There will be a dip in medicine prices for consumers, on that there is little argument. The disagreement is on whether the price reduction will be meaningful and what impact will it have on drug-makers.

Intense discussions have not abated even after the revised version of the National Pharmaceutical Pricing Policy got its approval from the Cabinet last week. It was a consensus the Government scraped together, as the November 27 deadline of placing the policy before the Supreme Court was fast catching up.

Medicine prices could see a five to 30 per cent reduction, say industry representatives, who base their preliminary estimates on the formula approved by the Government. Continuing with the market-price based method of calculation, the Government had decided to cap medicine prices at the “simple average” of drugs in a category with the one per cent market-share.

The Government had also decided that all 348 medicines in the list of essential medicines be brought under price-control. As a result, prices could dip across segments like anti-infectives, antibiotics, diabetes and cardio-vascular drugs, to name just a few.

Visible or minimal?

A price reduction is expected on medicines that are market leaders. But there are several others where the reductions could be minimal, and this, when drug companies enjoy exorbitant margins, says S. Srinivasan with the All India Drug Action Network (AIDAN).

It was in response to AIDAN’s petition that the Supreme Court, in 2003, directed the Government to draw up a policy to keep essential medicines affordable.

Campaigning for capping medicine prices based on the cost of production, he says, the policy does not address the problem of irrational combinations of medicines. Drug companies will seek to circumvent price-control by combining a price-controlled medicine with another drug and promote the combination aggressively through doctors.

The policy has not addressed what is a reasonable margin for companies, given their investments in research and promotions, he adds.

Revenue hit

Any reduction in prices is good for the consumer, says Lupin’s Shakti Chakraborty, Group President, India Region Formulations. However, most drug-makers went into a huddle, awaiting the final contours of the policy, and preferring not to comment just yet.

Analysts says that multinational companies like GlaxoSmithKline and domestic majors like Cipla, Zydus Cadila and Dr Reddy’s could take a five per cent-plus hit on their revenues. Lupin expects a two per cent impact from drugs under price-control.

The Indian Pharmaceutical Alliance’s D.G. Shah observes that industry profitability at Rs 8,308 crore could virtually be halved, because of the revised policy. There are short-term consumer benefits. But with profits eroded, industry would become conservative in its investments in capacity expansion and this would further impact consumers, he says.

The revised policy still awaits the apex court’s nod. Naturally, the last word is far from written on the drug price debate.

(This article was published on November 25, 2012)
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