Biggest Ever Hike In Essential Drug Prices — Here's Who Stands To Gain
This is the second consecutive double-digit hike for essential drugs.
Essential and life-saving medicines are set to get expensive from fiscal 2024 in line with rising inflation.
The central government has approved a 12.12% hike in the prices of essential drugs, which are regulated under the Drug Price Control Order, according to the minutes of the meeting of the National Pharmaceutical Pricing Authority.
This is the biggest ever hike announced and it's effective from April 1. It's based on the wholesale price index of the preceding calendar year, which is representative of inflation in the country.
What Is Drug Price Control Order?
The DPCO caps the prices of essential and life-saving drugs to ensure their availability at reasonable rates. The order provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by the government and penalties for contravention of provisions.
Over fiscals 2018–2022, companies manufacturing these scheduled drugs, which are covered under the National List of Essential Medicines, were allowed 0.5–4.2% year-on-year hike, based on the WPI of the preceding calendar year. However, the 2023 fiscal saw the ceiling being raised to 10.8% in line with the WPI of 2021.
In a meeting on Monday, the Department for Pharmaceuticals raised the ceiling to 12.12% for 2023–24.
This is the second consecutive double-digit hike for NLEM drugs, Krishnanath Munde, associate director at India Ratings and Research, told BQ Prime.
The industry was anticipating a price hike on its NLEM portfolio due to rising costs of imported raw materials—primarily from China—freight or logistics, and plastic and packaging materials since Covid-19, according to Munde.
Which Companies Stand To Benefit
The NLEM portfolio constitutes 17% of the overall Indian pharma market sales, according to the September 2022 data of All Indian Origin Chemists and Distributors Ltd.
Out of this, the contribution for the top 25 companies is in the range of 5–49%. The price cap for drugs not falling under the NLEM will continue to remain at 10% for fiscal 2024, Munde said.
India Ratings highlighted that companies with higher NLEM exposure, especially those with a 15–49% exposure to domestic sales, are going to benefit from the price hike.
The price hike is a positive for most companies under NLEM, but this benefit would be lower for companies whose medicines were newly included under revised Schedule I of the DPCO, said Vishal Manchanda, a pharma analyst with Systematix.
Sanofi's Lantus and GSK Pharma's Ceftum and T-bact cream were included in the revised list released in January 2023. Accordingly, these companies have already had to face a downward revision in their selling price, which is yet to be reflected in their numbers. Thus, the 12.12% hike would only partially reflect in the growth numbers for these companies, he said.