Most-Favored Nation Drug Pricing: What U.S. Pricing Initiatives Mean for International Commercial Contracts

Introduction

The Trump administration’s most-favored nation (MFN) agreements with major pharmaceutical companies and recent initiatives by the Centers for Medicare & Medicaid Services (CMS) — including the GENEROUS (GENErating cost Reductions fOr U.S. Medicaid) model, proposed GUARD (Guarding U.S. Medicare Against Rising Drug Costs) model, and proposed GLOBE (Global Benchmark for Efficient Drug Pricing) model — seek to bring the prices that the U.S. federal and state governments pay for pharmaceuticals in line with international pricing by using such pricing information as a benchmark for government drug pricing. These initiatives may implicate existing agreements between U.S. drug manufacturers and their international partners in a number of ways.

As an initial matter, the government’s initiatives may impose new obligations on drug manufacturers participating in Medicaid and Medicare to provide the U.S. government with international net pricing information that reflects confidential rebates and other price concessions for sales of certain products in certain foreign countries. Existing international agreements — such as licensing, royalty, commercialization, and distribution agreements — between U.S. drug manufacturers and their partners may not contemplate access to detailed transaction-level international net pricing data. Such data also may raise competition law considerations and be subject to confidentiality obligations in a foreign jurisdiction and/or under the international partners’ contracts with third parties.

The advent of international reference pricing in the U.S. may also raise other commercial contracting considerations, given that international product launches and pricing may become more impactful on broader profitability considerations. Existing agreements may not contemplate the increased interplay between U.S. and international pricing and marketing strategies or may not have been negotiated with this scenario in mind. Indeed, international marketing decisions by U.S. drug manufacturers and/or their international partners may be subject to commercially reasonable efforts (CRE) provisions that were negotiated in advance of the U.S. government’s recent initiatives.

This Advisory discusses general contract interpretation principles under New York and Delaware law and common contractual provisions to provide a general framework for analyzing how existing contracts between U.S. drug manufacturers and international partners may be implicated by CMS’s MFN models.¹

Background

GLOBE and GUARD. If finalized, manufacturers of qualifying products would be required to participate in CMS’s proposed MFN models, GLOBE and GUARD, which incorporate international reference pricing into Medicare Parts B and D, respectively.² Under both models, CMS would determine international benchmarks by looking at drug prices in 19 reference countries.³ The default international benchmark calculation, which would be performed by CMS, would be based on international drug pricing data available in the public domain (e.g., list prices, ex-factory prices, or retail prices).⁴ A manufacturer may voluntarily submit to CMS international drug net pricing data that takes into account confidential rebates and discounts, as the basis for an alternative benchmark.⁵ The international benchmark would be the greater of the alternative calculations (as a higher benchmark results in a lower rebate amount). A manufacturer’s data submissions must capture “every transaction that is made directly to health care entities, distributors, wholesalers, or other international purchasers” in the reference countries, even if the manufacturer did not make the sales.⁶ A manufacturer must also certify the completeness and validity of the data it submits.⁷

GENEROUS. Under GENEROUS, the MFN price will be calculated as the second lowest net price among eight reference countries.⁸ Similar to the proposed Medicare models, manufacturer-reported net price data must account for price concessions.⁹ As a general matter, participation in GENEROUS is voluntary for drug manufacturers that participate in Medicaid, although CMS asserts that manufacturers that entered into MFN agreements with the Trump administration “will participate in the GENEROUS Model after certain terms are finalized.”¹⁰

Common Contractual Provisions

As a general matter, contracts between sophisticated parties represented by counsel will be enforced as written by New York and Delaware courts, as both states have a strong public policy favoring the freedom of contract, where the parties’ intent is clear based on plain and unambiguous language. These courts typically will not rewrite unambiguous terms nor introduce new terms that the parties did not bargain for at the negotiating table.

Several common contractual provisions could become relevant when analyzing whether existing contracts between U.S. drug manufacturers and international partners allow for a U.S. manufacturer to obtain net pricing data and/or appropriately influence international marketing strategies.

