Donald Trump’s New Pharma Order May Force India to Raise Drug Prices, Stocks Drop Amid Margin Concerns

U.S. President Donald Trump’s recent executive order, aimed at cutting prescription drug costs, is stirring concerns in the global pharmaceutical industry. The new policy could potentially force India to increase its drug prices, leading to a significant drop in Indian pharma stocks as investors worry about shrinking profit margins.

Trump’s Executive Order on Drug Pricing

President Trump’s executive order introduces a “most favored nation” (MFN) approach to drug pricing, seeking to lower the cost of U.S. medications by pegging them to the lowest prices paid in other high-income countries. This could reduce the price of many drugs in the U.S. by 30% to 80%, bringing relief to Americans facing high healthcare costs. This move is designed to make medications more affordable for U.S. citizens, who currently pay far more for drugs than people in other developed nations.

Impact on Indian Pharmaceutical Companies

India plays a crucial role in supplying generic medicines to the U.S., accounting for around 60-65% of the U.S. generic drug market. With the U.S. market comprising about one-third of India’s pharma exports, which totaled around $9 billion last year, Indian pharmaceutical companies such as Sun Pharma, Dr. Reddy’s Laboratories, and Cipla depend heavily on sales to the U.S. market.

The new U.S. pricing policy is expected to hurt Indian pharma companies’ earnings, especially as the MFN pricing could prompt these companies to lower prices in the U.S. to match global standards. Indian pharma giants like Dr. Reddy’s and Cipla might see a significant impact on their profit margins. For example, a 10% tariff on pharmaceutical imports could reduce earnings per share (EPS) by up to 6.5% for companies like Dr. Reddy’s, and 6% for Zydus Lifesciences. Others such as Aurobindo Pharma and Lupin could face similar challenges, while Sun Pharma and Torrent Pharma may suffer smaller EPS reductions.

Price Hikes in India?

There are concerns that as global pharmaceutical companies face revenue losses due to the U.S. price reductions, they might compensate by raising prices in lower-cost markets like India. Such an increase could affect millions of people in India who rely on affordable generic medicines. The Global Trade Research Initiative (GTRI) has raised alarms that the U.S. price cuts could prompt pharma companies to adjust pricing strategies in emerging markets, thus jeopardizing drug accessibility in countries like India.

Market Reaction

The stock market has already reacted strongly to the news of Trump’s executive order. On May 12, 2025, shares of Indian pharmaceutical companies took a hit, with the sector’s stocks dropping by 1.6%, diverging from broader market trends. Leading pharmaceutical companies such as Sun Pharma and Zydus Lifesciences experienced steep declines of around 4.6% and 0.7%, respectively. Other stocks, including Cipla and Divi’s Laboratories, saw drops of 2% and 3%, respectively, with the Nifty Pharma Index also falling by 3.2%.

Future Outlook

The full impact of President Trump’s executive order will become clearer in the coming weeks, as the policy is set to be fully implemented shortly. Indian pharmaceutical companies are now looking closely at how to adapt to these changes. Some are already considering ways to mitigate the potential fallout in the U.S. market. The Indian government might also need to step in to address the possible rise in drug prices, ensuring that affordable medications remain accessible to the population.

As this issue unfolds, stakeholders in both India and the U.S. will be closely monitoring the long-term effects of this significant shift in U.S. drug pricing policy. The changes could reshape the global pharmaceutical landscape and have far-reaching consequences for access to medicines worldwide.