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Friday, November 23, 2012

Storm over FDI stalls the parliament and the corporate government of India finalised anti people drug policy, pushed hard for disinvestment on discount!Cabinet okays private sector investment in railways!

Storm over FDI stalls the parliament and the corporate government of India finalised anti people drug policy, pushed hard for disinvestment on discount!Cabinet okays private sector investment in railways!

Indian Holocaust My Father`s Life and Time, Chapter: Nine Hundred Twenty Seven
Palash Biswas

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Storm over FDI stalls the parliament and the corporate government of India finalised anti people drug policy, pushed hard for disinvestment on discount!Cabinet okays private sector investment in railways!With the Opposition unwilling to allow a discussion in the Lok Sabha on foreign direct investment in retail without a vote, and the government equally unwilling to grant the Opposition demand as it is uncertain about which way the Samajwadi Party will vote, the winter session of Parliament has been unable to conduct any business so far. The only way the Congress party will allow a vote on the motion will be when it is certain that the numbers are in its favour, and for this it has been eyeing the Opposition stables.The Union cabinet approved a controversial drug pricing policy that had been opposed by the health ministry, the finance ministry and public health policy experts who fear it will legitimise high prices of medicines.A government source said the cabinet has cleared the drug pricing policy that health experts suspect will determine caps on prices of 348 drugs through a formula based on market prices of drugs rather than on actual costs of manufacturing medicines.India's domestic drug market, the fourth largest in the world by volume, is valued at nearly $13 billion.Industry body Assocham today asked the government to introduce a market-based pricing policy for drugs, saying it will help encourage investments in the sector and manufacturing of quality medicines. Desperate to attract private investment in the cash-strapped railways, the Cabinet on Thursday cleared the state-run transporter's plan to rope in the private sector for building new rail lines and plants, and augment capacity, a move that was red-flagged by the unions.

Meanwhile, the Union cabinet  cleared a 9.5 per cent stake sale in NTPC that is expected to fetch the government around Rs 13,000 crore.The government holds an 84.5 per cent stake in NTPC, a Maharatna company. After the divestment, the government stake would come down to 75 per cent, which would also help NTPC to comply with the minimum public shareholding norms.The move comes a day before the government offloads 4 per cent in Hindustan Copper through an auction, whose floor price was today fixed at Rs 155 per share.

Next in the selloff line is Oil India or NMDC, which will be divested before December 20, while the stake sale of NTPC may happen in January 2013, officials said.

On the other hand,the share sale of Hindustan Copper, which was the first disinvestment for this fiscal, managed to sail through today mainly on support from the Life Insurance Corporation and public sector banks. The offer for sale (OFS) saw subdued response from large foreign institutional investors and private domestic investors like mutual funds.Thanks to the state-owned institutions, the disinvestment has yielded Rs 800 crore, which is a much-needed amount as prior to this nothing has come from the stake sale of public sector units, pegged at Rs 30,000 crore for 2012-13.
The shares were bought at an average price of Rs 156.83 apiece against the government's floor price of Rs 155. The government offloaded 4% stake in Hindustan Copper out of the 99.59% that it held in the company. The offer was at a steep discount of 41% to the stock price on Thursday of Rs 266.

Encouraged by the success of Hindustan Copper disinvestment, Finance Minister P. Chidambaram on Friday exuded confidence that the government would be able to meet the Budget target of raising Rs. 30,000 crore from stake sale in public sector undertaking during the current fiscal.
"I am happy that issue has been fully subscribed. This is the resumption of the disinvestment process and we will go forward with the disinvestment processes as approved by the CCEA between now and March," Mr. Chidambaram told reporters.

"...I hope that we can collect the targeted Rs 30,000 crore," he added.
The government's sale of 4 per cent stake in Hindustan Copper was over—subscribed on Friday. A total of 3,89,12,793 shares, worth Rs 603.14 crore, were bid for at the close of trading hours, according to the data available from the stock exchanges.

The bids received were more than 3,70,08,720 shares, or 4 per cent shareholding, that were put on offer in the first tranche. The shares were offered at Rs 155 apiece, a 41 per cent discount to yesterday's closing price of HCL on the BSE.

