Introduction
On May 12, 2025, President Donald Trump signed an Executive Order titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients”. This order aims to address the perceived imbalance where the United States funds a significant portion of global pharmaceutical profits and pays high prices, while drug manufacturers offer deep discounts to access foreign markets, subsidizing those lower prices through higher prices in the United States. The stated purpose of the Executive Order is to ensure that Americans are not forced to pay almost three times more for the same medicines and have access to the most-favored-nation (MFN) price.
Overview of the MFN Executive Order
The core policy of the Executive Order is that Americans should not subsidize low-cost prescription drugs and biologics in other developed countries and face overcharges for the same drugs and biologics in the United States in order to do so. Instead, Americans should have access to the MFN price for these products.
On May 20, 2025, the Department of Health and Human Services (HHS) provided further guidance for how drugmakers can comply with the Executive Order. The press release from HHS specified that the Executive Order applies to “all brand products across all markets that do not currently have generic or biosimilar competition.” To comply, drug companies must “commit to aligning” their U.S. prices with “the lowest price of a set of economic peer countries,” which are those countries in the OECD that have a GDP per capita of at least 60% of the U.S.’ GDP per capita.
The Executive Order requires that if “significant progress” towards MFN pricing for American patients is not achieved following this directive from HHS, to the extent consistent with law, the Secretary of HHS shall propose a rulemaking plan to impose MFN pricing through regulation. Additionally, the Secretary shall consider certifying that importation of prescription drugs from developed nations with low-cost drugs would pose no additional risk and result in significant cost reduction, potentially leading to waivers for case-by-case importation.
Beyond potential rulemaking and importation, if significant progress is not made, other government agencies are directed to consider additional actions. These actions could include undertaking enforcement actions against anti-competitive practices (potentially using the Sherman Antitrust Act and Federal Trade Commission Act), reviewing export policies for pharmaceutical drugs or raw materials that might contribute to global price discrimination, and reviewing and potentially modifying or revoking FDA approvals for drugs. The order also directs the Secretary of Commerce and the U.S. Trade Representative to take action to ensure foreign countries are not suppressing drug prices below fair market value. Furthermore, HHS is directed to facilitate direct-to-consumer purchasing programs for manufacturers selling products at the MFN price.
The Executive Order does not provide a timeline for implementation. It also does not specify which government programs (e.g., Medicare, Medicaid) or commercial insurance markets are within the scope of the policy. Legal challenges are anticipated, similar to a nearly identical rule issued in 2020, which was enjoined for exceeding statutory authority.
Impact on Ex-U.S. License Agreements
Based on the language in the Executive Order and related commentary, the MFN price appears to be tied to the price for the drug product itself in other developed nations. The Executive Order’s goal is for American patients to access the lowest price for “these products” in comparably developed nations. This suggests that the specific entity selling the drug abroad (e.g., a licensee) may not be the primary factor; rather, the price at which the drug is available in a foreign developed market could become a benchmark for potential U.S. pricing under this policy.
Therefore, if a pharmaceutical company has licensed the rights to commercialize a drug product outside the United States to a third party, the prices set by that licensee in foreign developed markets could potentially influence the price and reimbursement rates for the same drug product in the United States under the MFN framework. Lower prices obtained by an ex-U.S. licensee could potentially influence the potential MFN price benchmark used for the U.S. market.
Lack of Grandfathering Provision
Unlike the aforementioned previously proposed MFN rule in 2020 which included a provision to grandfather existing license agreements that predated 2018, the current Executive Order does not mention any grandfathering of existing agreements, though future rulemaking may address this possibility. This means that all existing ex-U.S. license agreements may be impacted once the MFN policy is implemented, subject to the specifics of any forthcoming rulemaking.
Potential Considerations for Ex-U.S. Licensing Strategies
In light of the potential impacts of the Executive Order on prices derived from ex-U.S. markets, companies may need to re-evaluate their global licensing strategies. Companies might consider strategies such as:
- Limiting or Avoiding Ex-US Licenses: A company could choose not to license commercialization rights outside the United States, retaining control over pricing in all markets where the product is sold.
- Strategically Licensing to Specific Markets: If licensing is pursued, a company might prioritize partners and markets that are expected to command higher prices, such as Japan or the “EU Big 5” countries (France, Germany, Italy, Spain, and the UK). This could potentially mitigate the downward pressure on the MFN benchmark price.
- Including Minimum Price Conditions: License agreements could be structured to include minimum pricing conditions that the licensee must adhere to in certain markets, ensuring that prices do not fall below a specified threshold. However, such clauses may be limited by local laws, including competition law or government pricing mandates, and should be evaluated with local counsel. This would, however, require active monitoring and enforcement of the license terms.
Data Access and Reporting
The Executive Order and related commentary highlight the operational complexity of implementing MFN pricing, requiring systems to track foreign prices and audit compliance. A company holding a license agreement might consider whether screening itself out from receiving pricing information could reduce exposure, although it is unclear whether such a step would be legally effective. Regulatory guidance is needed to clarify whether access to data determines MFN applicability.
The implementing regulations, once proposed, would likely clarify reporting obligations and how foreign prices are determined and attributed, regardless of the licensor’s internal data access policies.
Uncertainty and Next Steps
Considerable uncertainty remains regarding the implementation details, scope, and legal standing of the Executive Order. Key factors to watch include any subsequent proposed rulemaking and the details therein, potential legal challenges and court rulings, and reactions from foreign governments.
Companies involved in global licensing should carefully monitor these developments and consider the potential implications for both new and existing agreements, especially given the apparent lack of a grandfathering provision in the Executive Order.