Trump's 'Buy American' order for essential drugs may have limited impact on Indian pharma companies

The Covid-19 pandemic and tensions with China have trained the spotlight on the US’s heavy reliance on imports for generic drugs. In an effort to end this dependence, US President Donald Trump on Thursday signed an executive order directing federal agencies to buy certain essential medicines solely from US factories.

Trump's order does not mention the specific names of the drugs; instead it directs the USFDA to decide on the list based on new requirements.

White House trade advisor Peter Navarro explained that government agencies such as the Department of Veterans Affairs can opt out of buying American drugs if the product is not produced in sufficient and reasonably available commercial quantities in the US or buying the product locally would raise procurement costs by 25 percent.

The latest order, called ‘Buy American’, comes less than two weeks after the US government’s drug pricing executive orders, in which it proposed the creation of an international pricing index that will seek to cap pricing of drugs under Medicare Part-B to the lowest price available in economically comparable countries. That move could impact Indian companies adversely.

What’s behind the ‘Buy American’ order?

Over 90 percent of US prescriptions are generic medicines, and their supply chain is directly or indirectly linked to China and India.

Concerns have been raised by US Congress members across the political divide about the country’s reliance on China for drugs, which was seen as a threat to national security during public health emergencies.

The US government's $765 million loan to Eastman Kodak, which once made cameras and films, to produce active pharmaceutical ingredients of generic drugs is also being seen as an attempt to cut down on imports.

The ‘Buy American’ order also proposes to provide some relaxations to US manufacturers on USFDA and Environmental Protection Agency regulations.

Impact on Indian drug companies

The Indian Pharmaceutical Alliance, the main lobby representing large Indian drug makers, said it is keenly watching the developments, as the US is a key market for pharmaceutical exports. “We are studying the executive order, so we can't comment at the moment,” said Sudarshan Jain, Secretary General of Indian Pharmaceutical Alliance.

India exported drugs worth about $6.7 billion in FY20, which constitutes about one-third of the country’s pharmaceutical exports.

Uday Bhaskar, Director General, Pharmaceuticals Export Promotion Council (Pharmexcil), a trade body under the Ministry of Commerce, said the impact of the executive order would be limited. “Out of the US generics market of $65-$70 billion, India's contribution is only about 10 percent, and India’s cost of production is 40 percent lower than North America and Europe. The US market has become highly price sensitive for generic drugs,” Bhaskar said.

Other industry sources echoed Bhaskar, saying it would be challenging for the US government to bring a significant chunk of generic manufacturing to its shores, due to significant difference in cost overheads compared to India.

The measures are targeted mainly at China due to the ongoing US-China hostilities and may even benefit India strategically, sources told Moneycontrol, pointing out that China is almost the only source globally for fermentation based API, and the order targets such procurement.

In fact, development of APIs and critical medicine manufacturing in the US may be a strategic positive for India, in terms of national security considerations, and providing non-China sources, one source said.

Many Indian pharmaceutical companies such as Cipla, Sun Pharma, Dr. Reddy’s, Lupin, and Aurobindo Pharma have a substantial manufacturing presence as well as research and development operations in the US.