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Monthly: Oct 2011 – Domestic formulations
IPM growth remains steady; NPPP 2011, if implemented, may materially impact MNCs
Summary
In this report, we provide detailed sales trends (AIOCD data) for the top-
10 companies and the top-10 therapy areas in the Indian pharmaceutical
market (IPM). We also include data for Dr Reddy’s and Glenmark, which
are not in the top-10 companies but are part of our coverage universe.
Among the top-20 companies, Sun Pharma, Lupin and Glenmark
continued to post higher net sales growth than the overall IPM in October
2011. On the other hand, Ranbaxy and Dr Reddy’s are notable laggards.
IPM net sales growth sustained at mid-teen levels
The domestic pharma market grew 13.8% y-y in October 2011,
recovering from the year’s low of 10.2% y-y (July). In our view, key
growth drivers for the industry are new product launches and volume
growth in older products.
Key therapy areas
Among the key therapy areas, anti-diabetes and cardiovascular
segments continued to grow above IPM levels, with net sales growth at
>20% in the month. The key laggards were the anti-infectives and gastrointestinal
segments, which grew in single digits in Oct 2011.
NPPP 2011, if implemented, may materially impact MNCs
We base our impact analysis of the National Pharmaceutical Pricing
Policy 2011 (NPPP 2011) on a sample of 72 SKU that cover ~21% of the
impacted market. Based on this study, we believe industry sales may
drop by INR15bn (~3% of the market) as higher priced products are
brought below the ceiling price (CP). We believe MNCs are impacted the
most as: 1) they are largely dependent on domestic formulation sales;
2) a large portion of their portfolio (>50%) would come under price control
and 3) in general, MNCs price products at a premium, which would result
in a greater drop in prices. Among Indian companies, Ranbaxy’s base
business earnings are at risk on premium anti-infective portfolio. We see
Lupin and Glenmark as relatively less impacted, based on the limited
sample study. We believe the markets have so far ignored the impact of
the proposed policy. This is reflected in the stock performance since the
announcement of the policy as highlighted in Fig 2. The policy presents
risks to domestic business profitability
NPPP 2011 – digging a hole in MNC
pharma’s pockets
Approx 3% of India pharma market sales may be impacted
As per the proposed policy, almost 60% of the India pharma market would come under
price control. We reworked the impact the potential price control based on a sample of
72 stock keeping units (SKUs) where we have pricing information (compared to 36 that
we highlighted in our report “NPPP ‘11 unveiled; varied –ve impact across cos” dated
31 October 2011). The sample accounts for ~21% of the impacted market. Based on this
study, we believe industry sales may drop by INR15bn (~3% of the market) as higher
priced products are brought below the ceiling price (CP). The assessment of the
quantum of impact is unchanged. AIOCD estimates the impact to be higher in the range
of INR18-20bn.
Impact significantly higher on MNCs
The extent of impact on company’s financials is determined by three factors: 1) the
percentage of overall sales in India, 2) the percentage of India sales that would come
under price control and 3) current pricing. Companies with large India dependence, high
coverage under price control and premium pricing would be impacted most. MNCs are
impacted on all three counts, in our assessment. For MNCs, sales are largely dependent
on domestic formulations, the coverage under price control is high (>50%) and they
mostly price products at a premium. In addition, Ranbaxy’s base business earnings are
at risk due to its premium anti-infective portfolio. We see Lupin and Glenmark as
relatively less impacted, based on the limited sample study.
Analysing the impact on financials; Glaxo most impacted in
our coverage
It is difficult to assess the exact impact on companies, as our analysis is restricted to a
limited sample, which covers 21% of the impacted market. We appreciate that there can
be material quantitative differences between the actual impact and what our sample
study suggests. However, the assessment does help us get a direction and a sense of
the relative impact. In Fig 2, we indicate the impact of price control as a percentage of
FY12 EBITDA for large listed companies in India. This is based on extrapolating the
results of the sample study that we conducted to the entire India portfolio. As the
analysis suggests, amongst the companies analysed, MNC firms would be impacted
most.
Most companies have not indicated the potential impact of the policy as it is still at a draft
stage and there can be material changes to the proposed policy over time. However,
Cipla indicated that if the proposed policy goes through, the impact would be 2-3% of
domestic sales, translating to an impact of INR550-900mn (our assessment is
INR510mn).
Markets have largely ignored the impact so far
We believe the markets have so far largely ignored the impact of the proposed policy.
