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.

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