• Audit Provisions. Contractual provisions related to audit rights, reporting obligations, and/or recordkeeping requirements typically allow for review (or require the reporting) of an international partner’s books and records. Such provisions may permit a U.S. drug manufacturer to obtain (at least some level of) international pricing data, depending on the specific contractual language, although contractual obligations may differ from the U.S. government’s net price reporting requirements. Audit provisions also may not require the sharing of records (or limit the scope of the records to be shared in terms of the records themselves and/or the time period). Similarly, audit rights may be narrow in scope and limited to specific purposes, which may affect whether a manufacturer could rely on such rights (or the data shared as a result of such rights) to report net pricing information to the U.S. government.
• Cooperation Clauses. A cooperation clause may require contracting parties and third parties, such as licensees and sublicensees, to cooperate as a general matter and take specified actions to achieve contract objectives. These provisions are often limited in scope. Even where cooperation clauses require data sharing, the obligation may be limited to summary data, which may not satisfy U.S. drug manufacturers’ data submission needs. Whether a U.S. manufacturer could rely on a cooperation clause to influence international marketing strategy will depend on the specific contract language.
• Renegotiation Clauses. A renegotiation clause may provide for “renegotiation” of contract terms by the parties or require the parties to work together in good faith to amend the contractual terms in a specified situation, such as a change in circumstances or the law or to address a gap in the contract. If present and depending on the circumstances, a renegotiation clause may allow for amending the contract terms for a U.S. drug manufacturer to obtain international drug pricing information and/or influence international marketing strategies. Such a renegotiation, however, very well may implicate other contractual terms or agreements.
• Force Majeure Clauses. Generally, a force majeure clause relieves a party from its contractual obligations when that party’s performance has been prevented by circumstances beyond its control.¹¹ The application of a force majeure clause in the present scenario raises a few considerations. First, the terms of force majeure provisions may vary, but often the terms will only excuse a party’s performance under the contract. Second, force majeure clauses typically require that the force majeure triggering event be beyond the invoking party’s control and not the result of that party’s voluntary actions.¹² The voluntary nature of the new data obligations would be an important factor to consider. Third, financial hardship, including rendering performance under the contract unprofitable, ordinarily will not constitute a force majeure event.¹³
• Termination Clauses. Termination provisions often provide that one or both parties can terminate the contract under specified circumstances. The terms and scope of each will be unique to the agreement at issue, and unilateral termination may result in a substantial contractually defined penalty, such as having to compensate the other party. A narrow or restrictive termination provision may not permit outright contract termination by the drug manufacturer in the current scenario.

As noted, a party’s rights and obligations will vary greatly depending on the specific contractual terms and law governing the relevant agreement(s). We routinely help clients assess their contractual rights and obligations under commercialization and other agreements and are here to help.

Commercially Reasonable Efforts

CRE clauses are typically used to contractually obligate one or more parties’ efforts and often are either outward facing (i.e., requiring such efforts to be commensurate with comparable companies in the industry), inward facing (i.e., using the party’s action in similar circumstances as the benchmark), or left undefined. Drug manufacturers and their international partners may wish to review their existing agreements’ CRE provisions in connection with these new programs, as the applicability of a CRE provision to any particular circumstance will depend on the terms of the applicable contract(s).

First, CRE provisions pertaining to product introduction and marketing efforts are often limited in geographic scope. In light of CMS’s MFN models, a product’s overall profitability would no longer be a simple matter of tallying the profits from individual countries, but instead, it would be a story of interdependence, where the marketing strategy and product pricing in one international country could influence that product’s profitability in the United States. In light of this, there may be a tension between maximizing a product’s overall profitability and a CRE obligation that requires the use of CRE to introduce or maximize the profitability of a product in a particular international market. As such, contracting parties may wish to assess the geographic scope of relevant CRE provisions as well as the information and factors that can be considered in the context of such clauses and determine whether existing contracts contain potentially inconsistent CRE obligations.

Second, the specific contractual language at issue will inform whether a CRE provision could be read as requiring (or not requiring) a manufacturer to use commercially reasonable efforts to obtain international data from its international partners.

Takeaways

In sum, the U.S. government’s recent initiatives to use international reference pricing to lower government drug costs in the U.S. will likely implicate the terms and interpretation of existing licensing, commercialization, royalty, distribution, and other agreements between U.S. drug manufacturers and international partners. To prepare for the new programs, contracting parties may wish to consider doing the following:

• Analyze the terms of existing agreements that may be relevant to obtaining net pricing data and appropriately influencing international marketing strategies.
• Assess the applicability and implications of CRE provisions in existing agreements.
• Consider including terms in new commercial agreements that take into account the potential need or desire to obtain net pricing data and have influence over international marketing strategies (consistent with applicable competition laws, which are outside the scope of this Advisory).
• Track and monitor any developments or changes to CMS’s proposed GLOBE and GUARD models, as well as to the GENEROUS model as CMS continues implementation.

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Arnold & Porter is tracking developments impacting life sciences companies and the Complex Litigation practice group routinely counsels clients on commercial contracting considerations and related matters. Our team is here to help with any questions you may have.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.