• 5 October 2012
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Side effects of the New Drug-Pricing Policy

As the Government gets closer to ink the new drug-pricing policy, BioSpectrum seeks industry's reactions to the September 27 announcement by the Group of Ministers

Shutterstock2880173medicines A Group of Ministers (GoM ), on September 27, headed by Union Agriculture Minister Sharad Pawar, has finalized a new drug-pricing policy for essential medicines. The Department of Pharmaceuticals in 2011 had prepared a list of 348 medicines and also included most of the basic vaccines as essential medicines. The essential medicines will come under the purview of the government price control after the policy gets the cabinet committee's nod and the prices of all essential medicines will be fixed as the weighted average price of all brands of the same medication having more than one percent market share. The National Pharmaceutical Pricing Authority was monitoring 74 bulk drugs and their formulations so far.

The GoM headed by Pawar and consisting of Srikant Jena, Union Minister for Fertilizers and Chemicals; Ghulam Nabi Azad, Union Minister for Health; Kapil Sibal, Union Minister for Human Resources and Development, Communications and IT; Salman Khurshid, Union Minister for Law and Justice; and Montek Singh Ahluwalia, Deputy Chairman, Planning Commission arrived at a consensus to use weighted average prices for all the drugs, which had a market share of more than one percent.

This policy initiative got mixed reactions from the industry, analysts, and associations. Tapan Ray, Director General, Organization of Pharmaceutical Producers of India (OPPI), said, “The new proposal will have an adverse impact on the industry, as the price control will encompass a third of the Indian pharma industry and result in further squeeze of the margins.”

Acknowledging the rights of the government to make essential medicines available to the most vulnerable sections of society at affordable prices, Ranjit Shahani, president, OPPI and vice-chairman and managing director, Novartis India, said, “This initiative will have negative impact on the industry. A market-based policy is a balanced formula and will help improve the availability of essential medicines for patients.”

On the contrary, Dr Ajay Kumar Sharma, associate director, Pharma and Biotech, Healthcare Practice, Frost & Sullivan, South Asia and Middle East observed, “The policy comes as a relief for the industry. The use of weighted average prices for all the drugs, which have market share beyond one percent, is preferred by the GoM as compared to few other methods proposed. Specifically the current cost of production plus the mark up policy being pursued for the 74 bulk drugs under the National List of Essential Medicines (NLEM) comes as a big relief for the industry. The consumers are benefited because, the NLEM list has been increased from current 74 to 348 (approximately includes 750 formulations), which will reduce the prices for these drugs up to 20 percent. The grey area here is that the specific drugs for specific strengths are only included in the current NLEM list. Hence it would be interesting to see how the industry looks at by-passing this regulation. On an overall basis this can be seen as a win-win situation for all.”

Sharing their perspectives on this subject Rahul Sharma and Nishith Sanghvi, Karvy Stock Brocking analysts said, “The companies which are in the premium pricing band would be impacted the most. MNCs in particular, which have a pure domestic play like GSK Pharma and Sanofi India would be impacted the most, with contraction in EBDITA margins for the business as a whole. Indian companies not having very huge exposure to the domestic play would be insulated to some extent, but what we would be seeing is contraction in EDBITA margins for the domestic segment as a whole and hence impacting the profitability. The companies such as Dr Reddy's, Sun Pharma, Lupin, Ranbaxy Labs and Cipla would be less impacted due to their presence in the exports space.”

As per the Karvy Stock Broking analysts a majority of the organizations, who were disappointed, expected the the Policy to take into account only the drugs, which had a market share in excess of 5 percent as the criteria. Including all drugs that have a market share of more that 1 percent would have a higher number of companies in the net. “The initial assessment based on a 50 percent price cut and a possible 80 percent price cut for products show a higher impact on Sanofi Aventis, GSK Pharma, Cipla, Ranbaxy Labs, Cadila and Torrent Pharmaceuticals,” said Sharma.

Sanghvi added, “We believe that the policy would take a minimum of six months to implement as problems would crop up on the inventory in the system, as it would need inventory recall once the policy is implemented. There will also be issues of reprinting and repacking of the stocks. The other problems impacting the companies would be the implementation of the pricing on MRP regime, the price which both the AIOCD/IMS is capturing is based on the wholesale price to the retailer and it does not include the excise duty element, retailer margins and VAT.”

It is likely that it would take another 6-12 months for the government to implement this policy after it is cleared by the cabinet committee and sent to the Supreme Court, as the matter is before the apex court for hearing as a petition was filed by All India Drug Action Network (AIDAN) for reducing the number of drugs under price control from the current 74 bulk drugs to about half. The apex court asked the government to regulate prices of essential drugs.
Need for updating NLEM

To address the issues of changing disease prevalence, treatment modalities, introduction of newer medicines and identification of unacceptable risk-benefit profile as well as therapeutic profile of some medicines, the Ministry of Health & Family Welfare (MOHFW) considered the need for updating the National List of Essential Medicines (NLEM). The first National List of Essential Medicines of India was prepared and released in 1996, which was subsequently revised in 2003.


Narayan Kulkarni (inputs from Manasi Vaidya)

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