How Donald Trump’s executive order on drug prices could hit Indian research companies

The order, which calls for a policy under which the US would pay the ‘most-favoured-nation’ price – essentially the lowest price that other comparable countries pay for certain drugs – is expected to hit innovator companies rather than those that make cheap generic drugs. Innovators will look at ways to reduce costs, so the amount they spend on research may drop, the analysts said.

“If you look at a contract research organisations… they would be impacted first. Because if you’re cutting the prices by nearly 30 to 80% for innovators, there’s less incentive for them to put in most of the capex on these high-end products,” said Tausif Shaikh, lead pharma analyst at BNP Paribas. 

Contract research organisations (CROs) offer research services to pharmaceutical and biotech companies looking to outsource parts of their clinical trials and development. 

Also read: Trump’s drug price crackdown, like his trade war, could be more bark than bite

“Such an executive order could dramatically reshape the US pharmaceutical industry and severely impact the US biotech sector,” analysts at JM Financial Institutional Securities said in a note on 12 May. “CRO revenues are likely to decline as R&D spending is expected to drop immediately,” they noted.

Funding for biotechs in the US has already been uneven for the past few years, and Trump’s cuts targeted at the National Institute of Health (NIH) have further raised concerns.

Muted guidance

Companies such as Syngene and Piramal Pharma, which offer research and on-patent discovery services, have already guided for muted single-digit growth in these businesses for FY26. 

Deepak Jain, CFO, Syngene, told investors in a post-earnings call on 24 April, “We expect FY26 to be a transient year with uncertain short-term macro environment building in the recovery of biotech funding, big pharma restructuring and tempering of urgency on the Biosecure Act… Our underlying business growth remains strong, with revenue growth in the early teens, driven by performance across research and CDMO (contract development and manufacturing organisation) businesses.”

Also  read: This Indian pharma company is immune to Trump’s new policy. Here’s why

Piramal Pharma expects muted growth for its CDMO business in FY26 – despite an increase in requests for proposals (RFPs) as well as good growth in its innovation-related on-patent work – on account of prolonged decision-making timelines from customers. However, the firm expects a quick recovery in FY27, chairperson Nandini Piramal told Mint in a post-earnings interview last week. 

Will manufacturers benefit? 

India’s CDMO sector has been one to watch, as it expects huge growth with companies looking to diversify supply chains beyond China. According to a BCG report, the market is expected to double from $7 billion to $14 billion by 2028, accounting for 4-5% of the global market. 

CDMOs, which offer manufacturing services, may not see a sizable immediate impact from the executive order, JM Financial analysts noted. “In fact, they could benefit from incremental orders as companies look to reduce costs…Major US pharma companies aiming to cut manufacturing costs won’t be able to shift production to the US. Instead, they would have to rely more heavily on CDMO players to manage costs,” they said. 

“It remains to be seen how Trump’s administration plans to achieve these conflicting objectives during its tenure,” the analysts added. 

‘Too early to speculate’

Industry executives are keeping a cautious eye on the developments but believe it is too early to speculate. “We don’t know how this is going to pan out for the innovators to reduce costs,” said Swapnil Shah, managing director of Senores Pharmaceuticals, which has a CDMO presence in the US. 

“Once that is in place, maybe we can comment on [this]… if they would like to reduce that cost and depend on third-party players to work for them,” Shah said.

Also read | Mint Explainer: Why Indian pharma is spooked by Trump’s latest drug policy

While there is a possibility that CDMOs will see some incremental benefits in the future, this isn’t likely in the near term, Shaikh said. “At this point of time, it seems very unlikely that innovators would look for [CDMOs] to manufacture their existing set of products,” Shaikh said, adding that it takes 12-18 months to shift manufacturing. “It could be the case that if they have some new launches in their pipeline, they could go to CMOs,” Shaikh added. 

There is also scepticism over whether Trump’s order will go through, and how it will be implemented. A report by Associated Press on 12 May noted that the order would likely only affect certain drugs covered by Medicare and given in an office, in which case its impact would be very limited. Trump’s to implement a similar order for select drugs during his previous term was blocked.