Gross-to-Net Modeling for Pharmaceutical Royalties: From List Price to Royalty Payment
The GTN Landscape: A $356 Billion Problem Enters a New Era
"Gross-to-net" (GTN) refers to the difference between a drug's list price—often the Wholesale Acquisition Cost (WAC)—and the net revenue the manufacturer actually realizes after all discounts, rebates, and fees. In today's pharmaceutical market, this gap is enormous: manufacturers gave back $356 billion in price concessions in 2024 alone.
But something remarkable happened in 2025: U.S. brand-name drug prices fell for the first time, with average list price growth slowing to +3.5% while net prices declined -0.7%. Industry analysts call this "The Great Repricing"—the beginning of structural deflation in pharmaceutical pricing driven by the Inflation Reduction Act, Most Favored Nation deals, and intensifying payer leverage.
For royalty investors and biotech executives, this transformation fundamentally changes revenue calculations. The January 2026 regulatory environment—with Medicare's first negotiated drug prices now in effect, uncapped Medicaid rebates creating negative margin scenarios, and European markets implementing record clawback levels—demands updated modeling frameworks.
┌─────────────────────────────────────────────────────────────────────────────┐
│ GTN EVOLUTION: 2000 → 2026 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ Year 2000: $1.00 List Price │
│ ████████████████░░░░ → $0.85 Net ◀── 15% GTN │
│ │
│ Year 2015: $1.00 List Price │
│ ████████████░░░░░░░░ → $0.65 Net ◀── 35% GTN │
│ │
│ Year 2024: $1.00 List Price │
│ ██████████░░░░░░░░░░ → $0.50 Net ◀── 50% GTN (avg) │
│ │
│ Year 2026: $1.00 List Price ┌─────────────────────────────────┐ │
│ ████░░░░░░░░░░░░░░░ │ VARIES DRAMATICALLY BY CHANNEL │ │
│ └─────────────────────────────────┘ │
│ │
│ ════════════════════════════════════════════════════════════════════════ │
│ Medicare Negotiated: 21-62% of list │ Medicaid: 0-40% of list │
│ Commercial: 40-70% of list │ 340B: 25-50% of list │
│ ════════════════════════════════════════════════════════════════════════ │
│ │
│ ████ = Net Revenue Retained ░░░░ = Rebates, Discounts & Fees │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
What Changed in 2026: The Regulatory Tsunami
Three converging forces have transformed pharmaceutical pricing economics:
1. Medicare Drug Price Negotiation Goes Live
The Inflation Reduction Act's Medicare Drug Price Negotiation Program achieved its first milestone on January 1, 2026, when Maximum Fair Prices (MFPs) took effect for ten high-expenditure Part D drugs. The negotiated discounts range from 38% to 79% off prior list prices.
| Drug | Manufacturer | Indication | List Price | MFP 2026 | Discount |
|---|---|---|---|---|---|
| Januvia | Merck | Diabetes | $527/mo | $113/mo | 79% |
| NovoLog/Fiasp | Novo Nordisk | Diabetes | $495/mo | $119/mo | 76% |
| Farxiga | AstraZeneca | Diabetes/HF | $556/mo | $178/mo | 68% |
| Xarelto | J&J/Bayer | Blood Thinner | $517/mo | $197/mo | 62% |
| Jardiance | Lilly/BI | Diabetes/HF | $573/mo | $197/mo | 66% |
| Eliquis | BMS/Pfizer | Blood Thinner | $521/mo | $231/mo | 56% |
| Entresto | Novartis | Heart Failure | $628/mo | $295/mo | 53% |
| Enbrel | Amgen | Autoimmune | $7,106/mo | $2,355/mo | 67% |
| Stelara | J&J | Autoimmune | $13,836/mo | $4,695/mo | 66% |
| Imbruvica | J&J/AbbVie | Cancer | $14,934/mo | $9,319/mo | 38% |
Source: CMS Fact Sheet, ASPE Analysis
The second negotiation round targets 15 additional drugs for 2027, including Ozempic (71% discount to $274/mo), Wegovy, Trelegy, Pomalyst, and Ibrance. Legal challenges have uniformly failed, with 13+ court rulings favoring the government.
