Jun 28, 2002|
Pharma: DPCO Still a haze
Indiaís entry into the WTO and the inevitable introduction of the product patent regime by the end of 2005 has forced the country to take a closer look at DPCO (drug pricing control order), which allows the government to regulate drug prices. The thrust seems to be to promote an environment for drug innovation and technology.
Enforcement of the product patent regime by the end of 2005 will mean the end of reverse engineering of patented drugs, which is the mainstay of a majority of Indian pharma companies. Post 2005 drug innovation and generics may constitute a significant portion of the revenues of most Indian pharma companies.
The government announced significant dilution of the DPCO in February this year. However, the industry is eagerly awaiting the final list of drugs, which could turn fortunes for MNCís in particular. The DPCO 2002 intends to reduce the drugs under its control to 32 from the existing 74. DPCO 2002 is expected to take 47 drugs off price controls, while adding 5 new drugs to the list. The effective number of controlled drugs is likely to be around 32. While the NPPA has taken steps in the right direction, there seem to be an inherent inertia to act on the proposals under DPCO 2002. Pending cabinet approval, the industry is eagerly awaiting the final list of drugs.
Two criteria announced by NPPA for inclusion of drugs under DPCO are as follows.
- Formulations in a therapeutic class with combined annual sales of Rs 250 m or more will be under price control if a single formulator commands a 50% of the total sales.
- Formulations with a turnover in the range of Rs 100-250 m if any one manufacturer commands a market share of 90% or more.
MNC companies could benefit due to older generation molecules. However, a fair amount of uncertainty exists in estimating the exact molecules that are likely to come in/out of the purview of price control, specifically with respect to the definition of the market share being used (whether category-based or molecule-based, or whether single-drug or multi-drug based) and possibility of inclusion of further criteria.
DPCO 2002 is likely to benefit some companies more than others. Companies like Aventis, Cipla, Glaxo SmithKline Beecham Pharmaceuticals, Knoll Pharmaceuticals and Pfizer, which have a high exposure to DPCO, are likely to benefit from the reduction in the number of drugs under price control. Having said that, it is also important to understand that speculation on the final list and its impact on different companies is futile as the prices of certain drugs under price control are already below the maximum stipulated price due to intense competition. Investors will be in a better position to judge the impact once the new DPCO list is out. It is also important to note that domestic pharma companies have started to pay increasing attention to the export markets recognizing the limited potential of the domestic markets.
More Views on News
Aug 14, 2017
A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.
Aug 14, 2017
GST impact coupled with price erosion in US leads to lower profits for the quarter.
Aug 8, 2017
Profits plunge due to higher raw material costs.
Jun 16, 2017
Here's what you can expect from The 5 Minute Wrapup in the coming months and years.
Jun 23, 2017
Net Profit lower due to exceptional items in the previous year.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407