Employees wear protective clothing as they pour chemicals into a machine in the tablet production plant at Teva Pharmaceutical (Photographer: Adam Reynolds/Bloomberg)

New Draft Pharma Policy Stands To Benefit Only The Bigger Players

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The draft pharmaceutical policy, recently released by the government, which aims to revamp the sector’s practices and ensure drug security for India will benefit only larger companies, according to two brokerages.

The proposals favour large pharmaceuticals and are a negative for smaller players, said Nomura in a research note on Thursday. The Japanese brokerage’s view was mirrored by Credit Suisse, which in a separate note, said that the draft policy's “provisions increase barriers to entry and strengthen the position of existing established companies”.

High Manufacturing Standards

The draft pharmaceutical policy, which BloombergQuint has accessed, aims to encourage the domestic manufacturing of active pharmaceutical ingredients amidst other things. Currently, more than 60 percent of such APIs are sourced from other countries, with the figure going up to 90 percent in some cases.

According to Nomura, only bigger drugmakers can comply with the relatively high standards of manufacturing and marketing practices of these ingredients.

Generic Drug Push

The government will also pursue the sale of drugs by their generic name through the policy as it aims to implement the principle of one company-one drug-one brand name. “Giving brand names to generic drugs hampers real innovation, and shall be discouraged,” the draft policy said.

This needs more clarification, according to Credit Suisse, as pharmaceutical companies may have multiple brands of the same generic drug, to promote it to different doctors.

Sun Pharmaceuticals Ltd. will be impacted the most as it markets drugs for both itself and its subsidiary Ranbaxy. “The key question is what constitutes one company and whether by forming separate subsidiaries this provision can be circumvented”, said Credit Suisse.

Trade Margin Cap

There is also a provision for the control of “unreasonable” trade margins by distributors and retailers. The trade margin cap will be effectively put in place for 95 percent of the industry, according to Nomura.

Cipla Ltd. and Alkem Laboratories Ltd., both stand to be adversely impacted by this provision, as they generate 19 percent and 15 percent business from trade generics respectively.

Nomura added that getting rid of branded medicines in the forseeable future is going to be a significant challenge.

India's pharmaceutical policy has not seen a major overhaul since 2002. While a National Pharmaceutical Pricing Policy was announced in 2012, it was limited only to aspects of drug pricing. The Department of Pharmaceuticals had announced that it will initiate working on a holistic policy for the sector.

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