Pharma: Closer Look at Most Favored Nation
Eric Axon, CFA - Co-Head of High Yield, Head of Healthcare, CreditSights
Patrick Cunniff - Analyst, Healthcare CreditSights
27 May 2025
Insights into the Most Favored Nation Policy and Its Impact on US Drug Pricing
- Explore the Most Favored Nation (MFN) Policy: Dive into the implications of the MFN executive order on US drug pricing, comparing it with OECD countries to understand global price dynamics
- Analyze Pharmaceutical Industry Responses: Examine how drugmakers are likely to react to voluntary price reductions and assess the effects on innovative medicines and industry strategies.
- Understand Medicare and Medicaid Impacts: Gain insights into how MFN provisions specifically affect Medicare and Medicaid drug pricing and explore potential shifts in these healthcare programs.
- Investigate Legal and Policy Challenges: Evaluate the probability of legal challenges and discuss the necessity for Congressional action to enforce MFN pricing mechanisms.
- Assess Strategic and Financial Implications for Drugmakers: Discover how the MFN order could reshape pharmaceutical companies’ strategies, investments, and pricing models across the industry.
EXECUTIVE SUMMARY:
- We detail the Most Favored Nation (MFN) executive order and provide key takeaways and general impressions.
- We question how disposed drugmakers will be to voluntary price reductions, particularly for their most innovative medicines. The HHS suggests potentially large price reductions given the reference to certain single-payor OECD member nations.
- We also examine company-specific exposure to Medicare (Parts B and D) and Medicaid. We expect MFN provisions, if enacted/upheld, to primarily impact US government pricing. We think controls on commercial pricing, while implied by the HHS, would be vigorously opposed by the drugmakers and likely require Congressional action.
Relative Value
Financial Metrics
On May 12, the Trump administration released an executive order (EO) aimed at lowering prescription drug prices in the US. The order looks to institute a Most Favored Nation (MFN) policy, tying the price paid for drugs in the US to the lowest price paid by certain other developed nations. or context, the US generally pays much higher prices for branded prescription medicines versus single-payor systems in other developed countries. According to a recent report from the ASPE, US prices for branded drugs are roughly 3x higher than prices in comparison countries, even after adjustments for estimated US rebates. The HHS recently released a statement putting that figure at 3-5x.
On May 20, the HHS announced that it is taking immediate steps to implement the MFN executive order. The HHS stated that it has identified specific (undisclosed) targets that pharmaceutical manufacturers are expected to meet to satisfy the order. Despite this announcement, there is still much we do not know about the executive order and its planned implementation. The HHS plans to provide additional details in the coming weeks.
Specifics of the Executive Order
Below we provide specifics of the MFN executive order as well as details from the HHS statement.
The EO directs the administration (specifically, the HHS) to communicate price targets to pharmaceutical manufacturers to establish that America gets “the best deal.”
