New Drug Pricing Policies: Global Benchmark or Race to the Bottom?
Rhys Jenkins
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New Drug Pricing Policies: Global Benchmark or Race to the Bottom?
Comparing U.S. MFN and U.K. VPAG policies shaping price, access, and innovation.
U.S. Executive Action: Most Favoured Nation (MFN) Pricing
On May 12, 2025, the U.S. President signed Executive Order 14297, directing federal agencies to align domestic drug prices with the lowest prices paid in comparable developed nations, establishing Most Favoured Nation (MFN) pricing targets.
By May 20, HHS defined MFN pricing as the lowest price in any OECD country with a GDP per capita ≥ 60% of the U.S. average. The goal was to reduce U.S. drug prices, which are often 3–5 times higher than in peer nations.
On July 31, 2025, the administration sent letters to 17 major pharmaceutical companies urging them to:
Extend MFN pricing to Medicaid beneficiaries.
Avoid offering lower prices to other developed countries than to the U.S.
Explore direct-to-consumer (DTC) sales at MFN-level prices.
Use trade incentives to reinvest international profits into lowering U.S. prices.
Apply MFN pricing across Medicare, Medicaid, and commercial payers.
September 29, 2025. Deadline – Non-compliance may trigger rulemaking, import expansion, antitrust actions, or tariffs.
Impacts & Concerns
Potential Savings: If fully implemented, MFN pricing could cut costs by 30–80%.
Risks & Criticisms:
Confidential rebates abroad may distort true pricing comparisons.
Lower U.S. profits could push firms out of less lucrative global markets, harming access and innovation.
Pricing may become dependent on foreign governments, potentially undervaluing breakthrough therapies.
MFN could shrink margins for Biosimilars, discouraging market entry and leading to fewer competitors over the next 3–5 years reducing long-term savings.
VPAG: U.K.’s Voluntary Scheme for Branded Medicines
Launched in 2023, the Voluntary Scheme for Branded Medicines (VPAG) caps NHS spending on branded drugs. If sales exceed thresholds, companies must repay the excess. The scheme is designed to ensure budget predictability while encouraging life sciences innovation.
Industry Pushback
AstraZeneca and GSK raised alarms over high and unpredictable rebate levels, warning of declining U.K. competitiveness.
In August 2025, the government proposed:
Raising the rebate rate to 22.9% for 2025.
Future lower rebates, higher prices for new drugs, and increased NHS net spending.
Pharma firms rejected the offer, citing unsustainable terms and threatening reduced investment and patient access. With no deal reached, the existing VPAG remains unchanged, prolonging tensions between cost control and innovation investment.
Impacts & Concerns
For the NHS: VPAG supports cost containment and budget stability.
For pharma: Rebates ≥ 22% erode profitability, making the U.K. less attractive for drug launches and R&D.
If unresolved, this could slow innovation and limit access to new treatments for U.K. patients.
Policy Comparison Summary
MFN vs VPAG: Scenario Map (next 3–5 years)
Most-Favored-Nation (MFN) – (international reference) pricing in the U.S.
Best case
Policy shape: Phased, targeted to a subset of high-spend Part B/Part D drugs with carve-outs (rare disease, shortages) and appeal pathways.
Market effects: Manufacturers align U.S. net prices closer to a guarded international floor; confidential ex-U.S. rebates tighten to reduce spillover.
Outcomes: Net prices on targeted products decline ~15–30%; patient access largely intact; biosimilar competition continues; Medicare savings material.
Risks contained: Limited product withdrawals; litigation resolved or accommodated via rule tweaks.
Base case
Policy shape: Hybrid approach; MFN used as a reference target in negotiations rather than a hard mandate; uneven by class.
Market effects: Greater use of outcomes-based and volume-based contracts; list prices less relevant, net prices fall ~5–15% on exposed SKUs.
Outcomes: Modest savings; some formulary friction; manufacturers rebalance global price corridors.
Worst case
Policy shape: Broad application with tight benchmarks and short compliance windows; legal uncertainty persists.
Market effects: Select manufacturers restrict supply or delay launches; ex-U.S. price increases to blunt MFN; plan exclusions grow.
Outcomes: Patchy savings; access disruptions in infused/oncology categories; biosimilar entry slows; high administrative burden.
VPAG – Voluntary Scheme for Branded Medicines (Pricing, Access & Growth) in the U.K.
Best case
Policy shape: Predictable multi-year cap with lower, stable rebate trajectory; explicit fast-track access swaps (faster NICE decisions, conditional uptake).
Market effects: Earlier U.K. launches; clearer budgets at Integrated Care System trust level; portfolio planning improves.
Outcomes: NHS net spend growth contained; average payback moderates (e.g., high-teens); patient time-to-access improves and trial activity holds.
Base case
Policy shape: Rebates hover in the low-/mid-20% range; access commitments improve at the margin; therapy-area pilots for risk-sharing.
Consider global list price strategy and launch order
For payers/NHS
Stand up MFN playbooks (tiering logic, utilisation guardrails to avoid under-treatment).
Tie VPAG rebates to faster adoption of cost-effective lines with measurable KPIs (e.g., 60-90-day uptake targets).
For investors
Map portfolio revenue at risk under MFN (by J-code/NDC, % U.S. exposure) and VPAG (U.K. net share, launch pipeline); monitor legal milestones and scheme participation disclosures.
Likelihood Impact on Price and Access – Best to Worst Case Scenario (1=low, 5=high)
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References:
Communication to leading Manufacturers dated 31st July 2025
