How MFN Impacts Drug Development and Launch Planning

President Trump’s Most Favored Nation (MFN) drug pricing proposals are awaiting approval by the U.S. Congress. Passage of the “Generous,” Globe” and “Guard” proposals with MFN implementation for Medicaid, Medicare Part B and Medicare Part D plans, is not certain, but since its impact could be substantial, pharmaceutical companies should plan for it.

For drugs already on the market, there may be little companies can do to limit business impact; however, for new development drugs, there are some critical considerations.

Why Does MFN Impact Development Decisions?

Under MFN, the maximum achievable price for Medicaid, Medicare Part B and Medicare Part D will be capped at the lowest GDP-adjusted price for Australia, Austria, Belgium, Canada, Czechia, Denmark, France, Germany, Ireland, Israel, Italy, Japan, Netherlands, Norway, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. Contrary to President Trump’s suggestions, drug companies have very little leeway to simply charge higher prices in the reference countries, other than by providing stronger evidence of value. We need to analyze whether we can strengthen our value evidence to improve pricing in these countries, and whether that justifies required additional investments, increased clinical risk and delay in launch.

Indication Decisions and Sequencing

The introduction of MFN will result in a substantial impact of the reference markets listed above on U.S. pricing, but that impact will be highly dependent on the situation. In some cases, where the evidence falls far short of country health technology assessment requirements, it may not make sense to launch in some or all of the reference countries, as the negative impact on U.S. revenues may be larger than the revenue potential of launching. In some cases, it may make sense to limit ex-U.S. launch to the indications with the strongest value proposition and highest expected price.

MFN will have a different impact for different potential indications. The initial launch indication is traditionally dictated by trade-offs related to development timeline, development cost, probability of clinical success, competitive environment and forecasted revenues within the drug’s patent life. Pharmaceutical companies will have to engage in detailed analyses to identify the indications with which to launch, and in which order, to avoid catastrophic impact of MFN pricing. In addition to MFN pricing, we need to consider the impact of the Medicare price negotiations that were authorized as part of the Inflation Reduction Act of 2022 (IRA), which was approved under the Biden administration. Under the IRA, the Centers for Medicare & Medicaid Services can mandate price “negotiations” nine years after the first FDA approval for small molecules and 12 years for biologics. Because of this, larger indications with higher revenue forecasts are favored to be accelerated to at least follow closely after higher-value indications that help support a higher launch price in the U.S.

Launch Sequencing

Traditional wisdom in pharmaceutical pricing dictates a preference to launch in higher-priced countries first to establish a good benchmark for ongoing negotiations and to avoid negative price impact through international price referencing. As an example, Japan is benchmarking prices in the U.S., France, Germany and the U.K. as part of its system. Launching in two of the lower-priced markets prior to the U.S. can have a severe negative impact on Japanese pricing that cannot be reversed after the other higher-priced markets have launched. Launch sequencing decision-making requires a careful analysis of the international price referencing mechanisms and a trade-off between price referencing impact and foregone revenues.

MFN is substantially raising the stakes of international price referencing. The approach to analyzing business impact is no different from that in pre-MFN launch situations, but pharmaceutical companies need to elevate the urgency of incorporating this analysis into development and commercialization decision-making.

Scenario Analysis

Given the high degree of uncertainty regarding MFN, as well as the likely value claims of new development drugs, we need to use scenario analysis to test the robustness of our development and commercialization strategy for new assets. This, unfortunately, makes development drug portfolio management decisions more complex. However, since the business impact is so high, it would be foolish to ignore the need.

Ed Schoonveld is a value and access advisor for Schoonveld Advisory, LLC and author of The Price of Global Health. He can be reached at [email protected]