In a recent development, the Federal cabinet approved a 14-20% hike in pharmaceutical prices.
Pharmaceutical manufacturers demanded a 40% hike in pharmaceutical prices amid a sharp rupee devaluation against the US dollar of 28% during 10MFY23 and a significant jump in local inflation, which averaged 28% in 10MFY23.
As a one-time dispensation, enabling manufacturers and importers to increase their existing MRPs of essential drugs and biologicals equal to a 70% increase in CPI (with a cap of 14%) and MRP of all other non-essential biologicals up-to increase in CPI (with a cap of 20%) based on average CPI for the current year, i.e. Jul-2022 to April 2023 subject to the following conditions;
It shall be considered an annual increase under the policy for FY24, and no increase under this category shall be granted next year.
The policy board of DRAP shall review the situation after three months i.e. in July 2023. It shall recommend to the federal government for its consideration regarding prices if the rupee appreciates its value.
Hardship cases recommended by Drug Pricing Committee are under submission for approval from the federal government and shall be reviewed for adjustment.
Background of Pharmaceutical Pricing Policy:
In 2018 the government devised the ‘Drug Pricing Policy’. Under this policy, the market retail price of pharmaceutical products had been linked to the Consumer Price Index (CPI) effective Jul 01, 2018. The new, more relaxed stance on pricing allows Pharma Companies to increase prices by giving 30 days’ notice to DRAP (no need of prior approval) vs. 6 Months lag that used to delay an increase in prices.
The DRAP pricing policy has categorised drugs in two segments i.e. essential and non-essential drugs. Essential drug prices can be increased by up to 70% of annual CPI or a maximum of 7%, while for non-essential drugs, prices can be increased by full annual CPI with the maximum allowed limit of 10%.
In hardship cases, prices are reviewed once in three years where (i) locally manufactured drug price is set considering the cost of API, excipients, and packaging cost; (ii) imported drug prices are set at landed cost plus mark-up of 45% for anti-cancer, biologicals while 40% mark-up on anti-retroviral, and (iii) imported drugs with the local labelling price set at landed cost plus packaging cost plus mark-up of 45%.
Outlook: We believe recent price hike will give some relief to the pharmaceutical industry and increase gross margins, as around 90% of raw material Active Pharmaceutical Ingredients (APIs) are imported.
Courtesy – Topline Securities