The Group of Ministers (GoM) has proposed the pricing policy, which intends to control prices of 348 essential drugs (covers 25% of overall domestic market) including combinations mentioned in the National List of Essential Medicines (NLEM 2011). The ceiling price formula is based on weighted average price of all brands with more than 1% market share (based on volume). Our bottom-up molecule-wise analysis suggests 2-3% impact on domestic revenue for the industry while PBT impact varies from 1-15% of PBT. While the impact will be larger on MNC companies, it will be minimal on domestic players.
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Pharma pricing policy finally out
The GoM has finalised the pricing policy which will be submitted to the Cabinet of Ministers within a week. The policy intends to control prices of 348 essential drugs (25% of overall domestic market) including combinations mentioned under NLEM 2011. This ceiling price formula is based on weighted average price of all brands with more than 1% market share (based on volume). Moreover, the extent of control will be limited to all drugs and combinations mentioned in NLEM, and hence will not extend beyond the list. Prices used for calculating the reference or ceiling prices will be taken as on March 31, 2012, and companies will be allowed to take price increases each year to the extent of WPI change during the year. The ceiling price will be reset once in five years.
Consumers to benefit from lower prices
We believe the proposed pricing formula balances the needs of consumers and the industry—consumers will benefit from reduction in prices of most leading brands that are currently priced at a premium while Industry impact will be limited to 5-6% of earnings. It will also lead to reduction in prices of top MNC brands that have enjoy a premium over Indian counterparts. For instance, Augmentin, Glaxo’s leading brand, which is priced at a significant premium will see 50-55% price reduction, benefiting consumers immensely. Also, Atorvastatin, a highly prescribed CVS drug, will see 20-25% price reduction for leading brands of Cadila and Ranbaxy.
~INR20bn impact on industry
We have done a bottom-up molecule-wise analysis for all 348 molecules for all companies and highlight that overall impact on the sector is around INR20bn (2.5-3.0% of industry). Our estimates at the broad level will see 10-15% price cut across portfolios for domestic players, while MNCs will have to take a price cut of anywhere from 30-50%. We believe that companies will reassess current portfolios to assess the impact of price cuts on respective drugs. Moreover, the industry may also try to switch market with introduction of combinations that will be excluded from the NLEM list. However, this could be a long-term strategy and will also depend on the merit of the combination drug and its acceptance by the regulatory body (which has off late become more stringent on combinations).
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