A Trump Shock To The Pharma World

United States president Donald Trump upended the global pharmaceutical industry with an executive order on May 12 that aims to drastically reduce price of medicines companies charge from Americans.  The reason given was that US citizens are subsidising cheaper prices other countries force pharmaceutical companies to offer. They make 75 percent of their profits in the US. Now, according to the order, they will have to offer to the US the cheapest price.

Stating that Americans were paying five to ten times for what the same drug was being charged elsewhere, Trump posted on Truth Social, ‘Prescription Drug and Pharmaceutical prices will be reduced, almost immediately, by 30% to 80%. They will rise throughout the world in order to equalize and, for the first time in many years, bring fairness to America! I will be instituting a most favored nation’s policy whereby the United States will pay the same price as the nation that pays the lowest price anywhere in the world.’

A fallout of this will be on Indian pharmaceutical companies, which have a wide presence in manufacturing generics that are exported. Then there are also CDMO companies, which do research, testing and manufacturing on behalf of global pharma multinationals for molecules that lead to new medicines. A report by India Ratings And Research, which tracks the sector, felt there will be some long-term headwinds on the generics front in terms of revenue growth because the US is a major market. This might lead to them changing their strategy to expand elsewhere. It might, on the other hand, be a good thing for the CDMO space. The report said, ‘Indian CDMO players may benefit, given the cost arbitrage of manufacturing in lower cost destination such as India and strong chemistry skills,’ it said.

Patented branded medicines, where the big markups happen, will still be more affected than generics. India doesn’t have much of a presence in it. What might be a more immediate cause of worry is prices of drugs being increased in India by multinationals to make up for the United States reduction. With Trump, it is also possible that the executive order is a maximalist position being put out before negotiations begin, ending eventually in a more palatable deal.

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