NPPA Order – A Booster Dose For Pharma Cos

Pharmaceutical companies, namely JB Chemicals, Sanofi, GSK Pharma, Alembic Pharma received a booster dose from India’s drug regulator that decided to raise price ceiling for formulations.

This has come in as much needed relief for drug makers that have been experiencing severe regulatory hurdles in the main exporting market, the US, and fierce competition within the local markets from homegrown companies as well as rising preference for alternative medicinal therapies.

Last week, the National Pharmaceutical Pricing Authority (NPPA) set a new precedent by invoking paragraph 19 of the Drug Price Control Order (DPCO), 2013, to increase the ceiling prices of 21 formulations by 50%.

While this decision may increase out-of-pocket expenses for patients, it will provide some relief for companies producing these drugs who are absorbing rising costs of active pharmaceutical ingredient (APIs) and intermediates.

India imports about 80% of APIs from China, to formulate its essential medications.

NPPA said it considered the view that unviability of these formulations should not lead to a situation where these drugs become unavailable in the market and that the public is forced to switch to costly alternatives.

The authority had used these extraordinary powers under paragraph 19 of DPCO, 2013 just thrice.

The first instance was in July 2014 when it fixed prices of 108 antidiabetic and cardiovascular non-scheduled formulations; second instance was in August 2017 to cap prices of coronary stents and the third was in February when the government put a cap on trade margin of 30% and directed manufacturers to fix their retail price based on price at first point of sale of product (Price to Stockist), of the non-scheduled formulations containing any of the 42 cancer drugs.

The upward revision of prices underlined the inherent weakness of the current market-based price control policy.

The drug makers have been demanding flexible policies to address rising costs of raw materials and rein in unfair commercial practices by the industry.

The government is hinting at moving towards trade margin rationalization.
JB Chemicals, Sanofi, GSK Pharma, Alembic Pharma
NPPA allows a one-time 50% price increase in 21 formulations

Several companies had petitioned of the hike due to increase in input prices

This will benefit JB Chemicals immenseky as the Metrogyl brand contributes around 10% of domestic sales.

Also, JB Chemicals is making a buyback which opens on Monday and close on December 30. The company plans to buy back 29.54 lakh shares at a price of ₹440.

 The company said it proposes to utilize an aggregate amount not exceeding ₹130 crores for this buyback.

Hence long term prospects look bright with both price increases coming in and a buyback being implemented is likely to push earnings for FY21 strongly ahead

Alembic’s Pencom and BPG injections, Sanofi’s Lasix and GSK’s Dapsone are also other market players which will benefit ahead.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.