Analysts see no big impact of pricing policy on pharma cos

A new pricing policy finalised by a ministers panel on Thursday, which will bring 348 essential drugs under government price control, is unlikely to have a major impact on the earnings of pharmaceutical companies, according to analysts.

At present, the government through the National Pharmaceutical Pricing Authority (NPPA), controls prices of 74 bulk drugs and their formulations.

Fertilisers and Chemicals Minister Srikant Jena said the GoM arrived at a consensus on the option, which entails the use of weighted average prices for all the drugs, which have a market share of more than 1%.

The GoM will be sending their recommendations to the Cabinet within a week for approval.

Analysts are relieved that the policy is only limited to 348 drugs and the ceiling price is defined as weighted average price, instead of cost based pricing.

"Current policy is more lenient than draft policy in Nov-11. The scope of control is significantly reduced and weighted average pricing is not too different from average price of top three brands," said Credit Suisse analysts Anubhav Aggarwal and Chunky Shah.

"Based on our conversations with industry specialists, we gather that most of the industry believes that the market share that will determine the weighted average will be computed on a value basis and combinations over and above those listed in National List of Essential Medicines will not be included for price control. We also understand from industry experts that cost-based pricing has not been considered. In general, we believe this is positive for the industry. Inclusion of combinations and cost-based pricing would have had a more severe impact," said Saion Mukherjee and Aditya Khemka of Nomura Financial Advisory and Securities India.

Pharma producers say the policy will impact the industry as the number of drugs under price control will go up.

"We acknowledge the rights of the Government to make essential medicines available to the most vulnerable sections of society at affordable prices. The new proposal will have an impact on industry as the span of price controls will now increase to cover around 30% of the pharmaceutical market. Still a market-based policy is a balanced formula and will help improve the availability of essential medicines for patients," said Ranjit Shahani, president of Organisation of Pharmaceutical Producers of India.

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