by Americans would be payments to         the middlemen in the US health system. 

Ambiguity of EO: 

Despite the strong wording in the EO there are many areas which lack clarity e.g., timing and criteria on whether significant progress has been made, how the Administration plans to get other countries to raise prices, what represents fair value in the market etc. All these could be subject to future challenge and would require ‘due process’ before implementation.  

Reasons for caution: 

• Lack of clarity should not be a reason for downplaying the significance of this EO. It is likely we will see more Executive Orders/other announcements as this policy develops, especially if progress is seen to be lacking. We mustn’t forget that the Administration already has a start on how the model could look from the previous Trump presidency.

Walking the tightrope: balancing reshoring and tariffs with downward pricing pressure

What appears to have caught pharma off guard is the double demand of the Executive to reshore manufacturing, along with the full force of MFN and other policies to reduce prices. Many pharma companies have now announced investments to increase US manufacturing, collectively representing more than $100B of investment over the next 5 years. Pharma may have been hoping that with such large commitments to reshoring they would have escaped some of the other measures from the Executive. Not so, it seems.

Why does this matter? 

President Trump stressed in his announcement on pharma tariffs [6], that the US is the largest pharmaceutical market and hence companies should be racing to reshore manufacturing to avoid penalties. However, reducing prices to the level suggested will significantly reduce the return on investment of reshoring. Indeed, Roche raised this issue just last week:

        "Should the proposed Executive Order go into effect, Roche’s ability to fund the significant         investments previously announced in the US will be in question” [7]

The investment referred to is their plan for $50B in the US over the next 5 years, creating 12,000 jobs (announced just shortly after the President’s declaration on pharmaceutical tariffs). 

In another confusing twist, the MFN policy aims to facilitate the import of drugs from low-cost countries. It appears the Executive is keen to put tariffs on imported drugs from overseas, yet at the same time wishes to import drugs at the lowest price possible. Quite how this circle will be squared is not clear. 

Where to go from here?

It is almost certain this policy is heading towards legal challenge. With limited incentives to be the first mover to lower prices, and the low probability of raising prices outside of the US, pharma has limited options other than to challenge the ruling or accept the price cuts. A third option may be where individual companies seek to negotiate price reductions for example using their planned investments in the US as leverage, (as per Roche’s announcement) in exchange for moderate price reductions or freezing price increases. 

If US prices are reduced substantially, then companies should look to adjust their geographic priorities and model country launch sequencing to ensure that they are not overly penalized by international price referencing. Business development and launch planning will be significantly affected whilst the policy uncertainty continues, which is likely to hurt broader investment. Forecasts and valuations should be assessed under different scenarios. Biotech companies in particular, should focus efforts in these areas to secure ongoing investment.

Finally, whilst it is easy to focus on the MFN EO, companies must not lose sight of the Executive’s overarching aims of reducing drug prices – whether it is this policy or some other model that is developed downstream. Companies will need to be vigilant, be prepared to adjust quickly and plan well. 

Contact

If you are interested in discussing any of the issues above, please contact me through my email address dniven@nivenbiopharma.com. Feel free to also visit my website at www.nivenbiopharma.com for more information. 

Sources

1. Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients, White House, (May 12 2025)
2. HHS, CMS Set Most-Favored-Nation Pricing Targets to End Global Freeloading on American Patients, HHS press release, (20 May 2025)
3. Lowering Drug Prices by Once Again Putting Americans First White House, (April 15 2025) 
4. Trump's Drug Pricing Executive Order Uncertainty for Pharma Leaders, https://start-utility.blogspot.com/2025/05/trumps-drug-pricing-executive-order.html (May 7 2025)
5. PhRMA Statement on Most Favored Nation Executive Order, May 12th 2025
6. Speech: Donald Trump Addresses an Republican Dinner in Washington (April 8 2025), RollCall.com
7. Roche to reconsider US investment projects if Trump follows through on pricing order, Fierce Pharma, (14 May 2025)