Indian pharmaceutical stocks experienced a significant downturn on Monday, May 12, 2025, following U.S. President Donald Trump's announcement of an executive order aimed at reducing prescription drug prices. The directive, known as the "most favored nation" pricing policy, seeks to align U.S. drug prices with those in other wealthy nations, potentially lowering costs by 30% to 80%.

This policy shift has raised concerns among Indian drug manufacturers, who heavily rely on the U.S. market for revenue from low-cost generic drugs. The U.S. accounts for approximately one-third of India's pharmaceutical exports, totaling around $9 billion in the last fiscal year.

The announcement led to a 1.6% drop in Indian pharmaceutical stocks, diverging from broader market gains. Sun Pharma led the losses with a 4.6% decline, while Zydus Life and Cipla each fell by 0.7%. Divi’s Laboratories and Lupin dropped 2% each, and Biocon fell by nearly 3%.

Analysts warn that the drastic price cuts could immediately affect branded drugs and eventually impact generic markets by shrinking the potential size of new drug markets. The policy’s strict implementation could adversely impact leading Indian pharma firms like Sun Pharma, Biocon, and Zydus Life.

While the broader Indian stock market surged over 2.5% due to relief from the India-Pakistan ceasefire, the pharmaceutical sector declined by 0.7% following President Trump's announcement. Cipla and Sun Pharmaceutical were the only significant losers among the Nifty 50 stocks.

The global pharmaceutical industry also felt the impact, with European firms like AstraZeneca, GSK, and Roche experiencing losses between 3.3% and 6.8%. Healthcare indices in Australia, India, and Japan showed declines, reflecting the widespread concern over the potential ramifications of the U.S. policy shift.

As the situation unfolds, Indian pharmaceutical companies may need to reassess their strategies and explore new markets to mitigate the impact of the U.S. policy changes. The coming weeks will be crucial in determining the long-term effects on the industry and the global pharmaceutical supply chain.