The investors remain cautious about the pharmaceutical sector due to fears of a potential policy shift by the US, especially for pharma imports.
A Nuvama report says that worries about further hiccups in the potential trade deal and consequent higher tariffs between India and the United States are fuelling investor anxiety.
Pharma sector: What happened so far
Earlier in May, United States’ President Donald Trump passed an Executive Order, Most Favoured Nation Drug Pricing, which directed the US Department of Health to direct the pharmaceutical companies to reduce the price of select drugs in the US at par with the OECD nations.
The MFN policy directly affects the large-cap pharma companies of India as they heavily rely on a few high-margin and high-generic drugs for their US business. The reduction in prices of drugs like gRevlimid and gJynarque due to the MFN pricing policy could significantly hurt the profitability of some large-cap Indian companies.
Tariff and regulatory concerns
Earlier in April, President Trump announced that he would be imposing major tariffs on pharmaceutical imports. The import duty on the pharmaceutical products could be as high as 25 percent.
Secondly, the Executive Order on May 5 directed the FDA to ease the regulatory burden on domestic manufacturers while increasing scrutiny on foreign manufacturers in the United States. The order aimed at incentivizing the domestic pharmaceutical industry directs the FDA to fast-track approval of domestic manufacturers while increasing the manufacturing plant fee and scrutiny on foreign manufacturers.
Amid the pending uncertainties on tariffs and manufacturing, and sales policies, the United States is likely to disclose its initial steps towards the drug import framework. Due to these ambiguities, the Nuvama report says that the next two months remain critical for the pharma investors in India.
The bright spot
Amid the hesitations towards large-cap pharmaceutical companies, the Nuvama report suggests that investors are feeling excited toward Contract Development and Manufacturing Organizations (CDMOs).
CDMOs are the pharmaceutical companies that do not necessarily market their products rather develop and manufacture for the larger companies. Because of their outsourcing nature, these companies are less exposed to the US price policy shift and tariffs.
Nuvama’s top pharma picks
Nuvama says that Indian CDMOs such as Aarti Pharmalabs and Jubilant Pharmova are among the top companies that are expected to do well in the near future
