Prices capped for 108 drugs, MNC firms hit
Jul 14 2014 , New Delhi/Hyderabad
Sanofi takes big knock, small impact on Zydus, Cipla, others
French major Sanofi will take the biggest knock. The hit on domestic firms like Zydus Wellness, Ranbaxy, Sun Pharma, Cipla, Dr Reddy’s Labs, Lupin and Emcure is likely to be limited.
Share prices of Sanofi India tumbled 10.07 per cent in Mumbai trading on Monday to settle at Rs 2,904 apiece. This was the biggest fall for the scrip in several years. The last big fall in the stock price was in May, 2004, when it had lost 9.44 per cent.
Among others, shares of Zydus Wellness tanked 5.59 per cent to Rs 614 while Cadila Healthcare, Cipla, Ranbaxy and Sun Pharma shed between 0.51 per cent and 0.71 per cent. Investors sold Zydus shares also because the company on Monday reported a 26 per cent decline in June quarter profit.
The NPPA order will bring down retail prices of several drugs by between 10 per cent and 35 per cent; among them are Gliclazide, Glimepiride, Sitagliptin, Voglibose, Amlodipine, Telmisartan and Rosuvastatin, Heparin and Ramipril and their variants. The aggregate drop in prices is projected to be 12 per cent.
With the latest notification, 58 per cent cardiac drugs and 21 per cent of anti-diabetic market have come under price controls, which together make a Rs 5,500 crore market.
The price caps that took effect last Friday, will lead to a revenue loss of around Rs 641 crore.
“The impact is limited, but the NPPA move has increased the risk of additional controls in the future,” Nomura India analysts Saion Mukherjee and Lalit Kumar wrote in a note.
The price controls will help provide affordable medicines to 70 per cent of people who earn less than $1.25 a day.
Prices of generic drugs sold in India are already low compared with international markets, a factor that puts pressure on drug companies’ revenue. More than four-fifths of India’s 1.2 billion population do not have health insurance.
The drug regulator has filed as many as 1,040 cases against MNC and domestic pharma firms for overcharging up to Rs 3,603.04 crore from consumers and recovered Rs 341.11 crore from unscrupulous companies, stockholders and retail drug outlets.
“The impact (of latest NPPA order) would be more on the MNC firms than on domestic companies, as the former are more concentrated on their brand portfolios. Indian drugmakers that are not focused on the domestic market will be insulated from the NPPA decision,” said Sarabjit Kaur Nangra, vice-president for pharma research at Angel Broking.
Nangra said the revenue impact might be up to 35 per cent on MNC firms like Sanofi and around 5-8 per cent for Indian companies. “The move has been sudden and it is likely that they would engage in a dialogue to avoid further price cuts,” she said.
The company-specific revenue loss is estimated to range from Rs 139 crore for Sanofi to Rs 40 crore for Zydus Cadila, Rs 38 crore for Ranbaxy, Rs 32 crore for Lupin, Rs 25 crore for Sun Pharma, Rs 19 crore for Cipla and Rs 14 crore for Dr Reddy’s Labs
A top official from Natco Pharma said the order would have only marginal impact on the company, as most of the drugs affected are the ones used to treat diseases ranging from diabetes to cardiac problems, which his company does not sell. The official didn’t want to be identified.
“This time most of the MNCs may get hit. But the industry is unhappy over the way the government is regulating prices. If this continues, the impact may be much higher,” he said.
None of the medicines for which the order was issued currently fall under pricing controls. Last year, the government had fixed prices of 652 drugs under the drug price control order (DPCO) of 2013, and also constituted the national list of essential medicines (NLEM).
“None of these medicines are listed under the NLEM and the NPPA has invoked a lesser-known provision under DPCO to enforce price controls,” said Nangra of Angel Broking.
Paragraph 19 of DPCO, 2013 allows NPPA to fix ceiling prices or retail prices of medicines in public interest. The pharma regulator’s order said it capped prices of formulations that had seen a steep increase beyond the normative 25 per cent.
(With inputs from Amit Mudgill in New Delhi)