Unpacking MFN 2.0

Authored by: Eric Auger & the VPA Leadership Team

Yesterday, the Trump Administration issued a much-anticipated Executive Order to introduce international reference pricing to the US market, entitled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients.”

Investors responded positively to the release of the Executive Order, likely based upon skepticism over the implementation and enforceability of the Order. Like many of the Administration’s executive actions to date, this Order may be viewed as an “opening salvo” with enforcement coming by way of public shaming or threats of future action that could impact the biopharmaceutical industry if manufacturers do not voluntarily find a way to “come to the table” and support the Administration’s mission.

In brief, the Executive Order:

• Empowers the Administration to communicate “most-favored-nation” (MFN) targets to pharma manufacturers within 30 days
• Stipulates that if “significant progress towards most-favored-nation pricing for American patients is not delivered,” the Administration will pursue an assortment of potential actions:
  • A rulemaking plan to impose MFN pricing
  • Certifying and granting waivers, on a case-by-case basis, for drug-importation from developed nations with low-cost prescription drugs
  • Stepping up activity to identify anti-competitive practices and undertake enforcement action
  • Reviewing and considering potential actions with respect to export of pharmaceutical drugs or precursor material
  • Reviewing and potentially modifying or revoking approvals already granted for drugs
  • Broadly taking all actions available, coordinated by the Assistant to the President for Domestic Policy, to stimulate action

While this Executive Order drastically oversimplifies the issues at hand, casts blame indiscriminately, and ignores deeper flaws in the US healthcare system (e.g., the price of virtually all healthcare services are higher in the US than in peer-group developed markets), it does hit on a real issue for the biopharma industry, which is the wide and growing disparity in attainable prices across international developed markets, and the increasing over-reliance that disparity imposes for success in the US market to sustain the business model.

This leads to several questions for biopharma companies to wrestle with in the immediate and long term:

• In the near term, how do we manage the Administration’s call to voluntary cooperation? This is a question that will require the attention of industry senior executive teams in coordination with their policy leads and industry trade group representatives and will be of outsized concern for on-market product teams, particularly for the highest revenue and most visible assets. In many cases, complying fully with the Administration’s ask as it has been stated thus far (meeting the most-favored-nation price targets to be issued), is likely to be infeasible without substantial and immediate business and/or patient access impact, as well as wholly impractical without further guidance or rulemaking regarding the mechanisms for doing so. However, the Executive Order leaves much room for negotiation, so the question becomes: should industry proactively engage, and if so, what win-win bargain can be achieved at either the industry or the company level to register cooperation, maintain patient access and avoid the stated “stick” of further executive actions?
• For the mid term, companies need to plan for the stated threats of future executive action, which includes planning for in-market and late-stage pipeline assets.
  • If rulemaking is pursued, or if legislative action is taken, what are the various scenarios that could unfold? Under each scenario, what might be the impact to our business, and how may we mitigate those impacts?
  • What may the consequences of insufficient voluntary action (e.g., drug importation, revoking approvals, etc.) look like, what risks do they pose to portfolios, and how may we mitigate those risks?
• For the longer term, how do we address the real issue of widening price disparities between the US and other developed markets, and how can we improve biopharma investment sustainability by improving the balance of revenues and profitability driven from the US versus Ex-US developed markets? This is an immensely complicated problem with systemic drivers across countries and healthcare systems. No single solution is likely to be a silver bullet, but a sustained and deliberate focus on the issue is needed, with a globally coordinated strategy that employs an array of policy, communication, advocacy engagement, and commercial prioritization activities.

Putnam is actively engaged with our clients on these topics, sorting through potential scenarios, assessing the implications, and identifying and prioritizing mitigation steps in the near term. With our domain expertise in global pricing and market access, coupled with our broader Inizio partner capabilities in policy and advocacy, we are also supporting clients in thinking through and organizing against the longer-term challenge of addressing pricing and commercial opportunity disparities across developed markets.

Get in touch with our experts today to learn more.