The $8 billion domestic pharmaceuticals market is facing drug price erosion. An aggressive lot of home-grown small and medium-sized pharmaceutical companies, namely, Shantha Biotechnics, Aurobindo Pharmaceuticals, Mankind Pharma and Natco Pharma, have resorted to drastic price cuts in their drug offerings in recent months. Left with no option, global pharmaceutical majors such as AstraZeneca, GlaxoSmithKline, Novartis, Pfizer and Roche, and domestic drug majors like Cipla, Lupin, Ranbaxy, Sun Pharmaceuticals are also cutting the prices of their own drugs.
Price erosion in the domestic pharmaceuticals market has been going on for many years, especially in the therapeutic areas of diabetes, cardiovascular diseases, anti-cancer and anti-AIDS medicines. However, this time around, it is the magnitude of the price cuts that have left many baffled. Pharmaceutical players behind the recent downslide in drug costs aver that despite the prices of advanced pharmaceutical ingredients crashing after every couple of years, established pharmaceutical players have maintained the prices of antibiotics and cardiovascular medicines in India, whose prices were crashing in other countries. By sourcing the drug molecules from cheaper destinations such as China, they have defied the trend by producing the drugs in bulk and selling them cheap here.
Biggies in the drug industry are a disenchanted lot as these cheaper medicines from the relatively small players are readily prescribed by doctors and made available by chemists, according to a recent ORG IMS survey. And for valid reasons as the discounted offerings not only cost significantly lower, they are for normal prescriptions such as bacterial and microbial infection, emergency contraception, diabetes and also for complex respiratory diseases and various forms of cancer.
Here’s a sampler: Hyderabad-based Shantha Biotechnics is selling its Shanferon anti-cancer drug at one-fourth the imported price. Shanferon (recombinant interferon Alfa 2b) is a protein produced in the yeast Pichia pastoris. It is used for the treatment of many cancers including chronic myeloid leukemia, kidney, urinary bladder and skin cancer. It is also used for the treatment of liver diseases caused by hepatitis B and C viruses.
Shantha Biotechnics managing director Varaprasad Reddy says, “The time has come when pharmaceutical companies have to concentrate on their core strengths. The future demand for domestic formulations is expected to be driven by chronic segments like anti-diabetic, central nervous system (CNS), cardio vascular systems and gastrointestinal on account of the changing lifestyles in the Indian society.”
Shantha Biotechnics is not alone in its endeavour. New Delhi-based Mankind Pharma has…
taken GlaxoSmithKline head on by selling its Moxikind antibiotic at half the Rs 48 price of GSK’s antibiotic Augmentin, and has managed to garner a 25% market share of the Rs 250 crore market for the drug. Hit hard by the price war, Cipla and Ipca Laboratories had no other option but to cut prices of their own offerings, at times up to 45-50% in recent months.
Among others, Aurobindo Pharma and Natco Pharma are selling their anti-retro viral drug and anti-cancer drugs respectively at less than half of the price being offered by their established global counterparts. Bharat Biotech’s Indirab anti-rabies vaccine is 30-40% lower. The company chairman and managing director, Krishna M Ella, says, “The value of vaccines should be apparent since vaccines are a therapeutic with a potential to eliminate or virtually eliminate diseases: for example, small pox, tetanus, polio, measles, diphtheria, mumps and rubella are no longer urgent world health issues as a consequence of vaccinations.”
Moreover, the price erosion is not restricted to prescription drugs alone. Over-the-counter (OTC) medicines is where future price wars will be witnessed and with increasing ferocity.
Already, the manufacturing lines of players like Mankind Pharma are working overtime to roll out their inventories, comprising anti-dandruff medications, condoms, erectile dysfunction drugs, oral contraceptives, pregnancy determination kit and sweeteners.
Stakes are high for both the established pharmaceutical majors as well as those players initiating price erosion in order to garner market share. India has 5.5 million chemists and druggists, and the organised retail market is worth Rs 37,000 crore and posting a year-on-year growth of 30-40%, estimates market research firm ORG IMS.
In the drug industry, prices of the advanced pharmaceutical ingredient— the core molecule—typically crash after every couple of years. “However, in India, there are large industry players who were artificially maintaining the prices of antibiotics and cardiovascular medicines, whose prices were crashing in other countries. We decided to make these drugs in bulk by sourcing the molecules from China and selling them cheap, keeping a very thin margin. Cornered, our competitors were forced to cut the prices of their offerings too,” explains Mankind Pharma founder Ramesh Juneja.
Nevertheless, Ranbaxy has a different take on this. “We have a presence in 23 of the top 25 pharmaceutical markets of the world. Hence, we are not single-country or single molecule focused.
Besides, the industry has started pointing fingers on the manufacturing capabilities of those players, who promise affordable generic medicines by resorting to price cuts,” a Ranbaxy official points out.
Healthcare analysts opine that the global pharmaceuticals market growth is reeling under pressure with declining R&D productivity, increasing generic penetration in large therapy areas and changing distribution patterns. Coupled with this, innovator companies have to bear the costs of R&D, manufacturing and distribution which gets reflected in the final cost of the drug.
Indian pharmaceutical players, who are mostly tapping the generic market, have cost arbitrage than the innovators. Raw materials are procured in-house, though the formulation industry still depends on third-party sourcing. The cost of manufacturing, reverse engineering techniques, manpower, infrastructural costs like land, power, water, and marketing hold the forte for the growing generics market. In the process, this has led to a price war in the domestic market offering a basket of products for the consumers to decide depending on variable price points. As a result, the pricing is reduced to half in many products in the therapeutic areas compared to the innovator drugs.
What matters in the domestic market is the product and brand name. Analysts point out that the innovators enjoy nearly 60% net margins as against 50% margins seen by the generic manufacturers. Though there are regulations controlling the prices, it varies from product to product. Besides, there are incremental innovations for the generic products which add up to the total costs.
Interestingly, pricing in the branded generics category is little different. It works based on regulations and larger awareness in the medical front. “Brand visibility and brand building exercise play an important role for fixing of prices. Once a product is established, then volume surges,” Dr Reddy’s officials inform, adding, references also helps in building up volumes.
Consider some of the competition: Dr Reddy’s Laboratories Norilet (Norflaxacin) comes for just Rs 1 while the innovator drug costs $1; Finride, a dermal patch acting for pain management against cancer is claimed to be lower by 40%; Reditux which is the generic version of Mabthera of Roche costs about Rs 50,000 as against Rs 2 lakh.
“With the domestic pharmaceuticals market getting commoditized and when the branding disappears, price comes to the forefront and makes the industry to be more competitive,” reveal Dr Reddy’s officials.
Senior Natco Pharma officials explain that price erosion may not decrease the competition as the domestic pharmaceutical market is poorly tapped. The much-hyped generic Glivac drug costs Rs 10,560 against the innovator Novartis’.