Pharma stocks decline amid Trump’s prescription drug price cuts announcement

Synopsis

The Nifty Pharma Index ended 0.2% higher Monday after tumbling almost 2.4% earlier in the day in response to Trump's remarks. The Sensex and Nifty jumped nearly 4%-posting their biggest single-day gains in four years. Of the 20 stocks in Nifty Pharma, 13 gained and seven declined.

Mumbai: 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% to 80%.

Sun Pharmaceuticals fell 3.2%, Ajanta Pharma slipped 2.3%, and Glenmark and Divi's Labs lost over 1% each. Biocon dipped 0.5%.

The Nifty Pharma Index ended 0.2% higher Monday after tumbling almost 2.4% earlier in the day in response to Trump's remarks. The Sensex and Nifty jumped nearly 4%-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% 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% 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%, compared with a 5% 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% of the US market. Indian companies cater mostly to the remaining 10% - 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.

India Ratings and Research said Trump’s executive order to reduce the prices of prescription drugs in the US, once implemented, will have a limited near-term impact on the Indian pharma companies, but it may have a bearing on their long-term capital allocation strategies. Most Indian companies operate on thin margins in the generic drugs segment, which limits scope for further price reductions. The proposed cuts are more likely to target the branded drugs segment, said analysts.

“Volumes may remain stable, but lower prices could squeeze margins and weigh on share prices,” said Dharmesh Kant, head of research at Cholamandalam Securities. He expects firms such as Sun Pharma, Aurobindo Pharma, and Cipla to be affected, though the extent of the impact is still uncertain.

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