The new pricing policy, which aims to control prices of 348 essential drugs, is likely to hurt multi-national pharma companies more than their domestic rivals, feel analysts.
"While the impact will be larger on multinational companies, it will be minimal on domestic players. It will lead to reduction in prices of top multinational brands that have enjoyed a premium over their Indian counterparts," Manoj Garg, analysts with Edelweiss Securities, said in his note to clients.
The brokerage estimates that at the broad level there will be 10-15% price cut across portfolios for domestic players, while multinational firms will have to pare their prices by 30-50%.
"We highlight that the estimated impact is based on direct hit from price cuts and does not factor in the indirect impact which will also include some price increases or loss and gain of market share," Garg added.
He said consumers will benefit as many of the premium brands like Glaxo's Augmentin will see 50-55% price correction.
Late September, a Group of Ministers (GoM) approved the proposal to control prices of 348 essential drugs, which have significant share in the domestic market. The ceiling price formula is based on weighted average price of all brands with more than one% market shares based on volume. The prices used for calculating the reference or ceiling prices will be taken as of March 31, 2012 and companies will be allowed to take price increases each year to the extent of change in the wholesale price index (WPI) during the year. The ceiling price will be reset once in five years.
"We believe the proposed pricing formula balances the needs of consumers and the industry – consumers will benefit from reduction in prices of most leading brands that are currently priced at a premium while the industry impact will be limited to 5-6% of earnings," Garg said.