Recent govt actions will not impact pharma sector
UR Associates has come out with its report on pharmaceutical sector. According to the research firm, the Indian Cabinet has approved the long pending National Pharmaceutical Pricing Policy, which would bring 348 drugs under the ambit of price control.
December 10, 2012 / 13:30 IST
UR Associates has come out with its report on pharmaceutical sector. According to the research firm, the Indian Cabinet has approved the long pending National Pharmaceutical Pricing Policy, which would bring 348 drugs under the ambit of price control.
Recent government actions will not take sheen out of Pharma sector
Over the last 2 weeks, the Indian government has taken two critical decisions that will slightly temper the growth of Indian Pharma sector but the impact will not be significant enough to hamper the prospects of the sector which is growing at over 16% because of the strong growth in chronic segment in the domestic market, patent expiries in US driving generic imports to the country and increasing footprints of our domestic companies in other emerging markets.The Indian Cabinet has approved the long pending National Pharmaceutical Pricing Policy, which would bring 348 drugs under the ambit of price control. The maximum price of these drugs will be determined by a market based pricing policy taking the simple average of prices of all drugs under that therapeutic group. The pharma companies will have to take a hit of upto 20-30% on certain drugs that are priced significantly higher than the rest of the drugs in that category. Although the impact will be higher compared to the weighted average market based pricing policy suggested by the Group of Ministers earlier, it is significantly better than the cost based approach being presently followed on the 74 bulk drugs under Drug Price Control Order (DPCO). Although the margins will take a slight hit because of the fall in prices of drugs, they will be compensated to a certain extent by the strong volume growth being experienced in the domestic market.The other significant decision taken by the government is that all brownfield FDI in pharma companies will have to be approved by the Foreign Investment Promotion Board (FIPB) until the Competition Commission of India (CCI) gets the power to take decisions on foreign investments in pharma sector. So, even minority foreign investments which are less than 49% will have to seek the approval of FIPB. The pharma companies who need foreign investments to support their expansion plans will be worried that the process will get delayed if FIPB does not provide prompt approval.From the government point of view both these decisions are required for protecting the interests of common public which majorly consists of poor and middle class people who cannot afford costly medicines. However, they have kept the interests of pharma sector in mind and have opted for a market based pricing to determine the prices of drugs so that the profitability of the companies are not significantly affected. Also, foreign investment will be vetted by FIPB until Competition Act is amended by the government after which CCI will be responsible for approving foreign investment in the sector.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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