MFN Is an Offer Pharma Can’t Refuse

President Trump’s Most-Favored Nation (MFN) initiative continues to impact the industry. Most recently, the deadline passed for mid-sized pharma and biotech companies to make deals with the administration or face serious tariffs on imported goods.

The deal is designed to both reduce prices that Americans pay for pharmaceuticals while also promoting an increase in domestic manufacturing. Since it was first announced, experts in the industry have spoken both in favor and against the deal. While the initial wave of deals focused on major pharma companies who can easily adjust strategies, launch new manufacturing projects, and absorb costs, the latest headlines focused on mid-sized pharma companies, who are less likely to be able to absorb new costs.

Pharmaceutical Executive spoke with John Stanford, executive director at Incubate, about the current status of MFN and how its impacting the industry. He focused not just on the unique impact on mid-sized pharmas, but also how these deals may force companies to adjust plans for future launches or drug research.

Pharmaceutical Executive: What are the unique considerations for MFN deals with mid-sized pharma companies?
John Stanford: The first thing to remember is that “mid-sized company” is a broad definition, so I want to be careful not to paint with too broad a brush. But mid-sized pharmaceutical companies are constrained in two ways that iconic manufacturers — a Pfizer, a Merck — are not.

The first constraint is that they simply have fewer products on the market. To the extent we saw details from the initial deals with large manufacturers, those agreements applied to specific products. When you have 30 or 40 products on the market, you have more margin to give on specific products, and you can tailor deals to what is most advantageous to you while still ceding some ground to the administration. But when you only have one or three products, you cannot absorb a 20 to 30 percent margin hit in the same way.

That brings us to the second constraint: capital. Something large companies have — in this industry and others — is access to substantial, low-cost capital. Mid-sized biopharmaceutical companies do not necessarily have that luxury. They may need all of their revenue to fund what comes next in their portfolio and pipeline, and they do not have the same access to Wall Street and public markets to tap into alternative sources of capital.

Both of those factors — capital constraints and a smaller product portfolio — are why the MFN equation looks entirely different for mid-sized companies than it does for the industry’s largest players.

Pharmaceutical Executive: Is participation in MFN voluntary?
John Stanford: I think of these deals a bit like the Godfather movies — an offer you can’t refuse. When you consider the leverage the Trump administration proposed alongside these terms, the picture becomes clear. There were the arduous Section 232 tariffs, which weren’t even fully detailed but which companies understood could be highly impactful. There were also the proposed GLOBE and GUARD frameworks, which effectively function as mandatory international reference pricing. Taken together, the message was that there was no real alternative to signing a deal. So yes, these agreements are technically voluntary — but they were certainly obtained under significant pressure, which is why the industry has expressed concern about the precedent they set.

Interestingly, this is similar to what we saw with the so-called voluntary negotiation under the IRA. In that case, Democrats used the tax system — specifically a theoretical 95% excise tax on revenues — as their leverage. Whether you are looking at MFN or the IRA, neither was truly voluntary, regardless of the nomenclature being used.

Pharmaceutical Executive: How might MFN deals impact future decisions?
John Stanford: Broadly speaking, anything that even approximates price controls — and that is effectively what MFN and some of these other reference pricing schemes import into this country — creates a disincentive felt across the entire value chain. We are importing European value systems that have been shown not to adequately recognize the investment and risk required to develop new medicines.

While these deals are being struck by large manufacturers, they send a clear signal about the risk environment. Large pharma companies suddenly have less appetite for acquiring small biotechs — and that matters enormously, because two thirds of new drugs originate from small biotechs that are then acquired and made ready for patients by large manufacturers. But we should not ignore large pharma’s own R&D budgets, which still account for roughly a third of all innovation. That is where we will also see pressure.

There is no free lunch here. MFN deals, IRA price controls — whatever form they take — all put downward pressure on the amount of risk these companies are willing to absorb. And we will eventually find ourselves asking why we have ceded more ground to China in pharmaceutical innovation. The answer will trace back to MFN and policies like it that have steadily reduced the incentives that make the US ecosystem the most productive in the world.

Pharmaceutical Executive: Which therapeutic areas or deals might be negatively impacted by MFN deals?
John Stanford: What we saw coming out of the IRA — and what we will begin to see with MFN — is that the damage to innovation is not indiscriminate. Certain therapeutic areas are being disproportionately harmed. We know from the small molecule pill penalty that cancer and diseases of the brain are significantly disadvantaged and have seen measurably less investment as a result. That should concern everyone with a loved one living with Alzheimer’s.

The MFN deals are harder to analyze precisely because we do not know what is in them. But I think the first casualty is the moonshot. When a company is under pressure to strike a deal with the White House — or face reference pricing — it cannot reach for the wild home run. It cannot pursue something with no comparator product, no established patient population, no way to go to payers and make a straightforward value argument. That is the most serious early-stage concern: Washington is sending a signal that says don’t take big chances, don’t pursue curative therapies, because we don’t know how to value them.

Paradoxically, both parties — Democrats and Republicans alike — have complained for years about me-too drugs and second and third drugs in the same class. They say they want breakthrough innovation. But the signals they are sending do the opposite: stay in a well-defined space, stay with a mapped patient population, stay where payers can trust incremental progress. That is not to say incremental innovation is bad. Market forces and competition were working so well in the small molecule space that the IRA set the data exclusivity period at nine years instead of thirteen — a sign of how productively competitive that market was.

We want to see companies taking bigger swings. Instead, every policy signal is pushing them toward the familiar — away from new modalities and toward established categories. It is hard to imagine a world where mRNA attracts the investment Moderna required to prove out the platform. Without that environment, we would simply see more conventional small molecules and early-stage biologics.

From a therapeutic area standpoint, cancer and Alzheimer’s have already taken a measurable hit on innovation investment from the IRA. I believe rare disease will be the next. As these MFN deals settle in, they are forcing companies to make difficult choices — even as we have the capital and the scientific capability to invest across all therapeutic areas.