The government has decided to disinvest minority stake in Rashtriya Ispat Nigam Ltd, Hindustan Aeronautics Ltd, Bharat Heavy Electricals Ltd and Steel Authority of India Ltd.

Besides, stake sale in Hindustan Copper Ltd, MMTC Ltd, National Aluminium Company Ltd Oil India Ltd, NTPC Ltd and NMDC Ltd would also take place during the current fiscal.

The government is likely to introduce amendments to the Insurance Bill in the current session for raising FDI cap in private sector insurance companies to 49 per cent, Parliament was informed today.

"...the official amendments to the (Insurance) Bill is likely to be introduced in the current session of Parliament. The foreign equity cap is being raised in order to meet the growing capital requirement of the insurance companies," Minister of State for Finance Namo Narain Meena said in a written reply to the Lok Sabha.

The Bill, which has been pending in the Rajya Sabha since December 2008, provides for raising FDI cap in private sector insurance companies from 25 per cent to 49 per cent.

The decision to hike FDI cap had already been approved by the Union Cabinet, Meena said, adding "the foreign equity cap is being raised in order to meet the growing capital requirement of the insurance companies."

The Standing Committee on Finance, it may be recalled, in its report had opined against raising the FDI cap to 49 per cent arguing that it would expose the sector to global vulnerability.

Insurance Regulatory and Development Authority ( IRDA) has favoured increase in foreign direct investment in the sector to 49 per cent, saying the decision would help the sector in raising funds which are needed for growth.

There are over two dozen private sector insurance companies operating in India in life and non-life sectors.

The tepid demand to the issue from a larger section of institutional investors despite the cheaper pricing has baffled government and bankers who were expecting that the issue would be lapped up.

But Finance Minister P Chidambarm told reporters that "Hindustan Copper shows resumption of the divestment process and I'm happy that the issue got fully subscribed."

Life Insurance Corporation, State Bank of India and Punjab National Bank were among the top investors. Hindustan Copper was struggling to attract investors initially as bids worth only Rs 31 crore were received in the first three hours. It was the last 30 minutes that saw majority of bids leading to the issue being fully subscribed, said brokers involved with process.

Meanwhile, the government has decided to reallocate three of the five coal blocks that were taken away from NTPC for delay in the development of those mines, officials said. These blocks are in Chatti Bariatu and Kerandari in Jharkhand.

With the reallocation of coal blocks, the overall valuation of NTPC is expected to go up. This in turn would help the government get higher returns from the proposed share sale.

NTPC's maiden offer had hit the market in 2004. In 2009, the government further diluted its stake through a follow-on public offer.

The power behemoth had posted a net profit of Rs 9,223.7 crore in the last fiscal against Rs 9,102.6 crore in 2010-11. NTPC recorded a turnover of Rs 61,002.2 crore in 2011-12 compared with Rs 54,704.6 crore in the previous fiscal.

Shares of NTPC today closed at Rs 163.70, up 1.05 per cent on the BSE.

The drug pricing policy, cleared by the Union Cabinet on Thursday, will be a big positive for the industry as a whole, says brokerage IndiaNivesh. The source said the government has also considered providing sufficient opportunity for innovation and competition to support the growth of the Indian pharma industry.

The cabinet clear the policy on Thursday, which is aimed at controling the prices of 348 essential medicines. At present, the government through the National Pharmaceutical Pricing Authority (NPPA) controls prices of 74 bulk drugs and their formulations.

The fact that the policy is not based on a cost-based mechanism, as advocated by the Supreme Court, would be a sentiment positive for the industry as a whole.

"Among the domestic pharma companies, Cipla, Cadila, Ranbaxy, Alembic Pharma and Torrent and among the MNCs GSK and Pfizer would be biggest beneficiaries," the brokerage said.

However the final outcome and impact of that on industry will be known only once details of policy are known. Though, industry can take a positive clue that it is not cost-based mechanism, which was expected to impact industry more negatively, said Daljeet S Kohli,head of research, IndiaNivesh.

Last month, the Supreme Court had set a deadline of November 27 for the government to finalise the policy while asking it not to alter the existing mechanism of cost-based drug pricing.

Earlier, a group of ministers, headed by Agriculture Minister Sharad Pawar proposed to fix prices based on weighted average of brands which have more than 1 per cent market share.

