India sets controversial price caps on 650 drugs

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India has started the countdown on new price controls for a vastly expanded list of drugs, a move that is expected to cut deeply into the profits of drugmakers for hundreds of drugs.

The new prices will kick in around July 1 on 652 medications, 348 of which are classified “essential drugs.” The new pricing, which will be the average price of any drug with a market share of 1%, is expected to lead to price cuts of up to 80% for some cancer drugs and HIV drugs, PharmaTimes reports. The new policy replaces a nearly 20-year-old price ceiling that only included 74 bulk drugs and their formulations.

According to The Economic Times, Hemant Bakhru, an analyst with brokerage CLSA, figured the cuts would most “adversely impact” GlaxoSmithKline ($GSK) and Sanofi ($SNY), but that Indian drugmakers, such as Cipla and Cadila, “would also take a hit.” He said generic drugmakers like Sun Pharma and Lupin would be least affected.

While it requires prices to be cut on drugs above the ceiling, the new rule forbids drugmakers from raising prices if they fall under it. PharmaTimes said the government’s notification indicates makers of “non-essential medicines” can raise prices by 10% a year and that new products discovered and developed in India could ask for an exemption from price controls for 5 years.

The potential for sales in India has made it a big draw for global companies who are finding emerging markets more attractive than more mature Western markets. Drug spending is projected to hit $17.5 billion by 2014 from $12 billion today. But an estimated 70% of health spending comes directly from the pockets of patients, since about two-thirds of India’s 1.2 billion people lack health insurance. That has led to a pervasive idea that drug companies owe the country the responsibility of providing lifesaving medications at very low prices. That philosophy has also led to some nasty patent fights. Novartis ($NVS) recently lost its bid for an Indian patent on its cancer drug Glivec. The government there also issued a compulsory license for Bayer‘s cancer drug Nexavar and has revoked patents on drugs such as Pfizer’s ($PFE) Sutent and Roche’s ($RHHBYPegasys.

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