New drug policy to impact profitability of MNCs: ICRA
New Delhi: The proposed new drug pricing policy will impact profitability of pharmaceutical firms, mainly multi-national companies, in India while at the same time lead to a 10-15 percent reduction in prices of medicines, according to a report by credit rating agency ICRA.
If the proposal by the group of minister (GoM) led by Agriculture Minister Sharad Pawar is implemented, MNC pharma companies in India are likely to be impacted the most given their significant dependence on domestic formulations segment and relatively premium pricing strategy that may force sharp price cuts.
"In addition, some of the mid-sized domestic companies with relatively higher reliance on domestic market for earnings would also see a meaningful impact on earnings as their investments in regulated markets are yet to start contributing considerably to overall earnings," the ICRA report said.
Among large Indian companies, Cipla, Cadila Healthcare and Torrent Pharma that generate substantial share of earnings from India operations may see relatively higher impact, it added.
According to the report, players like Strides Arcolab, Dr Reddy's, Ranbaxy and Glenmark may not see significant impact as their earnings remain more dependent on global markets.
"The exact impact of the new pricing policy will depend on multiple factors including a company's exposure on the domestic formulations market, therapeutic mix and pricing strategy," it said.
On drug prices, the report said: "We believe that the impact of new pricing mechanism is likely to result in 10-15 percent reduction in prices, thereby implying an erosion of 3-5 percent in market size of the domestic formulations market."
Last month, the GoM on drug pricing policy had agreed to bring 348 medicines in the National List of Essential Medicines (NLEM) to be brought under price control.
It had also mooted fixing of prices based on weighted average of prices of all brands, which have more than 1 percent market share. It has been proposed to be taken to the Cabinet for approval in the coming days.
The Supreme Court had, however, asked the government not to alter the existing manufacturing cost-based system of fixing drug prices.