2. Most Favored Nation Deals Expand
The Trump administration's MFN executive order secured deals with 14 major manufacturers by December 2025:
┌─────────────────────────────────────────────────────────────────────────────┐
│ MFN DEAL STATUS: JANUARY 2026 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓ SIGNED MFN DEALS (14) │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Pfizer • AstraZeneca • EMD Serono • Novo Nordisk • Eli Lilly │ │
│ │ Amgen • Boehringer Ingelheim • Bristol Myers Squibb • Genentech │ │
│ │ Gilead Sciences • GSK • Merck • Novartis • Sanofi │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ░░░░░░░░░░░░░░░░░░░░░░░░░ NOT SIGNED (3) │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Johnson & Johnson • AbbVie • Regeneron │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ KEY PROVISIONS: │
│ • 3-year tariff suspensions for participants │
│ • MFN pricing applies to new product launches │
│ • Affects Medicaid and cash-pay channels primarily │
│ • Does NOT require list price freezes on existing products │
│ │
│ ⚠️ WARNING: 5+ signatories [raised prices](https://www.drugdiscoverytrends.com/drug-companies-sign-most-favored-nation-deals-then-raise-prices-anyway/) on Jan 1, 2026 │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
The TrumpRx.gov platform launched January 2026 enables direct-to-consumer sales at MFN prices, with Ozempic available at $245/month versus $959 list price.
3. Part D Redesign Doubles Manufacturer Burden
The Medicare Part D benefit redesign effective January 2025 fundamentally restructured cost-sharing:
| Benefit Phase | Old Manufacturer Discount | New Manufacturer Discount |
|---|---|---|
| Initial Coverage | 0% | 10% |
| Coverage Gap ("Donut Hole") | 70% | Eliminated |
| Catastrophic | 0% | 20% |
| Applies to LIS Recipients? | No | Yes |
Milliman estimates total manufacturer discount program costs could be double the prior coverage gap program costs. The $2,000 annual out-of-pocket cap ($2,100 for 2026) shifts substantial costs from beneficiaries to manufacturers and plans.
Why Has the GTN Gap Exploded? Historical Context
The current regulatory interventions respond to decades of GTN expansion driven by several converging factors:
Rise of High-Cost Specialty Drugs
Modern therapies carry very high list prices, and payers responded by demanding hefty rebates. GTN discounts vary enormously by therapeutic area:
| Therapeutic Area | Median Rebate | Competition Level | GTN Trend 2026 |
|---|---|---|---|
| Oncology | ~19% | Low | Stable (340B pressure) |
| Orphan Diseases | ~23% | Low | Stable |
| Autoimmune (with biosimilars) | ~71% | High | Increasing |
| Insulin Analogs | 60–79% | Very High | Compressed by IRA |
| GLP-1/Obesity | 65-75% | Intensifying | Collapsing |
Source: 2023 PMC study of 161 specialty drugs
Power of PBMs and Payers
Pharmacy benefit managers have become increasingly sophisticated in negotiating formulary rebates. A drug securing "preferred" formulary status may owe a base rebate of 10–30%, but in competitive classes, total commercial rebates can reach 40–50%+ to secure market share.
Accumulation of Fees and Programs
Beyond formal rebates, manufacturers now incur many other deductions:
- Wholesaler distribution fees (1–3% of WAC)
- Pharmacy and administrative fees
- PBM "service fees"
- Patient copay assistance ($19 billion industry-wide in 2022)
- Free drug/compassionate use programs
Mandatory Government Rebates: The 2026 Landscape
Government payers impose statutory rebates that form the bedrock of GTN reductions. These have expanded dramatically under recent legislation.
┌─────────────────────────────────────────────────────────────────────────────┐
│ MANDATORY REBATE PROGRAMS FLOWCHART: 2026 UPDATE │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ┌─────────────────────┐ │
│ │ GROSS SALES │ │
│ │ (WAC Price) │ │
│ └──────────┬──────────┘ │
│ │ │
│ ┌──────────────┬──────────────┼──────────────┬──────────────┐ │
│ ▼ ▼ ▼ ▼ ▼ │
│ ┌─────────┐ ┌─────────┐ ┌─────────┐ ┌─────────┐ ┌─────────┐ │
│ │MEDICARE │ │MEDICARE │ │MEDICAID │ │ 340B │ │ VA/DOD │ │
│ │PART D │ │PART B │ │ │ │ │ │ FSS │ │
│ │(IRA) │ │ │ │(MDRP) │ │ │ │ │ │
│ └────┬────┘ └────┬────┘ └────┬────┘ └────┬────┘ └────┬────┘ │
│ │ │ │ │ │ │
│ ┌────▼────┐ ┌────▼────┐ ┌────▼────┐ ┌────▼────┐ ┌────▼────┐ │
│ │Negotiated│ │ASP+6% │ │ 23.1%+ │ │Medicaid │ │ 24%+ │ │
│ │MFP Price │ │Reimb. │ │Inflation│ │Ceiling │ │Minimum │ │
│ │38-79% │ │ │ │UNCAPPED │ │Price │ │Discount │ │
│ │Discount │ │ │ │>100% │ │ │ │ │ │
│ └────┬────┘ └────┬────┘ └────┬────┘ └────┬────┘ └────┬────┘ │
│ │ │ │ │ │ │
│ │ ┌────▼────┐ │ │ │ │
│ │ │+10%/20% │ │ │ │ │
│ │ │MFR Disc │ │ │ │ │
│ │ │(New IRA)│ │ │ │ │
│ │ └────┬────┘ │ │ │ │
│ │ │ │ │ │ │
│ └──────────┬──┴─────────────┴──────────┬──┴─────────────┘ │
│ │ │ │
│ ▼ ▼ │
│ ┌────────────────────────┐ ┌────────────────────────┐ │
│ │ NET SALES: 21-62% │ │ NET SALES: 0-50% │ │
│ │ (Medicare Negotiated) │ │ (Medicaid/340B/VA) │ │
│ └────────────────────────┘ └────────────────────────┘ │
│ │
│ ▓▓▓ = IRA Changes (2024-2026) ░░░ = Pre-existing Programs │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Medicaid Rebates: The Uncapped Era
For brand-name drugs, the statutory minimum rebate is 23.1% of AMP or the difference between AMP and the best price offered to any private purchaser—whichever gives Medicaid the bigger discount. The American Rescue Plan eliminated the 100% AMP rebate cap effective January 2024.
