The Impact of MFN on Oncology and Hematology Treatments

This paper argues that mandatory Most Favored Nation (MFN) pricing policies, by drastically reducing US drug revenues and rendering the development of many oncology and hematology treatments financially unviable, would ultimately stifle innovation and deprive Medicare beneficiaries of critical new therapies for high unmet medical needs.

The Gist

The Big Idea: The "Global Price Tag" Policy

Imagine you run a bakery in the United States. You sell a special, life-saving cake for $100. However, you notice that in other countries (like France, Germany, or the UK), people are buying the exact same cake for only $30.

The US government is proposing a new rule called Most Favored Nation (MFN). Think of this as a "Global Price Tag" law. It says: "If you sell this cake to the US government (Medicare), you must charge the same low price you charge in those other countries. You can't charge Americans $100 if you're charging the French $30."

The government argues this will save taxpayers money. But this paper asks a scary question: What happens to the baker if they are forced to sell at a loss?

The Study: What Happened to the "Cakes"?

The authors looked at 37 real cancer and blood disease drugs (our "cakes") that were recently approved in the US. They used a computer model to see what would have happened if this "Global Price Tag" rule had been in place when these drugs were first invented.

Here is what they found:

1. The Price Crash: On average, the price of these drugs would have to drop by 67%. That's like going from a $100 cake to a $33 cake.
2. The Money Problem: Making these drugs is incredibly expensive and risky. It's like trying to build a rocket ship; you spend millions on blueprints, failed tests, and scientists before you ever launch one.
3. The "Negative Profit" Zone: The researchers calculated that if these drugs had to be sold at the new, lower prices, 84% of them would have been a bad investment.
   • The Analogy: Imagine you spent $1 million building a rocket. If you sell the tickets, you only make back $200,000. You lost money. No sane investor would fund the next rocket.

The Consequence: The "Empty Shelf" Effect

Because these drugs would lose money, the study predicts that pharmaceutical companies simply would not have made them in the first place.

• If the rule only applied to Medicare (older Americans): About 18 drugs would never have been invented. This affects roughly 2.4 million patients who need these specific treatments.
• If the rule spills over to everyone (Medicare + Commercial Insurance): The study predicts that private insurance companies would also demand these low prices. In this scenario, 31 drugs would never have been invented. This impacts over 15 million patients.

The "Lead Indication" Problem:
Drugs usually get approved for one main use first (the "Lead Indication"). If the company can't make money on that first use, they won't bother testing the drug for other types of cancer later. It's like a chef who refuses to open a restaurant because the first dish isn't profitable, meaning they never get to serve the other delicious dishes they planned to make.

The "Perverse Twist"

The paper points out a cruel irony. The policy is designed to help Medicare patients (older Americans) by lowering their bills. But, by crushing the profit margin, the policy might actually stop new, life-saving drugs from being created for those very same people.

It's like a town council deciding to lower the price of fire extinguishers so much that the factory goes out of business. Now, the town has cheap fire extinguishers... but no fire extinguishers at all when the fire starts.

The Global Race: Who Wins?

The authors warn that if US companies can't make money, the innovation race will move elsewhere.

• The Analogy: Imagine the US is the "Home Team" in a global sports league. If the Home Team is forced to play with a heavy backpack (low prices) while the visiting teams (like China or Europe) play with lighter gear, the Home Team will stop trying to win.
• The paper notes that Chinese companies are already running more clinical trials than European ones. If the US stops funding innovation, the next breakthrough cancer cure might be invented in a different country, leaving US patients waiting longer to get it.

The Bottom Line

The paper concludes that while the "Global Price Tag" (MFN) looks great on paper for saving money today, it acts like a brake on the engine of medical discovery.

• Short term: Drug prices go down.
• Long term: Fewer new drugs are invented.
• The Victim: The patients who need the newest, most effective treatments for late-stage cancers, who might never get them because the companies decided it wasn't worth the risk to make them.

In short: You can't squeeze a lemon for juice if you squeeze it so hard that the fruit turns to dust. This policy, the authors argue, might squeeze the pharmaceutical industry so hard that the "fruit" (new cancer cures) disappears entirely.

Technical Summary

1. Problem Statement

The paper addresses the potential economic and clinical consequences of implementing mandatory Most Favored Nation (MFN) pricing policies in the United States. Specifically, it analyzes two proposed CMS rules:

• GLOBE (Global Benchmark for Efficient Drug Pricing): For Medicare Part B.
• GUARD (Guarding US Medicare Against Rising Drug Costs): For Medicare Part D.

These policies would mandate that the maximum allowable net price for branded drugs in US government-funded healthcare be pegged to the lowest average price found in a basket of specified foreign countries (OECD nations with GDP per capita within 60% of the US, adjusted for Purchasing Power Parity). The authors investigate whether these price controls would destroy the financial viability of developing new cancer therapies, potentially leading to a reduction in drug launches and patient access, particularly for the Medicare-aged population.

