Health Check: Indian drug makers living on the edge

Swiss drug maker Novartis AG subsidiary Sandoz became the first large generic drugmaker to reach a settlement with the US Department of Justice in a price-fixing case.

It has agreed to pay penalty of $195 million to settle criminal charges that it conspired with other pharmaceutical companies to fix prices of generic drugs.

As part of the agreement, the generic pharmaceutical company headquartered in Princeton, New Jersey will admit guilt and pay the penalty, which the Justice Department says is the largest fine the department had levied in a domestic antitrust case.

Sandoz conspired between 2013 and 2015 with other drug manufacturers and their executives to raise prices for critical medications, hurting vulnerable consumers such as the elderly.

The price-fixing affected more than $500 million in Sandoz’s generic drug sales. It involved drugs used to treat a range of chronic problems and pain conditions including arthritis, hypertension, seizures, various skin conditions and blood clots.

Sandoz’ submission shifts focus to other generic drug makers that are pulled up for colliding with the Swiss drug maker.

Around 20 companies—seven of which are Indian drugmakers—are defendants in the case. Indian companies include Aurobindo Pharma, Dr Reddy’s Laboratories, Glenmark Pharmaceuticals, Lupin, Taro Pharmaceuticals (Sun Pharma’s subsidiary), Wockhardt and Zydus Cadila. According to US antitrust laws, if found guilty, penalties could be twice the amount of gains from the illegal acts.

As per our assessment, cumulative benefit to Taro from price increase has been more than $1 billion or Rs 7,000 crore.

As a sensitivity, potential penalty of $500-$1 billion would impact Sun’s stock by Rs 15-30 per share.

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