Pharma shares hit by anti-trust chill
The shadow of regulatory uncertainty refuses to leave pharmaceutical companies. Just as the flow of bad news on the compliance front was ebbing, with some affected companies even getting a green signal from the US Food and Drug Administration (USFDA), comes news of likely action by the Department of Justice (DoJ).
The DoJ probe on suspected price collusion was already known, as firms had reported being asked to submit documents. That the probe is proceeding and the first set of charges is expected to be filed by the year-end has investors worried.
On Friday, the BSE Healthcare Index fell 4.2% and closed with an 8% loss over the previous week. On Monday, things looked calmer. Lupin Ltd’s announcement that it has got clearance for its Goa plant from USFDA lifted its share price by 6.9%.
This clears one major hurdle in its path. The news perked up sentiment for its peers, too, and the sector index closed with a gain of 1.9%, although where USFDA is concerned, it is best to keep hopes in check.
Sun Pharmaceutical Industries Ltd and Dr Reddy’s Laboratories Ltd are being probed. Bloomberg reported that totally a dozen firms and about two dozen drugs are under investigation. The potential filing of a first set of charges indicates the probe has found some actionable evidence. That’s the first worry. Also, this list can expand if the probe unearths more names. The probe comes in the backdrop of the uproar over rising medicine prices (even if only a dozen drugs figure here) among the US public.
The financial hit is one thing. But one also has to contend with the embarrassment of being labelled a company that colluded to fix drug prices. Only when the first set of charges are filed will investors get some idea of what the DoJ has found, whether the charges are grave and, as a corollary, the likely action. But they are right to show concern.
Apart from the fallout of this investigation, a bigger one, says Kotak Securities in a research note, is the rhetoric in the presidential campaign on drug pricing. While these may not translate into action, if they do, they can be a bigger headache for pharmaceutical companies. The report states that the 138% premium at which Indian generic companies trade to their global counterparts is questionable, especially if the policy environment deteriorates.