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Taking stock of most-favored nation deals: how have markets reacted?
Noam Y Kirson1, John M Dooley2, Zhiqing Ge2
1Analysis Group, Inc., Boston, MA 02199, USA.
Introduction:
The Trump Administration has pursued most-favored nation (MFN) drug pricing agreements with major pharmaceutical manufacturers, raising concerns about potential effects on pharmaceutical revenues, profitability, and innovation incentives. We examined whether equity markets interpreted these developments as positive or negative for the pharmaceutical sector.
Methods:
We conducted an event study of 16 publicly traded pharmaceutical firms announcing MFN agreements. Abnormal returns and cumulative abnormal returns were estimated using standard market-model regressions based on each firm's historical relationship to the S&P 500. We analyzed market reactions surrounding "Liberation Day," the date MFN letters were announced, and subsequent agreement announcements.
Results:
The strongest market response was observed following the first MFN agreement announced by Pfizer, with largely positive market reactions across most of the pharmaceutical firms analyzed. In contrast, "Liberation Day" generated limited market reaction, while the MFN letters produced more modest negative effects.
Conclusion:
Investors did not interpret the announced MFN agreements as materially value destructive, likely because the deals primarily targeted Medicaid and the limited TrumpRx platform, while also resolving some regulatory and tariff uncertainty. Future expansion of MFN may lead to different market reactions.
