Indian drug makers feel pinch of price curbs as Q1 growth slows
Indian drug makers are now feeling the pinch of the drug price controls put in place by the government.
Data from AIOCD-AWACS, the market research arm of All India Organisation of Chemists and Druggists (AIOCD), which represents over 500,000 medicines sellers across India, the domestic pharmaceutical market, which is worth Rs.1 trillion, grew at a much slower pace of 6.4% in the April-June quarter compared with 14.8% last year.
Analysts link the moderation of growth to aggressive price controls by the government, coupled with cut-throat competition in the domestic branded formulation market and the ban on fixed dose combination drugs.
The government in December expanded the National List of Essential Medicines (NLEM), from 348 to 376, and indicated it was studying the prospects of adding more drugs from across therapeutic areas, including HIV, diabetes, cancer and tuberculosis to the essential list.
It went on capping the prices of hundreds of formulations listed under NLEM at much lower prices in order to make life-saving drugs affordable in a country where health care is largely paid for by the patient, out-of-pocket.
NLEM is revised once every three years.
Once a year, the price of an essential drug either increases or decreases as per the wholesale price index (WPI).
Drug makers are allowed to keep the price lower than the maximum allowed and gain more market share, but cannot change the price point within the ceiling later in the year.
The impact of price control started to play out on earnings in the first quarter ended in June as companies saw their Indian arms grow much below their expectations.
Sun Pharmaceutical Industries Ltd, India’s largest drug maker, saw its domestic formulation sales rise 8% to Rs.1,854 crore in the first quarter, however on a sequential basis its sales fell close to 3%. It attributed the less-than-expected performance to competition, changing regulation and government mandated price controls.
With around 8.7% market share, Sun Pharma is the biggest pharma company in the domestic formulation business.
Smaller rival Dr. Reddy’s Laboratories Ltd’s has also been hurt. Its domestic business grew 10% to Rs.522.3 crore on a year-on-year basis, but stayed flat on a sequential basis.
“NPPA pricing notifications and the WPI-based annual price decline impacted growth,” Dr. Reddy’s said.
Cipla Ltd and Lupin Ltd grew at a moderate pace of around 5% to Rs.1,449 crore and Rs.931 crore, respectively, but said they could have done much better if not for the pricing pressure in India.
“NLEM is a reality, is here to stay, the game is to build bigger brands, to increase prescription from the doctors and forming alliances (for new products),” said Nilesh Gupta, managing director of Lupin.
Gupta, who is also the president of the Indian Pharmaceutical Alliance (IPA), the lobby group of large Indian generic companies, said he is not expecting NLEM to be revised anytime soon but said the WPI-linked price revisions are hitting the industry.
Around 24% of Lupin portfolio falls under the price controlled segment, he said.
“NLEM definitely have impacted us and all companies are getting impacted,” said Glenn Saldanha, chairman and managing director of Glenmark. He, too, expects the price controls to continue in the future.
Glenmark India business grew at 10.4% to Rs.513.7 crore, much below the target of 15% sales growth for the current fiscal year. Around 20-30% of Glenmark’s portfolio falls under price controls.
Analysts said despite pricing pressure, some companies have managed to grow sales by increasing prices of non-NLEM portfolios, expanding their sales forces, introducing new formulations and forming alliances or acquiring brands to bring new products to the market.
According to ICICI Research, during the first quarter, the value of drugs under the national list of essential medicines (NLEM) declined 0.2% to Rs.2,989 crore while non-NLEM drugs posted growth of 7.5% to Rs.21,240 crore.
“Given the track record of this government in regulating price—the pricing pressure is going to intensify in the coming quarters” said Sujay Shetty, leader of the life sciences practice at PwC India.
Shetty stressed the need for companies to evolve strategies to beat the pricing issues, as India is among the very few countries in the world where the market for pharmaceuticals is still growing at double digits.