Understanding the U.S. ‘most favored nation’ executive order and implications for pharma

The May 12, 2025, executive order (EO) on drug pricing issued by the White House signals a renewed and intensified effort to align U.S. drug prices with those of other developed countries, invoking the concept of a “most favored nation” (MFN) pricing model. Consistent with prior rhetoric, the EO positions U.S. drug prices—typically multiples of what is found in other markets—as enabling other countries to “free ride” on American funding of pharmaceutical innovation. The EO primarily frames its initial offer and approach as a voluntary appeal to pharmaceutical manufacturers to self-regulate and reform; however, it is accompanied by potential action aimed at both foreign governments and the pharmaceutical industry if or when either chooses not to self-regulate and reform. Here’s what pharma companies should be thinking about now.

The EO outlines two primary targets:

• Pharmaceutical manufacturers: The EO urges manufacturers to lower U.S. prices to MFN levels and warns of regulatory consequences if they fail to comply.
• Foreign governments: The administration criticizes countries that pay significantly less for prescription drugs and signals potential punitive action via U.S. trade policy should they “[suppress] the price of pharmaceutical products below fair market value.”

The order asks federal agencies and representatives to pursue the following initiatives:
 

Prevent cost shifting from foreign pricing policies

To address the issue of foreign drug pricing regimes that shift the cost burden of pharmaceutical innovation onto U.S. consumers, the EO directs the U.S. Trade Representative (USTR) and the Department of Commerce to evaluate whether such practices constitute unfair trade and pricing. This assessment may lead to enforcement actions, including restricting exports of U.S. pharmaceutical inputs or imposing retaliatory tariffs on offending countries.

Align U.S. drug prices with those in comparable developed nations

Aiming to bring U.S. drug prices in line with those of other high-income nations, the EO instructs the Secretary of Health and Human Services (HHS) to publish MFN-aligned price targets within 30 days of the EO. These targets serve as voluntary benchmarks for pharmaceutical companies, with a 180-day negotiation window before further regulatory action is considered.

Create a direct-to-consumer channel for accessing MFN prices

To give patients direct access to lower-cost medications, the EO supports the creation of a direct-to-consumer sales channel through which manufacturers can sell drugs at MFN prices. This approach is intended to bypass intermediaries such as pharmacy benefit managers (PBMs).

If pharmaceutical companies fail to voluntarily reduce prices to meet MFN criteria specified by HHS within the 180-day negotiating window, the EO outlines several potential enforcement actions:

Leveraging trade policy to allow imports of product at ex-US prices and restrict exports of U.S.-made intermediate and finished pharmaceutical products

• Allow direct importation from other countries 
  The EO authorizes HHS and the FDA to explore permitting direct import of prescription drugs from select developed countries. The mechanism would be subject to safety and quality assurance standards. Exactly how often and when this would be permitted is unclear, with language saying that it would be “consistently granted” but on a “case-by-case” basis.

• Export controls 
  The EO instructs the Department of Commerce to potentially restrict companies from exporting pharmaceutical intermediate or finished goods to other nations.

Broad use of regulatory authority—specifically around antitrust and FDA approvals—to prevent, deny or remove designations or outcomes granted by agencies

• Stepped-up antitrust enforcement: The EO directs the Federal Trade Commission (FTC) and Department of Justice to investigate whether pharmaceutical pricing practices or PBM arrangements violate antitrust laws. While the order does not explicitly reference what cases to pursue, this could include pursuing litigation or enforcement actions against companies engaging in mergers and acquisitions (for example, unfair price schemes) or accused of rebate manipulation with PBMs.
• FDA leverage: The FDA is empowered to consider revoking or modifying drug approvals as a means to enforce compliance with the EO’s pricing goals. The order provides the FDA with a broad subjective mandate, stating this would be for drugs that are “unsafe, ineffective, or improperly marketed.”

The EO raises unresolved issues, especially for physician-administered drugs, and introduces challenges related to reimbursement, logistics and safety oversight.

Despite its strong language and sweeping ambition, the EO leaves many details unclear:

• The initiative appears to cover the entire U.S. pharmaceutical market, not just Medicare or Medicaid, signaling broad intent but vague implementation pathways. Prior to the EO, negotiations to include similar sentiments within the work-in-progress congressional budget bill focused on using MFN specifically to produce budget cuts in Medicaid. The EO does not explicitly mention the breadth of which government programs or payers (public and private) would be included.
• On foreign policy, it remains uncertain whether the U.S. will genuinely exert diplomatic or trade pressure to compel other nations to increase drug payments—an action that would require legislative changes abroad and complex negotiations, for both U.S. trade officials and pharmaceutical manufacturers. Increasingly, companies (Sanofi, Novartis, Bayer) and trade associations (EFPIA) are explicitly calling on European governments to increase prices as the U.S. exerts increased pressure to avoid negative consequences. It is unclear how European governments will respond to the nexus of these challenges.
  
• On domestic enforcement, details around potential actions are also unclear:
  • Setting price targets is fairly ambiguous as described, deferring to HHS. Among other issues that would need to be resolved is what countries constitute as “developed.” The administration-aligned think tank America First Policy Institute has also used the term “wealthy” in the past. Whether they will use standards set by other markets (for example, Japan or Western Europe) on what constitutes as comparable remains to be seen.
  • Drug importation faces many challenges. First, U.S. law and FDA rules today restrict direct imports to be only from Canada, and only on a pilot basis by state. Expanding beyond Canada could run afoul of current Supreme Court rulings following the overturning of Chevron, putting any such regulatory change at risk of litigation.
    
    However, some have argued that the executive branch has broad authority on trade (particularly on national security or international emergency grounds, e.g., IEEPA) that may override precedent.
     
