Report from India - Pharmaceutical Technology

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Report from India
Industry players brace themselves to face challenges as India's new drug-pricing policy kicks in full gear.

Pharmaceutical Technology
Volume 37, Issue 8, pp. 32-34

Impact on the industry

With the new policy in force, IMS Health estimates that the erosion in overall market revenue will be approximately $290 million on an annual basis, which is a 2.2% drop of the entire market. Inevitably, the policy will affect profit margins and sales of medicines. Sujay Shetty, executive director and India pharma life sciences leader of PricewaterhouseCoopers, comments, "As NLEM drugs account for nearly 60% of the market, value erosion of the pharmaceutical market would be anywhere between 2% to 5% of the current pharmaceutical market. However, the extent of effect will vary from company to company depending on their current product portfolio and exposure to NLEM. This short-term effect will last between 12 to 18 months. In the long term, companies will devise suitable strategies to overcome this impact."

Multinational companies (MNCs) will be greatly affected by the new pricing regime. For example, Centrum Broking, a financial-solutions provider based in India, projected that the profit margins of GlaxoSmithKline and Novartis could drop between 2% to 7% under DPCO 2013. On the other hand, Indian companies such as Sun Pharma and Dr. Reddy's Laboratories would be less affected due to their focus on export market.

Backliwal says, "The bigger pharma companies will likely take the brunt of the revenue erosion but they will also be more able to balance the drop in profits with higher volumes due to greater market reach and brand value. The major impact will be felt by mid-level pharma companies who will need to draw up new strategies and look beyond the price-differential advantage that they currently leverage to grow sales. Also, companies with brands under the older DPCO 1995 regime will be now able to take annual price increases and make up for the losses (to some extent) from their portfolio, which will fall under the newer regulation."

Shetty adds, "Companies may carefully examine their current portfolio for the exposure to NLEM and level of diversification and realign to negate the effect of the new policy. They can look at ramping up chronic portfolio to reduce their dependence on acute therapies, which have been growing at a slower pace. Enhanced focus on over-the-counter products, vaccines, and biosimilars would start gaining importance in overall business strategies. Companies will look at in-licensing initiatives, comarketing, and alliances with MNCs over the long run."


Despite this, foreign companies are not likely to move away from India given its promising market. With a 12.5% ( 4.0%) estimated compound annual growth rate over the next few years, India is the second fastest growing country among the emerging markets, ranked only behind China.

The Indian market is driven by rising incomes, macroeconomic expansion, and increasing access to medicines, supported by a range of government policies and programs. Revenue may be eroded as a result of DPCO 2013, but Big Pharma's greater challenge is to obtain and enforce intellectual-property protection rights. Compulsory licensing, patentability, patent enforcement, regulatory approval, and data exclusivity are issues that they will need to grapple with.

The revised drug-pricing policy will encourage small- and medium-size domestic players to invest in R&D. It will also help some small players achieve price parity in certain niche segments. Locally discovered and developed drugs are eligible to avoid price control for five years. Drugs developed using indigenous R&D and granted patent under Indian law can seek exemption from price control from the commercial production date in the country.


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