Impact of the US most favoured nation pricing on Europe

December 2025 | SPOTLIGHT | SECTOR ANALYSIS

Financier Worldwide Magazine

December 2025 Issue

In the US, prices of innovative medicinal products are subject to a complex system involving stakeholders such as pharmaceutical companies, private health insurers and intermediaries such as pharmacy benefit managers.

These complexities can result in patients paying high prices for drugs. President Trump aims to reduce those prices by asking pharmaceutical companies to apply ‘most favoured nation’ (MFN) prices (i.e., the lowest of the prices paid in certain Organization for Economic Co-operation and Development (OECD) countries) or otherwise face sanctions. This measure, which takes the form of agreements between the Trump administration and companies, could have several impacts in Europe, depending on whether the MFN price is the public or net price.

If the MFN is the net price, the most significant impact could be price increases and/or delayed or reduced access to new innovative medicinal products. European Union (EU) member states’ reactions to this new situation could vary. Some could decide to increase prices or limit cost-containment measures, be it with parallel mitigating measures such as limited funding to certain categories of medicinal products or participation in joint public procurement. Other EU member states may refuse or not be financially able to increase prices, which could lead companies to withdraw their medicinal products from the market or decide not to launch new products.

MFN pricing appears amid future trade tariffs designed to relocate manufacturing to the US. Overall, MFN pricing, combined with trade tariffs, will create tensions between European and American markets and a new challenge for Europe, as the American market is the largest pharmaceutical market.

As the EU is currently revising its general pharmaceutical legislation, this challenge may force the EU and EU member states to prioritise competitiveness and revisit key proposed modifications, such as scaling back intellectual property rights and regulatory exclusivities and forcing a rollout in all national markets.

Healthcare systems

In Europe, healthcare systems and services are not part of the EU’s competence; hence, European intervention in this area is minimal, and pricing and reimbursement of prescription-only medicinal products are heavily regulated by the national laws of EU member states. In general, prices are set and controlled by the government and primarily paid by public payers.

While healthcare systems vary greatly by country, public medicinal product prices are generally set by governments based on ‘health technology assessments’ carried out by each national public health organisation. These assessments seek to evaluate the medical, social, economic and ethical value of a medicinal product. Then, pharmaceutical companies negotiate discounts and rebates with payers or other cost-containment measures are imposed by law or individual (confidential) agreements. Net prices are therefore lower than public prices. In some countries, the margins of intermediaries and (sometimes) pharmacists are also controlled.

Both price and reimbursement level are key in countries where public payers cover most of their population’s healthcare and pharmaceutical costs. This allows governments to limit public expenditure on pharmaceuticals, reduces the amount patients spend on medicinal products, and thereby makes medicinal products affordable.

As public health expenditures have steadily increased, a common trend across the EU is to reduce these expenditures, by lowering medicinal product prices or delisting some of them from social security reimbursement, among other measures.

In the US, the healthcare system is very different. Prices are generally not controlled by the government, and costs are primarily paid by patients and private payers. Medicinal product prices are determined by pharmaceutical companies and then are negotiated with intermediaries to lower the cost paid by private (and in some cases, public) health insurers. The government only subsidises Medicare (for elderly patients) and Medicaid (for low-income patients) and, as a condition for these subsidies, requires companies to subsidise certain medicinal products outside of Medicare and Medicaid. This system can lead to very high prices – on average, three times higher than in Europe.

MFN pricing

On 12 May 2025, President Trump decided to address the problem of high drug costs by signing an executive order that imposes MFN pricing on innovative medicinal products. The MFN Executive Order reflects the president’s view that American citizens are unfairly subsidising low-cost prescription medicinal products in other developed countries, while being ‘overcharged’ for the same products in the US.

In a nutshell, the MFN Executive Order directs the US trade representative to take “all necessary and appropriate action” to ensure that foreign countries are not engaged in any “discriminatory” actions that have the “effect of forcing American patients to pay for a disproportionate amount of global research” by, for example, “suppressing the price of pharmaceutical products below fair market value”.

Moreover, the order addresses what the Trump administration perceives to be increased costs that have resulted from the use of intermediaries in the domestic supply chain, and directs the Department of Health & Human Services (HHS) to “facilitate direct-to-consumer purchasing programs for pharmaceutical manufacturers that sell their products to American patients at the most-favored-nation price”.

The order also threatens to subject pharmaceutical companies which are not willing to “bring” MFN pricing to American patients, to punitive sanctions and investigations. Measures include permitting direct import from certain countries, initiating antitrust enforcement against “anti-competitive practices” by pharmaceutical companies, imposing export controls on products that contribute to “global price discrimination”, and revoking US Food and Drug Administration (FDA) approvals.

