Glaxo, Cipla Seen as Biggest Losers as India Sets Prices

GlaxoSmithKline Plc and Cipla Ltd. may have the most to lose from a new policy in India that would limit the retail prices of drugs that generate 23 percent of the pharmaceutical industry’s revenue.

Price caps will be widened to include 348 drugs such as antibiotics, anti-hypertensives and cancer medicines, Srikant Jena, junior minister for chemicals and fertilizers, said yesterday in New Delhi.

India’s pharmaceutical market is mostly composed of so-called branded generics, where often dozens of companies are selling the same drug under different brand names. There is a wide variation among the prices of these brands, and Indian units of multinational drug companies Glaxo and Abbott Laboratories may be the biggest losers of the new policy because their products are often priced at the top end of the range, said Bino Pathiparampil, an analyst at IIFL Ltd.

“The biggest impact will be for the multinationals because their products are often the most expensive,” Pathiparampil said by telephone from Mumbai. “Indian players have a wide variety of other generic products which are outside price control, so they’ll be less affected.”

Under the new policy, every drug in the National List of Essential Medicines will be capped at the weighted average price of all brands with a market share exceeding 1 percent, Jena said. That’s different from the existing system, which covers 74 drugs and sets a cap based on the product’s manufacturing costs.

Antibiotics, Multivitamins

The list, formulated by the health ministry, includes 64 antibiotics, 27 cardiovascular treatments, and 24 hormonal drugs, in addition to multivitamins and pain relievers.

The Indian unit of London-based Glaxo gets about 31 percent of its sales from drugs included in the list, making it the publicly traded company with the largest exposure, Barclays Plc said in a Sept. 24 report. Among Indian drugmakers, Mumbai-based Cipla would face the biggest loss in revenue, with 28 percent of sales coming under price control, analysts Balaji Prasad and Rohit Goel wrote.

“We are still analyzing the policy internally and cannot comment on the impact on sales,” Cipla Executive Director S. Radhakrishnan said in a phone interview. Glaxo spokeswoman Rupali Kalav didn’t reply to an e-mail and a phone call after office hours.

India has 92,000 brand names of registered pharmaceuticals, according to a compendium of medicines sold in the country. The World Health Organization, in contrast, recommends 340 essential drugs.

90 Percent

About 90 percent of prescriptions are generics, which their manufacturers seek to differentiate with unique names. Glaxo’s Augmentin, a combination drug containing two antibiotics, is sold by Ranbaxy Laboratories Ltd. as Moxclav, by Cipla as Advent and by Mankind Pharma Ltd. as Moxikind-CV.

Prices of the brands can differ by as much as 75 percent for six tablets, according to the drug encyclopedia CIMS.

When prescribing medication, Indian doctors typically refer to brands rather than chemical names. Pharmacists are prohibited from substituting one generic for another, even if it’s cheaper, so drugmakers try to persuade doctors to think of their brands first.

“The new proposal will have an impact on industry as the span of price controls will now increase to cover around 30 percent of the pharmaceutical market,” Ranjit Shahani, managing director of Basel, Switzerland-based Novartis AG’s Indian unit and the president of a pharmaceutical lobby group, said in an e-mailed statement.

All the major pharmaceutical companies in the country derive from 30 to 40 percent of their sales from exports and that would shield them from this policy change, IIFL’s Pathiparampil said.

Sun Pharmaceutical Industries Ltd., the country’s biggest drugmaker by market value, got 37 percent of sales from India last fiscal year. Lupin Ltd., the world’s biggest maker of tuberculosis drugs, got 27 percent from its home country.

The company is still “awaiting more clarity” from the government on the new policy recommendations, Mumbai-based Lupin said in an e-mailed statement.

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