Pharma firms aim for higher revenues as govt hikes price

Pharmaceutical companies manufacturing lifesaving drugs may see good revenue growth in upcoming quarters after National Pharmaceutical Pricing Authority’s (NPPA) announcement of hike in prices of around 800 essential drugs from April 1.

While the National List of Essential Medicines (NLEM) portfolio constitutes 17 per cent of overall Indian Pharma Market (IPM) sales, the contribution is in the 7-44 per cent range for the top 25 companies, as per Kotak Institutional Equities. Sticking to its existing formula, the NPPA has allowed a record 10.8 per cent year-over-year (YoY) WPI-linked price hike in financial year 2023 across over 800 drugs falling under the National List of Essential Medicines (NLEM).

Among leading domestic pharmaceutical companies, the largest beneficiaries of the price hike would be products containing fixed dose combinations (FDCs), along with pharma firms like Zydus Life Sciences and JB Chemicals, which have the highest NLEM exposure at 33-44 per cent of domestic sales. In comparison, Alkem, Cipla and Ipca have 21-26 per cent of their domestic sales coming from NLEM drugs and will also be key beneficiaries, Kotak Securities’ report has indicated.

Among listed MNC companies, GSK, Sanofi and Abbott have the highest NLEM exposure also in the 21-26 per cent range.

“Given the prevailing input cost pressures, we expect companies to take advantage of this latitude and announce price hikes for their NLEM portfolios from April 2022,” the report said.

The NLEM drugs include various therapies such as antibiotics, anti-inflammatory, antiseptics, painkillers, gastrointestinal, antifungal, vitamins and minerals. The price cap for drugs not falling under NLEM would continue to remain at 10 per cent for FY2023.

The NPPA is allowed to revise the ceiling price of scheduled NLEM drugs as per the WPI for the preceding calendar year on or before April 1 of every year and notify the same on April 1 every year.

“We note the 10.8 per cent price hike allowed for FY2023 (in line with the CY2021 WPI) is significantly higher than the 0.5-4.2 per cent price hikes allowed for NLEM drugs over FY2018-22. While this price hike was widely anticipated given the elevated WPI levels, pharma manufacturers would be relieved that the NPPA has continued with the prevailing formula and refrained from tweaking it,” the report said.

With this development, the lifesaving medicines will cost more for the patients now onwards but the pharmaceutical industry experts argue that the increase in drugs is by and large in the interest of patients.

“The price hike by NPPA is certainly going to increase prices for the patients, but there is also a business proposition also involved in drug manufacturing. If the pharmaceutical companies find that they are not making enough business in the manufacturing a drug, they stop manufacturing it. So, in order to prevent the shortage of drugs in the market, it was important to revise the prices of drugs,” said Sandeep Nangia, President of Retails and Distributors Chemist Association.

The pharmaceutical industry considers it as a “corrective measure” amidst Covid-19 pandemic.

“The price hike of essential drugs comes at a time when pharmaceutical companies are grappling with the issue of rising input costs from China involving freight, packaging material and transportation costs in the light of Covid-19,” said Raheel Shah, director of BDR Pharmaceutical.

“Following this, the government is also taking measures to boost local manufacturing and reduce dependency on imports through production-linked incentives. Initiating increased prices for scheduled drugs under the purview of government is one way to support the industry and enable pharmaceutical companies to control manufacturing costs impacted by multiple factors,” he argued. Business Today