Pharma's Precipice: How Trump's MFN Policy Threatens Valuations—and Where to Bet Safely

The Trump-era Most-Favored-Nation (MFN) Drug Pricing Policy, despite its delayed implementation until 2028, remains a ticking time bomb for pharmaceutical stocks. For companies reliant on Medicare Part B’s inflated drug pricing, the specter of international price referencing looms large. This policy’s unresolved legal battles and structural complexities are creating a perfect storm of valuation risk, making short positions in exposed biotechs a compelling play while defensive bets on generics or global diversified players offer shelter.

Valuation Under Siege: Medicare Part B’s Hidden Time Bomb

Medicare Part B, which covers drugs administered in clinical settings—think cancer therapies and biologics—is the financial backbone for many biotech firms. Under the MFN framework, CMS would tie U.S. prices to the average of the four lowest prices in Canada, the U.K., South Korea, and Japan. Even with a 2028 implementation date, the math is grim: international price disparities for Part B drugs average 60–80% below U.S. rates. For companies like Amgen (AMGN) or Biogen (BIIB), which derive 40–50% of revenue from Medicare Part B, this could erase billions in profit.

The delayed timeline has given these stocks a temporary reprieve, but their valuations remain hostage to regulatory winds. Consider AMGN’s stock performance since 2023—the year CMS postponed MFN’s start date—. A modest rebound in 2024 has been undercut by recurring CMS policy updates, highlighting investor anxiety over unresolved risks.

Legal Gridlock: Why Uncertainty Will Persist

The MFN policy’s legal battles, spearheaded by provider groups and drug manufacturers, have already cost taxpayers $100M+ in litigation costs—and the fight isn’t over. Key sticking points include:
- Data Transparency: CMS lacks reliable pricing data from OECD nations, risking flawed calculations.
- Provider Reimbursement: Lower drug prices could force clinics to cut services, prompting lawsuits under the Medicare Act’s “access safeguards.”
- Part B’s Clinical Exceptions: The policy excludes “orphan drugs” and “single-source” therapies, but ambiguities in these carve-outs could spawn more litigation.

This regulatory purgatory is a drag on investor confidence. Even if MFN is eventually watered down, the prolonged uncertainty has already caused biotech valuations to lag behind generics by 20–30% in EBITDA multiples (see ).

The Defensive Playbook: Short Biotechs, Buy Generics

The prudent investor should:
1. Short Exposure: Target biotechs with >30% Medicare Part B revenue (e.g., BIIB, REGN) and monitor their price-to-sales ratios. A BIIB/TEVA price ratio (biotech vs. generic) above 2.5 signals overvaluation.
2. Buy Generics: Firms like Teva Pharmaceutical (TEVA) or Mylan (MYL), which derive 80%+ revenue from generic drugs outside Medicare Part B, are insulated. Their stock performance correlates strongly with CMS’s MFN delay announcements—.

Conclusion: Act Now—Before the Clock Resumes

While MFN’s 2028 timeline buys time, the policy’s unresolved flaws mean the regulatory overhang won’t vanish. Short positions in Part B-dependent stocks offer asymmetric upside, while generics and global diversified players provide ballast. Investors who wait for clarity risk missing the sell-off once CMS finalizes its rules.

The writing is on the wall: pharma’s high-margin U.S. Part B era is dying—and only the prepared will survive.