Trump’s MFN Executive Order More Rhetoric Than Action

The details of Trump’s latest executive order on drug pricing are vague and the president put more blame on other countries and pharma distributors than drug companies.

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Key Takeaways
  • President Trump’s executive order will pave the way for most favored nation (MFN) prescription drug pricing in the US, but the announcement was more rhetoric than policy.
  • There is some relief that the executive order doesn’t call for MFN drug pricing to be implemented through the existing Medicare drug price negotiation program.
  • Trump blamed other countries and PBM middlemen in another reassuring sign for pharmaceutical companies.

President Donald Trump signed an executive order on 12 May that will pave the way for most favored nation (MFN) prescription drug pricing in the US, a policy drugmakers have said would devastate the industry. However, the delivery of Trump’s announcement – through a vague executive order that outlined little in the way of actual policy – undercut the initial impact.

Drug manufacturers were warily expecting an announcement on MFN pricing, which aims to link US drug prices to cheaper ones in other developed nations, but drug stocks jumped after the executive order was announced, likely a sign investors were relieved the order didn’t include more hard-line actions.

The pricing news also coincided with a positive macroeconomic update on the trade war between the US and China, which delivered a broader stock market rally. The XBI fund closed up 4% and the Nasdaq Biotechnology Index (NBI) closed up 4.2%.

Evaluating the long-term impact of Trump’s actions for pharma will require more time and details and will depend on how the administration follows through on threats to companies that don’t voluntarily lower drug prices, as well as the legality of its actions.

Trump’s Rx Pricing Order: The Best-Case And Worst-Case Scenarios

US trade and tariff leverage might successfully push European and other countries to pay more for medicines, but if not, President Trump’s executive order includes potential US drug withdrawal and other options to entice industry to lower US prices. Read more on the MFN executive order in the Pink Sheet.

Of all the drug pricing policies that have been floated in recent years, MFN has generally been considered a worst-case scenario by industry, but there have been questions about how the administration could effectively implement such a policy and if it would be restricted to Medicare.

There was no more clarity on those questions after the announcement, but the fact the administration isn’t pushing for action through the Inflation Reduction Act and Medicare drug negotiation program launched under former President Biden is considered a relief.

As RBC Capital Markets analyst Brian Abrahams said in a same-day note, the executive order is “all bark, little bite.”

“Surprisingly, there were no specifics on if/how MFN could be applied to Medicare pricing, such as through potentially realistic options like a [Center for Medicare and Medicaid Innovation] test payment model or layering onto pre-existing IRA negotiation framework,” Abrahams said. “If there are any negatives, it is that drug pricing headlines may persist as this and adjacent policies get executed.”

Wolfe Research analyst Courtney Breen also had a positive view. “While details are still very sparse and the degree of impact felt by each pharma company will rely on these details, we were pleasantly surprised by the warmth of Trump’s tone to the pharmaceutical industry,” she said.

The EO: Soft On Pharma, Tough On PBMs

The initial takeaways are that Trump plans to lower prescription drug costs for Americans, correcting what has been a long-held gripe of his (and many Americans) that the US is being “ripped off” by other countries that have negotiated lower drug prices with manufacturers. As Trump said during a same-day press briefing at the White House, Americans have been “suckers” for paying sometimes as much as 10 times more than other countries for drugs.

Drugmakers are being asked to voluntarily lower prices for drugs to the lowest price being offered in other developed nations – the MFN lowest price that will be provided to companies within 30 days – or the administration will take other actions like proposed rulemaking or allowing drug reimportation on a case-by-case basis from developed nations with lower costs.

In exchange, Trump plans to help pharma companies level the playing field by giving the US Department of Commerce and trade representative power to take actions in trade negotiations to incentivize other developed nations to raise their prices. He took a surprisingly soft tone on pharma’s role in the drug pricing dynamics in the US, perhaps appeased by some of the multibillion-dollar investments industry is making in US manufacturing.

As Trump said during the press conference at the White House, “I’m not knocking the drug companies. I’m really more knocking the countries than the drug companies.” Europe, in particular, has been “brutal” in its pricing negotiations with drug companies, he said.

The executive order also allows Health and Human Services Secretary Robert F. Kennedy Jr. to facilitate direct-to-consumer purchasing programs for manufacturers who sell their product to patients at the MFN price, cutting out middlemen like pharmacy benefit managers (PBMs), though there were no details on how that might work. Industry has been pointing the finger for years at fees and rebates extracted by PBMs, hoping to gain traction on PBM reform policies.

Trump said his administration plans to target PBMs. “We’re going to totally cut out the famous middlemen. Nobody knows who they are … I don’t know who they are, but they’re rich, that I can tell you,” he said.

The executive order does include other threats the government could make against drug companies that don’t comply with MFN prices, like antitrust enforcement by the Federal Trade Commission or allowing the US Food and Drug Administration to modify or revoke drug approvals. But the legality of any actions on those fronts would likely be challenged in courts.

Industry Reaction Muted

Drugmakers, sensing MFN policy on the horizon, have been publicly urging European governments to pay higher prices for drugs recently. Sanofi CEO Paul Hudson and Novartis CEO Vas Narasimhan argued in a letter to the Financial Times in April that European austerity measures have reduced the attractiveness of the market for pharmaceutical companies. AstraZeneca CEO Pascal Soriot echoed a similar sentiment in comments during the company’s first quarter sales and earnings call.

AstraZeneca released a relatively supportive statement after Trump’s MFN executive order was released, stating, “We share President Trump’s commitment to ensuring that the cost of pharmaceutical innovation is fairly shared among high-income nations. The United States cannot continue to shoulder this burden alone.”

However, the company noted that a MFN pricing policy would need to be implemented with stakeholder engagement and a “robust system” to avoid disruptions and stifling innovation.

The Pharmaceutical Research and Manufacturers of America (PhRMA) suggested some of the ideas floated by Trump could be beneficial, like the right to use trade negotiations to force foreign governments to pay higher prices and reforms to the way pharmacy benefit managers (PBMs) negotiate market access. But “importing foreign prices from socialist countries would be a bad deal for American patients and workers,” PhRMA said in a statement. “It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America.”

Drugmakers across the industry have been promising to invest billions in US manufacturing as part of a plan to strengthen their manufacturing footprint while appeasing Trump so he forgoes imposing tariffs on pharmaceutical products or harsher drug pricing policies.

Trump appeared to take a softer tone on pharma during the press briefing, but the president continued to mention that tariffs on pharmaceuticals “may be imposed,” a trade policy that industry has also been bracing for.

The patient advocacy organization Patients for Affordable Drugs Now (P4ADNow) said that while it supports Trump’s goal, MFN pricing would be better implemented through policy like the Medicare drug price negotiation program.

“This executive order is a step in the right direction, but without additional guardrails, it leaves room for pharmaceutical companies to continue gaming the system at the expense of patients,” the group said. “The reality is: drug companies set high prices in the US because US policy lets them – unlike other high-income countries that negotiate lower prices.”

“The administration can pursue an even better deal in line with other high-income nations, including through the popular Medicare Negotiation program.”

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