May 17, 2013 01:46 PM IST | Source:

Drug pricing regime comes into effect; pharma stocks mixed

The Department of Pharmaceuticals on Thursday notified Drug Price Control Order 2013. Once implemented over next few months, prices of 348 essential drugs will come down. Market reaction was mixed with firms like Cipla, Sun Pharma, Ranbaxy, Lupin and Glenmark down 0.5-2%.

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Pharma stocks were trading mixed on Friday, with the likes of Cipla, Sun Pharma, Ranbaxy, Lupin, Glenmark and Dr Reddy's down 0.5-2 percent in morning trade. Multi-national players like Pfizer, Wyeth and GlaxoSmithKline were up 0.2-0.5 percent. The Department of Pharmaceuticals on Thursday notified the much awaited Drug Price Control order 2013.

Once implemented, prices of 348 essential drugs will reduce; prices of drugs are likely to come down by average 20-25 percent.

The new pharma pricing policy will be implemented over the next few months. Companies will be given 45 days to clear existing inventory and adjust product prices after ceiling prices are notified based on the simple average formula.

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"Pricing control is likely near-term negative for most stocks, though more so for MNCs, though we believe the stocks are already pricing in market-based mechanism to quite an extent," according to a foreign brokerage.

It further says that downgrades for MNCs will be larger as their revenue comes from the Indian market, products are premium priced and their exposure is higher to the actue therapy segments, where more drugs are in the essential list.

The brokerage expects "moderate" impact on Cipla and Cadila Healthcare with potentially 8-10 percent earnings downgrades. Sun Pharma and Lupin, meanwhile, are likely to be least impacted by the policy and have strong "tailwinds" from the US business, it adds.

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