Pharmaceuticals - Generic Drug's Price Hikes Under US Congress Lens; Sector Update :: Edelweiss PDF link

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The US Congress has begun an investigation into price hikes of 10 select generic drugs involving 14 generic players (including Sun Pharma, Dr. Reddy’s and Cadila). It appears that this investigation is the first of its kind in a free pricing market like US. We believe it is too premature to judge whether this investigation will translate into further action (penalties, roll back of prices, pricing regulations, expansion of product list under investigation, etc.) by the US. We will closely watch the developments before arriving at any implications on pharma companies.

US Congress investigating hike in generic prices

The US Congress has begun an investigation into price hikes of 10 generic drugs and has asked 14 generic drugmakers to submit detailed information related to hiking of prices (refer Appendix 2). Indian companies-Sun Pharma, Dr. Reddy’s, Cadila-are in this list along with other global generics (Teva, Apotex, Mylan etc.). The US Congress has cited price hikes of 390-8,200% across 10 products (Table 1). This is the first time that the Congress has commenced such an investigation and we believe this has been triggered by the National Community Pharmacists Association’s (NCPA) 2013 survey of drug prices (Appendix 1).

Pharmacists’ association sought US Senate probe

In January 2014, the NCPA had written to the US Senate seeking an investigation into the large upswing in acquisition prices of generic medicines. Reports indicate that over the past 2-3 years, pharmacy benefit managers (PBMs) have driven harder bargains with both retailers and generic manufacturers. Their Spread pricing tactics have been adverse for retail pharmacy business. In April 2014, a bill-Generic Drug Pricing Fairness Act-was introduced (not yet passed) in the US Congress to tackle the issue of affordability of generic drugs.

Likely impact: Too soon to judge

This development does dim the US drug market’s free pricing luster. Given that this is first of its kind move by the US Congress, we cannot at this juncture deduce what further implications it can have on pharma companies. Whether it will translate into further action by the US (like penalties, roll back of prices, pricing regulations, etc.) is too premature to judge. The investigation is currently limited to 10 drugs, but if it is expanded to include more products, many more companies will fall under its purview. Among Indian companies, Sun Pharma has been a big beneficiary of price hikes through its US subsidiary (Taro).

US follows free pricing mechanism for drugs

Just to highlight, price hikes for specialty (innovator) drugs in the US are common and driven by economics and supported by the free pricing mechanism for drugs. Over the past few years, several generic companies have also benefitted from price hikes in the US. Price hikes typically have been driven by shortage of products due to exits (USFDA issues, commercial viability, etc.) by companies selling a product.

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