Global Drug Pricing Reforms and Their Commercial Fallout: A Legal Perspective On MFN and India-U.S. Pharma Trade

The U.S government revived the “Most Favoured Nation” i.e the MFN drug pricing policy in May 2025, aimed at curbing exorbitant medicine costs by tying U.S. drug prices to the lowest rates paid by developed nations. The move not only has rooted in trade law principles but has also sent ripples through the pharmaceutical world- impacting India, which is a global leader in generic drug manufacturing. The article offers a strategic and legal overview of how MFN pricing may reshape India-U.S. pharmaceutical trade relations.

Generic Medicines and MFN

Off-patent drugs which are identical in dosage and efficacy to their branded versions are generic medicines which are produced without incurring R&D costs. “Pharmacy of the World” India which accounts for 20% of the global supply of generics and 40% U.S. generics are crucial to global healthcare, especially in HIV/AIDS treatment.

The mandate of MFN which is traditionally a WTO trade rule is to give equal treatment among trading partners. In simple words, MFN to the drug pricing demands that the U.S. government and Medicare pay no more than the lowest price offered in any comparable nation. This is to adapt a global trade rule to regulate domestic pharmaceutical reimbursements. A normal U.S. patient often pays 3-10x more than patients from any other high-income country for the same medications and thus this MFN executive order addresses a stark reality. The main aim that can be understood is to reduce the discrepancy by anchoring U.S. prices to the global minimum. This decision will be disrupting the existing pricing models and will impact both the U.S. drugmakers and all the exports from countries like India. [1]

Indian Pharmaceutical Stand

The exports from the Indian pharma has nearly doubled over the decade and has reached $27.85 billion in FY 2023-24, with the U.S. as the largest buyer with approx. $8-9 billion annually. The Indian generics has dominated the U.S. market with low cost manufacturing, FDA approvals for plants and skilled labor. Under MFN, India’s pricing advantage will enable access in developing nations and now could become a double-edged sword, as those same low prices will serve as the benchmark for U.S. reimbursements and will squeeze margins globally. [2]Both pros and cons for MFN in the Indian markets are:

1. Direct sales – by bypassing intermediaries like Pharmacy Benefit Managers could margins.
2. Increased U.S. entry – benefit from bulk procurement or direct-to-patient models from the U.S. government.
3. Strategic Realignment – Cipla and Glenmark are already investing in U.S. manufacturing and thus reducing tariff exposure.

On the other hand

1. Price compression – if MFN benchmarks Indian prices, then generics could face profit erosion.
2. Global repricing pressure – The U.S. government could indirectly pressure exporting countries to raise domestic pricesa to justify higher U.S. prices.
3. Diplomatic Fallout – the WTO challenge or bilateral trade fiction could arise if MFN is perceived as unilateral price-setting.

The Impact On The Indian Pharma Margins

The Indian generics operate on thin margins, which the MFN may tighten further if the global prices converge downward. Since major Indian companies depend on U.S. sales, they may experience reduced per unit revenue or delayed payments. But, since the U.S. prices are already competitive for generics they may likely experience muted short-term impact. The big brand-name drug companies must nonetheless plan for long-term implications on revenue and volume. [3]

R&D, Trials and Regulatory Implications

The MFN Policy Can Turn the Global Pharmaceutical Strategies Upside Down:

1. The clinical trials migration – Countries like India may increase trials as the U.S. profitability would drop which would offer a growth avenue for CROs.
2. Regulatory Tightening – The Indian submissions may be impacted as the U.S. may impose stricter approval norms under the guise of price safety.
3. Supply Chain – Indian firms may be pushed to invest in U.S. or may diversify API sources beyond China fearing tariffs. Though AI can offer resilience against the shifts in clinical trial design and blockchain in supply- chain traceability.

Innovation & Digitization

By adapting various strategies, India can respond to MFN. Indian firms like Sun Pharma and Dr. Reddy’s are using AI tools to reduce drug development costs and are critical lever in a post MFN world where it is AI driven research and development. Apps like IoT device and telemedicine platforms like e-Sanjeevani has created a patient centric and value added service, thus creating a digital healthy ecosystem. For expanding reach and adherence, subscription models or pre-patient pricing can integrate medicines with digital care which will help in innovating the business model. With over 60% supplies of WHO’s vaccine needs India can expand to diversify revenue streams from biosimilars and high-tech generics. [4]

Legal Implications and Recommendations

From the legal perspective, the MFN policy is not intended to control prices across borders but its applications may challenge at the WTO or trade talks. India on the other hand is a global supplier of affordable medicines and can push back against external pricing pressure to which India can emphasize. It poses both threat and invitation and low prices may boomerang as benchmarks and invitation as India has already mastered low cost innovation.

India can initiate dialogue with U.S. and E.U. counterparts to protect the generics pricing flexibility. And to protect the policy, it should defend the IP flexibilities like section 3(d) of the Indian Patents Act, preventing from evergreening. India can use its high FDA compliance rate and production capacity to bargain in trade negotiations. And to reduce the market diversification, it should reduce dependency on U.S. by targeting Asia, Africa, Latin America and the Middle East for export growth.

The MFN policy will not only aim at price fairness at U.S. but will reshape global pharma economics. The challenge is in the potential compression of global drug prices, which impact the profits and sustainability of the Indian Pharma exports. India, has her strength in low-cost, high volume manufacturing, skilled workforce and innovation. The policymakers must safeguard IP flexibilities and trade sovereignty while maintain India’s global image as a reliable supplier of affordable and quality medicines. To stay ahead, India should embrace digital transformations with expanding into new markets and engage in global policy which will debate as a confident and responsible stakeholder. The next move is watched, not of the world but of India – the next move is ours.

Author: Sonali Kumari, in case of any queries please contact/write back to us via email to [email protected] or at IIPRD. 

[1]https://www.business-standard.com/economy/news/statsguru-will-most-favoured-nation-pricing-alter-india-us-pharma-ties-125052500460_1.html?utm_source=chatgpt.com (accessed on 18 June, 2025).

[2]https://www.businessgo.hsbc.com/en/article/us-hikes-tariff-on-indian-imports-to-26-all-you-need-to-know (accessed on 18 June, 2025) .

[3]https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/trumps-drug-order-sparks-concern-for-indias-pharma-policy-gtri/articleshow/121101663.cms (accessed on 18 June,2025).

[4]https://petrieflom.law.harvard.edu/2025/05/22/the-global-risks-of-americas-most-favored-nation-drug-pricing-policy/ (accessed on 18 June,2025).