The Most Favoured Nation agreement that Sun Pharma signed along with eight other global drug makers will likely require it to cut prices of several products supplied under US state Medicaid programmes.
Also Read: Sun Pharma to extend MFN pricing to US state Medicaid programmes
But analysts and industry experts said the nuances around the portfolio of India’s largest drug maker would keep the financial impact to a minimum.
The agreement, on the other hand, is seen as a positive development for the company. “The agreement recognises Sun Pharma’s investment in the US market by delaying Section 232 tariffs on innovative pharmaceutical products for over two years,” the Mumbai-based company said in a news release Tuesday. Further terms of the agreements remain confidential, it said.
“Based on the Medicaid exposure and assuming a 20-50% price reduction in that channel, we estimate the potential impact at around $20-30 million,” said Vishal Manchanda, pharma analyst at Systematix Group. “However, the actual impact could be lower given that the detailed terms of the agreement are not known,” he added.“The potential impact could be in the low single digits, around 1%, and therefore does not materially alter the investment thesis or Sun’s overall ebitda outlook,” said another analyst not wanting to be named.
President Donald Trump said on Monday that nine pharmaceutical manufacturers, including Sun Pharma, reached agreements with the US government to lower prescription drug prices for Americans under the MFN programme.
The US contributes about 27% to Sun Pharma’s global revenue. The pact comes as Sun pursues its $11.75 billion acquisition of US drug maker Organon, reinforcing its long-term growth strategy for the American market.
Sun Pharma shares ended Tuesday 1.3% lower at Rs 1,930.45 on the BSE.
Minimal impact
Sun Pharma ranks second in the US dermatology market by prescriptions, with key brands including Ilumya for plaque psoriasis and Winlevi for acne. Recent US launches include Leqselvi for severe alopecia areata and Unloxcyt for advanced cutaneous squamous cell carcinoma, strengthening its presence in dermatology and cutaneous oncology.
Also Read: Sun Pharma among 9 pharmaceutical firms to lower drug prices for Americans, Trump says
“The impact of the US government’s MFN agreement on Sun Pharma’s financials should be minimal, based on the current understanding that it applies only to the company’s specialty portfolio supplied through the Medicaid programme,” said a senior analyst with a leading broking company. While Sun generates roughly 27% of its revenue from the US, the analyst estimates that less than 10-15% of its specialty portfolio is linked to Medicaid, a joint federal and state programme to offer free or low-cost health insurance to Americans with low incomes.
Importantly, Medicaid already operates at a discounted realisation versus private channels. Even if the MFN agreement requires Sun Pharma to align US Medicaid prices more closely with prices charged in other countries, analysts said the impact could remain limited because the existing Medicaid segment is both low-volume and already deeply discounted.
“This segment is a very deep-discount segment already. It is usually a 30-40% kind of discounted segment already. Even if you offer another 10% kind of discount, 40% becoming 50%, what practically it will mean? Hardly anything,” said Soorya N Patra, a pharma analyst at Phillip Capital.
“There are several nuances around how the MFN pricing will actually work. For instance, Ilumya is Sun Pharma’s largest US innovative drug, but the company does not directly sell it in Europe and therefore does not have a European price of its own to benchmark against. Similarly, Leqselvi and Unloxcyt are not sold in Europe,” said Manchanda of Systematix. This could make Sun Pharma’s exposure different from that of global innovators with a larger established European pricing base.
Investment in US manufacturing
According to a White House fact sheet, the nine pharmaceutical manufacturers that signed MFN agreements have committed to invest at least $19.6 billion collectively in US manufacturing in the near term.
Additionally, several companies are donating active pharmaceutical ingredients for key products to the Strategic Active Pharmaceutical Ingredients Reserve (SAPIR), to reduce reliance on foreign nations and ensure that the US has an adequate supply of such products in the event of an emergency, according to the US.
Sun Pharma will contribute 71.4 tonnes of clindamycin and 6.75 tonnes of doxycycline, both antibiotics used to treat bacterial infections, to the SAPIR.