The GoM had met yesterday after the Cabinet had deferred a decision on it following objections from the Finance Ministry.

The policy, that aims to bring 348 essential drugs under price control, was earlier approved by the GoM on September 27 and was subsequently sent to the Cabinet.

After being unable to frame a policy for price control of essential drugs in its previous term, the UPA-II government had last year circulated a draft National Pharmaceutical Pricing Policy, 2011 through the Department of Pharmaceuticals.

The policy, however, took long to finalise due to differences between ministries of health and chemicals and fertilisers. Other stakeholders, industry and NGOs had also expressed their concerns on the pricing model which was suggested.

In 2010-11 the production turnover of the Indian pharma sector stood at Rs 1.05 lakh crore and the country is the third largest producer of medicines by volume in the world. It exports to over 200 countries.

The Telegraph reports:                   
Health policy analysts predicted tonight that the Union government appears headed for a confrontation with the Supreme Court which had suggested during court hearings on drug prices that the government should follow the formula based on costs of manufacturing drugs.

"It seems the government is preparing to take on the Supreme Court to protect the interests of sections of the pharma industry at the cost of people's health," said Selvaraj Sakthivel, a health economist at the Public Health Foundation of India.

The government source did not specify what pricing policy the cabinet had cleared but said the details would be submitted to the Supreme Court next week.

But health activists said decisions taken by a group of ministers (GoM) that had debated this issue suggest that the pricing policy will rely on market-based pricing rather than cost-based pricing.

"Policy-making is certainly the executive's prerogative but the question that will come up in the Supreme Court is whether the government can play around with the right to life enshrined in the Constitution," said Anant Phadke, a co-convenor of the Jan Swasthya Abhiyan, a network of non-government community health organisations.

The Supreme Court, responding to a petition by a non-government organisation, All India Drug Action Network, had in 2003 directed the government to devise a policy that would ensure that essential medicines are available at affordable prices.

The cost-based pricing formula sets price caps by taking into account the actual cost of producing drugs and adding a maximum allowable post-manufacturing expenditure or MAPE that covers distribution, sales and profit.

The GoM had earlier this year decided to abandon the cost-based pricing for a market-based pricing in which caps are determined by calculating the average of various brands already in the market. PTI quoted a source as saying the pricing now would be based on simple average of rates of all brands that have more than 1 per cent market share.

Several health experts have contended that market-based pricing, while lowering the prices of drugs, would not pull down prices as much as they could be lowered. Pricing based on simple average will be lower than weighted average but not as low as cost-based rates. (See chart)

The Jan Swasthya Abhiyan has pointed out that the retail prices of various brands of medicines are "10, 20, 50 and even 70 times higher" than the prices at which a government agency in Tamil Nadu procures them from suppliers.

"Competition in the drug market does not bring down prices," said Amit Sengupta, a physician and member of the Jan Swasthya Abhiyan. "The consumer does not make choices of medicines — that choice is made by doctors influenced by drug manufacturers," Sengupta said.

A health policy analyst said the finance ministry had also questioned the market-based pricing mechanism, saying it is tantamount to incorporating the brand value of products in determining price caps of drugs.

In a media release issued today, the Jan Swasthya Abhiyan said cost-based pricing is the most effective strategy to keep drugs affordable.

Experts say the wide variations in prices of the same medicines suggest that retail prices have little relation to production costs. "One reason is the amounts spent on unethical promotion of drugs to influence doctors," Sengupta said.

Economic times reports:

With the policy in place, the railways will be able to get the private sector to connect ports, mines and industrial plants with the rail network by allowing them to invest in laying the tracks for last-mile connectivity. The move is expected to lower the transportation cost and help evacuate minerals, coal and finished products from the production centres.

Similarly, wherever the private sector thinks that putting up a third or a fourth line is feasible, the government can enter into a build-operate-transfer (BOT) arrangement. Sources said some of the lines could be taken up under competitive bidding through an annuity model for concession periods raging between 15 and 20 years.

Railways had earlier suggested that connectivity to ports and mines would be developed by the owner or concessionaire as private railway lines by acquiring land and making investments in it which could be declared non-government railway (NGR) for public carriage of goods. In a statement, the government, however, said the model agreements for private participation — ranging from NGR to BOT, joint ventures and capacity augmentation via funding by customers — would be finalized soon.

