US President Donald Trump has issued a series of executive orders to massively lower prescription drug prices and widen Americans’ access to life-saving medications, including insulin.
The American President’s latest orders are aimed more at bringing transparency and cutting the role middlemen play in the trade. At the same time, the order will have some impact on Indian generic pharmaceutical companies, especially those selling speciality and biosimilar drugs.
The orders, signed on July 25, included allowing certain drugs to be imported from Canada and ensure that the discounts negotiated by middlemen, who are known as pharmacy benefit managers, are passed on to Medicare patients. The other most radical proposal is to cap the prices of Medicare Part B drugs to the lowest price available in countries economically comparable to the US.
Medicare is a US federal health insurance programme that covers people who are above 65 years, people with permanent disabilities, and end-stage renal patients.
Burgeoning healthcare costs, especially prices of prescription drugs, have always been a politically sensitive issue for Americans. The orders come just months before the US Presidential elections in November, in which Trump will seek a second term.
What the orders say
There are four executive orders. The first one talks about federally qualified health centres passing along massive discounts received from drug companies on insulin and epinephrine to certain low-income Americans. Epinephrine is used to treat allergic reactions.
The second order will allow State plans for safe importation of certain drugs from Canada. The third order will prohibit secret deals between drug manufacturers and pharmacy benefit managers (middlemen), ensuring patients directly benefit from available discounts at the pharmacy counter.
The fourth and final order ensures that the US pays the lowest price available in economically comparable countries for Medicare Part B drugs.
Impact on Indian pharma
India exported about $6 billion worth of drugs in fiscal year 2019 to US, more than one-third of its total pharmaceutical exports.
But the executive order that allows the US government to pay the lowest price available in economically comparable countries for Medicare Part B drugs could have an adverse impact on Indian companies.
The Trump administration has been saying that it pays 80 percent more for drugs than other developed countries. So, it is proposing the creation of an international pricing index that will seek to cap pricing of drugs under Medicare Part-B to the maximum price in any of the OECD countries.
However, Trump said he is giving the pharmaceutical industry until August 24 to make a deal with him before he implements it.
While the prices of most commonly prescribed generic drugs are the same across the developed world, there are drugs such as biosimilars and speciality drugs that are much cheaper in Europe, compared to the US.
Companies such as Sun Pharma, Biocon, Lupin, Cipla and Dr Reddy’s, among others, which are betting on speciality drugs and biosimilars, may be impacted if the order is implemented.
“This is the most contentious proposal among the executive orders, and has been put on hold until August 24, and is unlikely to be eventually implemented, in our view,” said HDFC Securities in its report.
“This has a bearing on specialty drugs, particularly, biologics and consequently biosimilars, though, critically, as per the industry, it will also stifle biotech innovation in the US,” the report added.
Pricing pressure
The order, if implemented, is likely to be a problem for Indian generic companies, which are already facing pricing pressure in the lucrative US market.
Prescription drugs in the US saw their largest annual price decrease in over half a century in 2018.
The White House press release says that the Trump Administration has approved generic drugs at historic rates, saving patients $26 billion in the first 19 months of the Trump presidency.
“None of the points in the executive order has a large bearing on the generics pricing environment in the US, which remains fiercely competitive, with pricing for several commodity oral solids such as statins, prils, etc. already at a lower price point than most developed countries (in several cases, even India). We see limited impact from a price cap, except that it will restrict price gouging,” HDFC Securities said.
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