If you don't meet the price, you can't sell in our country, "said US President Trump at a White House press conference on May 12th, setting the tone for the" Most Favored Nation Pricing "(MFN) policy with a tough stance. This executive order, titled "Pricing Most Favored Nation Prescription Drugs for American Patients," was signed on May 12th, US time, requiring US drug payment prices to be forcibly anchored to the lowest level in other developed countries within 30 days.

This game is destined to be a replay and upgrade of policies in 2020. Four years ago, Trump's first proposal for the MFN policy was halted by the court, and several industry experts also told Caixin reporters that this litigation war may happen again. Some experts also said that the executive order lacks mandatory measures and whether it can be truly implemented still needs to be observed.

The deeper shock lies in the subversion of the global pharmaceutical value logic, as said by Zhan Kai, a partner at Shanghai Yuanda Law Firm: "When the most market-oriented United States begins to wield the administrative pricing baton, the underlying rules of the game for the future of global innovative drugs have quietly been rewritten

Most Favored Nation Pricing

At a press conference on May 12th at around 10:00 am US time, Trump made a firm statement regarding the upcoming executive order, stating that "the lowest drug price in the world will be determined by its pricing in the United States." "Starting today, the United States will no longer subsidize foreign healthcare.

According to the latest disclosure from the White House, the full name of Trump's executive order is "Pricing Most Favored Nation Prescription Drugs for American Patients", and the core content is to establish "Most Favored Nation Pricing": Within 30 days from the date of this order, the Secretary of Health and Human Services (HHS) should coordinate with the President's domestic policy assistant, administrators of the Centers for Medicare and Medicaid Services, and other relevant administrative departments and agency officials to inform drug manufacturers of the most favored nation price targets, so that drug prices for American patients are consistent with developed country levels.

The executive order also stipulates that if the Department of Health and Human Services (HHS) and pharmaceutical companies fail to reach an agreement within the specified time, the government will take further measures to enforce most favored nation pricing. The heads of relevant agencies, including the Secretary of Commerce, should review and consider taking all necessary actions regarding the export of drugs or precursor materials that may contribute to global price discrimination, as needed.

For example, Trump claimed at the aforementioned press conference that if drug prices in the United States do not decrease, action will be taken against cars.

The executive order also states that, within the limits permitted by law, the Secretary of Health and Human Services (HHS) should provide direct to consumer procurement programs for pharmaceutical manufacturers selling products to American patients at most favored nation prices.

It is worth mentioning that prior to the signing of this executive order, there were already voices of opposition within the United States, with the Pharmaceutical Research and Manufacturers Association (PhRMA) explicitly opposing the policy. The association previously estimated that Trump's new drug pricing proposal could cause pharmaceutical companies to lose up to $1 trillion within a decade. The organization stated that this policy is a bad deal for American patients.

After the announcement of the executive order, stocks in the US pharmaceutical industry initially fell, but then rebounded. For example, Merck's stock price has risen by about 5%, while Pfizer and Eli Lilly's stock prices have also risen by about 2% each. In contrast, the stock prices of European pharmaceutical companies have fallen, with shares of Novo Nordisk, AstraZeneca, GlaxoSmithKline, and Roche Holding falling by 1% to 5%.

Is the litigation war about to repeat itself?

Despite Trump's claim that the price reduction will take immediate effect, the legal and enforcement risks are high - the US court may urgently freeze the new policy, a scenario that has precedent in 2020.

At that time, the Trump administration launched the "Most Favored Nation" (MFN) policy, which required that the drug prices paid by Medicare should not exceed the minimum level in developed countries such as Canada and the United Kingdom, and was expected to cut pharmaceutical industry revenue by more than $10 billion annually.

However, the counterattack from the US pharmaceutical industry was rapid and fierce: the Pharmaceutical Research and Manufacturers Association (PhRMA), representing giants such as Pfizer and Merck, filed a lawsuit in December 2020, accusing the policy of not being authorized by Congress, infringing intellectual property rights, and the President's unilateral intervention in market pricing violating the principle of "separation of powers".

In December 2020, the federal court in Maryland ruled to suspend the MFN policy on the grounds of "procedural illegality"; In February 2021, a federal judge further supported PhRMA's unconstitutional claim, explicitly stating that the President has no authority to bypass Congress in setting pricing rules; In June 2021, the Supreme Court rejected the government's appeal and upheld the lower court's ruling, declaring the MFN policy completely ineffective.

This situation may soon 'repeat itself', and the US government may lose the lawsuit again, "Zhao Heng, founder of Latitude Health, a medical strategy consulting company, told Caixin reporters." Because there is no legislation, unilaterally changing it through administrative means would definitely violate the principles of free competition in the market

Zhao Heng also told reporters from Caixin News Agency that the administrative order itself lacks mandatory measures and requires pharmaceutical companies to voluntarily lower prices. It also lacks clear specific varieties and scope, and whether it can be truly implemented still needs to be observed.

According to multiple US media reports, several pharmaceutical industry organizations including PhRMA plan to actively counterattack once again. PhRMA believes that the funds saved by the government will not benefit patients, but may instead jeopardize future investments in new drug development.

Without a doubt, a new litigation battle is about to unfold, and both pharmaceutical companies and industry associations may challenge this executive order, "said Zhan Kai, a partner lawyer at Shanghai Yuanda Winston who is familiar with the US legal ecology, to a reporter from Caixin News Agency.

However, Zhan Kai does not believe that Trump will "repeat the same mistake". He explained that "this executive order avoids directly pricing private healthcare systems, but guides healthcare prices through competition laws, attempting to avoid the fate of a similar executive order that failed during Trump's first term. Behind it lies the" chronic disease "of long-term massive healthcare spending in the United States, which has a market among the largest number of American people. Moreover, based on Trump's influence on the legal community and determination to challenge difficult issues during this term, this executive order may not necessarily be ruled invalid, and this litigation war will last for a long time

Trump also stressed at the press conference held on the 12th that "special interest groups may not like this, but the American people will like it."

On the 12th, Caixin reporters also contacted multiple pharmaceutical listed companies with revenue in the United States as investors. Fosun Pharma (600196. SH), Junshi Biotech (688180. SH), and Huahai Pharmaceutical (600521. SH) all stated that they are closely monitoring the evolution of the administrative order and its impact on their own business in the United States.

In addition, the industry is generally concerned about the changes in the ecological environment of the US pharmaceutical industry under the aforementioned administrative orders. Zhao Heng told reporters from Caixin that after the implementation of this administrative order, the valuation of Chinese pharmaceutical companies going abroad may change.

This may gradually affect the value logic of global pharmaceuticals, especially innovative drugs. Zhan Kai told Caixin reporters that this marks the beginning of government administrative control over drug prices in the most market-oriented US market, which may have a fundamental impact on the basic value logic of innovative drugs in the future - this process may be slow, but it will gradually strengthen.