Pharma pricing policy is bitter pill for biz, public: Shah

DG Shah, secretary-general, Indian Pharmaceutical Alliance explains to CNBC-TV18 that the new pharma pricing policy adopted by the government would offer less effective drugs to consumers, stifle the growth of research and development in India and stall overseas investment.

Also Read: New pharma policy: How it impacts your wallet

Below is an edited transcript of the analysis on CNBC-TV18.

Q: Can you explain what the new pharma pricing policy mean for the pharma business and for companies? For consumers, prices are to come down by an average of about 21 percent. The pharma industry’s crying foul, do you believe that industry’s concerns are legitimate?

A: If prices of the leading pharma brands come down by 50-80 percent naturally the companies which are investing in research and development will suffer and overall profitability will also come down. The impact in the long run would also not be in the interest of consumer or the patients because India will not be able to bring any drug of its own research for years to come if the profitability is reduced to almost half of what it is today.

This would increase Indian pharma’s continued dependence on foreign companies for new drugs. Though it is beneficial for the consumer in the short run, in the long run the availability of original-research drugs in India would remain problematic.

The finance minister had questioned the rationale behind the weighted average price. The price is derived at by taking a simple arithmetic average of the prices of all brands to arrive at a simple average price or SAP. So this means an arithmetic average of one brand selling at Rs 1 and another selling at Rs 10 would be calculated and that would be the price applicable for everybody. So, whether a drug is produced in a not-very GMP-qualified standard laboratory or a drug produced at a facility that meets global standards, both will have the same sale price.

Q: Industry was never in favour of price control. The current price control list has been enlarged to include 348 drugs from 74 drugs. The pharma Industry has always maintained that competitive pressures will actually enable drug prices to be lowered. But is there an estimate that the pharma industry has been able to form on the kind of impact on the bottom-line that this move will have?

A: It is best to leave it the companies to disclose that because it has a significant impact on the valuations. But I can only tell you about the overall profitability if industry will be reduced to half. So the impact is fairly serious which would take years to overcome.

Q: That is a very grave observation. Do you believe that this is going to force foreign investors to review their decisions to expand in India?

A: We have conveyed this apprehension not only regarding foreign companies, but also whether Indian companies will continue to invest as in the last five years which saw an investment of about USD 6 billion (Rs 33,000 crore) that created new gross fixed assets in plant and machinery.

Q: What can we really expect in terms of the road ahead? Is there any recourse now left for industry?

A: It has taken almost two years of discussion with government and industry was reconciled to reducing its profitability by 25 percent. But in the last one week and a new formula of price estimation was adopted by the GoM and this has reduced profit to 50 percent.

Now, I don't think it would be possible to change this in the short-run, but as we move forward and as the government realises that not only foreign but domestic investment is also going down, then we hope there will be reconsideration of this policy, as it has happened in the past.