The pharmaceutical industry is essentially a price-fixing cartel. Crack down on price-fixing and it puts a dent in big pharma’s profits. From Wolf Richter at wolfstreet.com:
Effects of competition after government cracks down on price fixing?
Shares of Teva (TEVA), the largest generic drug manufacturer in the world, plunged 13% on Friday, to $20.60, after having already plunged 24% on Thursday, after having reported that second quarter revenue and profits had been beaten down by a 6% decline in generic drug prices. Since July 2015, shares have plunged 70%.
Though revenues rose, Teva booked a net loss of $6.0 billion in the quarter. It listed a slew of special items, including a $6.1 billion write-off “related to the US generics reporting unit.”
It announced that it would slash its dividend by 75%, lay off 7,000 employees globally, including in Israel where it is headquartered, pull out from 45 countries, and close 15 plants. It is grappling with a generics market where competition started to push down prices in 2015. “Negative net pricing” is what the company calls this.
During the earnings call, Dipankar Bhattacharjee, head of Teva’s Generic Medicines Group, explained that their customers – wholesalers and buying groups – were consolidating and pushing for price reductions, and that Teva cut prices “to secure additional business.”
These pricing pressures would accelerate this fiscal year, the company said. That’s good for consumers who’ve been bludgeoned over the past many years by soaring pharmaceutical prices. But it appears to be a tough pill to swallow for the stock market.
AmerisourceBergen Corp., the second-largest of the three big US drug wholesalers, reported on Thursday a 8.7% decline in operating profit in its pharmaceutical distribution unit. It expects generic prices to skid by a range of 7% to 9% in its current fiscal year.
Its shares (ABC) plunged 10.5% on Thursday and skidded 1% on Friday, to $80.83. They’re down 13.8% over the past four trading days and down 23% since July 2015.
CEO Steve Collis told The Wall Street Journal: “There’s no doubt that when you have a key product category with a 9% deflation rate, that’s a headwind you’re getting.”
To continue reading: Pharma Shares Melt Down, But Consumers Might See Relief