The Inflation Penalty Trap (2026 Reality):
| Scenario | Basic Rebate | Inflation Penalty | Total Rebate | Net Revenue |
|---|---|---|---|---|
| No price increases | 23.1% | 0% | 23.1% | 76.9% |
| Moderate increases | 23.1% | 20% | 43.1% | 56.9% |
| Aggressive increases | 23.1% | 50% | 73.1% | 26.9% |
| Extreme cases | 23.1% | 90%+ | >100% | NEGATIVE |
IQVIA estimates 15-20% of brand drugs were previously hitting the AMP cap, highlighting substantial new liability exposure.
The September 2024 MDRP final rule clarified technical provisions but critically did not finalize the controversial "best price stacking" requirement. CMS announced the GENEROUS Model in November 2025, extending MFN pricing to state Medicaid programs—with supplemental rebates excluded from Best Price calculations.
Bausch Health became the first major manufacturer to exit both MDRP and 340B programs effective October 2025.
340B Drug Pricing Program: $81.4 Billion and Growing
The 340B program reached $81.4 billion in discounted purchases in 2024—a 23% year-over-year increase representing approximately 19% of total manufacturer GTN reductions.
┌─────────────────────────────────────────────────────────────────────────────┐
│ 340B PROGRAM GROWTH: 2010-2024 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ $ Billions (Discounted Purchase Value) │
│ │
│ $90B ─┤ ████ │
│ │ ████ $81.4B │
│ $80B ─┤ ████ ████ │
│ │ ████ ████ ████ │
│ $70B ─┤ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ │
│ $60B ─┤ ████ ████ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ ████ ████ │
│ $50B ─┤ ████ ████ ████ ████ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ $40B ─┤ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ $30B ─┤ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ $20B ─┤ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ │ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ $10B ─┤ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ ████ │
│ $5B │ ░░░░ │
│ └────┴────┴────┴────┴────┴────┴────┴────┴────┴────┴────┴────┴───► │
│ 2010 12 14 16 18 20 21 22 23 24 │
│ │
│ CAGR 2015-2024: 23.5% │ vs. Net Sales CAGR: 5.1% │
│ │
│ ░░░░ = Pre-ACA ████ = Post-ACA Expansion │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
HRSA's 340B Rebate Model Pilot Program, which would have allowed rebates instead of upfront ceiling prices for IRA-negotiated drugs, was paused by federal court on December 29, 2025.
Currently 39 manufacturers impose contract pharmacy distribution restrictions, with state protection laws in 18 states pressuring manufacturers to lift restrictions.
VA/DOD and Federal Supply Schedule
The Federal Ceiling Price for the "Big Four" agencies is at least 24% below the Non-Federal Average Manufacturer Price. Typical FSS/VA sales yield net prices ~65–75% of list.
Commercial Rebates and Contracting: The Competitive Battlefield
The other major chunk of GTN reduction comes from commercial market rebates—driven by market forces rather than mandated by law.
