Why a Donald Trump win is good news for Indian drug makers
Unlike Hillary Clinton, who has been very critical of drug companies that raise the prices of old drugs to boost profits, Donald Trump is seen as less of a threat to the sector
Hyderabad/Mumbai: Indian pharmaceutical stocks breathed a metaphorical sigh of relief on Wednesday after Republican Donald Trump won the US presidential election.
Unlike his opponent Democrat Hillary Clinton, who has been very critical of drug companies that raise the prices of old drugs to boost profits and was expected to take tough steps to curb drug prices if elected to power, Trump is seen as less of a threat to the sector, at least on this issue.
“Republicans have always believed in the spirit of ‘laissez-faire’ or free enterprise, so to my mind they will be very open to free market pricing rather than controlling prices,” said Dinesh Dua, chief executive officer (CEO) of Nectar Lifesciences Ltd.
Wednesday’s development boosted investor interest in the sector. The BSE healthcare index, which represents Indian pharma companies, rose 1.48% to 15465.54 points, while the larger benchmark Sensex fell 1.57% to 27,159.03 points.
Shares of Indian generic drug makers including Sun Pharmaceutical Industries Ltd, Dr.Reddy’s Laboratories Ltd, Lupin Ltd and and Aurbindo Pharma gained on the news.
Indian drug makers were worried of greater pricing challenges and tighter pricing regulation for both brand name and generic drugs in the US, its largest market in the world, with several pollsters predicting a Clinton victory and a sweep by Democrats in the US Senate and House of Representatives.
But that changed on Wednesday when Trump shocked many by emerging victorious and his fellow Republicans took control of both the House and the Senate.
Analysts and industry executives told Mint that was the best possible outcome for pharma companies and considerably eased the overhang of price regulation.
“I don’t really see any meaningful impact, especially not in the near term. In general sense, the Republicans are much more pro-industry, so I think it is better,” said Lupin managing director Nilesh Gupta.
Gupta however does not see much of an opportunity for price increases in the US in the future anyway.
“To me the generic market is not about price increases, it is about complicated products, exclusive first to file products, and that’s where the focus needs to be,” he added.
Umang Vohra, managing director and global CEO of Cipla, also echoed the sentiment, adding that he expects structural factors to have a bigger impact on pricing than the government in power.
Throughout Trump’s campaign, he favoured allowing the US government’s Medicare programme, which accounted for over 20% of total $3 trillion US healthcare spend in 2014, to directly negotiate drug prices with manufacturers.
Analysts say with Trump in the driving seat and Republicans holding control of both the Senate and the House, proposals to facilitate such direct negotiation for Medicare will gain traction.
Medicare is a federal health insurance scheme for people who are 65 or older and certain younger people with disabilities and people with kidney failure.
D.G. Shah, secretary general, Indian Pharmaceutical Alliance, the lobby group of large domestic drug makers, said he sees a window of opportunity for Indian generic makers to play a larger role in the US, provided Trump decides to renegotiate or scrap trade accords (such as the North American Free Trade Agreement).
That move would give Indian drugmakers an opportunity to become key suppliers for US public healthcare.
To be sure, a Trump presidency is not all positive for drugmakers. The US president-elect has also talked about repealing the Affordable Care Act (or Obamacare) and if he succeeds in doing that, about 22 million fewer Americans would have health insurance, according to the Congressional Budget Office estimates.
India has the highest number of US Food and Drug Administration approved plants outside the US and accounts for about 13% of US generic drug supply, second only to Canada. India exported drugs worth $11.6 billion in 2014-15. Of this, exports to US alone was $3.8 billion, or a third of total exports.
Generic drugs account for 88% of prescriptions dispensed in the US, and saved the country’s health system $1.68 trillion from 2005 to 2015. The US remains a critical market for Indian companies and their profitability in particular is linked to how they perform in this market, which contributes to almost half their revenue.