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OBBB Act to impact Indian pharma cos in Medicaid cuts, PBM reforms, orphan drug exemptions: Experts
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Shardul Nautiyal, Mumbai
July 16 , 2025
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As the Indian pharmaceutical industry is a major supplier of generic drugs to the US market, accounting for approximately 40% of generic prescriptions, the One Big Beautiful Bill Act (OBBBA) provisions will have significant implications in the form of Medicaid cuts, Pharmacy Benefit Manager (PBM) reforms and orphan drug exemptions, according to pharma industry experts.
OBBBA, enacted on July 4, 2025, introduces sweeping changes to the US tax, healthcare, and trade policies.
The OBBBA imposes Medicaid cuts estimated at USD 863 billion to USD 1.02 trillion over ten years, with stricter eligibility requirements, work requirements, and frequent verifications. This is projected to result in 7.8 million to 11.8 million Americans losing coverage by 2034.
Indian companies like Sun Pharma, Dr. Reddy’s, and Cipla, which supply a significant portion of US generic drugs, may face reduced demand due to fewer Medicaid-covered patients. Generics, often used for chronic conditions prevalent in low-income populations, could see a sales decline.
According to Vikas Nim, pharma industry specialist, “With Medicaid covering approximately 20% of US prescription drug spending, reduced enrollment could lower revenues for Indian exporters. For instance, a 10% reduction in Medicaid prescriptions could translate to billions in lost sales annually for Indian firms.”
Nim further suggests that Indian companies may need to diversify into non-Medicaid markets, such as private insurance or emerging markets, or expand patient assistance programs to maintain access in the US.
The OBBBA includes Pharmacy Benefit Manager (PBM) reforms aimed at increasing pricing transparency and adjusting rebate structures, though specific details are limited in available sources.
Archana Arya, business analyst coordinator at OPTUM explains, “PBM reforms may lead to pricing and rebate shifts for Indian pharma firms. Indian generic manufacturers often negotiate rebates with PBMs to secure formulary placement. Increased transparency could pressure Indian firms to lower list prices or offer higher rebates, squeezing margins in a highly competitive market.”
Arya further explains that if PBMs consolidate their influence under new regulations, smaller Indian manufacturers with less negotiating power may struggle to maintain formulary positions against larger US or multinational competitors.
She suggests that Indian companies should strengthen relationships with PBMs and invest in cost-efficient production to maintain competitiveness. Engaging in value-based contracts that demonstrate cost-effectiveness could also help.
The OBBBA exempts orphan drugs treating multiple rare diseases from Medicare price negotiations and delays negotiations until drugs are approved for non-rare conditions, potentially adding USD 5 billion in revenue for drug makers.
It has been learnt that Indian pharmaceutical companies have a smaller presence in the orphan drug market, which is dominated by US and European firms focusing on high-cost biologics. Companies like Biocon or Sun Pharma, with some rare disease portfolios, may see marginal benefits but not to the extent of Western competitors.
Nim further suggests, “Orphan drugs exemption could encourage Indian firms to invest in rare disease R&D, leveraging their expertise in cost-effective drug development to enter this lucrative segment. However, high R&D costs and regulatory barriers may limit short-term gains. Indian companies could also explore partnerships with US firms to co-develop or manufacture orphan drugs, capitalizing on the exemption to gain market entry.”
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