PBM/Formulary Rebate Ranges by Class (2026)
| Drug Class | Typical Rebate Range | Key Driver | 2026 Outlook |
|---|---|---|---|
| Breakthrough Oncology | 5–15% | No alternatives | Stable |
| Specialty (unique MOA) | 10–25% | Limited competition | Stable |
| Chronic Disease (moderate) | 25–40% | Some alternatives | Increasing |
| Respiratory/Diabetes | 40–60% | Multiple options | Compressed by IRA |
| Insulins/TNF Inhibitors | 60–85% | Biosimilar pressure | Increasing |
| GLP-1/Obesity | 65–75% | Intense competition | Collapsing |
Types of Commercial Rebate Structures
┌─────────────────────────────────────────────────────────────────────────────┐
│ COMMERCIAL REBATE STRUCTURE TYPES: 2026 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 1. BASE FORMULARY REBATE ▓▓▓▓▓▓▓▓▓▓ │ │
│ │ └── Fixed % for preferred tier placement (STANDARD) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 2. VOLUME/TIERED REBATES ▓▓▓▓▓▓▓▓▓ │ │
│ │ └── Rebate increases as utilization grows (COMMON) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 3. MARKET SHARE REBATES ▓▓▓▓▓▓▓ │ │
│ │ └── Tiered higher rebates if market share high (COMMON) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 4. PRICE PROTECTION REBATES ▓▓▓▓▓▓ │ │
│ │ └── Rebate if MFR raises price beyond threshold (DECLINING) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 5. PERFORMANCE/OUTCOMES REBATES ▓▓▓▓ │ │
│ │ └── Extra rebate if clinical outcomes not met (NICHE) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 6. IRA INFLATION REBATES ████████ │ │
│ │ └── Mandatory rebate if price exceeds inflation (NEW 2023) │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ▓▓▓ = Prevalence Level ████ = Government-Mandated │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
PBM Reform: No Federal Legislation Yet
Despite bipartisan momentum, no comprehensive federal PBM reform has been enacted as of January 2026. The FTC lawsuit against Caremark, Express Scripts, and OptumRx remains pending. Over 30 PBM-related bills passed across 20 states in 2024, with Iowa's S.F. 383 mandating 100% rebate pass-through effective January 2026.
European Pricing Regulations: 2026 Updates
UK: VPAG Clawback Hits Record Before Moderating
The UK's Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) imposed a 22.9% clawback rate for 2025—the highest in scheme history.
┌─────────────────────────────────────────────────────────────────────────────┐
│ UK VPAG CLAWBACK EVOLUTION: 2019-2026 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ Clawback % │
│ │
│ 25% ─┤ ████ │
│ │ ████ 22.9% │
│ 20% ─┤ ████ ████ │
│ │ ████ ████ ████ │
│ 15% ─┤ ████ ████ ████ ████ ░░░░ │
│ │ ████ ████ ████ ████ ████ ░░░░ 14.5% │
│ 10% ─┤ ████ ████ ████ ████ ████ ████ ░░░░ │
│ │ ████ ████ ████ ████ ████ ████ ████ ░░░░ │
│ 5% ─┤ ████ ████ ████ ████ ████ ████ ████ ████ ░░░░ │
│ │ ████ ████ ████ ████ ████ ████ ████ ████ ░░░░ │
│ 0% ─┴─────┴─────┴─────┴─────┴─────┴─────┴─────┴─────┴───────────────► │
│ 2019 2020 2021 2022 2023 2024 2025 2026 │
│ │
│ ████ = Actual Rates ░░░░ = 2026 Reduced Rate (US-UK Deal) │
│ │
│ NON-VPAG STATUTORY SCHEME: 24.3% for 2026 (doubled from prior) │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
The December 2025 UK-US trade agreement caps the newer medicines rate at 15% for 2027-2028. NICE thresholds increase from £20,000-£30,000 to £25,000-£35,000 per QALY effective April 2026.
Germany: AMNOG Reforms and EU HTA Integration
Germany's GKV-FinStG reforms reduced the AMNOG free pricing period from 12 to 6 months, with negotiated prices applying retroactively. The orphan drug assessment threshold dropped from €50 million to €30 million.
| AMNOG Parameter | Pre-2023 | 2023+ |
|---|---|---|
| Free Pricing Period | 12 months | 6 months |
| Orphan Threshold | €50M | €30M |
| Statutory Rebate | 7% | 7% (was 12% temp) |
| Confidential Prices | No | Yes (from 2025) |
Germany's March 2025 ordinance adapted AMNOG to incorporate EU HTA Joint Clinical Assessments, which began for oncology drugs and ATMPs in January 2025.
France: Expanding Safeguard Clause
France's safeguard clause threshold increased to €27.25 billion for 2025 (+3.2%). The PLFSS 2026 proposes €1.6 billion in drug price cuts, with access delays averaging 523 days—among the longest in Europe.
Italy: Managed Entry Agreements
Italy operates Europe's most developed MEA system with 283 indication-based registries. The payback mechanism reached an estimated €2.8 billion for 2025.
EU Pharmaceutical Legislation Reform
The December 2025 provisional agreement on the EU "Pharma Package" shifts data protection from "8+2+1" to "8+1(+1)(+1)" with maximum 11 years combined protection. Orphan drug exclusivity drops from 10 to 9 years.
