Drug firms presage 8-10% hike in prices

MRP-based excise regime and fringe tax seen as triggers

A section of the pharmaceutical industry has said it would hike the prices of drugs by 8-10 per cent next month following the switchover to a MRP-based excise regime and the introduction of fringe benefit tax (FBT).

Companies such as Pfizer, which rely heavily on contract manufacturing, have already revised their prices. "We have affected a price correction for drugs under price control. We are working out the correction in other products,'' a senior official from Pfizer said.

According to the official, the impact of FBT has not been taken into account in the present price corrections. "However, it will have a significant impact on the bottomlines and we will chalk out a strategy once things become clearer," he added.

"The MRP-based excise tax, less abatement and FBT will lead to 8-10 per cent rise in the prices of drugs,'' said Ranjit Sahani, president, Organisation of Pharmaceutical Producers of India, a lobby group of multinationals such as Novartis, Aventis, Eli Lilly, Merck, Bristol-Myers Squibb, AstraZenaca, and Nicholas Piramal India.

According to Sahani, this will decrease accessibility of drugs to the common man at a time when healthcare and education are the second most important items in the common minimum programme of the UPA government.

Under the MRP-based excise regime, companies now have to pay 16 per cent excise duty on 60 per cent of the MRP since the abatement is only 40 per cent.

Companies, which are heavily dependent on contract manufacturing such as Pfizer, Novartis and GlaxoSmithKline, have been the most affected owing to this.

According to industry experts, most large and mid-sized companies are looking at expansion in domestic and international markets. In such a scenario they are not in a position to absorb the additional pressures.

"It is a question of demand and supply. With new plants and newer projects coming up for most companies, pharmaceutical companies may not pass on the fringe benefit tax to employees despite their margins coming under tremendous pressure,'' Amar Lulla, joint managing director, Cipla said.

Pharmaceutical professionals, including researchers and medical representatives are highly in demand.

"Price hike is imminent. Pharmaceutical companies will have no choice but to pass on the hit to the consumer'', said Harinder Sikka, senior vice-president Nicholas Piramal India.

According to him, pharmaceutical companies will be the worst affected by the FBT owing to the collective movement of medical representatives. According to CII estimates, the FBT will erode the bottomlines of companies by 5-7 per cent.