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Addition of 39 molecules in NLEM to have adverse impact of Rs. 530 crore in IPM: Emkay Global

Gireesh Babu, New Delhi
Tuesday, September 7, 2021, 08:00 Hrs  [IST]

An inclusion of 39 molecules into Drug (Price Control) Order, which are added in the updated National List of Essential Medicines (NLEM) 2021, may lead to a modest sales decline of around Rs. 530 crore, less than 0.5 per cent of the Indian Pharmaceutical Market (IPM), according to a latest report from brokerage firm Emkay Global.

The highest adverse impact of the new list could be on GlaxoSmithKline (GSK) and Sanofi, with an estimated revenue downside of Rs. 120 crore and Rs. 118 crore, respectively, it said.

The government, last Thursday, released the NLEM with an addition of 39 molecules while 16 molecules were removed from the previous list. The newly added molecules predominantly belong to the anti-infective, anti-cancer and anti-diabetic categories.

The 39 molecules have a moving annual total (MAT) sales of Rs. 5,300 crore, representing around three per cent of the IPM. Top-10 molecules within this had MAT sales of Rs. 4,800 crore.

“Our analysis suggests inclusion of all the 39 molecules into DPCO could lead to a modest sales decline of Rs. 530 crore (<0.5% of IPM),” said a sector update report from Emkay Global.

“We believe GSK and Sanofi could have the highest adverse impact, with an estimated revenue downside of Rs.120 crore and Rs. 118 crore, respectively. While decline in brand prices could boost volumes, offsetting some of the impact, evidence from DPCO 2013 is mixed,” it added.

For other companies, such as Glenmark, Alkem, Eris LS, Lupin and Cipla, it estimates the topline impact would be much smaller at <1% of their total revenues and EBITDA impact at less than 2% of EBITDA registered during fiscal year 2021.

Of the 39 molecules being added to NLEM, GSK has a meaningful presence in four. If all the four are included in DPCO, the research estimates a topline downside of Rs. 120 crore for the company, which is around four per cent of FY21 revenue and 17% of EBITDA. These four products had MAT July ’21 sales of around Rs. 560 crore, according to IMS.

Of the four molecules, cefuroxime represents the biggest downside due to its higher sales contribution (at Rs. 280 crore MAT sales) and potential price decline of around 50%. Although T-bact (Mupirocin cream) contributes around Rs. 250 crore in MAT sales, the impact is expected to be more benign (less than Rs.7.1 crore) due to in-line pricing with other players. Other GSK brands that could see an adverse impact are Rotarix ( less than Rs. 5 crore) and Zimig (less than Rs. 1.8 crore)

As far as Sanofi is concerned, the revised NLEM now includes Insulin Glargine, which accounts for around 20% of Sanofi’s sales through its brands such as Lantus and Toujeo. Within Lantus, three different formulations 3ml, 10ml and Solostar have different prices. Using a median price for these formulations, Emkay Global estimates a negative topline impact of around Rs. 100 crore as it expects around 18% decline in Lantus prices. Similarly, estimates are that around Rs. 15 crore impact from a potential almost 40% decline in Toujeo prices, if it is also considered in the Insulin Glargine category. The overall adverse impact of around Rs. 120 crore represents around four per cent of FY21 revenue and 17% of EBITDA of the company.

Other companies that are likely to see a greater than one per cent impact on their EBITDA are Alkem (-1.9%), Glenmark (-2%) and Lupin (-1.1%). Alkem’s Zocef (Cefuroxime) and Itratuf (Itraconazole) could see a potential adverse impact of Rs. 31 crore. Glenmark’s brands Canditral and Syntran in the Itraconazole molecule could witness an adverse impact of around Rs 24.5 crore put together. In addition, its Altacef brand (cefuroxime) could see a decline of Rs. 90 crore. Lupin’s Cetil (cefuroxime) is likely to see a modest adverse impact of around Rs. 26.5 crore.

The analysis did not consider the combination of newly added molecules, which are cefuroxime + clavulanic acid, tenelegliptin+metformin and terbinafine +mometasone.

 

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