Mumbai: A Democrat sweep in US presidential polls may pose even greater pricing challenges for the pharma industry and pave the way for tighter pricing regulations for both brand name and generic drugs, according to a report by Kotak Institutional Equities Research.
“Last week’s turmoil in generics stocks reminded investors that price increase-led growth is likely coming to an end in the US. However, a Democrat sweep across houses could pose even greater pricing challenges for the industry and pave the way for tighter pricing regulations for both brand name and generic drugs,” the report stated.
Emerging headwinds have resulted in US generics sector facing a massive 34% de-rating. A bigger overhang for the sector is the upcoming US elections, with the recent days witnessing increasing rhetoric over drug pricing. Both US presidential candidates have argued in favour of allowing the US government’s Medicare programme, which accounts for over 20% of total US drug spend, to directly negotiate drug prices with manufacturers.
The Democrats are also proposing a pricing cap on Medicare that is similar to Medicaid, mirroring an upcoming referendum in California that proposes to give powers to the state to cap drug pricing at a level similar to veterans contracts.
The report stated that any such proposal will require complete control of both Houses and in the past, proposals to facilitate direct negotiation for Medicare have turned up and failed to pass muster with the Congress multiple times since 2003.
It is also worth noting that pricing for brand drugs has started turning challenging even in the private market with pharmacy benefit manager’s (PBM) targeting pricing of several primary care medications such as respiratory, insulins, etc, over the past two years with speciality medicines such as Hep-C drugs and even biologics such as TNFs coming under pressure due to increasing therapeutic competition.
Despite the headwinds to the US business, Indian generics are now trading at a record 138% premium over global generics, and while a premium is justified, the extent of the premium is questionable, given the deteriorating dynamics of the US segment, which has contributed the bulk of the growth for the Indian generics.
Last week, global and Indian generics stocks went for a free fall following news that the two-year old antitrust investigation by the US Department of Justice (DoJ) over generic drug pricing is likely to result in charges being filed before the year end.
The investigation’s focus is on a dozen companies and over two dozen drugs, many of which are not in the public domain. It is probing potential collusion or anti-competitive activities to raise prices.
Among Indian companies involved are Sun Pharmaceutical Industries Ltd (doxycycline and albuterol), Dr Reddy’s Laboratories Ltd(Depakote ER and pravastatin), Zydus Wellness Ltd (Depakote ER), and Taro Pharmaceutical Industries Ltd (drug names not disclosed), though the scope could likely be expanded to include other companies as well.
It is extremely difficult to prove collusion, but the US DoJ has, in the past, been successful in its investigations in other sectors, and it seems unlikely, that charges will be filed unless the DoJ has potential evidence to support its charges, the report said. PTI