Trump Presidency Impact | A Sickly Outlook

There is hope, and there's panic too. On 23rd January, India’s top pharma stocks tumbled to their four-year low or to the level of their 10-year average. The key reason among others was the industry’s fear of shrinking growth in the large US market.According to leading industry consultants, the major risk that Indian drug makers see in that important and high-value market is the new administration’s “interventionist” approach.

“The new President’s likely interventionist approach to the pharmaceuticals sector will mostly have serious fallout on Indian generic drug manufacturers, who are hugely dependent on the US market for a lion share of their revenue,” says Sujay Shetty, pharma head at consultancy firm PwC India.

Indian drug makers currently export 15 to 55 per cent of locally made generic drugs to the US, which is the world’s largest pharmaceutical market in value terms. In 2015-16, India’s total exports of pharmaceuticals touched $16.89 billion and US being the country’s biggest market for pharma exports accounted for about 33 per cent.

Since India has one of the lowest manufacturing costs for generic medicines and the US has the highest medicine prices, the premium Indian drug exporters make in that market is fabulously attractive, even though these cheaper generics are sold at a price much lower than the branded products there. Indian manufacturing cost is approximately 35–40 per cent of that in the US as installation and workforce costs are low here. The US is therefore the most targeted export market for Indian pharma companies. Thus, any small policy change in the US market as far as the regulations or pricing are concerned, will have a significant impact on the Indian pharma industry.

An earlier proposal in the US — as is also being pushed forward by many other export markets in the last couple of years — that insists on local manufacturing, will completely take away the cost advantage that Indian industry has been enjoying so far.

But many are optimistic about prospects in the Trump era. If controlling healthcare costs is a priority for the new administration, Biocon founder Kiran Mazumdar Shaw believes the Indian pharma industry is already aligned with US President Donald Trump’s vision. “Trump would focus on introducing new pricing models that will make expensive innovator drugs more affordable. Considering the fact that India offers a low-cost innovation and manufacturing hub, and India-made generics sometimes cost almost one-tenth of branded drugs sold in the US, we are likely to be least affected by the anticipated policy changes,” says Shaw.

Trump has been saying throughout his speeches that his presidency will focus on creating infrastructure and generating employment for the people of the US. Also, given his business and entrepreneurial background, Trump is indeed expected to be more business friendly, which could work in favour of the Indian pharmaceutical companies. Any incentive for drug manufacturers in the US is likely to benefit Indian companies such as Sun Pharmaceutical Industries, Cipla, Dr. Reddy’s Laboratories, and Lupin, which have a manufacturing presence in the US.

But given Trump’s ability to spring surprises, there were also strong market speculations that the new administration might soon introduce the tender process for drug procurement bringing the supply prices further down for Indian companies. With the recent enactment of Generic Drug User Fee Amendments (GDUFA), the US has already expedited the drug approval process for more players, increasing the competition and triggering further price reduction. Besides, many top Indian drug companies are already feeling the heat of increased regulatory scrutiny by the US FDA.

Moreover, the new US president is likely to introduce protectionist policies on behalf of US companies that have been raising issues related to IT, law and Intellectual property rights (IPR) against Indian companies.
“The possibilities of a border tax on imports could also lead to a higher cost for Indian pharma companies in terms of exports,” says Shetty of PwC.

In addition, the presidential campaign to allow negotiation with pharmaceutical companies for the Medicare healthcare programme would also have a negative impact on the drug suppliers in the market. The overall outlook for top Indian pharma companies, which have larger exposure to the US market, will remain negative for the next two to three years, said another industry analyst, who doesn’t want to be identified.

Indian drug industry captains were earlier confident that the change in the US administration will not have any serious impact on the exports from India. They were even optimistic that the president-elect’s proposal to lift entry barriers for safe, reliable and cheaper products will boost the business for Indian drug makers. But the reality could be vastly different after Trump assumes office.