Last week’s turmoil in generics stocks reminded investors that price increase led growth is likely coming to an end in the US. However, a Democrat sweep across houses could pose even greater pricing challenges for the industry, and pave the way for tighter pricing regulations for both brand name and generic drugs. Emerging headwinds have resulted in US generics sector facing a massive 34% de-rating YTD CY2016, even as Indian generics are now trading at a record 138% premium to the US generics peers on 1-year forward P/E multiple.
Last week, global and Indian generics stocks went for a free fall following news that the two-year old antitrust investigation by the US Justice Department (DoJ) over generic drug pricing is likely to result in charges being filed before the year end.
A bigger overhang for the sector is the upcoming US elections, with the recent days witnessing increasing rhetoric over drug pricing. Both US presidential candidates have argued in favour of allowing the US government’s Medicare programme, which accounts for over 20% of total US drug spend, to directly negotiate drug prices with manufacturers.
Pricing for brand drugs has started turning challenging even in the private market with PBM’s targeting pricing of several primary care medications such as respiratory, insulins, etc. over the past two years with specialty medicines such as Hep-C drugs and even biologics such as TNF- alfa s coming under pressure due to competition.