Budget 2017

Pharma Stocks Hit After Trump's 'Getting Away With Murder' Comment

Dr Reddy's Laboratories, Sun Pharmaceutical Industries and Lupin were the most hit, suffering losses of up to 3 per cent.
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US regulatory overhang has also been a drag on shares of Indian pharma companies
US regulatory overhang has also been a drag on shares of Indian pharma companies

Highlights

  1. Many Indian pharma companies draw a sizable chunk of revenues from US
  2. US pharma stocks were also hit overnight after Trump's comments
  3. Analysts say US drug policy will be an overhang on Indian pharma shares

Pharma stocks fell on Thursday, tracking losses in US drug companies after US President-elect Donald Trump said pharmaceutical companies were "getting away with murder" by charging high prices. 

The US is a big export market for many Indian drug companies. Dr Reddy's Laboratories, Sun Pharmaceutical Industries and Lupin were the most hit, suffering losses of up to 3 per cent. Overnight, on the Wall Street, the S&P 500 healthcare index ended 1 per cent lower while Nasdaq biotechnology index sank nearly 3 per cent. 

"Our drug industry has been disastrous. They supply our drugs, but they don't make them here, to a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they're getting away with murder," Mr Trump said. 



"We're the largest buyer of drugs in the world and yet we don't bid properly and we're going to start bidding and we're going to save billions of dollars over a period of time," he added. 

The drug industry has been on edge for past two years about the potential for more government pressure on pricing after sharp increases in the costs of some life-saving drugs drew scrutiny in the press and among lawmakers. 

"When the president-elect says we're going to negotiate drug pricing, you have to take that seriously," said a US fund manager. 

Back home, the Nifty Pharma index, which is the benchmark for pharma stocks, fell more than 2 per cent. 

Among other domestic pharma companies, Divi's Laboratories, Cipla, Glenmark Pharma, Jubilant Life Sciences, Cadila Healthcare, Ipca Laboratories and Aurobindo Pharma also declined, falling between 0.80 per cent and 2 per cent. 

Avinnash Gorakssakar, founder of Moneyinvestments.in, said Mr Trump has indicated that the pharma sector is going to be under strict regulation. Mr Gorakssakar expects the upside in companies like Sun Pharma, Dr Reddy's and Lupin, which have large exposure to the US, to be capped in the near term. 

Many Indian pharma companies get a bulk of their revenues from the US. According to Deutsche Bank, Dr Reddy's Laboratories and Sun Pharma have revenue exposure of 45-50 per cent, followed by Cadila and Lupin (40-50 per cent each), Glenmark (30-35 per cent) and Torrent Pharma (20-25 per cent). 

At 10:02 a.m., shares in Dr Reddy's were trading 1.9 per cent lower, followed by Sun Pharma, down 1.8 per cent, and Lupin, down 1.4 per cent, underperforming the broader Nifty that was up a mild 0.1 per cent.



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