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Yesterday, President Trump signed an executive order entitled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients.” Among a few other initiatives, this EO directs the Secretary of Health and Human Services to establish a mechanism through which Americans can buy their drugs directly from manufacturers at a “Most-Favored-Nation” (MFN) price.

While the Administration has correctly identified the unique problems facing the American health care system – namely, wealthy countries paying artificially lower prices for prescription drugs than the U.S. and the fact that this depresses innovation and inflates our costs – MFN would not solve these problems. In fact, it would exacerbate them.

In addition to doing nothing to address foreign freeloading, MFN drug pricing will reduce access to new cures and reduce U.S. global competitiveness, capitulating to China.

Instead, President Trump should focus on Section 3 of his EO, “Addressing Foreign Nations Freeloading on American-Financed Innovation.” In this section, the President rightly directs the Secretary of Commerce and U.S. Trade Representative to act against countries suppressing the price of pharmaceutical products below the fair market value:

“The Secretary of Commerce and the United States Trade Representative shall take all necessary and appropriate action to ensure foreign countries are not engaged in any act, policy, or practice that may be unreasonable or discriminatory or that may impair United States national security and that has the effect of forcing American patients to pay for a disproportionate amount of global pharmaceutical research and development, including by suppressing the price of pharmaceutical products below fair market value in foreign countries.”

The USTR could be particularly effective as the Trump Administration continues to renegotiate numerous trade deals with foreign countries.

MFN would do nothing to stop foreign freeloading.

MFN would surrender to foreign freeloading by basing U.S. prices on the prices of countries with socialist policies. Supporters of MFN claim the concept will incentivize manufacturers to negotiate better deals. However, this theory is based on the flawed assumption that American manufacturers were not fighting as hard as they could against foreign price controls in past years.

The fact is that European countries would likely retaliate if pharmaceutical manufacturers took offensive action to try to negotiate away from government-set prices. For example, if a pharmaceutical company withdrew from a market, a European government could revoke its patents. Article 5 of the Paris Convention for the Protection of Industrial Property allows for compulsory licensing if a company declines to sell its product: 

“Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.”

Additionally, if multiple companies were to withdraw from a market, the European Commission could accuse said companies of “cartel-like strategy” to manipulate prices, a violation of EU competition law. In the EU, “cartel participation” carries high penalties, including fines up to 10 percent of the company’s worldwide, total revenue over a year. In certain cases, it could also result in fines on and imprisonment of specific individuals.

Pharmaceutical manufacturers don’t charge foreign countries less because they like them more – as evidenced, their hands are tied. In reality, the reason foreign countries pay less for medicines is simple: price controls, price controls, and more price controls. There is little or no negotiation between foreign governments and manufacturers which forces innovators to accept lower prices in a “take-it-or-leave it” proposition.

MFN would reduce access to new cures.

As established, MFN will likely not lead to other countries paying more for medicines. Without any wealthy country paying market price for medicines, companies cannot expect to recuperate the R&D costs for the medicines they create. This will depress innovation and cause drug shortages to a degree that is entirely unacceptable.

If the U.S. had the same price controls utilized by foreign countries, we would have many fewer innovative cures available to patients today.

According to a study by the Galen Institute, patients in the U.S. had access to nearly 90 percent of new medical substances launched between 2011 and 2018. By contrast, other developed countries had a fraction of these new cures. Patients in the United Kingdom had 60 percent of new substances, Japan had 50 percent, Canada had 44 percent, and Spain had 14 percent.

Further, in an industry like drug development, the risk is already very high. Increasing this risk, with the threat of never recouping R&D costs, will eliminate a significant amount of investment in drug development.

During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. In addition, most drug development programs fail.

As detailed by the Information Technology & Innovation Foundation (ITIF), for 5,000 to 10,000 compounds screened during basic drug discovery phases, 250 molecular compounds (2.5 to 5 percent) make it to preclinical testing. Of the 250 molecular compounds, 5 make it to clinical testing. Thus, as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs.

MFN would reduce the United States’ global competitiveness in medical innovation.

Not only is this lack of innovation a threat to patients and the health of future patients, but it would cause the United States to be a follower, not a leader, in medical innovation. At a time when China is rapidly narrowing the innovation gap, causing our research and development to stagnate or fall would seal our fate as second-best in biotechnology.

The Information Technology and Innovation Foundation details the many ways in which China is catching up to the U.S. in biotech:

  • Clinical trial activity in China more than doubled from 2,979 trials in 2017 to 6,497 trials in 2021. Alternatively, the United States saw only a 10 percent increase during this time, from 4,557 to 5,008 trials.
  • Chinese oncology trials grew 146 percent from 1,040 in 2017 to 2,564 in 2021, the highest for any country. In the United States, oncology clinical trials grew from 1,664 in 2017 to 1,690 in 2021, a 1.56 percent increase.
  • China increased its global share of value-added pharmaceuticals output from roughly 5.6 percent in 2002 to 24.2 percent in 2019.
  • From 2013 to 2023, the number of biotech PCT patents awarded to Chinese entities increased by more than 720 percent, from 266 to 1,920, exceeding the European Union’s annual number starting in 2021. The number of patents awarded to U.S. filers over the same period increased by 67 percent.

ATR applauds the Trump Administration’s prospective efforts to utilize the USTR to fight foreign countries’ exploitative suppression of drug prices. We, however, urge the Administration to reconsider MFN drug pricing as a solution to foreign freeloading: not only would it fail to end this practice, but it would reduce access to new cures and reduce U.S. global competitiveness.