2. Methodology

The study employs a retrospective quantitative analysis using a proprietary dataset and Net Present Value (NPV) modeling.

• Data Source: A proprietary dataset from IQVIA containing net prices and volumes for the top 37 oncology and hematology products (by total US sales) from January 1, 2019, to June 30, 2025.
• Cohort: 37 FDA-approved cancer treatments.
• International Price Basket: Prices were collected from Australia, Belgium, France, Germany, Ireland, Italy, South Africa, Spain, Switzerland, the UK, and the US.
• MFN Price Calculation: For each drug, the "MFN price" was defined as the lowest GDP-adjusted international price among countries meeting the criteria (PPP-adjusted GDP per capita within 60% of the US and aggregate GDP >$400 billion).
• Financial Modeling:
  • Revenue Impact: Calculated the required US price reduction to match the MFN price.
  • NPV Analysis: Conducted a retrospective NPV analysis to determine if these drugs would have been profitable enough to justify development if MFN pricing had been in place at the time of FDA approval.
  • Scenarios Modeled:
    1. Medicare Only: MFN applied strictly to Medicare revenues.
    2. Medicare + Commercial Spillover: MFN applied to Medicare, with a 2-year lag assumed for commercial payers to adopt similar pricing (leveraging formulary placement).
  • Cost Parameters: Used DiMasi et al. estimates for R&D costs (pre-clinical through Phase III) and an 11% cost of capital for discounting cash flows. All values were in constant 2024 USD.
• Patient Impact Estimation: Calculated the total US population affected by the loss of "lead indications" (the primary indication for which a drug is launched) for drugs that turned negative NPV under MFN scenarios.

3. Key Contributions

• Quantification of Innovation Risk: The paper provides a specific, data-driven estimate of how many currently approved cancer drugs would have failed to reach the market under MFN pricing, moving beyond theoretical arguments to concrete NPV modeling.
• Spillover Effect Analysis: It explicitly models the "spillover" effect where commercial payers adopt MFN pricing, demonstrating that the impact on innovation is significantly more severe when the entire US market is considered, not just Medicare.
• Patient Access Correlation: It links financial modeling directly to patient populations, estimating the number of US patients (2.4 million vs. 15.2 million) who would lose access to new therapies depending on the scope of the policy.
• Strategic Shift Warning: It highlights the risk that manufacturers might shift R&D focus away from Medicare-eligible populations (elderly) toward younger, commercial-market populations to avoid price controls, creating a "perverse outcome" where the policy harms the very demographic it aims to help.

4. Results

• Price Reduction: The average reduction in US net prices required to match MFN levels across the 37-drug cohort was 67%.
• NPV Impact (Medicare Only):
  • Under a scenario where MFN applies only to Medicare, 18 of 37 drugs (approx. 49%) resulted in a negative NPV.
  • This implies companies would likely not have developed these drugs.
  • Patient Impact: The lead indications for these 18 lost drugs cover a US population of 2.4 million patients.
• NPV Impact (Medicare + Commercial Spillover):
  • When commercial market spillover is included, 31 of 37 drugs (84%) resulted in a negative NPV.
  • Patient Impact: The lead indications for these 31 lost drugs cover a US population of 15.2 million patients.
  • Notably, the largest single category of lost access was Cancer-Related Anemia, affecting over 12.6 million patients.
• Specific Drug Losses: The analysis identified specific high-need areas at risk, including Non-Small Cell Lung Cancer (NSCLC), Melanoma, Prostate Cancer, and various lymphomas.

5. Significance and Conclusions

• Innovation Elasticity: The findings support the economic theory that pharmaceutical innovation is positively elastic to revenue. A 67% price reduction is projected to cause a 50% to 84% decline in new cancer drug launches.
• Policy Paradox: The authors argue that MFN policies create a "perverse outcome." While intended to lower costs for Medicare beneficiaries, the policy would likely redirect innovation away from the elderly population (Medicare) toward younger, commercially insured populations, thereby reducing the availability of new therapies for late-stage cancers in the Medicare demographic.
• Global Competitiveness: The paper suggests that US price controls could inadvertently benefit competitors, specifically noting that Chinese biopharmaceutical companies are increasing clinical trial volumes and may eclipse US companies by 2028 if US R&D incentives are eroded.
• Conclusion: The study concludes that mandatory MFN policies would significantly reduce financial incentives for cancer drug development, leading to fewer new therapies for patients with high unmet medical needs, particularly within the Medicare population.

Funding Disclosure: The research was funded by Eli Lilly, and the authors served as paid consultants to the sponsoring organization. The paper is a preprint and has not yet undergone peer review.