┌─────────────────────────────────────────────────────────────────────────────┐
│ EU EXCLUSIVITY FRAMEWORK: OLD vs. NEW │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ STANDARD DRUGS: │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ OLD: ████████████████████████ + ▓▓▓▓▓▓▓▓ + ░░░░ = 11 years │ │
│ │ 8 years data exclusivity 2 years 1 year │ │
│ │ market new ind. │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ NEW: ████████████████████████ + ▓▓▓▓ (+▓▓▓▓)(+▓▓▓▓) = 8-11 years │ │
│ │ 8 years data exclusivity 1yr +1 yr +1 yr │ │
│ │ base conditional conditional │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ORPHAN DRUGS: │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ OLD: ██████████████████████████████████████████ = 10 years │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ NEW: ████████████████████████████████████ (+▓▓▓▓▓▓) = 9-11 years │ │
│ │ 9 years standard + up to 2 years conditional │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ Expanded Bolar Exemption: HTA, P&R, AND procurement tenders now allowed │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Therapeutic Area Deep Dives
Oncology: Protected Class, 340B Exposed
Oncology drugs maintain lower GTN ratios due to Medicare "protected class" status, high clinical severity, and precision medicine fragmenting competition. However, 340B significantly impacts oncology economics.
| Metric | Independent Practice | Non-340B Hospital | 340B Hospital |
|---|---|---|---|
| Price Markup vs. ASP | 1.0x | 4.34x | 6.59x |
| 340B Spread Capture | N/A | N/A | $66.4B total |
Medicare Part B oncology spending exceeds 50% of total Part B drug spending. Part B negotiation begins 2028, with Keytruda and Opdivo likely candidates.
GLP-1/Obesity: Pricing Collapse
The GLP-1 class underwent dramatic transformation in 2025:
┌─────────────────────────────────────────────────────────────────────────────┐
│ GLP-1 PRICING COLLAPSE: 2024-2026 │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ OZEMPIC MONTHLY COST │
│ │
│ $1000 ─┤ ████ $959 (List) │
│ │ ████ │
│ $800 ─┤ ████ │
│ │ ████ │
│ $600 ─┤ ████ │
│ │ ████ ░░░░ ~$600 (Est. Net 2024) │
│ $400 ─┤ ████ ░░░░ │
│ │ ████ ░░░░ ▓▓▓▓ $349 (Self-Pay 2025) │
│ $200 ─┤ ████ ░░░░ ▓▓▓▓ ▒▒▒▒ $274 (Medicare MFP 2027) │
│ │ ████ ░░░░ ▓▓▓▓ ▒▒▒▒ ░░░░ $245 (TrumpRx.gov) │
│ │ ████ ░░░░ ▓▓▓▓ ▒▒▒▒ ░░░░ ▓▓▓▓ $199 (Intro Offer) │
│ $0 ─┴─────┴─────┴─────┴─────┴─────┴─────┴──────────────────────────► │
│ List Net'24 Self MFP MFN Intro │
│ Price Pay 2027 Offer │
│ │
│ GTN for GLP-1 class now exceeds 65-75% — among highest for any area │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Medicare remains statutorily barred from covering weight loss drugs. CMS's BALANCE Model provides a pathway starting July 2026 for patients meeting specific BMI and comorbidity criteria.
Novo Nordisk launched $199/month introductory offers in January 2026, while SSR Health estimates nominal net prices fell over 34% during the first three quarters of 2025.
Gene Therapy: Outcomes-Based Complexity
Gene and cell therapy pricing remains at extreme levels:
| Product | Manufacturer | Indication | List Price |
|---|---|---|---|
| Hemgenix | CSL Behring | Hemophilia B | $3.5M |
| Lyfgenia | Bluebird bio | Sickle Cell | $3.1M |
| Casgevy | Vertex | Sickle Cell | $2.2M |
| Zolgensma | Novartis | SMA | $2.125M |
However, actual transaction prices diverge substantially—Zolgensma public insurer payments dropped from $1.89M (2019) to $1.36M (2022), a ~40% effective discount.
Medicaid Best Price provisions create barriers to outcomes-based contracting. Bluebird bio offers an 80% reimbursement guarantee if patients fail transfusion independence within 2 years.
Biosimilars: Interchangeability Accelerates
FDA has approved 75 biosimilars with 21 designated interchangeable as of May 2025. Humira's net price dropped over 70% following biosimilar entry.
The "rebate wall" dynamic persists: PBMs may prefer higher-list/higher-rebate biosimilars, creating counterintuitive formulary economics.
GTN Evolution Over Product Lifecycle
Gross-to-net is not static—it changes dramatically over a product's life.
