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The ongoing tussle between the National Pharmaceutical Pricing Authority (NPPA) and insulin makers like Torrent Pharma, is likely to affect the margins of the company's contract manufacturing business.
The Ahmedabad-based drug major makes insulin products for global multinational Novo Nordisk at a dedicated facility at Kadi in Gujarat.
As insiders point out, with the current pricing (which is fixed by the NPPA), Novo Nordisk's margins would take a hit, and it would, therefore reduce its contract manufacturing costs, or even reduce the size of orders. This would, in turn, affect Torrent's margins from the contract manufacturing business, which is pegged to be in the range of 8-10 per cent.
A Mumbai-based analyst pointed out that, "Novo Nordisk has not raised the order size for insulin products to be made by Torrent in sometime, and if the pricing fixed by NPPA is not reviewed and relaxed, future orders are likely to dry up."
The NPPA had revised prices of insulin in November 2012, and slashed it by 17 per cent compared to the earlier price which was fixed in 2010. Torrent applied to the NPPA to review the pricing, and the regulator has thereafter accepted to review its application. A senior official at the NPPA informed that the matter is pending with the Delhi High Court.
He, however, informed that the NPPA has also written a letter to the company asking it to follow the price fixed by the regulator as long as a decision is pending. "In such cases, the company has to follow the notified price while the review process is on, and it cannot sell its products at a higher price than the fixed price."
A senior official in Torrent Pharma confirmed the development, but he did not wish to divulge more as the matter was subjudice.
According to the company's 2011-12 annual report, the contract manufacturing segment had registered revenues of Rs 291 crore during the fiscal, a major portion of which is from manufacture of human insulin.
The company had also raised concerns about the proposed drug price control in the annual report saying, "In the event government reduces the prices of company’s products under DPCO or introduces price control on products currently not subject to such control, the profit margins could be significantly affected."
The NPPA feels that insulin is a product of mass consumption in a country with millions of diabetic patients, and therefore, to allow a level playing field, the prices of insulin should be controlled.