The HHS communicated MFN targets to companies and issued a press release stressing that pharmaceutical companies must align their US pricing with “the lowest price in an OECD country with a gross domestic product (GDP) per capita of at least 60 percent of the US GDP per capita”. Many EU member states meet this threshold.

On 31 July, President Trump sent letters to 17 leading pharmaceutical companies calling upon every manufacturer to take several actions within the next 60 days including to guarantee MFN pricing for newly launched drugs and to return increased revenues abroad to American patients and taxpayers.

The deadline for the MFN Executive Order was 29 September 2025. While observers were still wondering about the effective implementation of the order, which has no legal force or effect, pharmaceutical companies had voluntarily started negotiating price reductions with the Trump administration.

On 30 September, President Trump announced the first agreement with a major pharmaceutical company to bring American drug prices in line with the MFN price. Although details of the MFN agreement remain confidential, the agreement reportedly: (i) guarantees MFN prices on all new innovative products which the company brings to market; and (ii) requires the company to repatriate increased foreign revenue on existing products that it realises as a result of US trade policies.

To date, it seems that two such MFN agreements have been concluded. It is unclear how many may be under negotiation. In any event, MFN pricing is becoming a reality in the US.

One may wonder why the US did not simply regulate pharmaceutical pricing, taking into account the specific characteristics of the American population and healthcare market, rather than relying exclusively on international reference pricing.

Tariffs

In parallel with the MFN Executive Order, President Trump imposed higher tariffs on medicinal products imported from most large nations in an effort to move production of medicinal products back to the US. The EU-US trade agreement provides for a maximum 15 percent of tariffs, including on medicinal products. So far, medicinal products have been traded free of tariffs, and companies have developed optimised international supply chains.

On 25 September, President Trump stated that “[s]tarting October 1st, 2025, we will be imposing a 100% Tariff on any branded or patented Pharmaceutical Product, unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America”. On 1 October, news platforms reported that pharmaceutical tariffs may be delayed while MFN agreements are not negotiated, but will be applied to pharmaceutical companies that do not begin onshoring their manufacturing or participate in the president’s MFN pricing scheme.

In short, companies operating in the US are expected to lower their prices and reinvest in American manufacturing, both of which will be very expensive for them.

Impacts on Europe

Whether MFN pricing will ultimately benefit American patients remains to be seen. However, it will most probably negatively impact other countries, greatly affecting orphan drugs and cell and gene therapy products that are typically developed by smaller companies.

Expectations are that companies forced to lower their prices in the US will want to compensate their losses by increasing prices or demanding higher prices in Europe. In practice, the impact of such requests will depend on whether the MFN price is the public price, in which case the current system of higher public prices versus negotiated net prices can continue, or the net price, in which case EU member states will have to decide whether or not to increase their prices.

National governments and payers may refuse to accept higher prices, especially in the context of economic crisis and financial pressure on healthcare. In that scenario, however, companies could threaten to delist or withdraw existing medicinal products from the European market or to not launch new medicinal products in Europe. The result of MFN pricing would go from less affordable medicinal products to reduced access to medicinal products.

MFN pricing could also trigger, for example, a rise in demand for compassionate use or named patients programmes, as well as greater reliance on compounding, especially for cell and gene therapy products (through hospital exemptions).

In addition, if the US threatens to impose higher tariffs unless companies invest in US manufacturing, both American and European companies will have no choice but to either move or expand manufacturing in the US or to exit the US market, which is not a realistic option even with lower US prices since the US is the largest pharmaceutical market.

The next question is the measures that the EU and its member states may take to address the situation. Member states could adopt pricing and reimbursement measures, such as price increases or fewer cost-containment measures, with accompanying measures such as reallocating pharmaceutical expenditures to favour certain medicinal products, more risk-sharing agreements, or refusing to reimburse medicinal products deemed too expensive. They could also rely more on joint public procurements to reduced previously increased costs.

The EU could adopt rules to increase competitiveness and attract companies despite low prices. Access and affordability are at the heart of the ongoing revision of general pharmaceutical law in the EU. To date, the three legislators wish, for example, to decrease intellectual property rights (through the Bolar exemption) and regulatory exclusivities, and to indirectly force medicinal products to be launched in all national markets. US MFN pricing may impact this thinking as well as other proposed rules currently under discussion.

Geneviève Michaux is a partner and Bren Moreno is an associate at King & Spalding. Ms Michaux can be contacted on +32 (2) 898 0202 or by email: gmichaux@kslaw.com. Ms Moreno can be contacted on +1 (202) 626 9111 or by email: bmoreno@kslaw.com.

Geneviève Michaux and Bren Moreno

King & Spalding