Sector Update | 14
Healthcare | Sector
More price controls in India - derogative step for industry
Sanofi most impacted; increases apprehension on regulatory environment
New directive expands span of price control on 39 new molecules in the anti-diabetic
and cardiovascular space; more therapies to be covered.
Among MNCs, Sanofi India is likely to be the most impacted, while Indian companies
are expected to see a PAT impact of 1-4%.
Although this development is likely to be challenged by industry participants, it
increases apprehensions on India’s regulatory environment.
Notification for price ceilings on 50 molecules, 39 of which are not in NLEM
The National Pharma Pricing Authority (NPPA) has notified price control for 50
molecules in the anti-diabetic and cardiovascular space, 39 of which are not a part
of the National List of Essential Medicines (NLEM) 2011. The ceiling price for these
drugs is capped at 25% above the simple average price of all brands.
Sanofi India to be hit the most; Indian companies see minimal impact
Sanofi India would be the most hit, with 32% estimated impact on its CY14E EPS.
Other MNCs impacted are AstraZeneca and Merck. Impact on GSK is likely to be
insignificant as less than 1% of its sales come under this directive. Indian companies
will have an impact of 0.4-3.6%, with a major impact on Cadila Healthcare and
Torrent Pharma (refer Exhibit 1 on page 2).
Order likely to be challenged; sales to be impacted till stay order is
The order has been passed under the provisions of paragraph 19 of the Drug Price
Control Order 2013. The provision states that in case of extraordinary
circumstances, NPPA may (a) fix the price of any drug [understood as including
those not included in NLEM] and (b) change the ceiling price on drugs already under
price control. Given the lack of clarity on what can be construed as “extraordinary
circumstance”, we expect leading industry bodies to challenge this notification.
However, revenues of impacted companies are expected to decline until a stay
order is obtained.
Aim is to reduce inter-brand price differences; increases apprehension over
NPPA’s rationale for this move is to reduce the existing price difference between
two brands of the same molecule. The directive hints that similar notification can be
expected in six more therapies: anti-cancer, HIV/AIDS, anti-TB, anti-malaria, anti-
asthmatic and immunological. It is likely that products outside the purview of NLEM
may come under price control too. This has increased the uncertainty on the
regulatory environment in India. However, we note that most Indian companies do
not have their products priced at significant premium and thus may not be as
significantly impacted as MNCs by such notifications.
(Alok.Dalal@MotilalOswal.com); +91 22 3982 5584
(Hardick.Bora@MotilalOswal.com); +91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.