Pharma stocks rise despite price fixing charges

Pharmaceutical stocks were in focus today and were trading higher in what was otherwise a lack lustre trading day. The across-the-board increase in pharma stock prices saw the Nifty Pharma Index gain the most among sectoral indices, up 2.8% as compared to a flattish Nifty 50 Index at 10.441.

The pharmaceutical index moved up despite the fact that some of India’s biggest pharmaceutical companies Sun Phamaceutical Industries, Dr Reddy’s Laboratories and Glenmark Pharmaceutical among oters were facing allegations of a price-fixing conspiracy in the US aimed at keeping prices of generic drugs ariticially high.

Besides the three stocks, Aurobindo Pharma, Cadila Healthcare, Lupin, Ajanta Pharma, Marksons Pharma, IPCA Laboratories, Sanofi India and Biocon saw prices increase between 3% - 6%. In fact, in the recent stock market rally that saw the indices tough a new peak, pharma stock were a laggard, underperforming as compared to the board market.

Earlier today, four Indian drugmakers Sun, Dr Reddy’s, Glenmark and PUne-based Emcure Pharmaceuticals were named in a price-fixing conspiracy by US authorities. Two top executives, Emcure’s managing director Satish Mehta and US-based Mylan NV’s executive director Rajiv Malik were accused on Tuesday of being part of the conspiracy. Several more executives in the industry are said to be under the scanner in an ongoing investigation by US authorities.

“Given the direct involvement of executives in this case and the evidence we had implicating them, we felt as a group of antitrust enforcers that it was important to hold these individuals accountable,” Connecticut Assistant Attorney General Joseph Nielsen said in a conference call on Tuesday.

It is not just the four Indian drug makers who are a part of the investigation. Attroney generals from 45 US states and the district of Columbia are seeking to add more companies to the lawsuit, in what is snowballing into large scale investigation on the generic drug industry in the US, which has grown rapidly in recent times. Two of the biggest firms, Israel-based Teva Pharmaceuticals and Mylan were among those named early into the investigation. Other generic firms Apotex, Lannett, a unit of Par Pharmaceutical and Novartis’ Sandoz unit, the virtual whos-who of the generic industry, are now under the scanner.

The 243-page complaint — describing how more than a dozen global drugmakers worked together to share the market and avoid a “fight to the bottom” — has come at a time when the US government is putting all efforts to bring down the cost of generic drugs. It is also a setback for Indian drug makers trying to push more generics in the US market.

The multi-year civil investigation, led by Connecticut Attorney General George Jepsen, is naming executives for the first time, as well as expanding the number of drugmakers in the probe to 18 from six, and the number of drugs to 15 from two. Previously, it had focused on an antibiotic and an oral diabetes medication. “Every time we kick a door in, we make new discoveries,” Jepsen told reporters. The attorney generals would seek reimbursement for consumers and states for losses, he added.

The civil investigation has run parallel to a criminal probe by the US justice department that has so far led to guilty pleas from two former executives of Heritage.

The management at Mylan and Emcure backed their executives in separate statements. Mylan said it had “deep faith in the integrity of its president, Rajiv Malik, and stands behind him”. An Emcure spokesperson said: “Emcure strongly disputes the states’ claims and intends to forcefully defend against them.” A spokesperson at Glenmark said: “While we do not comment on ongoing litigation, Glenmark prides itself on conducting its business with the utmost integrity and complying with all applicable laws, rules and regulations.”

The new allegations on Indian pharmaceutical companies come close on heels of the US FDA’s stringent action against several Indian companies, which has led to closure of several manufacturing units. Companies like Sun Pharmaceuticals and Wockhardt faced the ire of the US FDA for lapses in their manufacturing units, that led to sharp fall in their stock prices.