Following Sun Pharmaceutical’s move, several large Indian pharmaceutical exporters are likely to enter into agreements with the US to offer Most Favoured Nation (MFN) pricing, as they seek to minimise challenges arising from potential Section 232 tariffs and other hurdles posed by the powerful US pharmaceutical distribution lobby.
Indian pharmaceutical exporters have been grappling with a twin challenge in the US market. While the threat of Section 232 tariffs continues to loom over drug exporters, profit margins have also come under pressure amid growing bargaining power among distributors and the absence of long-term annual contracts.
“We are likely to see more large Indian pharmaceutical companies adopt such models to protect value and support the long-term sustainability of their US businesses. Maintaining a USFDA-approved site is also expensive, making efficient distribution and deeper market integration even more important,” said Namit Joshi, chairman, Pharmaceuticals Export Promotion Council of India (Pharmexcil).
According to Indian exporters, profitability in the US market has declined significantly in recent years. They said a handful of large distributors, which have tie-ups with health insurance companies and pharmacy benefit managers (PBMs), now wield considerable bargaining power. PBMs are third-party entities who act as middlemen between insurance and pharman companies.
The annual contract system is no longer prevalent, exporters said. If another supplier offers the same molecule at a lower price, an existing supplier may be asked to match the price or risk losing the contract. Some exporters also said Indian companies are supplying certain products to the US at prices lower than those charged in markets such as Europe and Africa.
“US pharmaceutical pricing and distribution dynamics have evolved significantly, creating a highly competitive environment for manufacturers. As distributors, pharmacy benefit managers and other intermediaries gain negotiating influence, Indian pharmaceutical companies are increasingly exploring stronger distribution capabilities and greater value-chain integration,” Joshi said.
Last week, Sun Pharmaceutical signed an agreement with the US to ensure MFN pricing for its medicines, in a move aimed at insulating the company from the tariff overhang affecting both innovative and generic drugmakers selling in the US.
“The pharma lobby of distributors and insurance companies in the US is a big challenge for exporters. Even (former US President) Barack Obama tried to curb that through the Obamacare programme. Now, many more companies, depending on the kind of competitors they have in the market, might follow the footsteps of Sun Pharmaceutical as a measure to navigate the challenges arising from this lobby and also minimise the threat of Section 232 tariffs,” said Jatish N Sheth, director, Srushti Pharmaceuticals.