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Price cut: Drug makers' profitability may come under pressure

Source : PTI
Last Updated: Sun, Jul 20, 2014 17:37 hrs
Pharma

With the Drug Price Control Order (DPCO) coverage extending to almost 40 per cent of the industry, the 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, the 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 on anti-diabetic segment and Indian market in general, the report said.

Sun Pharma has 19 per cent cardiovascular and 11 per cent anti diabetic segments exposure. 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 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 channel over trade margins.

As a result, the 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 lower demand for anti- biotic drugs, which accounts 16 per cent to domestic industry also contributed to 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.




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