BackPharma firms may expand reach to profit from higher volumes
Revised prices, to be announced next week, will make bigger brands more accessible to rural, semi-urban
Premium(Hemant Mishra/Mint)
Mumbai: India’s new drug price controls may force big pharma companies to tap villages and small towns in search of more patients and volumes.
Since the new regime will lead to a price erosion, drug makers will have to drive sales volumes to sustain growth, say analysts.
Revised prices of drug formulations, to be announced by the government next week, will mark the prices of top pharma brands on par with cheaper substitutes, making the medicines more accessible to people in rural and semi-urban markets, they said.
In response, most of the country’s top 25 pharma firms, which control almost 70% of the ₹ 72,000 crore drug market, are increasing their field staff, distribution networks and other marketing activities, especially in rural and semi-urban markets, the analysts add.
The government notified the new drug price control order in early May and the new prices will be effective from 1 July.
The price control regime that covers all the 348 drugs referred in the national list of essential medicines will lead to a value erosion of at least ₹ 1,600 crore for the industry, as the prices of most of these medicines will drop by 25-30%, according to pharma market research firm IMS Health India.
The domestic drug industry could take a revenue hit of 4-5% because of these price cuts, Mint reported on 17 May. And the market size in terms of value will likely drop by 2.2% following the price cuts, the report added.
Among large companies, GlaxoSmithKline Pharmaceuticals Ltd, the Indian unit of the UK-based drug maker GlaxoSmithKline Plc., will be the worst hit by the new price regime, with its revenue expected to fall by about 25%.
“Though prices of many drug brands including Augmentin, the top anti-infective brand of GSK, will be reduced, it is possible that there could be a beneficial impact on volumes," said Hasit Joshipura, managing director, GSK Pharma India. “We are working on leveraging synergies between our pharma and consumer business as well to expand our reach in the market."
The company had almost doubled its field force to about 3,500 in the past one year.
GSK has two companies in India focusing on the pharma and consumer health (over-the-counter) businesses. Since these are two different listed companies in India, the firms need to ensure appropriate approvals are in place for co-marketing initiatives, he said.
Top pharma companies including Sanofi India Ltd, Sun Pharmaceuticals Industries Ltd, Cipla Ltd, Cadila Healthcare Ltd and Pfizer Ltd have already initiated expansions into so-called tier-II and tier-III cities and rural markets. This is also because of the slow growth in the urban markets and the expectation that the current gap in prices of drugs from large and small companies will narrow under the new regime.
“The reduced prices of established brands from top companies will certainly help us in prescribing them for poor patients, who couldn’t afford them so far," said Abhilash Chandran, medical officer at a government hospital in Shornur, a small town in Kerala’s Palakkad district.
Only about 30% of India’s 1.2 billion population has access to modern medicines , according to health ministry data. Under the new price regime, this access will is expected to grow by another 10-15%.
The flipside of the pricing controls is that “the profitability and market growth of small drugmakers is at stake in the new price regime as top drug makers can easily grab their market share with the reduced retail prices, especially in the semi-urban and rural markets," said Amit Chander, partner at Baring Private Equity Partners India.
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