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Pharmaceuticals

Pre-Budget meet with IDMA, ED

We hosted Mr Ashok Madan, Executive director of IDMA, for a Pre-Budget discussion on Indian Pharma industry, NLEM and Drug policy. The Indian Pharma market also known as the pharmacy of the world has reported double digit growth amid pandemic similar trend reflected in pharma exports. The global pharma market has evolved from generics to complex drugs and biosimilar. The healthcare budget is expected to increase the healthcare expenditure further. Mr Madan expects announcement of tax incentives, bulk drug parks and incentivising R&D. We discussed the current government policies for pharma industry and road ahead for the industry. NLEM list is awaiting the notification by the Ministry of Health which would need a final review by Standing committee post the notification. The current structure of the markets and trade margins are the other factors the government has been actively considering.

Budget expectations

Mr Madan expects the government to in increase the spend on pharma healthcare including traditional medication. The announcement of Bulk drug parks to incentivise API production along with a boost to R&D - R&D incentives in the form of patent policy to encourage innovations and support R&D activity in the sector

NLEM

The announcement of NLEM list was delayed on the request of Industry players to avoid any kind of disruption amid pandemic and GOI had accepted the request amid the pandemic scenario. Mr Madan guided the NLEM list has been finalized by committee and its under Ministry of Health for notification which may be approved by March/April 2022. The Standing committee on affordable Medicine chaired by Dr Vinod Paul Member of NITI Aayog would review the list of NLEM once notified by the Ministry of Health. Meanwhile as per Drug policy the molecules which comes under the NLEM list would be under price control order. Hence it’s a wait and watch situation on how the standing committee review may impact the final NLEM list.

WPI link price increase for drugs under price control

The WPI inflation index for the current fiscal year trailing at 14%YoY(Nov-21). As per the Drug policy the drugs under price control order are allowed to a price increase linked to WPI inflation in the month of April. Meanwhile the molecules out of Drug price control order are restricted to take price increase of up-to 10% in the month of April on annual basis. IDMA had made a representation to the GOI around allowing higher price increases given the multiyear high inflation in the input cost and higher logistic cost. Meanwhile industry would be contented to receive some respite on the WPI inflation basis and would continue to await some support from the Government over coming fiscal.

Other govt incentives

Jan Aushadhi: The affordable medicine program by the government has seen some significant improvement in the last 4-5 year, despite it being a small contributor to the IPM. Currently there are over 8000 store, which can be taken as increasing depth for the segment. National Digital Health Mission: Government has been working on ironing out the issues (data privacy and physical check-up preference) but the benefits of this policy can change the medical environment with proper patient history and vast pool of data availability. However, key concern remains on the data privacy and protection.

Coexistence with online pharmacy

The introduction of online pharmacy has created some new channels of operations in the market which he believes is unlikely to impact the existing distributor model. The percentage of online and offline business may remain same while both segments would continue to grow and would co-exist. The long term chronic meds may prefer online model but critical drugs will continue to dominate the offline model.

View

We maintain our positive stance on the sector and remain optimistic. We hold on to our top large-cap picks as SUNP and DRRD. Among MNCs, we maintain our bias towards BOOT and PFIZ. In APIs, we continue to like ARTD, and in domestic-focused midcaps, we like FDCLT. In Diagnostics, we continue to like the sector DLPL, METROLHC and Vijaya.

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