Zydus And Alkem To Ipca Labs Stand To Gain From Hike In Essential Drug Prices

Essential, life-saving medicines are likely to get expensive amid rising cost pressures.

The Indian government has approved a 10.8% hike in the prices of essential drugs regulated under the Drug Price Control Order 2013, according to the minutes of the meeting of the National Pharmaceutical Pricing Authority. That’s effective April 1.

The price hike comes as the Indian pharmaceutical industry grapples with the issue of rising input costs from China, freight, packaging material and transportation costs due to the pandemic, Krishnanath Munde, associate director at India Ratings & Research, told BloombergQuint.

Supply cuts by China—accounting for nearly 70% of the Indian pharma industry’s bulk drug raw material imports—have led to severe cost pressures.

The DPCO caps the prices of essential and life-saving drugs to ensure their availability at reasonable rates. The order provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by the government, and penalties for contravention of provisions, among others.

The NPPA has around 800 scheduled drug formulations spread across 27 therapeutic groups under the National List of Essential Medicines. These include paracetamols, insulin injections, antibiotics, vitamins and supplements to medicines for heart and blood pressure, skin ailments.

Who Benefits The Most

Over financial years 2018-22, companies manufacturing these scheduled drugs covered under the NLEM were allowed 0.5-4.2% year-on-year hike based on the Wholesale Price Index of the preceding calendar year, which is representative of inflation in the country.

But the Department for Promotion of Industry and Internal Trade in the March 24 meeting raised the ceiling to 10.8%. Though higher than the previous years, the limit is in line with the WPI of 2021.

“While this price hike was widely anticipated given the elevated WPI levels, pharma manufacturers would be relieved that the NPPA has continued with the prevailing formula and refrained from tweaking it,” Kotak Securities said in a note.

The NLEM portfolio constitutes 17% of overall Indian pharma market sales, it said, adding the contribution from the top 25 companies is in the 7-44% range. The price cap for drugs not falling under the NLEM would continue to remain at 10% for FY23.

The biggest beneficiaries among top domestic pharma companies, according to the brokerage note, would be FDC, Zydus Life Sciences and JB Chemicals, which have the highest NLEM exposure at 33-44% of domestic sales.

Alkem Laboratories Ltd., Cipla Ltd. and Ipca Laboratories Ltd., with 21-26% of their domestic sales coming from NLEM drugs, will also be key beneficiaries. Among listed multinational companies, GSK, Sanofi and Abbott have the highest NLEM exposure in the 21-26% range.

“Given the prevailing input cost pressures, we expect companies to take advantage of this latitude and announce price hikes for their NLEM drugs from April 2022,” Kotak Securities said.

The government is also taking measures to boost local manufacturing and reduce import dependence through production-linked incentives.