Pricing Control Will Lead To A Loss Of Rs 3600 Crore To The Industry

Jagannath Shinde
President
AIOCD

“The consumer is the biggest beneficiary of the Drug Price Control Order”, Jagannath Shinde, President, All India Organization of Chemists & Druggists tells us.

What has the growth rate of the pharma sector in the June quarter been, and which therapeutic segments have seen growth during this quarter?

While we have mentioned 10 per cent as the growth rate during the quarter in our report, the precise figure was 9.4 per cent. In the therapeutic segments, Anti-diabetics has grown at 2.8 per cent, Cardiac has grown at 7.2 per cent, Respiratory growth is at 27.6% and the Anti-infectives segment has grown 14.6 per cent.

Is there any particular reason that the anti-diabetics segment has shown lower growth?

A lot of decontrolled drugs have now come into the controlled category due to the new drug control policy. Because of this, we were not able to sell the old products in the markets. Some of the higher MRP drugs have gone back to the pavilion and these were not replaced, due to which there was a lower flow. This is an impact of the Drug Price Control Order (DPCO).

So, what will the exact impact of the DPCO on the pharma market be?

Due to the DPCO, a total of 348 drugs have come under pricing control. The consumer is the biggest beneficiary of the DPCO. As per our estimates, consumers will get a benefit of Rs 3600 crore. Of this, Rs 1000 crore will be due to the loss to manufacturers and Rs 2600 crore will be due to the loss to traders.

How will distributors be impacted?

Due to lower pricing, the MRPs would be lower. The decontrolled products had a margin of around 10-20 per cent, which will come down to 8-16 per cent due to pricing control. Hence, the margins will get impacted, leading to an overall loss of Rs 2600 crore to the trade.

Inflation has gone up significantly these days, but we will see price erosion and hence would be making less money in the trade. It will be difficult for retailers and wholesalers to survive. This will also lead to some wholesalers and retails going out of business and may reduce the availability of some drugs.

So, which pharma companies will be hit?

The new policy is based on formulations and applies to drugs which have more than one per cent market share. Hence, companies having drugs with more than one per cent market share will be impacted. Companies not coming under the DPCO will not see any impact. Companies like Glaxo Pharma, Abbott, Cipla and Pfizer, which are selling a large chunk of their production in the domestic market, will get impacted will get impacted in this fiscal.

India’s pharma industry has been growing at a rate of 15-16 per cent for the last few years. When are we likely to see a growth of that quantum?

The six per cent impact on the growth rate has been due to the drug control. The lower availability of drugs has been due to withdrawal of drugs from the market due to high MRPs. Manufacturers could not replace the drugs in the domestic market in the stipulated 45 days. The impact of this policy would be seen around September 2013. 

In India, October-December is generally considered as a healthy season, so in Q3 there will be no incremental growth. The 15-16 per cent growth should be achieved by the end of the year.

I have been watching the pharma market for many years. This industry has been growing at 16 per cent consistently. Hence, by the end of the year, growth will be between 14-15 per cent.

Which therapeutic segments do you expect will show growth going ahead?

In India, the Diabetics, Cardiac, Respiratory and Psychiatric segments will grow. The Chronic segment as a whole is showing growth, within which Anti-cancer and Kidney medicines will grow.