┌─────────────────────────────────────────────────────────────────────────────┐
│ GTN EVOLUTION ACROSS PRODUCT LIFECYCLE: 2026 MODEL │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ NET AS % OF GROSS │
│ │
│ 80% ─┬─────● │
│ │ ╲ │
│ 70% ─┤ ╲●─────● ┌─────────────────────────────────────┐ │
│ │ ╲ │ KEY INFLECTION POINTS: │ │
│ 60% ─┤ ╲●───● │ │ │
│ │ ╲ │ A: Launch (high net, low contracts) │ │
│ 50% ─┤ ╲● │ B: Competition enters (rebate wars) │ │
│ │ │ │ C: Medicare negotiation (if selected│ │
│ 40% ─┤ │●│ D: Biosimilar/generic entry │ │
│ │ │ │ E: Authorized generic launch │ │
│ 30% ─┤ │ └─────────────────────────────────────┘ │
│ │ │ ╲ │
│ 20% ─┤ │ ●───● (Post-LOE) │
│ │ │ │
│ └───┬───┬───┬───┬───┬──┴┬───┬───┬───┬───┬───► │
│ Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 LOE POST │
│ A B C D E │
│ │
│ ════════════════════════════════════════════════════════════════════════ │
│ NEW FOR 2026: IRA negotiation at Year 9 (small molecule) or │
│ Year 13 (biologic) creates MAJOR inflection point │
│ ════════════════════════════════════════════════════════════════════════ │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Launch Phase: Higher Net (But Diminishing)
| Factor | Impact | 2026 Change |
|---|---|---|
| Limited payer contracts | Fewer rebates locked in | Unchanged |
| No competition | Low payer leverage | Unchanged |
| Part D redesign | 10% initial phase discount | NEW COST |
| 340B exposure | Immediate ceiling price | Increasing |
Typical GTN Yield at Entry: 60-70% of gross (vs. 75%+ historically)
IRA Negotiation Timeline Creates New Cliff
┌─────────────────────────────────────────────────────────────────────────────┐
│ IRA NEGOTIATION TIMELINE BY PRODUCT TYPE │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ SMALL MOLECULE DRUGS: │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Year 1 ──────────────────────────── Year 9 ─────────── Year 13+ │ │
│ │ Launch │ LOE │ │
│ │ ████████████████████████████████████▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓░░░░░░░░░░░░ │ │
│ │ Full Pricing Flexibility IRA Negotiation Generic │ │
│ │ 38-79% Discount Entry │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ BIOLOGIC DRUGS: │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ Year 1 ────────────────────────────────────── Year 13 ──── Year 15+ │ │
│ │ Launch │ LOE │ │
│ │ ████████████████████████████████████████████████▓▓▓▓▓▓▓▓▓▓░░░░░░░░░│ │
│ │ Full Pricing Flexibility IRA Neg. Biosimilar│ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ████ = Pre-Negotiation ▓▓▓▓ = Post-IRA Negotiation ░░░░ = Post-LOE │
│ │
│ ⚠️ ROYALTY IMPLICATION: Contracts must specify treatment of │
│ IRA-negotiated pricing and whether MFP is included in "Net Sales" │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Implications for Royalty Structuring
GTN considerations significantly affect how royalties are structured in deal contracts.
Gross Sales vs. Net Sales Basis
| Basis | Royalty Investor Risk | Company Risk | Common Use |
|---|---|---|---|
| Gross Sales | Low (protected) | High (pays on unreceived $) | Simple pass-throughs |
| Net Sales | High (shares GTN risk) | Lower (pays on actual) | Most licensing/financing |
| Hybrid/Floors | Medium | Medium | Sophisticated deals |
2026 Example Impact (IRA-Negotiated Drug):
| Scenario | Gross Sales | Net Sales | 5% on Gross | 5% on Net |
|---|---|---|---|---|
| Pre-IRA | $1B | $600M | $50M | $30M |
| Post-IRA (Medicare) | $1B | $350M | $50M | $17.5M |
| Difference | — | -$250M | — | -$12.5M/yr |
Key Contract Provisions for 2026
┌─────────────────────────────────────────────────────────────────────────────┐
│ ROYALTY CONTRACT GTN PROTECTIONS: 2026 ESSENTIALS │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 1. IRA NEGOTIATION TREATMENT ████████ │ │
│ │ • Does "Net Sales" include MFP-priced sales? (CRITICAL) │ │
│ │ • Are inflation rebates to Medicare deductible? │ │
│ │ • What happens if drug is selected for negotiation? │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 2. GTN FLOORS/CAPS ▓▓▓▓▓▓▓▓ │ │
│ │ "Net sales shall not be less than 50% of gross (STANDARD) │ │
│ │ for royalty calculation purposes" │ │
