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Drug Makers’ Shares Slip As Pharma Pricing Authority Issues Show Cause Notices

NPPA issued show-cause notices to 67 pharma companies.

Tablets of multiple vitamin and minerals supplement are arranged for a photograph. (Photographer: Kiyoshi Ota/Bloomberg)
Tablets of multiple vitamin and minerals supplement are arranged for a photograph. (Photographer: Kiyoshi Ota/Bloomberg)

Shares of Cadila Healthcare Ltd., Wockhardt Ltd. and Alkem Laboratories Ltd. dropped over 1 percent, after the National Pharmaceutical Pricing Authority (NPPA) issued show cause notices to them along with 64 other companies.

The NPPA issued show-cause notices to 67 pharma companies for introducing 201 new combination drug brands without taking prior price approval. The price control authority has asked the companies to furnish production and sales details by June 15.

Analyst Take

The said companies changed either the strength or dosage as specified in Drug Price Control Order 2013 and launched the products without applying for price approval as it falls in the “new drug” definition, the NPPA notice said.

According to NPPA, it is not clear if the said formulations have approval from Central Drugs Standard Control Organization (CDSCO) and as many are fixed-dose combinations (FDCs) if they are rational or irrational combinations, said Chaturya Aggarwal, IDBI Capital Markets & Securities Ltd., in his note to clients.

As the international markets add to the woes for the companies – especially U.S., domestic markets are playing spoilsport. Companies are working around the amendments in the domestic markets in order to reduce the pain. By continuously launching new drugs, the price hikes are possible above the mandated 10 percent annually. Tough times for the domestic markets with the NPPA slashing show-cause notices to companies.
Chaturya Aggarwal, IDBI Capital Markets & Securities

Industry Reaction

DG Shah, secretary general of Indian Pharmaceutical Alliance, a pharmaceutical industry body said that the body encourages compliance, not defiance. “However, we will wait till companies named by the NPPA have confirmed veracity of data, as our experience of data used by NPPA is a mixed one.”

The NSE Nifty Pharma Index opened 0.9 percent lower at 10,126.5 before paring losses.