Lupin, Cipla, Torrent Pharma: Why pharma stocks tumbled in Thursday's session

Out of 20 constituents of the Nifty Pharma index, 16 ended in the red and the rest four in the green. 

The reason behind the sharp fall in the stocks could be attributed to the fact that the US Centers for Medicare & Medicaid Services released on Wednesday a preliminary list of 101 generic drugs that would be available for no more than $2 for a month's supply to those enrolled in the government's Medicare program.

The move is feared to have a big impact on the earnings and profitability of domestic manufacturers of generic medicines as they supply a significant portion of generic drugs to the US market.

However, the jury is out on how much material impact this will have on the companies. 

Besides, as per a recent report by UBS, the Street is underappreciating the growth slowdown in the pharma sector in both India and the US. The Indian pharmaceutical market is slowing down due to a sharp increase in unbranded generics. The increase is caused by the scale-up of the government's Jan Aushadhi (JA) drug stores (5% of the market) and trade generics (over 20% of the market).

"Manufacturers' profitability in unbranded generic products is less than half that of branded generics, and therefore increasing penetration of unbranded generics is a concern," UBS said.

Additionally, a sharp increase in JA stores could impact 1-2% of the annual growth of the Indian market on a base of 8% CAGR, the report added.