The share of drugs that are under price control in the overall domestic pharma market is showing a downward slide over the years. The data shows that from a 17 per cent share in 2014-15 (FY15), it as come down to 14 per cent in FY19. The trend remained the same during FY20.
During this period the Indian pharma market grew from Rs 86,410 crore to Rs 1.3 trillion, according to the data from market research firm AIOCD AWACS.
India follows a market-based mechanism for determining ceiling prices of medicines that are a part of the National List of Essential Medicines (NLEM). This list is updated from time to time by the National Pharmaceutical Pricing Authority (NPPA), the country’s drug pricing regulator. The medicines that come under price control are known as scheduled drugs. For all
other drugs, the firms are allowed to take an annual hike of not more than 10 per cent.
The data analysed by India Infoline (IIFL) shows that the share of drugs that fall under the NLEM as a percentage of the overall domestic pharma market is shrinking. “Only 14 per cent of the drug market by value is under price control at present,” IIFL said.
The brokerage felt that multinational drug firms are at a disadvantage, compared with Indian peers when it comes to drug price control. This is because their products are priced at a premium to the market and in the event of any ceiling fixation, MNCs have to bring down their prices much more than the others, it said.
“Secondly, the rate of product launches in MNCs is significantly lower, compared with Indian companies. So, the effect of the price control risk is likely to linger for MNCs. While larger brands provide better profitability, a price control would naturally have a disproportionate impact on companies that own larger brands,” it noted. Indian firms, on the other hand, have shown themselves to be more nimble in switching prescriptions to non-price controlled products after price controls were brought in.
This is reflected in the number of brand launches slowing over the years, as firms chose to rationalise their portfolios. From 3,836 brands being launched in FY15, it slowed to 2,663 brands launched in FY19, the data from AIOCD AWACS showed.
Dermatology, vitamins-minerals-nutrients, and gastroenterology are the leading areas in brand launches.
Leading pharma firm Cadila Healthcare had pulled out 100 tail-end brands from the market in 2018-19, even as it launched 50 new brands.
“One cannot stop production of brands that feature in the NLEM, but they can always reduce the volumes of these products by a certain amount every year. Thus, the volumes are reduced and eventually in a strategic move the companies weed out the brands that are low volume and low margin,” said a senior official of an Ahmedabad-based drugmaker.
Recently, the Economic Survey of 2019-20 brought out an anomaly in India’s price control mechanism. It said, “The regulation of prices of drugs through the Drug Price Control Order (DPCO) 2013, had led to increase in the price of a regulated pharmaceutical drug vis-à-vis that of a similar drug whose price is not regulated.”
While pharma lobby groups have challenged the methodology used by the Economic Survey to arrive at such a conclusion, the industry as such was of the opinion that market forces can keep drug prices under check.
The managing director of a multinational drug firm that sells novel products in India said that it was time that the NLEM and price control were de-linked. “NLEM should be about accessibility and affordability of medicines. Market forces can keep prices under check,” he added.-Business Standard