The new Drug Control Order 2013, which envisages capping the prices of 348 essential medicines, was notified on Thursday. The simple average price of drug brands with market share of more than one per cent will be fixed as the ceiling price under the new policy.
The Government could be notifying the ceiling price early next week. Pharma companies will then have to realign their prices within 45 days from the date of notification of the ceiling price.
Impact on pharma cos
The proportion of revenues from drugs under price control will increase from less than 10 per cent to over 20 per cent now. But the change in pricing formula from cost-plus basis to market price based model will mitigate the negative impact. The policy proposes to allow wholesale price index-linked price escalation annually.
Indian pharma market may shrink by 3 per cent on implementation of the new policy, according to an analysis by market research firm AIOCD AWACS. The impact may be more pronounced for multinationals, given their premium pricing strategy for key brands. Among MNCs, Wyeth, GlaxoSmithKline and AstraZeneca may be affected the most.
The new policy may result in a 14.6 per cent decline in Wyeth’s revenues. For GlaxoSmithKline Pharma, imposing price control on its largest brand Augmentin (anti-infective) may be a major negative. The overall impact on the company’s revenues is expected to be 8.9 per cent. AstraZeneca’s revenues are expected to be lower by 6.8 per cent, post-implementation of the new policy.
Among the listed companies, Alembic, Dr Reddy’s Lab, Biochem (acquired by Zydus Cadila), Zydus Cadila, Ranbaxy and Cipla top the losers’ list. The revenue impact for these companies may range between 5 per cent and 8 per cent.
Exceptions
But there are exceptions too. The policy impact for select multinationals — Merck, Fulford India and Johnson and Johnson may be very negligible.
Similarly, Glenmark Pharma and Elder Pharma may largely remain unaffected by the policy change. For Ajanta Pharma, Lupin and Sun Pharma the revenue impact may be less than 2 per cent.