In a recent development, the federal cabinet has approved 14-20% hike in pharmaceutical prices. The manufactures were demanding up to 40% hike in pharmaceutical prices amid sharp rupee depreciation against US dollar, up to 28% during 10MFY23 and significant jump in local inflation, averaging 28% in this period.
According to Topline Securities, as a one-time dispensation, will enable the manufacturers and importers to increase their existing MRPs of essential drugs and biologicals equal to 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%) on the basis of average CPI for current year i.e. Jul-2022 to April 2023 subject to the following conditions:
It shall be considered as annual increase under the said policy for FY24 and no increase under this category shall be granted in the next financial year.
The policy board of DRAP shall review the situation after three months, in July 2023 and shall make its recommendation to federal government for its consideration regarding prices if rupee appreciates it value.
Hardship cases that have been recommended by Drug Pricing Committee are under submission for approval by the federal government and shall be reviewed for adjustment.
In 2018, 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 from July 01, 2018. The new more relaxed stance on pricing allows pharmaceutical companies to increase prices by giving 30 days notice to DRAP (no need of prior approval) as against 6 Months lag that used to delay increase in prices.
The DRAP pricing policy has categorized drugs in two segments, essential and non essential drugs. Essential drug prices can be increased by up to 70% of annual CPI or maximum of 7% while for non essential drugs, prices can be increased by full annual CPI with maximum allowed limit of 10%.
In hardship cases, prices are reviewed once in three years where: 1) locally manufactured drug price is set considering cost of API, excipients, and packaging cost; 2) 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 3) imported drugs with local labelling price set at landed cost plus packaging cost plus mark-up of 45%.
The brokerage house believes that recent price hike will give some relief to pharmaceutical industry and increase in gross margins, as around 90% of raw material Active Pharmaceutical Ingredients (APIs) are imported.