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Wall Street Journal
India Widens Price Control Over Medicines

<p>Anirban Chowdhury</p>


May 17, 2013

MUMBAI - India has significantly widened its control over drug prices, a decision that will make medicines more affordable for people but hurt the profit margins of pharmaceutical companies.

As many as 348 medicines including cancer drug fluoroucil and lamivudine-zidovudine used in the treatment of HIV will now come under a new price-control rule that became effective Wednesday. Previously India controlled the prices of 74 drugs.

The rule doesn't cover patented drugs. A government-appointed panel had in February published a set of proposals for bringing many of such drugs too under price controls, but the government has yet to take a decision.

Drug-price control has been a topic of debate in India. The authorities argue that price controls are necessary to ensure that expensive drugs are available at affordable rates to the poor, especially since most people in the country have no medical insurance. But according to pharmaceutical companies, intense competition in India already keeps prices low.

The World Health Organisation estimates two-thirds of India's 1.2 billion people have no medical insurance versus 15% in China and about half in Africa. According to industry estimates, about 70% of health-care spending in India comes from an individual's own resources, and more than half of this is spent on buying medicines.

Under the new rule, the maximum price of each of the 348 drugs will be limited to the weighted average price of all its variants having a volume-based market share of more than 1%. The previous rule was in effect for 18 years and set the prices of the drugs it covered based on the cost structures announced by their manufacturers.

India's drug market is worth about 720 billion rupees ($13.11 billion) annually, and the new rule covers about 30% of that compared with 18% before, said Ranjit Kapadia, senior vice president at Centrum Broking Ltd.

According to him, the prices of the drugs that the new rule covers will fall between 5% and 30%.

Mr. Kapadia said the government's decision will hurt the profit margins of GlaxoSmithKline Pharmaceuticals Ltd. and Novartis by 2%-7% as some of their medicines such as antiallergic Cetzine, antibiotic Augmentine and painkiller Voveron will come under price control.

Ranjit Shahani, managing director of the Indian unit of Novartis AG, said the immediate impact on sales and margin "will be quite significant."

"However, a change from cost-based to market-based pricing methodology is expected to have some transparency and be directionally more prudent for the pharmaceutical industry on a longer-term perspective," said Mr. Shahani.

He is also president of the Organization of Pharmaceutical Producers of India.

A GlaxoSmithKline spokeswoman said her company "has always undertaken a low-price, high-volume strategy in India and our flexible pricing approach means that our products are carefully priced in order to make them more affordable and accessible to people in India."

Chemists are also expected to be hurt.

The margins of drug retailers will fall by 4 percentage points due to the new price-control step, said J.S. Shinde, president of lobbying body All India Organization of Chemists and Druggists. "We had asked the government to restore our margins," he added.

Sujay Shetty of PricewaterhouseCoopers said drug companies will take 12 to 18 months to reshuffle their portfolios to lessen the impact of the new price-control rule on their sales and margins.



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