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
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.