Following President Trump's announcement of an executive order aimed at significantly reducing prescription drug prices in the United States, the pharmaceutical sector experienced a notable downturn, with Indian companies feeling the impact. The proposed cuts, ranging from 30% to 80%, have triggered concerns about the potential disruption of revenue streams for pharmaceutical companies that heavily rely on the U.S. market.
Trump's announcement, made on social media, stated his intention to sign an executive order to lower prescription medicine prices, aligning them with those of other countries. This move aims to implement a "Most Favored Nation" (MFN) policy, ensuring that the U.S. pays no more for drugs than the lowest-priced countries worldwide. Trump has criticized the high cost of prescription medications in the U.S., pointing out that Americans often pay significantly more for the same drugs compared to other nations.
The immediate reaction to Trump's announcement was a decline in pharmaceutical stocks across Asia. In India, the Nifty Pharma index experienced a crack of over 2%. Companies like Sun Pharma, Biocon, Aurobindo Pharma, Lupin, and Divis Laboratories witnessed a drop in their share prices, with Sun Pharma leading the decline at over 5%. These companies have substantial exposure to the U.S. market, which contributes significantly to their earnings.
The proposed drug price cuts have raised concerns about the potential impact on the profit margins of Indian pharmaceutical companies. Devarsh Vakil, Head of Prime Research at HDFC Securities, stated that the executive order would instruct the Department of Health and Human Services (HHS) to benchmark Medicare payments for physician-administered drugs against the lowest international prices. If implemented, this policy could significantly reduce revenue for U.S. pharmaceutical companies and their Indian suppliers.
However, some experts believe that the order may not have a significant impact on Indian companies, as they provide a substantial amount of generic drugs to the U.S.. While the feasibility of Trump's plan has been questioned, the announcement has created uncertainty for the pharmaceutical sector.
The Indian pharmaceutical industry, a $27 billion export powerhouse, faces a period of uncertainty as it assesses the potential impact of Trump's policies. While the long-term effects remain to be seen, the immediate market reaction reflects concerns about potential revenue erosion for Indian pharma companies that rely on the U.S. market.
