What's The US Medicare Deal & How Will It Impact Pharma Companies? I Nimish Mehta On Pharma Stocks
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00:00To analyze what's been happening with pharma stocks, to just set the context,
00:04the Biden-Kamala Harris administration has announced a plan to ensure that Medicare-enrolled
00:12patients would effectively see prices of genetic drugs at not more than $2 in their list. Of
00:18course, it's an important announcement coming in before the elections in the U.S., will be
00:24implemented only in 2027. But as a result, you saw the nifty pharma taking a huge knock.
00:31Cipla, Lupin, these were some of the worst hit on the pharma pack. Now,
00:36why is this a matter of concern? Let me start right there with Nimesh Mehta's view. Nimesh,
00:41very good morning to you. Thank you for speaking with us here at NDTV Profit.
00:44Let's get your take. Is this very, very bad news for Indian pharma companies and why?
00:49Well, it's definitely bad news, I would say. So how much bad it is obviously will lie in the
00:55details. As of now, what we understand is that this $2 is the monthly copayment that is fixed
01:04for a patient. That really does not mean the pricing of any drug is being fixed. And at the
01:09same time, the government, I think the U.S. government is likely to start with a list of
01:14150 drugs. So 150 drugs is not too many in terms of the total number of coverage that
01:20one would have. So yes, it is a step in pricing towards a pricing pressure. The most important
01:30part is that U.S. government so far was a price taker, which means that they would kind of
01:37negotiate from whatever market prices are available. But now they would probably become
01:42price makers. So they will directly, you know, they know the cost of what they are going to pay
01:48and hence will try to negotiate price accordingly. So that's the biggest thing.
01:52Right. Nimesh, so yesterday we saw Lupin that ended 6% lower. Cipla was down 3%. Torrent also
01:58fell over 3 odd percent in trade. And the drugs that are doing the rounds that could be available
02:03for no more than $2 are Penicillin, Metformin, Lithium and drugs for high cholesterol,
02:08blood pressure and other chronic conditions. Which specific companies would this
02:13impact even at the pilot level, which could be all the way out in 2027?
02:18No, so first again, let me clarify that this $2 is the cost of what a patient is likely to pay.
02:25This does not mean this is going to be the cost for any drug that is, you know, a part of that
02:30150 drug list. So it is the co-payment, which essentially the government is trying to ensure
02:36that a patient knows how much he is likely to pay on a regular basis, because these are
02:42essentially for chronic medications. Does that mean that Indian companies could still sell it
02:50at a price higher than $2 and the difference would be absorbed by the government funds?
02:58Absolutely. So the way it works is that, you know, there is a co-payment, which means that
03:03the patient has to give some amount of money or I will have to participate in the overall expense.
03:08So the overall expense when it comes to Medicare, Medicaid would be obviously very low,
03:13but still it was always in percentage and hence a patient would never know what is likely to be his
03:18cost, his or her cost if he is, say, succumbing to any disease on a regular basis, like a diabetes
03:24or a cardiovascular disease. Here the government is trying to ensure that he or she has to pay
03:29only $2 per month for one medication and hence he or she will know what is his total cost going to
03:37be. That does not mean the total cost being paid to the manufacturer is going to be $2.
03:42That is not likely to be like that. Also, I would like to add one more thing. I think
03:48this entire plan has been derived or devised after obviously doing a lot of research. What
03:54we understand is that within this cost limit, I think they were already hitting some 60 or 80,
04:0160-70% of the total drugs that were dispensed through Medicare and Medicaid. So it is not that
04:08it is likely to change the dynamics significantly at the start itself, but yes, because government
04:15has kind of, you know, stepped into, you know, controlling the prices, that itself is a negative
04:20in the longer term.
04:22Okay. Nimish, I presume that you don't see too much of downside here in terms of market share or
04:29revenues for Indian firms. There is a brokerage note which says that it could be maybe low single
04:33digits. Would you concur?
04:36It's again, I don't know whether to put a number to it. First of all, it's not going to be implemented
04:41before 2027. That is the first point.
04:44Sure, sure.
04:45When it gets done.
04:47Yeah, whenever it gets done. And then, as I mentioned, you know, how much is,
04:51how much is the price the state governments are likely to pay is not, I'm not very clear,
04:58but from what I understand, not a lot many products will get influenced by lower pricing
05:04than what we pay today or what they get today, at least at the start of the plan,
05:08which is where it includes 150 drugs.
05:12Okay. Nimish, appreciate you taking the time out and being with us. Thank you so much.
05:16It was good talking to you today and thanks for giving that clarity as well.