How will this drug ban affect Indian pharma? - Views on News from Equitymaster

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How will this drug ban affect Indian pharma?

Jun 13, 2013

In accordance with department of health and family welfare, the central government has suspended manufacturing, sale and distribution of 'Dextropropoxyphene' based drugs in India. This active pharmaceutical ingredient (API) is used for the manufacturing of drugs largely indicated to relieve pain. The notification to ban the use of this API based drug has been issued, as it is likely to involve risk to human beings, whereas safer alternatives to the said drugs are available. Below is the list of companies that are selling Dextropropoxyphene based drugs in India.

Company Brand
Cipla Spasmocip
Lupin Lupivon
Ranbaxy Darvocet, Sudhinol
Sanofi Aventis Carbutyl
Wockhardt Proxyvon brands
Source: CIMS India, Equitymaster
Please note the above list is not exhaustive
Impact on companies

We spoke to two companies viz., Lupin and Wockhardt to understand the impact of this ban on overall sales.

As per the management of Lupin, the sales from the brand having Dextropropoxyphene was very low and thus would hardly have any impact on the sales. For other companies such as Ranbaxy, Cipla and Sanofi too, we believe the impact will be negligible.

However the impact on Wockhardt will be high. This brand is among the company's top 10 selling brands. As per various sources, Wockhardt's domestic sales worth Rs 1,500 m are expected to be impacted on back of this ban, which is approximately 10-12% of its domestic sales. On the margins front, we expect EBITDA margins of approximately 30-35%, and thus profit for the drug would be approximately Rs 350- 420 m, converting to Rs 3.30 - 4 per share.

Risks associated with Dextropropoxyphene

Since 2011, various countries such as US, Europe, Canada, Australia, New Zealand etc have banned use of Dextropropoxyphene. This is because, if the drug is used for a prolonged period, it can lead to addiction, thus involving risk to human beings. The excess intake of this drug can result into various health problems. Thus in order to protect the health of the citizens, countries decided to ban the drug given that various other painkiller alternatives are available and thus the same can be prescribed to individuals. This would help in mitigating the health risks.

Our view

As mentioned earlier, the impact of this ban is the highest on Wockhardt as compared to various other companies. Wockhardt is already facing challenges on the USFDA front as a result of which the risk factor for the company remains high. We had already recommended investors to stay away from the stock.

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Jun 18, 2021 03:37 PM