Trump strikes again on drug prices: The most-favored-nation model returns, which pharmaceutical giants feel the most "pain"?

Today, media reports indicate that Trump is about to sign an executive order requiring federal Medicare to implement "Most Favored Nation" (MFN) pricing for certain high-priced drugs, suggesting that this will become a "big and important" policy announcement. Subsequently, the Financial Times further confirmed that the goal of the executive order is to cut some drug prices directly by 30%–80%.

Background: The White House "Recreates" the 2020 Drug Pricing Strategy

MFN is not a new term—it was attempted to be pushed through by Trump at the end of his first term but was halted by the courts due to procedural issues, and the Biden administration chose to withdraw it. Now, the Trump team is preparing to adopt the CMMI (Center for Medicare and Medicaid Innovation) pilot model, attempting to bypass congressional resistance to restart the plan.

Mechanism Breakdown: How to "Cut 65%"?

Goldman's latest in-depth report breaks down the MFN framework into three steps:

1. Comparison Benchmark: Select OECD members with GDP ≥ 60% of the U.S. and take their lowest adjusted prices.
2. Mixed Pricing: Use "international lowest price + U.S. average sales price (ASP)" for weighting.
3. Four-Year Phased Approach: In years 1–4, gradually approach MFN prices at 25%, 50%, 75%, and 100%, with a theoretical average reduction of about 65%.

The first batch of drugs targeted includes about 50 injectable/infusion drugs with the highest Medicare Part B expenditures, with Keytruda and Eylea alone accounting for 14% of the Part B budget. This model will run for seven years, transitioning to international prices in the first four years, followed by full implementation of MFN pricing in the last three years.

Who is Most Affected? — Goldman’s Scenario Analysis

Goldman conducted case analyses on several large pharmaceutical companies, assessing the potential impact of a 65% price reduction on their products under MFN pricing:

1. Merck (Keytruda): As the drug with the highest Medicare Part B expenditure in 2022, its commercial/B segment sales ratio is 44%/37%. Analysis shows limited overall impact, estimating a valuation impact of about -3% for the company.
2. Regeneron (Eylea): As the second highest drug in Medicare Part B expenditures, its Medicare B portion accounts for about 55%. Goldman estimates that if MFN pricing is implemented, the impact on Regeneron's valuation could be as high as -20%, making it the most affected among the analyzed companies.
3. Amgen (Various Products): Amgen's product portfolio includes several important Medicare B drugs, including Evenity, Kyprolis, Nplate, and Tepezza Analysis shows that the overall impact is limited, estimated at about -3%.

1. Impact on major Medicaid beneficiaries: Analysis of high Medicaid spending drugs such as AbbVie (ABBV) 's Humira, Eli Lilly (LLY) 's Trulicity, and Gilead (GILD) 's Biktarvy shows that if MFN is extended to Medicaid, the impact on each company ranges from 10% to 15%.

For investors, it is necessary to first look at the product line's exposure to Medicare Part B, and then see if there is any exemption space for rare diseases or tumors.

The "second battlefield" may shift to Medicaid

Goldman Sachs analysts point out that Medicaid is a key focus for cost reduction during Trump's second term, as its annual spending of up to $900 billion creates significant fiscal pressure.

The White House is also lobbying Congress to include Medicaid version MFN in the $1.5 trillion budget reconciliation bill. Although there is intense tug-of-war between conservatives and moderates on this issue, the proposal may not be implemented in the short term, but it has already pushed high-spending Medicaid drugs like Humira, Trulicity, and Biktarvy into the valuation discount range.

Goldman Sachs estimates that for high Medicaid spending drugs such as AbbVie (ABBV) 's Humira, Eli Lilly (LLY) 's Trulicity, and Gilead (GILD) 's Biktarvy, if MFN is extended to Medicaid, the impact on each company ranges from 10% to 15%, creating significant uncertainty for the long-term growth prospects of these pharmaceutical companies.

Downstream impact: 340B drug discount program may act as an amplifier

Goldman Sachs' report specifically warns that the impact of MFN pricing may be further amplified through the 340B drug discount program, creating a chain reaction.

The 340B program requires pharmaceutical manufacturers to sell outpatient drugs at discounted prices to eligible Disproportionate Share Hospitals (DSH) as a condition for obtaining Medicaid and Medicare Part B coverage. This program has grown rapidly over the past decade, with a CAGR of 25%, far exceeding the 9% growth in total drug spending during the same period.

If MFN lowers the "best price" for Medicaid, it will raise the URA (Unit Rebate Amount), thereby further pulling down the 340B ceiling price, meaning hospitals can obtain drugs more cheaply, while pharmaceutical companies' net returns shrink further. This mechanism does not provide direct savings for the government payment side but continues to erode companies' gross-to-net, especially impacting those with high exposure to 340B Although the calculation of 340B pricing is complex (depending on the relative changes of AMP and URA), Goldman Sachs analysis suggests that if the decline in the best price exceeds the decline in AMP, pharmaceutical companies will face additional negative impacts, exacerbating valuation pressures in the industry.

For the entire biopharmaceutical sector, drug pricing is expected to continue to hang over the industry like the sword of Damocles. Before policies become clearer, investors should closely monitor the differences in companies' exposure to government programs, particularly those companies that are highly dependent on Medicare Part B and Medicaid, as they may face greater valuation pressure and volatility risk.

What should investors pay attention to?

1. Identify exposure: Short-term avoidance of single elastic pharmaceutical companies with government payment ratios >50% and lack of alternatives.
2. Focus on exemptions: Companies in tumor immunotherapy, rare diseases, and those with high self-pay ratios for large molecules are less impacted.
3. Monitor the agenda: If the scope of CMMI pilot programs is narrowed or halted by the courts.
4. Look at long-term moats: The real test lies in the company's pipeline thickness & pricing power diversification.

Risk warning and disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk