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After years of debate and deliberation on the contentious issue of price control of essential and life saving medicines, Govt. of India has finally approved and released the new drug pricing policy 2012.
Principles of the New Drug Pricing Policy: According to the new policy, Govt. will bring prices of 348 essential drugs (all formulations) mentioned in the National List of Essential Medicines (NLEM) under control against the current practice of controlling prices of 74 bulk drugs and their formulations. The formulations will be priced only by fixing a Ceiling Price (CP). Manufacturers would be free to fix any price for their products equal to or below the CP. The CPs would be fixed on dosage basis, such as per tablet / capsule / standard injection volume as listed in NLEM-2011.
The methodology of fixing a ceiling price for NLEM medicines, is of adopting the Simple Average Price of all the brands having market share (on the basis of Moving Annual Turnover) more than and equal to 1% of the total market turnover of that medicine.
Pricing of the Drug: The CP will be fixed on the basis of readily monitorable Market Based Data (MBD) available with the pharmaceuticals market data specializing company IMS Health (IMS). As the IMS data gives price figures for stockist level prices, in order to arrive at the CP (which will be the maximum retail price) the IMS price will be further increased by 16%.
The CP for a drug listed in the NLEM would be the simple average of prices as calculated on the basis of IMS data six months prior to the date of announcement of the new National Pharmaceutical Pricing Policy ie the "Appointed Date" for bringing the new policy into effect. The prices of these NLEM-2011 medicines will be allowed an annual increase as per the Wholesale Price Index as notified by the Department of Industrial Policy & Promotion.
Non-price Control Drugs: Under the existing price control regime, the prices of Non-Scheduled drugs are monitored, and in case the prices of such drugs increase by more than 10% in a year, subject to certain criteria, government fixes the prices of such medicines from time to time. In the proposed policy, all essential drugs are under price control.
It would follow that non-essential drugs should not be under a controlled regime and their prices should be fixed by market forces. However, in order to keep a check on overall drug prices, it is proposed that prices of such drugs be monitored on regular basis, and where such price increase is of above 10% per annum, the Government would be empowered to have the price of these drugs reduced to below this limit, for the next 12 months.
Imported Drugs: The CP determined for drugs falling under the span of control as in 4(iv) above shall also be applicable to such drugs that are imported. There will be no separate determination of CP for imported drugs falling under the span of control.
Conclusion: The proposed policy has recommended that the retail price of essential 348 drugs will be fixed at weighted average price of brands that have more than 1 % market share. We don't believe that the policy in its current form is not negative, as the policy is based on average price mechanism and thus follows competition. Given the price competition, the policy is unlikely to have any major negative implication for the sector. However amongst the domestic and MNC player, the latter would be impacted the most, as they mostly price their products much higher than the competition and then derive their 100% of the sales from domestic markets. The domestic companies not having very huge exposure to the domestic market, will be insulated to a large extent, as the pricing is not the key growth driver for their growth. Their products are therefore competitively priced. Thus, we maintain our recommendations on the sector; our top picks in the sector are Cadila Healthcare, Lupin, Aurobindo Pharma and Dishman Pharmaceuticals & Chemicals.
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