The move comes as the railways, in the absence of fare increase, has failed to generate resources for funding modernization, leave alone capacity addition despite successive rail ministers adding new trains to appease their constituency. In fact, it has repeatedly failed to meet the targets.

Although the Cabinet cleared the proposal on Thursday, the government will need to get the bureaucracy on board as it has repeatedly blocked ay attempt by the private sector to get a toehold. For instance, the move to allow private container operators has proved to be a non-starter as the railways decided to give public sector player ConcorBSE -0.51 % priority.

Similarly, Lalu Prasad's plans for PPP locomotive factories in Marhaura and Madhepura, both in Bihar, are yet to take off despite interest from companies such as GE. Even this time, the unions are opposing any attempt to hand over operation and maintenance to private players, which could deter investors looking to enter the BOT space for building new lines.

Citing poor finances, they are, however, not opposed to letting private players invest in infrastructure development, indicating that they are on board for an EPC-like arrangement where the private sector only builds projects, and invests in it. "We don't have any problem with private sector participation in infrastructure development. But we will oppose if railways tries to hand over operation and maintenance to private companies," said Shiv Gopal Misra, general secretary, All-India Railwaymen Federation.

Fri, Nov 23, 2012 at 12:57

New drug pricing policy: Which cos will be impacted most?


Chirag Talati, Espirito Santo Securities says the policy had been anticipated for long. According to him, Cipla, Cadila and Ranbaxy will be impacted negatively.

Chirag Talati
                                                                                                                                                                                                                                                                                                                                                                                                         The Cabinet has cleared the new drug pricing policy . The cost of 348 essential drugs will drop by 21 percent on average.
In an interview to CNBC-TV18, Chirag Talati, Espirito Santo Securities says the policy had been anticipated for long.

According to him, Cipla , Cadila and Ranbaxy will be impacted negatively.

Also read: Ranbaxy recalls generic Lipitor from US

Below is the edited transcript of his interview with CNBC-TV18.

Q: Which companies would be most negatively impacted?

A: Clearly, this policy had been anticipated for long. I think it is a significant relief that we have not seen the cost-based model being adopted by the Group of Ministers (GoM). That was feared after the Finance Ministry note came out.

Also, combinations are not included in the list of pharma pricing policy. That is very encouraging. In terms of the companies, which would be most impacted, clearly MNCs have a negative impact coming out from any sort of pricing policy.

If you were to look at our coverage, particularly we think Cipla is one company that is going to be the most hit, then Cadila. We also think that Ranbaxy is likely to be hit, not so much on account of its overall exposure to the price controlled drugs, but given that its drugs are mostly premium priced compared to the peer drugs in the group. The profitability of the domestic formulations division is almost twice as that of the overall group. So, Ranbaxy also will slightly be hit on the negative side on the new pharma policy.

Q: Do you think it is all now priced in?

A: More or less, we think the investors have been anticipating the policy for a long time. It came out in October. There was revision in November. Now, it is set to go to the Supreme Court. So, it has been priced in to a lot of extent.

I think what the market will now wait for is to look at the finer details. There is still a long policy roadmap. It goes to Supreme Court, then it will again go to Chemicals Ministry and there will be finer details. It will probably take six to nine months to implement it. So, once we have got the finer details, that is when I think we will get a firmer grip of what is eventually going to turn out in the next two years timeframe. But, at this point, I think lot of it is now priced in.

Q: But there will be a general fall in prices.

A: Yes, there will be a fall in prices of drugs.

Q: How much of an impact do you see in terms of EPS for GSK Pharma in particular? We do understand that majority of their drugs or a large part of their market share would fall under this 348 essential drug list.

A: We do not have GSK under coverage. So, I do not think it would be appropriate for me to comment on the hit to EPS. But you are right that a significant chunk of its sales are under price control. Let us not forget that GSK's drugs are one of the most premium priced. So, there is going to be a significant hit definitely.

Also, we should be looking that for a lot of these companies percentage of their existing sales are already covered under price control. Prices have not been revised for five-seven years. So, if there is any kind of uplift happening, even to the tune of 5-10 percent, I think that would help to mitigate to some extent the price fall that you would see on the newer drugs.

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