Sanofi, GSK Seen ‘Negatively Impacted’ By Essential Drug Price Cap

Sanofi India Ltd. and GlaxoSmithKline Pharmaceuticals Ltd. are staring at a revenue loss as a few of their products may see price cuts on being included in the essential medicines list.

Sanofi’s insulin glargine and GSK’s oral and topical antibiotic medications—that contribute to a sizeable chunk of the companies’ revenues—have been included in the National List of Essential Medicines released by the National Pharmaceuticals Pricing Authority, according to ICICI Securities’ Sept. 14 report.

The drugs included in the list will see cap on prices to make them affordable and widely available to the public.

JB Chemicals & Pharmaceuticals Ltd.’s antacid, however, has been excluded from the list, indicating a “positive” impact, it said.

This is the fourth revision to the list since 1996, with the last revision in 2015.

The updated list includes 384 drugs across different therapies.

“In our view, a few noteworthy products that have been included in the revised list are Amikacin (antibiotic), Cefuroxime (antibiotic), Insulin Glargine (anti-diabetic), Itraconazole (antifungal medication), Mupirocin (topical antibiotic) and Teneligliptin (anti-diabetic), with each having annual sales of more than Rs 300 crore,” ICICI Securities said in its report.

Inclusion in the list will push the companies to sell their brands at or below the simple average industry price. This would entail price cuts for all firms selling above the average.

Impacted Drugmakers

“As per our analysis, GSK and Sanofi would be negatively impacted,” said ICICI Securities.

GSK, it said, would have to reduce prices for Ceftum (bacterial infections) and TBact (skin infections), which cumulatively contribute to about 15% of its sales, while Sanofi would have to reduce prices for Lantus (diabetes ), which contributes about 22% of its sales.

According to ICICI Securities’ calculations, the prices of GSK’s Ceftum is currently 39% above the average, while that of TBact is 4.3% higher. Sanofi’s Lantus is priced 10% higher.

Separately, Nirmal Bang anticipates that Sanofi may have to re-price its insulin glargine, Lantus, at a 20% discount from the current price after the ceiling.

“We estimate Lantus’ annual sales in India for Sanofi at around Rs 550 crore,” Nirmal Bang said. “Hence, the impact due to price reduction on revenue would be around Rs 110 crore.”

“The impact from this event on the margins could be contained if the parent company, which supplies Lantus to its Indian subsidiary, lowers supply prices,” the brokerage said.

Sanofi India in response to BQ Prime’s emailed query said the potential impact on the company will be known only after the NPPA releases the prices. Though the price revision is likely to have an impact on sales, it does not expect a material impact on the profitability considering the arms-length operating model principle being followed with regard to sourcing of this product from Sanofi Group.

Due to the sale of its nutraceuticals business and insulin glargine pricing impact, Nirmal Bang expects the company’s revenue, Ebitda and PAT to grow at 1.7%, 1.5% and 5.5%, respectively, over CY21-23E. Though the brokerage expects a short-term impact, it is optimistic about the company’s long-term prospects due to its overall product portfolio.

The Beneficiary

“Ranitidine (antacid) is a noteworthy product that has been excluded from the revised list,” ICICI Securities said. “It has annual sales of over Rs 600 crore with a majority market share secured by Cadila Ltd. (Aciloc) and JB Chemicals (Rantac).”

After exclusion from the list, these products are eligible for a maximum price hike of around 10% per year on the selling price.

ICICI Securities expects JB Chemicals to benefit because its brand, Rantac, accounts for about 11% of its total revenue.

GSK and JB Chemicals have yet to respond to BQ Prime’s emailed queries.