The domestic pharma companies are likely to be impacted and may see a rough road ahead in the US if the Trump administration decides to implement the proposed border adjustment tax (BAT), says a report. "The domestic pharma sector may face lower growth opportunities, reduced profitability margins and worsening of price erosion in the US generics market.
Political uncertainty regarding Trump's comments and also potential implementation of BAT may hit the industry," Bank of America Merrill Lynch said in its report here. Its analysts said the proposed BAT will be detrimental to domestic companies exporting to the US, and may erode their profitability, if the BAT bill is passed in the present format. Analysts currently underweight the pharma sector but are incrementally searching for value particularly in cases where the earnings growth trajectory is improving and valuations have become extremely attractive post sustain de- rating. Their concerns are largely centered on the prospects for the US market and the numerous risks surrounding it. However, the actual data-points suggest that most of the concerns are overdone as the patent expiry pipeline in the US over the next four-five years can lead to near doubling of US sales for domestic companies at likely higher profitability due to higher proportion of complex generics. While a faster rate of approval may lead to higher price erosion in the long-term, it is likely to benefit companies with large pending pipelines and no regulatory concerns, the report said.
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