    Companies generally design manufacturing and supply chain efforts around an expected number of customers to serve in a given country based on the needs of the local population, as pharma regulations are often country-specific (labeling, etc.). We would expect distributors—or manufacturers, if they directly distribute—to keep supply in balance. In lower-priced markets, distributors could come under pressure from their home market healthcare systems if they export supply and are unable to supply locally. This would leave the U.S. market exposed to the risk of shortages due to foreign governments restricting the volume of drugs that could be exported to the U.S. For example, the prior attempt by the Biden administration to allow for limited parallel drug imports from Canada saw the Canadian government oppose the policy on the grounds of potential shortages for its own population.
    
    There are also significant challenges in ensuring the safety of a drug supply and preventing counterfeit drugs if an international secondary market in pharmaceuticals emerges. At a greatly expanded scale, federal authorities would need to define security protocols to ensure a safe and reliable drug supply that maintains the public’s trust.
  • FTC actions are left vague—perhaps as a means of “strategic ambiguity.” Over the last several years, increasing M&A enforcement has been the FTC’s primary policy objective, typically on the assumption that consolidation leads to higher prices (see example: Amgen-Horizon). At the current time, biopharma M&A deal making is at five-year lows, well below norms over the past decade, based on ZS analysis of Biomedtracker data. Should the FTC’s interest extend to partnership deals, there would be more to scrutinize (for example, the Sanofi-Maze deal that was broken up). Though there is less precedent here.
     
    There could also be enforcement on the grounds of PBM alignment. The April 15, 2025, EO issued by the White House specifically invokes requiring PBMs to provide transparency on compensation received. The FTC could pursue agreements with biopharma that it deems not in compliance with this on antitrust grounds.
  • FDA intervention, particularly the ability to revoke or modify drug approvals, is a more serious and potentially impactful lever. However, revoking robust benefit-risk based drug approvals presents meaningful ethical risks for the FDA, which would essentially be denying patients drugs they are currently using or need to treat their disease. This would affect American healthcare consumers, HCPs and health advocates.
     
    The language used in the EO is unclear as to whether this would only apply to drugs already approved or could also apply to drugs that have yet to be approved.
  • A particularly novel element is the EO’s reference to bypassing pharmacy benefit managers (PBMs) and enabling direct-to-patient drug sales. However, this proposal is also fraught with operational and policy ambiguities, especially concerning physician-administered drugs and reimbursement models.

The EO’s implications for pharmaceutical companies vary significantly by product and market strategy:

• Near-term, companies could face very difficult choices about products currently on the market that may affect profitability, perception and collective public trust. They may need to decide when and whether to accept profitability under the MFN pricing scheme for existing products already on the U.S. market or take corrective action. Depending on how rulemaking is implemented (for example, whether price is set on 2025 versus trailing 12-month prices, akin to Inflation Reduction Act negotiations), this could include removing products from other markets. Depending on whether local regulations permit removing products from the market, this would need to be taken as a serious measure given the ethical, moral and legal implications. Consequences could include retaliation from markets that includes marshaling drug manufacturing, supply and intellectual property (including but not limited to patent invalidation).
• There is a growing incentive to consider U.S.-only launches at higher price points to preserve profitability if international pricing threatens U.S. benchmarks.
• Companies may need to decide whether, when or how to lobby for changes in ex-U.S. single-payer pricing system law—particularly in Europe, Japan and China—to enable higher prices where they may not have the ability to affect today. They may seek to use USTR to affect this change.
• The EO lends credibility to European industry actors lobbying their governments for higher drug prices by citing potential alignment with U.S. pricing models.
• If the FDA uses its broad statutory power on approvals, the industry will have a “walking on eggshells” feel on public interactions. Companies will need to decide what tack to take. Unlike other potential regulatory actions for noncompliance, there is nearer-term impact on the future value of biopharma companies and their ability to serve the public should the FDA leverage its authority.

For pharma, the EO creates substantial risk, particularly for existing assets:

• Requiring manufacturers to publish a transparent MFN price poses immediate threats to current revenues, especially if this price is below current U.S. net levels.
• Administrative complexity is considerable: 
  • Existing rebate arrangements between manufacturers and PBMs would be difficult to revise, particularly given the rebate guarantees that PBMs provide to their plan sponsors. Significant list price reductions might actually create market access risk to manufacturers, given the impact to PBM rebate streams.
  • Medicaid best price rules could be triggered, compounding the financial impact. This could ripple through programs such as 340B and create revenue losses to industry that are multiples of Medicaid alone.
  • Physician-administered drugs face added reimbursement uncertainty if acquisition costs change but Medicare reimbursement lags.
  • It is unclear whether the new pricing structure and distribution channels will be mandatory, who will manage them or how cost flows will be adjusted.

The EO raises important strategic questions for the administration and industry alike: 

• What defines a policy “win” for the administration—optics of the announcement, lower domestic prices, greater price transparency or rebalancing international cost sharing? 
• How will pharmaceutical firms navigate pipeline launches under the shadow of potential MFN implications? 
• Will this shift drive companies to exit lower-paying markets or drastically revise global pricing strategies? 
• Would aggressive U.S. and manufacturer pressure on, for example, European governments to pay more result in reactions such as compulsory licensing? 
• How will the entire upstream value chain—historically largely funded and driven by U.S. price—respond (including funding sources/capital markets, startup and biotech ecosystem and service suppliers)?

The EO introduces a bold and potentially impactful framework for addressing U.S. drug pricing and leaves much to be clarified. Both policymakers and the pharmaceutical industry face an urgent need to interpret, prepare for and respond to a shifting landscape in which traditional pricing models, market access strategies and regulatory assumptions may no longer hold.

Strategic recalibration, legal vigilance and active engagement in policy discourse will be critical as the implications of this EO unfold.