New pricing policy to impact pharma cos in short term

UR Associates has come out with its report on pharma sector. According to the research firm, the new pharma pricing policy will impact most of the companies in the domestic market including some large Indian companies like Ranbaxy ,Cipla  , Lupin and Cadila who are expected to have an earnings impact of 5%-10%.

New pricing policy to have short term impact:

The Group of Ministers (GOM) has last week finalized the much anticipated and much delayed new pharmaceutical pricing policy. The existing policy on price controls was introduced much before in 1995 and does not hold any relevance in present times. As per the new recommendations that will be forwarded to the Cabinet for approval, 348 drugs will be included in the National List of Essential Medicines (NLEM) and their price will be determined by taking the average selling price of all brands of that drug having market share equal to or greater than 1%. Currently, there are only 74 drugs that come under price control and many of them are not being used now.

The new pricing policy will result in about 30%-35% of the total pharmaceutical market coming under price control. The GOM has decided to do away with the cost based pricing model which was very cumbersome and inaccurate. They have also exempted combination drugs from price controls.

The present policy will impact the profitability of the companies in the short term with the impact being maximum in the case of MNC companies like GSK India and Pfizer India who generate majority of their revenues from the domestic market and with their top selling drugs like Augmentin, Corex which have large market share and priced at higher rates than other brands coming under the ambit of price control. The new policy will impact most of the companies in the domestic market including some large Indian companies like Ranbaxy, Cipla, Lupin and Cadila who are expected to have an earnings impact of 5%-10%.

Overall the new pricing policy if implemented is good for the people of India who can buy essential drugs at cheaper prices and at the same time it is less taxing for the pharma companies as the market price based pricing will have limited impact on their profitability.

No intention of any stake sale: Nilesh Gupta, Lupin:

We are in no talks whatsoever to sell out stake to any company. We are clearly on the path to buying not to selling. We believe long term in the Indian market. We believe long term in Lupin and there would be no intention to sell at any point of time.

About 15% of Lupin was already under the price control. For example, we are the No. 1 tuberculosis company in the country and lot of that is under price control. Our averages were very close to the market. Obviously it is going to go up from that 15%. My personal feeling is, it is going to be shy of 40% and we will just have a better read of it later today.

Pharma market seen growing 14-17%:

Economic headwinds notwithstanding, the pharmaceutical market in India is set to log an impressive 14-17% growth this year, according to estimates. Therapeutic segments like diabetes, cardiovascular diseases, respiratory ailments and neurological disorders are all growing at a compounded annual growth rate (CAGR) of 15-26%, Credit Suisse said in a September 17 note. While firms such as Lupin and Sun Pharma will grow at a CAGR of 18-20%, Cipla's CAGR will be around 15%, it said. According to experts, though healthcare as a sector is not as susceptible to economic fluctuations as, say, real estate or automobiles, it is not completely immune either. Experts feel a key reason for this is the rise in chronic lifestyle-related disorders which constitute about 25%, or $2.8 billion, of the pharma market. For instance, India has as many as 6.13 crore diabetics, according to the International Diabetes Federation.

The booming business in biosimilars:

While conventional generics are expected to face competition and pricing pressures in most developed markets, Indian pharmaceutical companies have already started gearing up for the next big thing-biosimilars. These are generic versions of biological medicines that depend on the same mechanism of action, and are used for the same therapeutic indication, as the innovator product. Various drug makers, such as Dr Reddy's Laboratories, Cipla, Lupin and Wockhardt, are all set with their plans to cash in on the opportunity. However, experts suggest that to take advantage of it, these companies need commitment, along with a well-charted strategic plan, investment and technical synergy because biosimilars is a long-term game, with many hurdles on the way. The biosimilars industry, globally, has been growing stupendously. According to market estimates, the global market for such drugs is seen at around $30 billion and at a compound annual growth rate of over 50% during 2010-15. This growth is driven by two key events: Upcoming patent expiries of leading biologics and a financial crisis coupled with increasing health care costs that has required systems in almost all developed countries to look for low-cost alternatives.