│ │ → Protects investor from extreme rebate scenarios │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 3. CHANNEL-SPECIFIC PROVISIONS ▓▓▓▓▓▓ │ │
│ │ • 340B sales: Included or excluded? (IMPORTANT)│ │
│ │ • MFN/TrumpRx.gov sales: Treatment? │ │
│ │ • Medicaid negative margin: Capped at zero? │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 4. AUDIT RIGHTS ▓▓▓▓▓▓▓▓ │ │
│ │ → Verify gross sales, credits, rebates, free goods (STANDARD) │ │
│ │ → Company pays audit costs if underpayment found │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ 5. AUTHORIZED GENERIC TREATMENT ▓▓▓▓▓ │ │
│ │ • AG sales included in royalty base? (IMPORTANT)│ │
│ │ • Interchangeable biosimilar treatment? │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ ████ = New for 2026 ▓▓▓ = Standard Provisions │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Building a GTN Model: 2026 Template
Step 1: Segment Gross Sales by Channel/Payer
| Channel/Payer | Typical % of Gross | 2026 GTN Considerations |
|---|---|---|
| Medicare Part D | 20–35% | IRA negotiation, 10%/20% MFR discount |
| Medicare Part B | 5–15% | ASP+6%, negotiation starts 2028 |
| Medicaid | 5–15% | Uncapped rebates, potential negative margin |
| 340B/VA/Federal | 5–15% | Ceiling price, FSS discounts |
| Commercial (Pharmacy) | 35–50% | PBM rebates, MFN deals |
| Commercial (Medical) | 5–15% | Lower rebates |
| Cash/MFN/Direct | 2–5% | TrumpRx.gov, self-pay offers |
Step 2: Assign GTN Rate by Segment (2026 Ranges)
| Segment | Low Estimate | Base Estimate | High Estimate |
|---|---|---|---|
| Medicare Part D (Negotiated) | 38% | 60% | 79% |
| Medicare Part D (Non-Negotiated) | 25% | 35% | 45% |
| Medicare Part B | 10% | 15% | 25% |
| Medicaid | 50% | 70% | >100% |
| 340B | 40% | 50% | 60% |
| VA/FSS | 24% | 30% | 40% |
| Commercial (Pharmacy) | 25% | 35% | 50% |
| Commercial (Medical) | 5% | 10% | 15% |
| Cash/MFN | 50% | 65% | 80% |
Step 3: Sample GTN Model (IRA-Negotiated Drug)
Scenario: Diabetes drug selected for 2026 Medicare negotiation
| Channel/Payer | % Gross | Discount Rate | Net Contribution |
|---|---|---|---|
| Medicare Part D | 30% | 66% (IRA MFP) | 10.2% |
| Medicaid | 10% | 65% | 3.5% |
| 340B | 5% | 50% | 2.5% |
| Commercial (Pharmacy) | 40% | 35% | 26.0% |
| Commercial (Medical) | 10% | 10% | 9.0% |
| Cash/MFN | 5% | 70% | 1.5% |
| Subtotal | 100% | — | 52.7% |
| Distributor/PBM Fees | — | 2% | -2.0% |
| Returns & Misc. | — | 1% | -1.0% |
| Total Net as % of Gross | — | — | 49.7% |
Royalty Impact at 8% Rate:
| Metric | Pre-IRA | Post-IRA | Change |
|---|---|---|---|
| Gross Sales | $500M | $500M | — |
| Net Sales | $325M | $248M | -$77M |
| Royalty Payment | $26.0M | $19.9M | -$6.1M/yr |
Step 4: Sensitivity Analysis
┌─────────────────────────────────────────────────────────────────────────────┐
│ GTN SENSITIVITY: ROYALTY NPV IMPACT (2026 MODEL) │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ANNUAL ROYALTY ($M) at $500M Gross Sales, 8% Royalty Rate │
│ │
│ $40M ─┤ │
│ │ ████████████████████████████████████████ 80% GTN (No IRA) │
│ $35M ─┤ │
│ │ ████████████████████████████████ 70% GTN (Pre-IRA Avg) │
│ $30M ─┤ │
│ │ ████████████████████████ 60% GTN (Moderate Competition) │
│ $25M ─┤ │
│ │ ████████████████████ 50% GTN (Post-IRA Negotiated) │
│ $20M ─┤ │
│ │ ████████████████ 40% GTN (Heavy Competition + IRA) │
│ $15M ─┤ │
│ │ ████████████ 30% GTN (Worst Case + Medicaid Exposure) │
│ $10M ─┤ │
│ └────────────────────────────────────────────────────────────────► │
│ │
│ 5-YEAR NPV SWING: $25M → $80M+ depending on GTN assumptions │
│ │
│ KEY VARIABLES TO STRESS TEST: │
│ • IRA negotiation selection probability │
│ • Medicare channel mix (higher = worse post-IRA) │
│ • Medicaid inflation penalty trajectory │
│ • Competitive entry timing and rebate response │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Regional GTN Comparison: 2026
| Region | Key Mechanism | 2026 GTN Range | Trend |
|---|---|---|---|
| United States | IRA + Medicaid + 340B | 30–70%+ | Worsening |
| United Kingdom | VPAG clawback | 14.5–24.3% | Improving |
| Germany | AMNOG + 7% rebate | 15–35% | Stable |
| France | Safeguard clause | 20–30% | Worsening |
| Italy | MEAs + payback | 15–25% | Stable |
| Japan | Biennial price cuts | 10–20% | Stable |
Key Takeaways for Royalty Stakeholders
