'Most Favoured Nation' - What does it mean, and how will Pharma Companies react?

The United States is the largest pharmaceutical market globally, accounting for about two-thirds of new product sales [EFPIA, IQVIA]. This makes it a priority and wave 1 market for manufacturers. However, under Trump's "most favoured nation" policy, the US aims to reduce drug prices by linking them to the lowest prices paid in developed nations. This caused shockwaves across the industry, and companies are now figuring out their strategy in the short and medium term.

Short Term: The initial step is immediate resistance, which means looking into legal options and challenging the policy in court, plus strong lobbying efforts in Washington. This is followed by a rapid analysis of their US product portfolio to estimate how the MFN policy could affect their revenue and how to reduce that impact. A quick review of the launch sequence and the R&D pipeline will also be critical. Additionally, managing relationships with stakeholders like investors, suppliers, distributors, payers, and providers will be important.

Medium Term: If price changes happen, pharmaceutical companies will need to reconsider their global commercial strategy. Because the US provides such a large share of revenue, prices set in other countries will directly influence US prices and ultimately margins. Negotiating with cost-sensitive EU markets for higher prices is unlikely to be successful, but may be attempted. The key, however, will be the global launch sequence for innovations to avoid setting a low benchmark price that hurts their US margins.

This will also affect innovation and R&D. Lower commercial potential and less available funding due to reduced margins will impact the R&D budget. Companies might focus on therapeutic areas where prices are less controlled or where they can still achieve a good RoI globally. Another attempt to reduce the operating costs across the company will also be an option.

Best-case for Pharma: In this scenario, the new price policy is not fully implemented or is stopped by legal authorities. Companies find effective ways, using pricing and net discounting strategies, to preserve margins. Also, a few drugs may achieve higher prices in other markets, which may help keep US prices higher. If this happens, the companies' finances and R&D investment are not significantly harmed.

Worst-case for Pharma: In this scenario, the new price policy is fully implemented and causes big price cuts for many drugs in the US, leading to serious revenue loss. This forces companies to make big cuts in R&D spending, especially in the early pipeline, which will translate to fewer new drug development programs in the future. Some drugs may not see the US as a profitable market and may delay or not proceed with launches, potentially affecting patient access. This could also cause other countries to demand lower prices, too.

The future is uncertain. Any major price change in the US will have significant effects around the world. Pharmaceutical companies will work to protect their business and revenue, while thinking about a future where the economics of drug development and patient access might be very different.

Disclaimer: Please note that the perspectives and scenarios presented in this article are based on my own thoughts and analysis of the potential impacts of the discussed policy.

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