The high price of prescription drugs in the United States has long been a concern with many Americans going without crucial medications as a result. To address this, former President Donald Trump issued an Executive Order aimed at lowering drug prices by adopting Most Favoured Nation (MFN) pricing.
The intention of the MFN pricing system is to establish parity in drug prices between the United States. And other countries with similar economies, allowing for potential pricing reductions of 30-80%.
The Drug Pricing Policy of Trump focused on a MFN pricing model across high-margin branded innovator drugs to establish pricing parity with the lowest price offers in peer countries. The US Department of Health and Human Services (HHS) has outlined a pathway to enforce this for manufacturers of branded prescription drugs for products that lack generic or biosimilar alternatives.
Executive Order – Key Features:
Targets branded drugs with no other generic alternative.
Formally establishes the US as a country paying higher prescription drug rates.
Incentivizes drug companies to revise pricing, while offering possible pricing reduction requirements.
Out of the total pharmaceuticals exported from India to the United States, the Executive Order will have minimal effect on Indian pharma companies. According to Crisil Ratings, bulk of exports from India are low-cost generic drugs with already marginal or thin profit margins available, therefore, less possibility on additional pricing from India.
Why Indian Pharma Remains Mostly Unaffected:
India exports 54% of its pharmaceutical manufacturing, and nearly one-third of that, 18% goes to the U.S.
85% of Indian exports to the U.S. are generic formulations, so the products named in the executive order, do not apply to those products.
Generic drugs account for 90% of the prescription sales volume but only 13% of total spending in the U.S.
Possible Indirect Effects on Indian Pharma
From a direct impact viewpoint, there is little to no effect from the executive order. However, there are indirect effects for Indian pharmaceutical companies to keep an eye on:
Reduced growth expectations for new generics – If branded innovator drugs become cheaper, the space between them, and generics is reduced. Thus, any demand for new generic versions may be affected.
Pricing risks for niche formulation companies – Companies in India producing branded innovator drugs may experience pricing pressures.
Contract manufacturing opportunities – Global pharmaceutical companies looking to reduce costs may contract out the manufacturing to Indian companies. Contract Manufacturing Organizations (CMOs) stand to gain if this occurs.
Despite all other these concerns, Active Pharmaceutical Ingredient (API) exports represent 15% of India’s pharma exports, and these exports are unlikely to be affected by this executive order. Furthermore, the executive order might create new opportunities for Indian manufacturers that are looking to expand to a global gateway.
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