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Most Favored Nation pricing: what it means for policy, patients and pharma
What is Most-Favoured-Nation Pricing?
In May 2025, President Donald Trump signed an executive order (EO) announcing most-favoured-nation (MFN) pricing for branded pharmaceuticals in the United States, marking a significant shift in drug pricing with far-reaching implications beyond the American market.
As part of this executive order, the Administration expects that drug manufacturers will align U.S. prices with the lowest prices of OECD countries with a GDP per capita of at least 60% of the United States’. The Administration cited the high costs of drugs in America as the primary motive for the executive order, writing that the United States represents 5% of the world’s population, yet funds 75% of pharmaceutical profit, which they allege allows for lower-priced medicines in ex-US markets.
MFN is a form of international reference pricing (IRP), when a country aligns its medicine prices with the prices of ‘reference’ countries. IRP has been used in other countries, especially in Europe and the Middle East. However, its implementation in the United States is novel, though the Trump administration tried and failed to implement it in the previous term. Elsewhere, IRP has been shown to be relatively effective in short-term cost-containment, but studies suggest that this effect is typically short-lived and can come at the cost of decreased innovation and reduced availability of medicines in the long-run. Its use in the United States could have far-reaching consequences due to the central role that the U.S. plays in revenue recouperation for many types of pharmaceutical innovation.
Trade Policy
President Trump’s executive order on drug pricing was accompanied by a broader trade mechanism that the Trump administration used as leverage over pharmaceutical manufacturers.
Specifically, in April 2025, the Administration initiated a Section 232 investigation into the pharmaceutical supply chain, examining the national security implications of relying on foreign-manufactured drugs, laying the legal groundwork for pharmaceutical-specific tariffs. Subsequently, in late 2025, President Trump informally announced a 100% tariff on all branded pharmaceutical products imported into the United States, unless manufacturers were actively building pharmaceutical manufacturing facilities in the United States, effectively using the threat of tariffs as an instrument to incentivise manufacturers towards domestic investment in the U.S. pharmaceutical industry.
The threat of tariffs and MFN pricing became linked in practice through a series of voluntary agreements between the Administration and some of the largest pharmaceutical companies, with manufacturers agreeing to align U.S. drug prices with ex-US markets. Additionally, the pharmaceutical companies agreed to invest over $150 billion collectively in U.S. manufacturing. In return, each participating company received a three-year exemption from any future pharmaceutical tariffs.
Trade policy has also been leveraged by the Administration to push ex-US prices higher. In December 2025, for instance, the United Kingdom and United States reached a trade deal securing zero tariffs on UK drugs for three years; as a condition, the UK agreed to raise its cost-effectiveness threshold by 25% and cap the proportion of drug spending claimed back from manufacturers via the Voluntary Scheme for branded Medicines Pricing, Access and Growth (VPAG) at 15%.