New pricing policy may impact domestic revenue of pharma firms in 2014: Dun & Bradstreet

Implementation of the new pricing policy is likely to translate into weak domestic revenue generation for pharma companies in 2014, according to a report by global research firm Dun & Bradstreet.

"Implementation of the Drug Policy Control Order (DPCO) 2013 by the New Pharmaceutical Pricing Authority (NPPA) with effect from May 15, 2013, which put a cap on the prices of 348 essential drugs, is likely to impact domestic revenue generation of both homegrown and multinational drug companies in 2014," the report said.

The impact of the new drug pricing policy and regulatory intervention has already started influencing the growth performance of the overall pharma industry.

Quarterly net sales growth slowing to 9 and 12 per cent during the second and third quarters - when DPCO was implemented - respectively, of 2013 against an over 15 per cent growth during the corresponding period last year well reflects the impact of DPCO as well as the slowdown in demand, the report said.

Compliance to this regulation may continue to create the pressure on pharma companies' profitability in 2014, it said.

The pharma industry has exhibited a stellar performance in the past and has grown unabated at an estimated CAGR of 13 per cent during FY2009-13, driven by domestic and export-led demand.

A lower cost of production and availability of highly skilled labour pool at low cost has helped domestic pharma firms to innovate and develop generic substitutes of patented drugs at a fraction of cost incurred in developed markets.

Though the pharma industry has remained shock-proof to recession in the past, currently companies in this sector are also facing the heat of slowing economic growth.

The cumulative sale for first nine months of 2013 grew by just 9 per cent against 17.4 per cent in the previous year.

Moreover, the industry is facing stringent regulatory and quality norms both at global and domestic front.

Rising government intervention is expected to impact industry's performance in the near-term, but such interventions are necessary to bring the country at par with global standards, D&B said.