Stocks in the pharma industry plummeted after a letter written by Trump to large drug companies.
Pharma stocks in the stock market took a plunge even as leading indices started displaying signs of improvement. The Nifty index rose up to more than 100 points to surpass 24,750, too and the Sensex also rose 300 points out of its low. The Nifty Bank index was up at above 56,000. Explosion in stock prices in the broader market notwithstanding, pharma stocks were witnessing a severe fall.
The primary cause of this decline is a recent letter by ex-U.S. president Donald Trump. This was his strong message to the 17 largest pharmaceutical companies in the world as he urged them to reduce the prices of essential medicines and those that save lives. This translated into a fall of the Nifty Pharma Index by more than 2%. Shares of the major players of the pharma industry such as Divi s Laboratories, Aurobindo Pharma, and Sun Pharma declined by between 3 percent and 5 percent.
Why Did Pharma Stocks Crash?
In Trump letter, it is evident that stakeholders should reduce the cost of essential drugs and that companies should match the prices with those given in other countries. The concept is that no drug in the U.S will be more expensive than in other developed countries. Large companies which showcased reception of this letter include those with big names namely Eli Lilly, Novartis, Novo Nordisk and Pfizer. These companies will be allowed 60 days after which they will be required to lower the prices of their medicines.
There was an immediate effect on the global markets as a result of this announcement. The S&P Pharma Index in the United States declined by 3 percent because of the news.
The Bath: Medicines Will be More Affordable for People of America under Trump Plan:
Trump desires the American pharmaceutical companies to utilize the funding that they can get in foreign sales to the advantage of American citizens and American tax payers. His aim would be to ensure that patients in America can access medicines at what is termed by the Most Favored Nation (MFN) price, that is, the lowest possible price in the entire world.
Pharma Stocks Suffer Further Losses
As a result of such news, the Nifty Pharma Index has been on a downswing in the last three days straight and has declined above 2 percent. Of the single stocks, Sun Pharma registered the maximum loss as it decreased 3%. Other players that experienced more than 2% loss included Aurobindo pharma, Gland Pharma, Cipla, Granules India and Lupin.
Specifically, Aurobindo Pharma ended up hitting the biggest single-day loss in the last 17 weeks. Sun Pharma was the worst performer in Nifty 50 index when it announced its quarterly results. To cap it all, a global brokerage house Investec has cut down the rating on Sun Pharma by two notches to Sell, and this compelled further selling activity within the stock.
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Conclusion
The general market is on the way to recovery, but the pharma stocks are suffering a lot of pressure because of the concern over regulations and price control politics by Trump. Investors are urged to be careful of investing in the pharma sector and some of the companies that are much reliant on overseas pricing and regulations.