GOM’s proposed simple average pricing to result in sharper price cuts

The Group of Ministers’ (GOM) meeting on Nov 21, Wednesday ended with the proposal of a new formula – Simple Average Price (SAP) – of all brands existing in the market after factoring in the Finance Ministry’s concerns.

An preliminary analysis by AIOCD-PharmaTrac data suggests that the impact is marginally higher at overall industry level. The data shows of the overall market (80 per cent actual, 20 per cent projected) and impact for major companies shows that most companies will see  sharper price cuts under SAP. For instance, the previous method of Weighted Average Price (WAP) had a 7.2 per cent impact on Glaxo where as under the SAP formula, it will be 11.3 per cent.

Similarly for companies like Ranbaxy and Dr Reddy’s Laboratories, the SAP method doubles the impact (from 3.6 per cent to 6.2 per cent for Ranbaxy and from 3.9 per cent to 7.3 per cent. For Cipla, the impact jumps from 2.9 per cent to 5.8 per cent.

However companies like Aristo, Wallace, Biochem etc. have a lower impact under SAP. This is because in specific molecules – when all brands were included compared to only top brands – some generic brands were high priced – and the category benefited by a higher ceiling price after considering them.

The tweaking in the methodology was to accommodate reservations put forward by Finance Minister P Chidambaram. The GOM leader led by Agriculture Minister Sharad Pawar is now expected to place the Draft National Pharmaceutical Pricing Policy 2011 (NPPP 2011) before the Cabinet for approval. The GOM is targeting to have the final proposal in hand by November 27 when the Supreme Court is scheduled to hear a petition on the pricing policy.

EP News Bureau