The cost of prescription drugs is spiralling out of control. Let’s decode the reason behind this rise.
We have all heard the age-old saying, ‘Health is wealth’. But good health seems to come with a hefty price tag today. As the cost of essential medications skyrockets, many are left wondering if they can afford to keep themselves healthy.
It’s a harsh reality that we are all facing as the cost of prescription drugs is increasing alarmingly, leaving patients struggling to pay for life-saving treatments.
What’s Happening?
The cost of staying healthy just got steeper in India as essential and life-saving medicines have become more expensive starting 1st April 2023.
The National Pharmaceutical Pricing Authority has approved a whopping 12.12% increase in the prices of essential drugs regulated under the Drug Price Control Order.
What is Drug Price Control Order?
The Drug Price Control Order (DPCO) law limits how much companies can charge for essential medicines. This helps ensure that people can afford to buy these medicines when needed.
Every year, the government lists medicines with price limits and decides how much they should cost. A company can get in trouble if it charges more than the limit.
From 2018 to 2022, companies could raise the prices of their medicines by 0.5% to 4.2% every year. But, as inflation is rising, the government has allowed pharma companies to increase costs. Hence, in 2023, the ceiling was raised to 10.8% based on how much it costs to make the medicine.
And now, the government has decided that companies can raise their prices even more in the fiscal year 2023-2024, up to 12.12%.
Root Cause of Soaring Medicine Prices
One of the root causes of soaring medicine prices is the increasing cost of raw materials, transportation, and packaging materials. Companies that make essential medicines expected the government to allow them to raise prices as they had to spend more on raw materials due to the rising cost.
The price hike in medicine is linked to India’s Wholesale Price Index, which indicates rising inflation.
In addition, Economic Times reported the prices of crucial medicines have been increasing for the last two years, and many essential ingredients used in drugs have also become more expensive.
For instance, the price of Paracetamol has increased by a staggering 130%, and excipients’ prices have gone up between 18% to 262%. Solvents used in liquid preparations have also seen their prices soar by up to 263%.
Which Companies Would Benefit?
The companies with the highest exposure to The National List of Essential Medicines (NLEM) would benefit the most.
But why so?
Well, because NLEM is a list of important medicines that are considered necessary for basic healthcare needs. So, these companies are the ones who can hike rates up to the said ceiling.
According to recent data published on BQPrime, around 17% of all medicine sales in India are from the NLEM list (as of September 2022). This means that a lot of money is made by pharmaceutical companies selling these important medicines. Moreover, the top 25 companies make up between 5% and 49% of these sales.
In a report published by BQ Prime, pharma analyst Vishal Manchanda said the recent price hike will benefit companies that sell medicines from the NLEM list, especially those that sell a lot of these medicines in India. However, companies that sell newly included drugs may not benefit as much because their prices have already been lowered.
Companies like Sanofi and GSK Pharma have already had to lower their prices, so the price hike may only partially benefit them.
*Stocks mentioned in the article are for informational purposes. This is not investment advice.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
