ICRA: Price control may bring drug makers’ profitability under pressure

PTI Updated - March 12, 2018 at 08:56 PM.

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With the Drug Price Control Order (DPCO) coverage extending to almost 40 per cent of the industry, profitability in the domestic business of pharma companies is likely to come under pressure, rating agency ICRA said here.

Last week, the National Pharmaceutical Pricing Authority (NPPA) announced that it plans to bring an additional 50 drugs belonging to the cardiovascular and anti-diabetic segment under price control. This is in addition to the 348 drugs that were brought under price control following the implementation of the new DPCO in July 2013.

“With DPCO coverage extending to almost 40 per cent of the industry, profitability in the domestic business of pharma companies is likely to come under pressure. We expect companies to, therefore, turn their focus on cost control measures, new product introductions to circumvent the impact of pricing policy and lay greater emphasis on field force productivity initiatives,” ICRA Research said in its report.

Among the domestic pharma majors, Sun Pharma, Cadila Healthcare, Torrent Pharma, Lupin, Ranbaxy and USV will see the most impact on their domestic business owing to their relatively sizeable exposure to the CVS and anti-diabetic segments and premium pricing strategies.

Among MNCs, Sanofi Aventis, Abbott and Pfizer are also likely to be affected owing to their sizeable share exposure in the anti-diabetic segment and the Indian market in general, the report said.

Sun Pharma’s exposure in the cardiovascular segment is 19 per cent and 11 per cent in the anti-diabetic segment. Among other players, Lupin has 23 per cent, Cadila Healthcare 17 per cent, Torrent Pharma 36 per cent and Unichem 54 per cent exposure in the cardiovascular segment, according to Icra Research data.

In 2013-14, the Indian pharmaceutical industry grew by 6.2 per cent, decelerating from the 11.9 per cent growth that it recorded in the previous year. Much of this slowdown was attributable to the implementation of the new drug pricing policy, which resulted in price cuts on 348 essential drugs and subsequently led to supply chain disruptions between industry and trade channels over trade margins.

As a result, industry growth slowed down to sub-5 per cent in the quarters preceding the implementation of the new policy. To some extent, the slowdown in the overall economy and relatively low demand for antibiotic drugs, which accounts for 16 per cent to the domestic industry, also contributed to an environment of subdued growth. With additional drugs coming under the gamut of price control, ICRA believes that the growth momentum in the chronic therapy segments would also come under pressure, the report said.

Published on July 20, 2014 07:10