The new pharmaceutical pricing policy proposed by the chemicals and fertilisers ministry last week will create distortions in the market and hamper the industry's growth.
Under the
National Pharmaceutical Pricing Policy, 2011, proposed by the Department of Pharmaceuticals (DoP), the
government will fix and regulate prices of all 348 essential drugs and their combinations - which will cover 60% of drugs sold in the country.
The policy also proposes a
shift from fixing the ceiling price based on cost of production to the reference pricing method.
Critics of the new policy, comments on which have been invited till November-end, say the
policy will favour foreign drugmakers and big Indian multinationals. Lobby group Indian Pharmaceutical Alliance (IPA), which represents big Indian companies, said the policy seems to
"have ignored the need for ensuring long-term availability in favour of shortterm benefit of ensuring access".
The government has
arbitrarily extended the scope of price control by extending it to combinations against the specified strengths and dosage finalised by an expert committee nominated by the health ministry, D G Shah, secretary general of the association, said.
The draft policy also
does not address the need to promote self-reliance and the issue of India's growing dependence on imports of raw materials and intermediates, critics said.
The founder and chief executive of a leading local vaccine maker said the prices of medicines in the country are already the lowest in the world. Many drugs sold by foreign MNCs remain outside price control and they can stop selling the ones that are unprofitable, he said.
"There is, however, no choice for Indian drugmakers whose key market remains India," he said. Such stakeholders are expected to share their views before the DoP's deadline ends. Some experts have questioned the basic premise of fixing the ceiling price on the average price of three most-sold brands by value, particularly when the most-sold brands are the expensive ones of foreign MNCs and big Indian players. "Why not the average price of three cheapest brands?
After all, these are also selling at a profit?" C M Gulati, a Delhi-based regulatory expert asked. The ceiling price under the proposed policy is essentially based on what is most prescribed by doctors, which in turn is driven by incentives, gifts and lucrative deals offered by drugmakers, Gulati said. For example, GSK's antibiotic Augmentin is the bestselling brand in the country and costs Rs 241 for a strip of six tablets (625 mg). Mankind Pharma's Moxikind, on the other hand, costs Rs 66, or 73% lower.
Seven of the top 10 most-sold brands are owned by foreign MNCs. Companies can also easily escape the price control net by simply tweaking or add an ingredient to make it the only brand with that particular combination. "The brand will be similar but not identical to be regulated," Gulati said.
The proposed policy says that if there are less than three brands in a category, then the average price of the existing brands becomes the ceiling price. "What if the ceiling is average of two brands and then a third one is launched in the next few months? And if the cap is revised, what happens to the inventories in market which expire in three-four years?" he asked. An official from DoP involved in finalising the draft, however, said the earlier method of fixing the ceiling price based on cost of production was very complex.
Even if the average price of some drugs may be based on expensive brands, it will bring down the cost of medicines, he claimed.
The DoP estimates that prices of 52% of essential drugs will fall by up to 5%, while the cost of another 32% essential drugs will go down by as much as 20%.
IPA's Shah supported the government on the choice of the new method saying the cost of production varies between companies depending on the quality of ingredients, manufacturing plant and other factors.
"The only positive point (in the policy) is moving away from an arbitrary and opaque system of cost-based price control which was prone to corruption," he said,
Impact on IPM (Indian Pharmaceutical Market):-
Industry sales may
drop by of Rs 15 billion (2.8% of the market) as higher priced products are brought below the ceiling price (CP).
The impact on earnings is a combination of three factors -
1) percentage of overall sales in India;
2) percentage of India sales that shall come under price control and
3) current pricing.
Companies with large India dependence, high coverage under price control and premium pricing would be impacted the most.
Percentages of domestic portfolio of top companies that shall come under price control are Glaxo (63%), Ranbaxy (50%), Cipla (56%), Sun (42%), Lupin (44%), DRL (49%), Glenmark (42%), Zydus (60%).
Glaxo's earnings are most at risk from the development, we believe, as beside the high percentage of the portfolio coming under price control, pricing fall is more severe due to current premium pricing. Even
Ranbaxy's base business earnings are at risk on premium anti infective portfolio. We see
Lupin and Dr Reddy`s as relatively less impacted.
The proposed draft of NPPP 2011 will increase the span of control from 74 drugs to 348 drugs, which will effectively cover 60% of the domestic pharma industry
(current DPCO coverage is 12%).
However,
market based pricing and annual price hike based on WPI are likely to limit losses for the pharma industry.
On the positive side, MNCs will be able to take price hikes on drugs which were earlier covered under DPCO pricing policy, which are expected to be covered under the ambit of 2011 policy post two years of implementation.
Moreover,
potential loss could be offset by volume share gain and price increases (up to reference price) in drugs/strengths where companies do not have price leadership.
We believe the policy may expect resistance from patients groups/ NGOs.
Glaxo India (Augumentin), Cipla, Ranbaxy, Alembic (Azithral) and Cadila Healthcare (Atorva) would be negatively impacted while Sun Pharma and Lupin will have limited impact if the proposed policy is implemented.
