The upcoming drug policy regime where a market-based formula will be used to cap prices of around 650 formulations will make several popular antibiotics cheaper by up to 23%, says market research firm IMS Health. Among these are top-selling drugs to reduce cholesterol and blood pressure and cures for gastric ulcer. While this is good news for consumers, profitability of drug makers including Cipla, GlaxoSmithKline, Ranbaxy and Novartis could take a hit.

Though the policy will expand price regulation to 60% of the drug market from hardly 20% now, its impact on bottom lines will not be proportionate since the new regime will be far more liberal.

While prices will fall in several therapeutic categories, in most others it could be marginal or negligible. Of course, firms will be barred from hiking prices of drugs currently under a stringent cost-based control (76 under law, but practically, some 40 as others are not in production) for a year after the new policy is implemented. Many of these 40 drugs will come under the new regulation as well.

Prices of specified antibiotic formulations containing azithromycin, amoxicillin clavulanic potassium and cefixime will come down 11-16%. Some formulations with ciprofloxacin hydrochloride will cost 23% less while Atorvastatin, a highly prescribed cholesterol-reducing drug, will cost 14% less, according to IMS Health.

?While essential drug prices will fall 10-20%, the industry will take two to three years to negate the revenue impact of this reduction,? said Ranga Iyer, ex-president of Organisation of Pharmaceutical Producers of India (OPPI), an industry lobby group.

The new drug-pricing regime was cleared by the Cabinet a few months ago and is being vetted by the law ministry. The issue of the executive order is expected by end-April. It will regulate prices of 348 essential drugs defined in terms of specified strengths and combination formulations (hence the number 650) under the National List of Essential Medicines, 2011, by determining the ceiling prices as the average price of all products with a minimum 1% market share in a segment.

Currently, 76 bulk drugs and their formulations are under the Drug Prices Control Order issued under the Essential Commodities Act and their ceiling prices are fixed by the National Pharmaceutical Pricing Policy under a cost-plus formula, which allows up to 150% post manufacturing expenses (which includes trade margins and profits of companies).

Antiseptic ointment Povidone Iodine, commonly known as Betadine and prescribed for minor wounds and infections, will cost 40% less in the new regime. Blood pressure lowering Losartan Potassium tablets (50mg) will cost 23% less, while omeprazole capsules (20mg) which cures gastric ulcers, a common ailment in India, will be available at 17% lower price.

?We estimate that this revision in prices is likely to bring down the drug market size to the tune of 1,400 crore, which translates to about 2% of the current pharmaceutical market (Rs 70,000 crore),? said the pharma market research firm. The data provided by the firm is used by the government to fix drug prices.

Interestingly, Amoxicillin Clavulanic Potassium (sold as Augmentin) is GlaxoSmithKline’s best-selling brand in India. According to IMS Health, GSK’s domestic turnover ? Rs 2,918 crore as of August 2012 ? will be affected by almost 6%, which works out to Rs 168 crore.

Pharma MNCs Novartis and Pfizer are expected to see revenues fall by around 4% and 7% respectively, shrinking domestic market sales of the former by Rs 75 crore and the latter by Rs 97 crore. Analysts said MNC pharma companies are more impacted as their branded drugs are expensive compared with generic versions which could be closer to or below the fixed ceiling price.

Home-grown drug maker Ranbaxy will take a sales hit of Rs 143 crore, trimming its revenues by 4.8% while Cipla will see a fall by 2.6% or Rs 75 crore of its domestic sales.