Trump's plans to cut drug prices in US may impact Indian pharma landscape

Will people in India have to pay more for patented drugs? Are home-grown players with focus on specialty drugs about to face stiffer challenges in the US market? And will global pharma majors delay launching new drugs in lower cost markets or choose not to sell them at all in low middle income countries?  

 

These questions and more are a talking point in the wake of US President Donald Trump’s plans to reduce drug prices in the world’s largest pharmaceutical market—the United States--by pegging them to the Most-Favoured-Nation (MFN) pricing. If the plan is executed, it could have cascading effects on global health agencies, and also on the low-middle-income countries.

 

Trump’s executive order, dated May 12, seeks to establish a mechanism through which American patients can buy their drugs directly from the manufacturers, who sell to Americans at a ‘Most-Favoured-Nation’ price, bypassing the middlemen. Price targets will be given to the drug-makers in the next 30 days and action will be taken to lower prices. “The policy would peg US drug prices, specifically for a basket of high-expenditure Medicare drugs to the lowest prices paid by other wealthy nations to reduce the prices of prescription drug and pharmaceutical by 30-80 per cent, said analysts from Ashika Institutional Equity Research (AIER) in a recent note. 

 

Prescription drug prices in the US are strikingly higher compared to peer countries, often ranging anywhere between 4-5 times and 10-times.

 

Why does it matter

 

This policy is likely to target innovative and branded drugs, where pricing power remains most entrenched. “While generic drugs in the US already help deflate prices by 80–90 per cent post-patent, the MFN model could shift the price anchor itself. If list prices of innovator drugs are forcibly reduced, the ripple effect will cascade down to generics, especially during periods of limited competition or exclusivity windows,” AIER said.

 

The US generics market is around $128 billion in size, nearly six times that of the Indian market, and is supported by an upcoming patent cliff of $141 billion over CY22–26.

 

The new scenario presents an overhang particularly for the branded or specialty pharma sales.

 

Nomura, financial investment company and brokerage, believes it’s a negative for specialty or branded segments and a mixed bag for generics.

 

Sun Pharma has a large exposure to branded sales in the US. Nomura estimates that US specialty sales are at over $1 billion (FY25 forecast) for Sun Pharma. “The largest product Ilumya (FY25 forecast for US sales of around $570 million) is largely supported through Medicare Part B, which possibly accounts for over 50 per cent of the sales of the company, in our assessment,” it said. The listed price of Ilumya in the US is around four times that in other developed countries, in Nomura’s view. Therefore, the implementation of lower pricing can have a significant negative impact on revenues and earnings.

 

Further, the development will likely discourage other Indian pharmaceutical companies from pursuing specialty business in the US, according to analysts. 

 

Lower drug prices in the US lowers the addressable market for generics and biosimilars. For highly commoditised generics (more than five players in the market), the impact may not be very negative. These generics are at significant discounts to the brand prices due to competition and here the prices are not likely to fall due to the cost structure.

 

The Indian pharma industry has, however, maintained that the generics industry is unlikely to be impacted, as it operates on razor-thin margins. Sudarshan Jain, secretary general, Indian Pharmaceutical Alliance (IPA), which represents large pharma firms in the country that account for nearly 80 per cent of India’s pharma exports by value, said: “Innovator companies are expected to be affected, with a 30-day window to align their US prices with MFN pricing.”

   

Caution all around

 

“We think there is uncertainty on how successfully the executive order is eventually implemented. An earlier attempt by the Trump 1 administration in 2020 to implement a similar order for lowering pricing was defeated in various courts. The order may be litigated and hence present uncertainties on its implementation,” Nomura said.

 

However, the long-term dynamics warrant caution. The trade experts suggest the MFN framework could lead to upward pricing pressure globally, especially in traditionally low-cost markets like India. If the US pegs its prices to the lowest global rates, it may create incentives for global pharma to push for price hike in countries currently supplying inexpensive drugs, thereby upwardly recalibrating global benchmarks to protect profit in the US market.

 

In India, it is not clear if innovator drug prices will rise immediately, or it would lead to delays in new launches.

 

Prashant Yadav, senior fellow for global health at the Council on Foreign Relations, said in a recent piece in Think Global Health that although  the order does not apply MFN provisions against low-income countries, it could inspire other nations to adopt similar clauses, leading to serious consequences for global health systems. A cascading adoption of MFN pricing could undermine mechanisms that enable affordable access to essential medicines in low-income countries.

 

India remains a highly price-sensitive market, especially for innovator drugs where out-of-pocket spending dominates, pointed out Nirali Shah, an analyst. ‘’Any attempt by global pharma companies to offset US pricing pressures through upward revisions in Indian prices may face strong market resistance. We could see renewed pricing dialogues and trade negotiations between India and the US, especially if broader policy shifts like MFN gain traction,” said Shah, analyst.

 

The India Pharma Market (IPM) has maintained around 10 per cent CAGR from FY12 to FY23, despite various disruptions.

 

Sheetal Sapale, vice-president, commercial, Pharmarack, a B2B healthcare platform, said price-driven growth had stayed in the range of 5-5.5 per cent as companies (though allowed price hikes of up to 10 per cent in non-scheduled drugs), limit their price hikes to this level due to competition. Pharmarack, which collects data from almost a million chemists across the country, pointed out that Indian companies have launched 4,347 brands in the last 24 months with a value of Rs 3,985 crore while multinational firms have 176 brands with a value of Rs 218 crore.

 

MNCs, however, have a strong play in rare disease drugs, oncology and immunology which often use the hospital channel for sales. But, most firms follow a tiered pricing model for a developing country like India.

 

Companies including Pfizer India, AstraZeneca India, Sanofi India did not respond to questions around India-specific pricing in the post MFN world.