New drug pricing policy to impact multinational companies the most: Analysts

The proposed draft pharma policy is likely to impact those multinational companies the most, which are in the premium pricing band, say analysts.

The new pricing policy finalised by the group of ministers last week will take the number of essential drugs under price control regime to as many as 348. At present, the prices of 74 bulk drugs and their formulations are controlled.

"We acknowledge the rights of the government to make essential medicines available to the most vulnerable sections of society at affordable prices. The new proposal will have an impact on industry as the span of price controls will now increase to cover around 30 per cent of the pharma market. Still a market-based policy is a balanced formula and will help improve the availability of essential medicines for patients," Organisation of Pharmaceutical Producers of India (OPPI) president and Novartis India vice-chairman and managing director Ranjit Shahani told PTI.

The GoM had recommended that the retail price of essential 348 drugs will be fixed at weighted average price of brands that have more than 1 per cent market share.

The proposed policy will cover 30 per cent of the industry and will bring down the average prices by about 10 per cent.

"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, resulting in a profit contraction of the entire business," Karvy analyst Nishith Sanghvi said in a note.

The domestic companies not having very huge exposure to the domestic market, will be insulated to some extent, but they will see some contraction in their margins from the domestic segment, impacting the profitability, Sanghvi said.

Companies such as Reddy's, Sun Pharma, Lupin, Ranbaxy and Cipla would be less affected due to their presence in the exports space, he added.

However, Manoj Garg of Edelweiss Securities believes it is a balanced policy and will help reduce prices by about 15-20 per cent. In some cases, it might even be lowered by as much as 40-50 per cent, he adds.

Analysts believe that the policy would take a minimum of six months to be implemented as problems would crop up on the inventory in the system, as it would need inventory recall once the policy is implemented.

The stocks would also face the problem of reprinting/ repacking issues. The other problem impacting the companies would be implementing pricing on the MRP regime, Karvy analyst Rahul Sharma said.

Frost & Sullivan in a note said, the policy comes as a relief for the industry. The use of weighted average prices for all the drugs which have market share beyond 1 per cent preferred by the GoM compared to a few other methods make better sense.

Specifically the current cost of production plus the mark up policy being pursued for the 74 bulk drugs under national list of essential medicines (NLEM) comes as a big relief for the industry.

Consumers are benefited because the NLEM list has been increased from current 74 to 348 (with inclusion of around 750 formulations) which will reduce the prices for these drugs up to 20 per cent. 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. Overall, this can be seen as a win-win situation for all, Frost & Sullivan pharma & biotech, healthcare practice associate director Ajay Kumar Sharma said.