New pharma policy: MNCs to bear the brunt

Under Drug Price Control Order, 2013, there will be an impact on both price and volumes

Multinational pharmaceutical companies are expected to bear the brunt of the government’s decision to implement the Drug Price Control Order, 2013 which is expected to be notified in April. MNC pharma players are the market leaders in most of the segments where price control will be implemented. Further, companies catering to medicines that fall under the purview of price control, and selling their products at prices lower than the ceiling price, will have to freeze their prices, as per the recent changes made in the policy. Ceiling prices will be fixed at the prevailing price on May 2012, six months before the policy was notified.

For patients the move would result in prices of medicines under the control reducing by 50 to 70 per cent. Further, the policy will now cover 348 essential medicines as compared to only 74 earlier. As a result around 30 per cent of the Rs 1 lakh crore of domestic revenues will be affected as against only 17 per cent presently.

The policy has tried to plug loopholes that existed earlier by making it applicable to imported medicines, provided they fall in the essential medicines list. The policy also does not allow alteration to the drug which would be used to take the drug out of the purview of price control. If a new ingredient is added, the company will have to seek permission from the pricing authority.

The move, however, will impact earnings of multinationals  and other top pharmaceutical companies that have a good product line of essential drugs. Profits are expected to be impacted by 25 per cent after implementation of the control order.
The recent addition of freezing prices of those medicines that are being sold at prices lower than the ceiling price seems a bit unfair as the companies were unaware of the ceiling price in May 2012. While those selling their products at prices higher than the ceiling price will be asked to reduce it, those selling at prices lower than the ceiling price will not get the option of increasing their selling price.

Along with the price control what will impact the industry is the government’s proposal of purchasing drugs worth Rs 15,000 crore through the tender process. As tender prices are nearly one-fourth of market prices, industry experts believe that this purchase is a huge chunk of the current market size. These drugs will be used for free supply through government hospitals and dispensaries. MNC pharma players typically do not participate in these tenders and the government prefers to buy generics and not branded formulations that MNCs produce.  

Thus, after this new policy, not only will MNC pharma companies be affected on the price front, but also on the volume front.