This is reflected in the stock performance since the announcement of the policy as
highlighted in Fig 2. The policy presents risks to domestic business profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Monthly: Oct 2011 – Domestic formulations
IPM growth remains steady; NPPP 2011, if implemented, may materially impact MNCs
Summary
In this report, we provide detailed sales trends (AIOCD data) for the top-
10 companies and the top-10 therapy areas in the Indian pharmaceutical
market (IPM). We also include data for Dr Reddy’s and Glenmark, which
are not in the top-10 companies but are part of our coverage universe.
Among the top-20 companies, Sun Pharma, Lupin and Glenmark
continued to post higher net sales growth than the overall IPM in October
2011. On the other hand, Ranbaxy and Dr Reddy’s are notable laggards.
IPM net sales growth sustained at mid-teen levels
The domestic pharma market grew 13.8% y-y in October 2011,
recovering from the year’s low of 10.2% y-y (July). In our view, key
growth drivers for the industry are new product launches and volume
growth in older products.
Key therapy areas
Among the key therapy areas, anti-diabetes and cardiovascular
segments continued to grow above IPM levels, with net sales growth at
>20% in the month. The key laggards were the anti-infectives and gastrointestinal
segments, which grew in single digits in Oct 2011.
NPPP 2011, if implemented, may materially impact MNCs
We base our impact analysis of the National Pharmaceutical Pricing
Policy 2011 (NPPP 2011) on a sample of 72 SKU that cover ~21% of the
impacted market. Based on this study, we believe industry sales may
drop by INR15bn (~3% of the market) as higher priced products are
brought below the ceiling price (CP). We believe MNCs are impacted the
most as: 1) they are largely dependent on domestic formulation sales;
2) a large portion of their portfolio (>50%) would come under price control
and 3) in general, MNCs price products at a premium, which would result
in a greater drop in prices. Among Indian companies, Ranbaxy’s base
business earnings are at risk on premium anti-infective portfolio. We see
Lupin and Glenmark as relatively less impacted, based on the limited
sample study. We believe the markets have so far ignored the impact of
the proposed policy. This is reflected in the stock performance since the
announcement of the policy as highlighted in Fig 2. The policy presents
risks to domestic business profitability
NPPP 2011 – digging a hole in MNC
pharma’s pockets
Approx 3% of India pharma market sales may be impacted
As per the proposed policy, almost 60% of the India pharma market would come under
price control. We reworked the impact the potential price control based on a sample of
72 stock keeping units (SKUs) where we have pricing information (compared to 36 that
we highlighted in our report “NPPP ‘11 unveiled; varied –ve impact across cos” dated
31 October 2011). The sample accounts for ~21% of the impacted market. Based on this
study, we believe industry sales may drop by INR15bn (~3% of the market) as higher
priced products are brought below the ceiling price (CP). The assessment of the
quantum of impact is unchanged. AIOCD estimates the impact to be higher in the range
of INR18-20bn.
Impact significantly higher on MNCs
The extent of impact on company’s financials is determined by three factors: 1) the
percentage of overall sales in India, 2) the percentage of India sales that would come
under price control and 3) current pricing. Companies with large India dependence, high
coverage under price control and premium pricing would be impacted most. MNCs are
impacted on all three counts, in our assessment. For MNCs, sales are largely dependent
on domestic formulations, the coverage under price control is high (>50%) and they
mostly price products at a premium. In addition, Ranbaxy’s base business earnings are
at risk due to its premium anti-infective portfolio. We see Lupin and Glenmark as
relatively less impacted, based on the limited sample study.
Analysing the impact on financials; Glaxo most impacted in
our coverage
It is difficult to assess the exact impact on companies, as our analysis is restricted to a
limited sample, which covers 21% of the impacted market. We appreciate that there can
be material quantitative differences between the actual impact and what our sample
study suggests. However, the assessment does help us get a direction and a sense of
the relative impact. In Fig 2, we indicate the impact of price control as a percentage of
FY12 EBITDA for large listed companies in India. This is based on extrapolating the
results of the sample study that we conducted to the entire India portfolio. As the
analysis suggests, amongst the companies analysed, MNC firms would be impacted
most.
Most companies have not indicated the potential impact of the policy as it is still at a draft
stage and there can be material changes to the proposed policy over time. However,
Cipla indicated that if the proposed policy goes through, the impact would be 2-3% of
domestic sales, translating to an impact of INR550-900mn (our assessment is
INR510mn).
Markets have largely ignored the impact so far
We believe the markets have so far largely ignored the impact of the proposed policy.
This is reflected in the stock performance since the announcement of the policy as
highlighted in Fig 2. The policy presents risks to domestic business profitability.
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