DPCO: New rule to take Rs 1,600 cr yearly toll on firms' sales

The domestic pharmaceutical market is expected to witness value erosion of around Rs 1,600 crore due to the Drug Price Control Order (DPCO) 2013, to take effect by the first week of July, at the latest. The existing order it replaces dates back to 1995.

According to market research firm IMS Health’s analysis, 348 essential medicines will now come under price control. These currently contribute Rs 13,033 crore to the total annual sales of Rs 72,762 crore. This share is estimated to come down by 12 per cent, to Rs 11,437 crore annually.

The government notified the new DPCO yesterday, bringing 348 essential medicines or 652 medicine packs of various dosages and strengths under direct price control, as against 74 bulk drugs earlier. The 2013 order allows pharmaceutical companies to withdraw existing products from the market within 45 days and introduce the same drugs in line with the new pricing regime. The prices of these 348 medicines are to be capped at the arithmetic average of all drugs in a particular segment with more than one per cent market share.

By IMS estimates, with the new price regime in place, the span of price control is expected to increase to 30 per cent from 18 per cent so far. While sales of multinational pharmaceutical firms are expected to take a hit of around 18 per cent, revenue of domestic firms are likely to erode by nine per cent annually. Among multinationals, GlaxoSmithKline, Abbott, Ranbaxy and Pfizer are the worst hit. Among domestic ones, those which would have to bear significant loss are Zydus Cadila, Cipla, Dr Reddy’s Laboratories and Sun Pharma.

Satish Reddy, vice-chairman and managing director of Dr Reddy’s,  welcomed the move for ending years of pricing uncertainty. “The shift to a market-based price control model is commendable, as it puts an end to the arbitrary pricing regime. The consumer stands to benefit with lowered prices of medicines. However, there is a need for the government to balance the interests of improving affordability of medicines with growth for the Indian pharmaceutical industry, which is heavily dependent on investments into research and development. The latter needs mechanisms that can spur an increase in innovation spend in the country,” he said.

He said the impact on his company was likely to be three to four per cent of its finished dosage sales in India.