India caps price of 108 more medicines; drugmakers to take hit

MUMBAI Mon Jul 14, 2014 6:20pm IST

Pharmaceutical tablets and capsules in foil strips are arranged on a table in this picture illustration taken in Ljubljana September 18, 2013.  REUTERS/Srdjan Zivulovic/Files

Pharmaceutical tablets and capsules in foil strips are arranged on a table in this picture illustration taken in Ljubljana September 18, 2013.

Credit: Reuters/Srdjan Zivulovic/Files

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MUMBAI (Reuters) - India has capped the prices of more than 100 drugs used to treat diseases ranging from diabetes to HIV, a move likely to hit the profit margins of drug firms such as Sanofi SA, Abbott Laboratories and Ranbaxy Laboratories Ltd.

The drug pricing regulator's decision, aimed at improving affordability, was slammed by the drugmakers in India, where prices of generic drugs sold are already low compared with international markets.

India, an emerging market for drugmakers, last year raised the number of drugs that are subject to price control to cover up to 30 percent of the total medicines sold in the country, according to industry officials.

"While we appreciate the government's intent to improve affordability ... the manner and method in which this unilateral decision has been taken, is untenable," Sanofi India's Managing Director Shailesh Ayyangar said on Monday.

"We are evaluating the impact of this order on our ability to continue offering our products with the same value proposition," he said, adding the decision has "shocked and disappointed" the pharmaceutical industry.

The notice by the National Pharmaceutical Pricing Authority (NPPA), published on its website on Friday, coincides with moves by the health ministry to widen the list of essential medicines that will be subject to a price cap, people familiar with the matter said last month.

The move is aimed at making medicines more affordable in a country where 70 percent of the population lives on less than $2 a day. More than four-fifths of India's 1.2 billion also have no health insurance.

The new price caps took effect on July 11, an NPPA official said. Injeti Srinivas, who took charge as NPPA's chairman in June, was not immediately available for comment.

"This is very unexpected and unfortunate. One would expect them to proceed with revising the list of essential medicines, but this has caught people by surprise," said Sujay Shetty, PwC's India leader of pharmaceuticals and life sciences.

"They should have done a little more thinking and consultations. This way, they're going to drive out the better players from the market, and the quality of drugs could be compromised."

Shares in Sanofi India closed down 10 percent at 2,923.05 rupees on Monday and Ranbaxy fell 0.4 percent to 553.70 rupees, while the main Mumbai market index ended little changed from its previous close.

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Analysts at Nomura on Sunday named Sanofi India, the Indian unit of French drugmaker Sanofi, Abbott Healthcare Private Ltd, a unit of U.S.-based Abbott Laboratories, and local firm Ranbaxy as among companies that will be most impacted by the price cap.

Abbott and Ranbaxy did not respond to requests for comment.

"Though the impact is limited, the move by the NPPA has increased the risk of additional controls in the future," Nomura analysts Saion Mukherjee and Lalit Kumar wrote in the report.

The drug pricing regulator invoked a rarely-used provision that gives the agency the right to fix the prices of any drug "in extraordinary circumstances, if it considers necessary so to do in public interest".

A spokesman for Dr. Reddy's Laboratories Ltd, India's second-largest drugmaker by sales, said the company was assessing its next step, but does not expect the price caps to have a material impact on its financial results.

"At an industry level, there may be some discussion to see whether one can challenge this," he said, but added that the regulator's decision to invoke the "public interest" provision would make the options limited.

Drugs included in the price cap list are "fairly meaningful molecules," so companies would not exit the market, said Arvind Bothra, an analyst at brokerage Religare Capital.

"They will take the price cut, increase their volumes, and move on. The bigger problem for the industry is the uncertainty this ad-hoc expansion brings."

(Editing by Louise Heavens)

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