BackPharma stocks under stress on US policy uncertainty, domestic pricing pressure
Pharma shares took a hit due to lingering concerns over US healthcare policies under President Trump and Indian govt's focus to make medicines more affordable
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Mumbai: While Sensex cheered following the announcement of the Union budget, shares of pharmaceutical companies were trading on a weaker note due to lingering concerns over US healthcare policies under President Donald Trump and Indian government’s focus to make medicines more affordable.
The BSE Healthcare Index fell 1.3% intraday but pared some losses and closed down 0.32%.
At 3.10pm, the healthcare index was down 0.4%, while the Sensex was up 1.8% at 28151.64 points.
At the time of closing hours, Aurobindo Pharma Ltd shares fell 2.29%, Natco Pharma Ltd shares declined 2.34%, while Dr. Reddy’s Laboratories Ltd, Sun Pharmaceutical Industries Ltd and Cipla Ltd fell 0.80%, 1.06%, and 0.17%, respectively in Mumbai.
In the Union budget for 2017-18, finance minister Arun Jaitley said the government proposes to amend the Drugs and Cosmetics Rules to ensure availability of drugs at reasonable prices and use of generic medicines.
This statement hinted that pricing environment in domestic market will remain tough, which weighed on market sentiment.
“Price control has always been a sensitive topic as the Government has to balance private entrepreneurial ambitions with public health interests. Therefore, undoubtedly, the extract of the Honourable Finance Minister’s speech will cause some anxiety. Having said that, generally, price control is not dealt with through the Drugs and Cosmetics Rules, but through the DPCO (Drug Price Control Order)," Sameer Sah, associate partner at law firm Khaitan & Co, said.
Also Read | Budget 2017: Drugs and medical devices to be available at reasonable prices
Pharma stocks have been under pressure for more than a year because of price erosion in products in the US and regulatory issues, and the recent statements by US President Trump on lowering drug prices and pushing manufacturing in the US have further dented market sentiment.
President Trump in a meeting on Tuesday with executives of pharmaceutical companies asked them to manufacture more drugs in the US and cut prices, while vowing to speed approval of new medicines and ease regulations.
“The pharma sector is grappling with negative news and investor sentiments continue to weaken. Trump’s statements on increasing reliance on domestic manufacturing for drugs already had investors worried and this was aggravated with today’s budget speech which indicated that the government is contemplating on lowering cost of generic drugs. We think Trump statements are not as worrying as today’s budget announcement. We believe we are close to seeing some radical changes in the Indian pharma industry in terms of pricing and branding," Vishal Manchanda, research analyst at Nirmal Bang Securities, said.
Pharma industry and investors are now awaiting clarity on likely amendments to the Drugs and Cosmetics Rules and its implications.
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