The pharma sector in India is reeling after the National Pharmaceutical Pricing Authority said it's capping prices on about 100 drugs to treat diabetes and heart disease. And the company that could suffer most isn't India-based. Instead, the French drugmaker Sanofi's Indian unit's shares have fallen 10% on the Bombay stock exchange since the caps were announced.
Sanofi ($SNY) could see its sales in India drop by 9.5% and its profits by 30%, predicts the brokerage firm Motilal Oswal Securities in a research note obtained by The Wall Street Journal. The total value of all heart and diabetes drugs sold in India could fall as much as 12%, according to a report released by research house Nomura, the WSJ reports.
When the pricing authority announced that it would start regulating heart and diabetes drugs, it cited large price differences between different versions of the same product--a phenomenon it called "indicative of a severe market failure," according to the WSJ. The agency plans to cap the prices at 25% above the average price of each drug starting July 25.
India's price caps have been dogging the pharmaceutical industry for the past several years, but the problem escalated last summer when the country vastly expanded its price-control list from 74 to 652 drugs. More than half of those were classified as "essential drugs" to treat life-threatening conditions such as HIV and cancer. Sales of price-controlled drugs fell nearly 8% in the 12 months ended in March, according to the WSJ.
To try to make up for the lost revenues, some pharma companies began paring back the margins they paid to wholesalers and retailers, a move that backfired and spiraled into protests via slashing their orders. GlaxoSmithKline ($GSK) acknowledged that the backlash caused its sales to decline in India.
It's not just multinationals that stand to lose out this time, either. Several of India's leading drugmakers are expected to be hit by this latest round of price caps, including Sun Pharma, Elder Pharma, and Divi's Lab. They were also major losers on the Bombay stock exchange earlier this week, according to The Indian Express.
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