The average impact on industry profitability may be around 20 per cent
The Indian consumer will benefit under the new Drug Pricing Control Order 2013 (DPCO 2013) which has been notified and will replace the DPCO 1995. The new order will bring 652 drugs under price control and will enable the National Pharmaceutical Pricing Policy 2012 to regulate prices of 348 drugs covered under the National List of Essential Medicines (NLEM) 2011.
“Consumers will be the biggest beneficiaries as prices of some brands may fall by up to 70 per cent,” D.G. Shah, Secretary General, Indian Pharmaceutical Alliance (IPA) said. “It will bring about a structural change ,” Mr. Shah said.
The new policy differs from the existing DPCO 1995 in that it is based on the simple average price (SAP) for all brands with a market share above 1 per cent in their segment. The new policy also uses a market-based pricing mechanism against the earlier proposed cost-plus method.
Analysts estimate that the policy will cover two-thirds of the Rs. 60,000 crore domestic industry. “The larger companies with established brands may be able to sustain better but there could be some loss of market share. There will no doubt be an initial spurt in volumes when prices decline,” Rahul Sharma, pharma analyst with Karvy Stock Broking told The Hindu.
In the long-term, the policy proposes to reduce the bandwidth of prices of the same molecule and this will have an impact on manufacturers in the mid and lower segments, analysts feel.
Mr. Shah estimated the average impact on industry profitability to be around 20 per cent. “So in the short-term, industry profitability could decline by around Rs. 1,500 crore. It will have a 2 percentage point impact on margins and this could come down to 8 per cent,” he said.
However, despite the initial hit on profitability, volume growth over the next few years and price indexation to inflation will help companies recover. “The policy has moved away from the intrusive and opaque cost-plus pricing mechanism to a more transparent market-based pricing regime,” Mr. Shah said.