The Most Favored Nation Gamble: Navigating Regulatory Risks in Pharma Stocks

The Trump administration’s revival of the Most Favored Nation (MFN) drug pricing policy has reignited a high-stakes battle in the pharmaceutical sector. While the policy aims to slash Medicare drug costs by tying prices to those of other nations, its uncertain legal footing and political volatility create a landscape ripe with opportunities—and risks—for investors.

The Policy’s Precarious Path to Implementation

The MFN policy’s 2020 iteration was struck down by federal courts due to procedural flaws, and the 2025 version faces similar hurdles. The latest executive order lacks specificity on drug selection, Medicare program scope, or payment structures, raising red flags about its compliance with administrative law. Legal experts warn that pharmaceutical companies like Pfizer (PFE) and Merck (MRK)—which were plaintiffs in the 2020 case—will likely challenge the policy again, citing overreach and vagueness.

Sector-Specific Risks: Who’s Exposed?

1. Medicare Part B Revenue Reliance:
   The MFN policy targets drugs administered in clinical settings (Medicare Part B), such as cancer therapies and biologics. Firms with significant Part B revenue exposure—like Biogen (BIIB) (est. 30% of sales via Medicare) and Amgen (AMGN) (25% Part B sales)—face immediate pricing pressure.

Investment Play: Short these stocks. Their valuations are highly dependent on U.S. Medicare pricing, which could drop 30–80% if the policy takes effect.

1. Geographic Pricing Sensitivity:
   Companies reliant on U.S. pricing for high-margin drugs—like Eli Lilly (LLY) (Humira) and Regeneron (REGN)—are vulnerable. Their global pricing models could be destabilized if the U.S. adopts artificially low foreign rates.

Investment Play: Avoid these names. Their profit margins are already under siege from biosimilars and generic competition.

1. R&D Dependency:
   Firms with high R&D spend relative to revenue—such as Moderna (MRNA) (R&D at 150% of revenue) and Bristol-Myers Squibb (BMY)—could see innovation pipelines crimped if profits are squeezed.

Winners in the Regulatory Crossfire

• Generics and International Diversification:
  Companies like Teva Pharmaceutical (TEVA) and Mylan (MYL) (now part of Pfizer) are insulated due to lower-margin generics and reliance on global markets. Novartis (NVS) and Roche (RHHBY), with robust international sales, also offer geographic diversification.

• Medicare Advantage Plays:
  Insurers like UnitedHealth (UNH) and Humana (HUM) may benefit from reduced drug costs, as lower Medicare reimbursements could ease their pharmacy benefit management expenses.

The Political Wild Card

The MFN policy’s fate hinges on GOP opposition and judicial pushback. While the White House pushes for executive action, legal precedents suggest delays or outright invalidation. Meanwhile, Trump’s concurrent tariffs on pharmaceutical imports risk exacerbating drug shortages—a scenario favoring domestic generics producers.

Actionable Strategy: Short High-Risk, Long Diversified

• Short: Biogen (BIIB), Amgen (AMGN), and Eli Lilly (LLY). Their exposure to Medicare Part B and high U.S. pricing make them prime candidates for downside.
• Long: Teva (TEVA), Novartis (NVS), and generics-focused ETFs like SPDR S&P Biotech (XBI) (with a tilt toward international exposure).

Conclusion

The MFN policy’s uncertain rollout creates a “buy the rumor, sell the news” scenario. Investors should exploit regulatory fear to short vulnerable innovators while pivoting to global players and generics. With courts and Congress poised to stifle the policy, the smart move is to position for volatility—and profit from it.

Act now before the legal battles force a reckoning in these stocks. The MFN gamble isn’t just about policy—it’s about survival.