Explained | Why is Sun Pharma offering cheaper drugs to Trump administration?

Sun Pharmaceutical Industries on Tuesday announced it has entered into an agreement with the US government led by President Donald Trump to prioritise access to affordable medicines for American patients.

The deal by a drug major with the US government to lower prices of its innovative drugs in the US is in line with the lowest prices paid by other developed nations, under the most favoured nation (MFN) pricing framework. Sun Pharma has also committed to applying MFN pricing to future launches of innovative medicines, the company said on 1 September.

As part of the agreement, signed during a ceremony at the White House, Mumbai-based Sun Pharma, India's largest drugmaker, will extend ‘Most Favoured Nation’ (MFN) pricing to state Medicaid programmes, the company said in a regulatory filing on Tuesday, 1 September.

Why is Sun Pharma offering cheaper drugs to Trump administration? Mint explains.

Sun Pharma's investment in the US

The commitment to MFN pricing will also apply to Sun Pharma's future innovative medicine launches in the US market, the filing said. The MFN pricing generally ensures that a buyer receives the lowest price available for a drug.

The agreement, which was signed alongside eight other pharmaceutical companies, recognises Sun Pharma's investment in the US by delaying Section 232 tariffs on its innovative pharmaceutical products for over two years. The company did not disclose other terms of the deal.

Sun Pharma and the eight other drugmakers will collectively invest at least $19.6 billion in US manufacturing in the near term, according to a White House fact sheet. They will also contribute active pharmaceutical ingredients (APIs) to the Strategic Active Pharmaceutical Ingredients Reserve (SAPIR) in the US.

Why does it matter?

The US currently stands as Sun Pharma's largest market for innovative medicines, contributing about 27 per cent of the company's total global revenue.

Sun Pharma initially built its US presence on a foundation of high-quality generics, followed by an increasing emphasis on innovative and speciality medicines. The company ranks second in prescriptions in US dermatology and continues to expand across dermatology, immunology, cutaneous oncology, and ophthalmology, Mint reported earlier.

Sun Pharma’s innovative product portfolio continues to outpace its US generics sales, with global innovative medicines sales growing 12.8% year-on-year to $351 million in the first quarter of FY27, accounting for 21.9% of total sales.

Sun Pharma currently ranks second by prescriptions in the US dermatology segment and is expanding into immunology, cutaneous oncology, and ophthalmology, it said in the filing, adding that its global innovative medicines portfolio now accounts for about 22 per cent of total company sales.

Shares of Sun Pharmaceutical Industries Ltd were trading 0.60 per cent down at 1,944.25 on the BSE on Tuesday.

That deal is significant because Sun Pharma is not just an Indian company exporting low-cost generic medicines to America. The company's US business has increasingly shifted towards higher-value medicines in areas such as dermatology, immunology, oncology and ophthalmology.

The timing of the deal is also significant. Earlier in April, the Trump administration imposed a 100% tariff on branded drugs, with companies signing such agreements exempted from the levy. The government also said in July that it would impose 100% tariffs on generics from 2028, a move that could disproportionately affect Indian drugmakers and raise costs for US patients.

Earlier this year, Sun decided to acquire US-based Organon at an enterprise value of $11.75 billion, giving it a much larger portfolio of branded medicines, women's health products and biosimilars. That makes its long-term exposure to the American healthcare market considerably bigger.

How does the most favoured nation affect pricing?

MFN pricing could mean that medicines supplied through Medicaid have to be offered at much lower prices. That could put pressure on margins – the amount a company earns after accounting for costs, experts said.

Medicaid sales are potentially a “low margin proposal”, although it increases the patient reach, Shrikant Akolkar, veteran pharma analyst with Nuvama Institutional Equities, told India Today.

So basically, experts said, Sun Pharma is doing a balancing act: accepting pricing pressure in one part of the market in exchange for greater access, fewer tariff risks and potentially more predictable operating conditions in the US, the India Today report said.

Sun Pharma initially built its US presence on a foundation of high-quality generics, followed by an increasing emphasis on innovative and speciality medicines. The company ranks second in prescriptions in US dermatology and continues to expand across dermatology, immunology, cutaneous oncology, and ophthalmology.

Sun Pharma’s innovative product portfolio continues to outpace its US generics sales, with global innovative medicines sales growing 12.8% year-on-year to $351 million in the first quarter of FY27, accounting for 21.9% of total sales.

The bigger picture: Cheaper drugs in the US

The US is India's largest pharmaceutical export market, accounting for nearly $10 billion in annual shipments and supplying roughly 47 per cent of all generic prescriptions dispensed in America.

The Sun Pharma agreement is part of Trump’s MFN pricing drive to reduce drug costs for American patients. The US administration has been pressuring pharmaceutical companies to bring US prices closer to those in other developed countries. The latest nine-company agreements include Sun Pharma, Teva, Astellas, UCB and others.

The US government has so far reached deals with 26 pharmaceutical manufacturers, including Pfizer, AstraZeneca, Eli Lilly and Novo Nordisk, covering 89 per cent of the branded drug market, according to an earlier report in Mint.

It simply means that the US wants Medicaid - the government-backed health insurance programme serving millions of low-income Americans – to get drug prices comparable to the lowest prices available in other developed nations.

Sun Pharma gets a concession in return. The US will delay Section 232 tariffs on its innovative pharmaceutical products for more than two years, as per multiple media reports.

"The United States is a key area of investment and expansion for Sun Pharma across clinical development, sales and marketing, and both API and finished products manufacturing," Rick Ascroft, North America CEO, Sun Pharma, who represented the company at the White House, was quoted as saying by news agency PTI.

So lower prices in exchange for tariff relief plus continued access to the world's most important pharmaceutical market.

There is also a strategic angle for the US. Sun Pharma will contribute 71.4 tons of clindamycin and 6.75 tons of doxycycline, both antibiotics to treat bacterial infections, to the US Strategic Active Pharmaceutical Ingredients Reserve, according to the White House note.

So in short, Sun Pharma is offering cheaper drugs not simply because the Trump administration asked for it. It is making a calculated trade-off to avoid tariffs, protect its US business and reduce policy uncertainty while retaining access to the lucrative American market.

(With agency inputs)