Drug prices set to get cheaper, pharma cos worry

The Indian pharma industry is bracing itself for a serious shift in dynamics. The recently notified Drug Price Control Order (DPCO) will bring down the prices of 348 essential drugs by as much 35-40 percent, reports CNBC-TV18's Archana Shukla, adding that this may see some rejig in pharma companies' rankings.

Healthcare is finally set to get cheaper, with the new Drug Price Control Order 2013 becoming a reality after 10 years of debate. But for drugmakers, this has some serious consequences.
Experts say the new order will erode almost Rs 1,600 crore in annual sales for the industry, meaning drug firms will see, on average, 3-4 percent of their revenues being wiped out.
Companies like GSK, Pfizer and Alembic, which are market leaders in several categories, may take the worst hit on the revenues front... But it's actually the smaller drug-makers who will feel the heat.
Experts point out that the big boys, thanks to muscle and higher brand recall, will see price cuts being offset by higher volumes. But middle-rung players will lose the price differentiator advantage.
Amit Bakliwal, MD - South Asia, IMS Health, says, "For the patient or doctor to pick the product is much easier and lucrative as the efficacy is already there and the brand value is attached. So the middle-brand companies will look at dropping prices even more which will mean profitability erosion or increase investment with their field force to really go and increase their market share.”
Higher investment in brand building and expanding field force will mean higher costs, and so lower profitability. This could mean a revision in the valuations of these mid-rung players. And consequently a new wave of consolidation. Experts also say that lower revenues due to price cuts could see lesser investments into developing essential drugs.
DG Shah, secretary-general, IPA says, "Unless it is changed in future, you are in a downward spiral as selling price fixed today. After 3 years, it would  be lower than what is fixed now and this would discourage fresh investment both in manufacture and marketing. So to that extent, availability may not grow as it would grow for drugs which are outside the NLEM."
Now the real effects of the policy could take a few months to show. Some have pointed out that the policy allows for price hikes in keeping with wholesale price index. But others counter that stiff competition has always deterred such practices.