Trumps most favoured nation drug policy would negatively impact many Indian pharma companies

On Monday, US President Donald Trump signed a new executive order reviving the controversial ‘Most Favored Nation’ (MFN) policy aimed at slashing the prices of certain prescription drugs in the United States.

Under this order, the US government will pay the same price for select drugs as the lowest amount paid in other developed countries — a move that could reduce prices by 30-80 per cent, according to administration estimates. While this may be good news for American consumers, the implications for global pharmaceutical, especially Indian pharmaceutical companies — are far more complex and grave.

The MFN policy specifically targets high-cost branded and specialty drugs, many of which are covered under ‘Medicare Part B.’ The aim is to bring US drug prices in line with international benchmarks, thereby reducing healthcare costs for American citizens and public programs. However, the initiative is not without controversy. A similar attempt during Trump’s first term in 2020 was blocked by US courts. This time too, chances are that the policy will face strong legal pushback from pharmaceutical companies and lobbying groups, raising uncertainty over its implementation.

India, often dubbed the “pharmacy of the world,” has a significant footprint in the US pharmaceutical market, particularly in the generics segment. Indian companies supply a large portion of the low-cost, off-patent drugs consumed in the US. On the surface, this segment appears insulated from the MFN policy. In fact, US generics are already priced about 33 per cent lower than in peer countries, as per a 2024 report from the US Department of Health and Human Services.

But it’s not a favourable situation for companies with exposure to branded and specialty drugs. Sun Pharma, India’s prominent drugmaker, is the most exposed to potential downside risks from the MFN rule. With over $1 billion in expected FY25 US specialty sales — more than half of which are linked to ‘Medicare Part B’ — Sun could see significant revenue erosion if the order is implemented. Its key product Ilumya, an immunology drug used to treat psoriasis, is priced nearly four times higher in the US than in other developed markets. The price adjustment mandated under MFN could deeply cut into its profit margins.

In contrast, companies like Alkem Labs, Lupin, Zydus Lifesciences, IPCA, Aurobindo Pharma, and Mankind Pharma are expected to weather the MFN storm relatively unscathed. Their focus on generics — which are already competitively priced — means they are unlikely to face downward price pressure. In fact, lower prices for branded drugs could even create more headroom for generics in certain therapeutic categories, potentially enhancing their competitive edge.

Perhaps the most critical long-term impact of the MFN policy lies in its potential to alter strategic direction for Indian pharmaceutical companies. With tightening price controls and regulatory uncertainty in the US, Indian firms may hesitate to invest in the high-risk, high-reward specialty drug segment. Nomura’s analysis underscores this point, suggesting that the MFN order might “discourage other Indian pharmaceutical companies from pursuing specialty business in the US.” This could stall innovation and product diversification efforts among Indian players, many of whom have been eyeing specialty drugs as a path to higher margins and stronger branding.

Beyond India, the MFN order could send shockwaves across global pharmaceutical markets. If the US, the world’s most lucrative pharma market, enforces international price parity, companies may look to compensate for lost revenue by hiking prices in other regions. This could lead to second-order effects in Europe, Canada, and even developing markets, where public health systems may struggle to absorb such changes.

It’s also worth noting that while the executive order has been signed, its path to implementation is far from clear. The policy’s legality remains contentious. Previous attempts to enforce MFN pricing were struck down by courts due to procedural and statutory concerns. This time, too, legal challenges are expected to delay or dilute the actual rollout of the policy, leaving pharma companies and markets — in limbo.

Trump’s revival of the Most Favored Nation policy is indeed a bold move aimed at tackling one of America’s most persistent problems: skyrocketing drug prices. While the policy has the potential to reshape the pricing landscape for branded and specialty drugs in the US, its impact on Indian pharmaceutical companies is likely to be uneven.

Generic-focused players will not be affected much  and may even benefit from a more level playing field. However, companies like Sun Pharma that have invested heavily in the specialty segment face significant headwinds.

The policy may also cool broader industry ambitions to innovate and expand in the US specialty space. For now, all eyes will be on the US courts and regulatory agencies to see whether this executive order becomes a game-changer — or simply another political flashpoint in the complex world of drug pricing.