┌─────────────────────────────────────────────────────────────────────────────┐
│ CRITICAL GTN MODELING PRINCIPLES: 2026 UPDATE │
├─────────────────────────────────────────────────────────────────────────────┤
│ │
│ ████ 1. IRA CREATES BINARY RISK FOR HIGH-SPEND DRUGS │
│ → Model scenarios WITH and WITHOUT Medicare negotiation │
│ → Small molecules face Year 9 cliff; biologics Year 13 │
│ → 38-79% discounts fundamentally change economics │
│ │
│ ████ 2. CHANNEL MIX IS NOW CRITICAL │
│ → Medicare-heavy drugs face worst GTN compression │
│ → 340B exposure continues explosive growth │
│ → Medicaid can now generate NEGATIVE net revenue │
│ │
│ ████ 3. THERAPEUTIC AREA DYNAMICS DIVERGE DRAMATICALLY │
│ → Oncology: ~20-35% GTN (protected class) │
│ → GLP-1s: ~65-75% GTN (intense competition + IRA) │
│ → Post-biosimilar immunology: ~70-85%+ GTN │
│ │
│ ████ 4. CONTRACT LANGUAGE MUST ADDRESS NEW REALITIES │
│ → Explicit IRA MFP treatment required │
│ → 340B inclusion/exclusion specification │
│ → GTN floors more important than ever │
│ │
│ ████ 5. EUROPEAN MARKETS OFFER RELATIVE STABILITY │
│ → UK VPAG moderating after record 2025 │
│ → Germany's confidential pricing option helpful │
│ → But EU exclusivity reforms reduce protection periods │
│ │
│ ════════════════════════════════════════════════════════════════════════ │
│ BOTTOM LINE: Historical GTN assumptions are INVALID post-2026. │
│ Detailed, channel-specific, scenario-based modeling is now essential. │
│ ════════════════════════════════════════════════════════════════════════ │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Conclusion
The gap between gross and net sales—often 30–50% or more, and expanding dramatically for certain products post-IRA—materially affects royalty economics. The January 2026 regulatory environment invalidates historical GTN assumptions built during the era of unconstrained list price increases and negotiated rebate opacity.
Several structural shifts require immediate modeling updates:
Medicare negotiation creates channel-specific net price floors for selected drugs, with 38-79% discounts from list prices eliminating the traditional rebate negotiation framework for the largest revenue channel affecting older populations.
Uncapped Medicaid rebates generate negative margin scenarios for products with significant cumulative inflation since launch, requiring scenario analysis where total rebates could exceed 100% of AMP.
Part D redesign shifts manufacturer liability from coverage gap-only to full-benefit exposure, with 10%/20% discount requirements potentially doubling aggregate manufacturer costs.
European clawback mechanisms reached record levels (UK VPAG at 22.9% in 2025) with varying trajectories across markets—requiring country-specific GTN waterfall models rather than regional averages.
For royalty investors, agreements specifying gross revenue bases face fundamentally different economics than those tied to net sales, while geographic scope provisions determine exposure to US government programs versus more stable (but lower) European pricing. For biotech executives, launch price optimization now requires simultaneous consideration of IRA negotiation timing, inflation rebate exposure, and 340B ceiling price implications—a multi-variable optimization that did not exist in the pre-2022 environment.
The core thesis holds: understanding GTN is not optional for royalty stakeholders. Only with detailed, channel-specific, scenario-based GTN modeling can one accurately predict royalty streams and negotiate fair deal terms. Ignoring GTN or using overly simplistic assumptions is a recipe for mispricing in an era where gross-to-net can make or break the investment thesis.
Disclaimer: This article is for informational purposes only. The author is not a lawyer, financial advisor, or registered investment professional. Nothing in this article constitutes investment advice, legal advice, or a recommendation to buy or sell any security or financial instrument. Readers should consult qualified professionals before making any investment or business decisions. Past performance is not indicative of future results.
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