Pharma Cos Slip on US Move to Cut Prices
HighlightsSeveral pharmaceutical shares, including Sun Pharmaceuticals and Ajanta Pharma, underperformed on a day when the broader market saw a nearly 4 percent rally, following President Donald Trump's announcement of plans to cut US prescription drug prices by 30 to 80 percent. The Nifty Pharma Index, despite a 0.2 percent increase on the day, is down 10 percent year-to-date, contrasting with a 5 percent gain in the benchmark Nifty Index. Analysts suggest that while the proposed executive order primarily affects the branded drugs segment, which comprises 90 percent of the US market, Indian pharmaceutical companies mainly operate in the generics market, thus facing limited risks from these changes.
Several pharmaceutical shares underperformed on Monday despite a strong broad market rally, after US President Donald Trump announced plans to sign an executive order slashing prescription drug prices in the US to match those in favoured nations, implying cuts of 30 per cent to 80 per cent.
Sun Pharmaceuticals
fell 3.2 per cent,
Ajanta Pharma
slipped 2.3 per cent, and Glenmark and
Divi's Labs
lost over 1 per cent each.
Biocon
dipped 0.5 per cent.
The
Nifty Pharma Index
ended 0.2 per cent higher Monday after tumbling almost 2.4 per cent earlier in the day in response to Trump's remarks. The Sensex and Nifty jumped nearly 4 per cent—posting their biggest single-day gains in four years. Of the 20 stocks in Nifty Pharma, 13 gained and seven declined.
'The order implies a 30-80 per cent expected cut to align US drug prices with other regulated markets. But such cuts are commercially unviable for pharma firms, especially those with low-double-digit margins,' said Nikhil Ranka, CIO at Nuvama Alternates. 'That's why companies like Sun Pharma, which derives around 40 per cent revenues from the US, saw declines.'
Ranka said most pharma stocks rebounded after an initial knee-jerk reaction, as the proposed changes are not expected to be immediately enforceable or impactful. 'Pharma stocks could resume their uptrend in the coming sessions,' he said.
Year-to-date, the Nifty Pharma Index is down 10 per cent, compared with a 5 per cent gain in the benchmark Nifty.
Bhavesh Gandhi, lead analyst for pharma and healthcare at YES Securities, said the proposed policy primarily targets the branded drugs segment, which accounts for 90 per cent of the US market. Indian companies cater mostly to the remaining 10 per cent — the generics space — where prices are already low.
'Sun Pharma, with some exposure to the branded segment, may face limited risk. But for now, the reaction is largely sentimental, and the real impact will depend on how earnings shape up,' Gandhi said.
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