New drug pricing policy to pinch top three firms

Revenue loss estimated at Rs 1,200 crore, says study.

The new drug price control mechanism, suggested under the proposed national pharmaceutical pricing policy, may cover 60 per cent of the drugs sold in the country, but will not have any impact on the majority of drug makers, an analysis by market research firm AIOCD AWACS suggests.

The study says there will be hardly any effect on the revenues of companies that are out of the top-20 list if the new mechanism comes in force. The agency's estimates show the total revenue loss for the industry will be just Rs 1,200 crore, or two per cent of the Rs 60,000-plus domestic pharmaceutical industry after implementation of the proposed policy. One-fourth of this loss, over Rs 300 crore, will be borne by the top three companies due to reduction in the prices of some of their best selling brands.
 

DRUG DEALS
Brand (Cos)	Pack (nos.)	MRP (Rs)	MRP* (Rs)
AMOXYCILLIN+CLAVULANIC ACID
Augmentin (GSK)	6	241.20	114.54
Clavam (Alkem)	10	200.75	190.90
Maxikind CV (Mankind)	6	71.94	71.94
CEFIXIME
Taximo (Alkem)	10	198.00	103.42
Zifi (FDC)	10	99.00	99.00
Cefoloc (Macleods)	10	97.00	97.00
ATORVASTATIN
Storvas (Ranbaxy)	10	97.92	94.20
Atorva (Zydus Cadila)	10	103.74	94.20
Tonoct (Lupin)	15	117.45	117.45
CEFTRIAXONE
Monocef (Aristo)	1	69.00	66.86
Xone (Alkem)	1	63.55	63.55
Oframax (Ranbaxy)	1	64.40	64.40
Molecule/Top 3 brands by value & largest pack * Under new policy                                                              Source: AIOCD AWACS

PharmaTrac Audit, conducted by AIOCD AWACS, projects the loss of revenue for the top three players — Glaxo, Cipla and Ranbaxy — as Rs 151 crore, Rs 75 crore and Rs 80 crore, respectively.

“The top three drug makers stand to take the largest hit. Mid-size and small-size players (outside of top 20) have hardly been affected,” the agency said. The estimates were calculated after analysing 50-60 per cent of the individual turnover of the three companies.

PharmaTrac audit is a monthly projection done to estimate the pack-wise monthly sale of branded pharmaceutical products across 23 regions. One of the founding partners of the market research company is the country’s apex association of drug traders – the All India Organisation of Chemists and Druggists or AIOCD.

According to trade experts, the reason for negligible impact is the new method suggested to identify the ceiling price for medicines.

Under the proposed policy, the ministry has moved away from the existing economic/market share principle-based criteria of price fixation to “essentiality” based price control. This change of criteria was warranted by an eight-year directive from the Supreme Court, which had asked the central government to formulate a medicine price control mechanism to cover all essential drugs.

Last month, the Supreme Court had asked the central government to state whether it intended to bring all essential medicines under price control. The apex court's intervention was on the basis of a petition filed by civil society groups, who wanted the government to implement the court's earlier directive. The civil society group representatives said the draft policy was just an eyewash as it did not attempt to bring in meaningful control over drug pricing.

According to experts, in most cases, the top selling brands are priced the highest, hence, the reason for the ceiling price becoming an average of the highest prices and not an indication of the price at which other players manufacture and sell the same product.

“This is a trick. They are taking the three top selling brands and making a ceiling price based on its average price. The brands are usually the highest priced ones. For instance, if company A has been making 300 per cent profit; B, 400 per cent and C, 500 per cent on the top three brands of a medicine, the government is merely allowing the companies to continue making 400 per cent by fixing a ceiling price based on average price. Price control can only be done if the final price is arrived after calculating the actual cost of production and adding a reasonable profit to it,” said Colin Gonsalves, senior counsel who filed the public interest suit in the Supreme Court.

Under the existing rules, the drug price control body – National Pharmaceutical Pricing Authority – carries out a cost based study to fix the retail price of each price controlled drug. The new proposal calls for a simple calculation of the weighted average of the prices of the top three brands of the same medicine to identify the ceiling price.

Lalit Kumar Jain, president, All India SME Pharma Manufacturers Association, said the proposed policy gives freedom to the companies to fix drug prices.

“It could affect the prices of the highest priced brands by 20 per cent, he said, without commenting on its impact on small and medium players.

Incidentally, the industry experts had expected a major hit on pharmaceutical revenues if the ministry had applied the existing economic/market share criteria for cost based price fixation to all products that come under the National List of Essential Medicines, 2011.