On 12 May, an executive order issued by the White House declared a Most-Favoured-Nation (MFN) drug pricing policy aimed at lowering the drug prices Americans faced, thereby ending what it called “global freeloading”. In short, the statement said that foreign countries benefited from the artificially low drug prices, while US citizens were burdened with subsidising the cost of global pharmaceutical innovation.
President Donald Trump took to Truth Social, a self described “alt-tech social media platform,” to announce his displeasure on the strain the American public faced with regard to medicine affordability.
“For many years the world has wondered why prescription drugs and pharmaceuticals in the United States of America were so much higher in price than they were in any other nation, sometimes being 10 times more expensive than the same drug, manufactured in the exact same laboratory or plant, by the same company.
“They will rise throughout the world in order to equalise and, for the first time in many years, bring fairness to America!” he said. “I will be instituting a Most Favoured Nations policy whereby the United States will pay the same price as the nation that pays the lowest price anywhere in the world,” Trump added.
According to the World Trade Organization (WTO), the MFN principle is a core rule of the WTO, established under the General Agreement on Tariffs and Trade (GATT 1947) and later reinforced in the WTO’s founding agreements (1995).
The previous Trump administration availed itself of the principle in a bid to tie physician-administered drugs such as chemotherapy to the lowest paid costs paid by other developed, Organisation for Economic Co-operation and Development (OECD) nations. The order was however blocked in a federal court in 2020 before it reached full implementation.
Possible impact on SL
Speaking to The Sunday Morning Business, Pharmaceutical Society of Sri Lanka (PSSL) President Priyantha Sahabandu said that while Sri Lanka would not be directly impacted, importers of pharmaceutical drugs were likely to be affected.
“This affects importers of medicinal drugs. The Sri Lankan pharmaceuticals market is dominated by imports. Around 95% of it is imported pharmaceuticals and the remainder of 5% is what is locally manufactured. Local manufacturers’ pricing also depends on the pricing set by international drug manufacturers,” he said.
A sector overview released by the Ministry of Industries in 2021 stated that 96% of medicinal drugs sold by chemists in Sri Lanka were imported. Of the local firms selling the medications, over 180 private local firms were said to be registered importers with the National Medicines Regulatory Authority (NMRA). These include local conglomerates such as Hemas Group, Browns Group, and Sunshine Holdings, which distribute medicinal drugs from multinational corporations as well as smaller regional manufacturers.
Representing the view of local pharmaceuticals manufacturers, Sri Lanka Pharmaceutical Manufacturers’ Association (SLPMA) President Nalin Kannangara told The Sunday Morning Business that local manufacturers did however base their pricing on what was set by imported pharmaceuticals.
“Local manufacturers base their pricing on the pricing mechanism accepted by the NMRA. Pharmaceuticals are price-controlled products. There are price ceiling products and there are non-price ceiling products as well,” he said.
He further stated that one way in which Sri Lanka could be impacted was through any disruptions faced in the generics-producing markets the country depended on in order to supplement its medicinal needs. The Ministry of Industries in 2021 found that India supplemented approximately 50% of Sri Lanka’s Finished Pharmaceutical Products (FPP).
“Sri Lanka is not likely to be impacted heavily, unless the generics markets in India, China, and other places are directly impacted,” Kannangara said, adding: “The Indian pharmaceutical market does have a dependency on the US market as an export destination. China, another pharmaceutical market, sells to the US too, sometimes for prices 30 times higher.”
Speaking to The Sunday Morning Business, University of Colombo (UOC) Department of Commercial Law Professor Naazima Kamardeen, an Intellectual Property (IP) law expert, addressed the likelihood of any impact of the policy on Sri Lanka.
“We cannot afford most US-made medicinal drugs, and most drugs we purchase are made elsewhere, where it is likely that we may not see an immediate impact. If companies elsewhere are affected, that would affect Sri Lanka,” she stated.
To gauge the impact the policy would have on Sri Lankan pharmaceutical imports, The Sunday Morning Business reached out to Sri Lanka’s foremost body representing pharmaceutical importers, the Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI).
