New Delhi [India], June 3 : US President Donald Trump's executive order on reducing prescription drug prices will have a limited impact on Indian pharma companies, according to a report by Crisil Ratings.
Citing the reason behind its observation, the credit rating firm in its report said that despite India exporting over half of its pharmaceutical output, the bulk comprises low-priced generic drugs, which already operate on razor-thin margins, leaving little room for further price cuts to materially affect revenues.
In over half of the pharmaceutical output, one-third goes to the United States. India exports 54 per cent of its pharmaceutical production, of which nearly a third is to the US. Around 85 per cent of the exports to the US comprise formulations, largely generics, while sales from biosimilars and innovator drugs remain low.
Generic pharma drugs account for 90 per cent of the prescription sales volume but only 13 per cent of the value spending in the US. Generic drug prices in the US are very low and have lower prices in comparison to economically peer countries.
The executive order issued in the United States aims to reduce the prices of prescription drugs by 30-80 per cent through the adoption of a Most Favoured Nation (MFN) pricing model.
The US Department of Health and Human Services (HHS) has outlined the initial steps to be taken to implement this policy, involving identification of manufacturers expected to align the prices of branded products, which do not currently have generic or biosimilar competition, with the lowest price among a set of economic peer countries of the US.
Trump's executive order primarily targets high-margin branded innovator drugs and excludes generics and biosimilars.
"The MFN model is unlikely to significantly affect the bulk of India's exports," the report added.
It further added, "However, potential indirect impact, through lower growth prospects for upcoming generic versions of innovator drugs going off patent, due to lower price differential post price reductions of the innovator drugs, would bear watching."
However, a few formulation companies with niche presence in the branded innovator drug segment can face some pricing risk.
"API exports (15 per cent of India's pharma exports) are expected to be broadly unaffected, as it is not a major cost for high-margin originator drugs, abating concerns of pricing pressure," the report added.
Additionally, the policy may create opportunities for contract manufacturing organisations, which constitute 8 per cent of India's pharma market.
"The policy may create opportunities for CMOs ( 8 per cent of India's pharma market), with orders expected to improve as global pharma companies seek to lower production costs by outsourcing. While this could support volumes, the pressure on pricing may result in renegotiation of contract rates, compressing margins," the report further added.
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