New Policy to Cost Pharma Cos Rs. 1,500 cr

Stockists, traders may collectivey lose over Rs. 2,500 crore, says study; Lobby group wants price control only on 348 drugs

The proposed national drug pricing policy will cost drug makers close to Rs. 1,500 crore and stockists and traders collectively over Rs. 2,500 crore in revenue loss when it comes into effect, a study shows.

GlaxoSmithKline Pharmaceuticals’ loss has been pegged at Rs. 137 crore and Ranbaxy Laboratories’ at Rs. 115 crore, according to the study by pharmaceutical market research company AWACS. Others such as Abbott India, Zydus Cadila and Sanofi Aventis are projected to lose over Rs. 50 crore each. Under the draft national pharmaceutical pricing policy released by the Department of Pharmaceuticals (DoP) last month, the ceiling price of 348 drugs under price control, both local and imported, will have to be the average price of the three top-selling brands in the segment at the time of policy implementation. The move seeks to plug a loophole in the country’s drug laws that allows foreign drug makers to arbitrarily fix prices.

“Companies stand to lose Rs. 1,485 crore while stockists and traders will collectively lose Rs. 2,671 crore,” said Ameesh Masurekar, director of AWACS, the company formed by All Indian Origin Chemists & Distributors (AIOCD) and Trikaal Mediinfotech. When asked for a comment, a GSK spokesman said industry bodies were the “appropriate” organisations to respond at this stage. Ranbaxy declined comment.

The study shows that in terms of revenue share, mid-sized firm Alkem Labs will lose 6.7% of its top line, or Rs. 104 crore. The new pricing policy will bring 60% of the Rs. 68,000-crore drug retail market under price control, compared with just 10% at present.

While the industry has welcomed the moving-away from the current cost-based pricing policy, they have raised objections to various sections of the new pricing formula.

Indian Pharmaceuticals Alliance, the lobby group of big Indian drug makers, said the policy should have limited price regulation to 348 drugs and their specified strengths and dosages.

Global drug makers say the proposal to have the same pricing criteria for imported drugs is unfair as the cost of production outside India is higher. On the other hand, stockists and retailers demand higher margins saying the new policy will hit them badly.

All stakeholders are expected to give their views to the pharmaceuticals department before month-end, the deadline for submitting feedback.

Stockists and pharmacies say that in addition to the reduced market size, their margins will be squeezed further as the share of medicines under price control, which offer less profits, has increased five times. At present, stockists get 8% and retailers 16% on medicines under price control, compared with 10% and 20% for those that are not. The current policy allows up to 100% margin over the cost of production. This margin is shared between pharma companies (76%), chemists (16%) and stockists (8%). AIOCD general secretary Suresh Gupta said the new proposal allows 200-300% top-up on most drugs.