Offering his view of the situation within two-days of the announcement, SLCPI President Prathaban Mylvaganam said: “We are unable to comment on this at the moment. The price of pharmaceuticals in the US is at least 10-12 times higher. We will need to watch the proceedings of this policy decision further to give a definitive comment on the developments related to it, which may impact Sri Lanka. We cannot afford to come to conclusions as of yet.”
Cost concerns
Contesting the viability of the policy, SLPMA President Kannangara argued that the mammoth costs borne by consumers was not entirely to cover Research and Development (R&D) costs.
“They say these steep prices are to cover R&D, but there are many other things that pharma companies add to that cost. Oftentimes when a company invests in the development of a product there is little to no assurance that the outcome of the investment will be successful,” he said.
He further stated that a company might, for example, invest in developing a drug for diabetes, and along the process, through discovery and further synthesising of findings, there could be times when products changed during this process.
“However, pharmaceutical companies are still given time to recover their R&D cost through the patent period, which reserves them the exclusive right to produce and earn back their investment,” he noted.
TRIPS agreement
Commenting on the patenting of pharmaceutical goods, as reserved for by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, Prof. Kamardeen stated that the WTO, with its outdated rules, had historically been more beneficial for Western exporters with IP rights.
“The WTO has a means of better pricing, as it was created at a time when trading services and intellectual property were exploding. All exporters wanted IP protection from the countries they were exporting to. When the TRIPS agreement was initially introduced, generics manufacturing countries like Brazil and India opposed it,” she said.
The agreement, established in 1995, was introduced in the context of tensions which revolved between developed countries – which pushed for stronger intellectual property rights – and developing countries – which relied on the production of generic drug production – for affordable medicine.
“They knew that discussions on generics would lead them to be outlawed. They knew that non-violation would not be raised. Then developing countries were given a 10-year margin – a good measure. In reality, the tariffs were much higher since they benefited from exporting to other places,” Prof. Kamardeen pointed out.
Before the introduction of the agreement, developing nations imposed high import tariffs on patented pharmaceuticals arriving from the West as a means of protecting domestic drug manufacturers and controlling drug prices. Although TRIPS as an agreement required harmonisation of intellectual property, it however did not regulate tariffs. By forcing developing nations to recognise drug patents, the agreement indirectly weakened the generics industry.
“If we were to rationally look at it, there is indeed a disparity. Why has anyone been promoting disparity when bodies like the WTO exist? How come the Joe Biden administration struggled with negotiating better terms for consumers?” Prof. Kamardeen questioned.
WTO rules coming to roost?
Previously, former US President Biden, during his 2024 campaign, announced the promise of lowering the prices of 10 medicinal drugs meant for treating cancer, heart disease, and diabetes, which had connections to 11 key American pharmaceutical manufacturers.
“What Trump must understand is that American society must subsidise these costs for them, as they continue to benefit from high prices in exports. Drug pricing policy is an area where people cannot be punished equally. Sri Lanka is a poor country with poor patients, whereas America is a rich country with a sizeable population of poor patients,” she said.
Prof. Kamardeen noted that the biggest takeaway was that the rules of the WTO were finally “coming to roost,” adding: “We should see what the WTO is doing about this. It gave promises to developing countries and is now continuing with maintaining those old rules.”
“The same way the tariffs were leveraged to intimidate trade partners into negotiating more agreeable terms, the Trump administration is looking to use this to its advantage. The tariffs with China were initially set at a steep 145%, which was later brought down to 30% on smaller parcels that were entering the US,” she said.
“Even with the introduction of this drug pricing policy, there is still a disparity in drug prices in the US in comparison with other developing countries,” she added.
Evaluations ongoing
SLPMA President Kannangara added that the association was awaiting the revelation of the pricing. “The pricing is yet to be revealed and therefore nothing can be said yet. The impending tariffs, however, will have an impact on the local market. The tariffs are a lot less likely to impact local manufacturers but will certainly have the opposite effect on local importers,” he noted.
NMRA Acting Director – Regulatory Arjuna Pathmaperuma stated that the authority was in process of evaluating the situation at hand, with experts being forwarded the updates. “We are in the process of assessing the situation. Once we have deliberated on what the impact of this policy might be, we will formally notify the public on its impact,” he said.