Abbott’s acquisition of Piramal’s Indian branded drugs unit has raised the spectre of rising prices in some quarters. The reasons are two-fold : one, Abbott will pay Rs 17,000 crore for a Rs 2000 crore business and the need to earn a decent return on this will make it raise drug prices. And two, Abbott now has 7 per cent of the Indian market and is in number one position. Ergo, it is in a position of strength from where it can get away with price hikes.
Perhaps, Abbott will find the need to raise prices. But I believe it will find it difficult to do so across-the-board beyond a reasonable extent. For two reasons. One, what it has acquired are branded generics. This business has multiple copycats already on the market and nothing – at least, in the law – prevents more from joining the party. So, it is competitive. Two, the Piramal unit’s growth has also been driven by the opening up of ‘bottom-of-the-pyramid’ type markets that hitherto were under-served by companies. For instance, Dharavi (Asia’s largest slum) in Mumbai. These are extremely price-sensitive. So there will have to be a trade-off between profit and growth which defeats the purpose of the acquisition which is primarily for market share. And three, while a good number of drugs are outside government price control, the National Pharmaceutical Pricing Authority reserves the right to fix prices under a public interest clause if they are raised by more than 10 per cent in a year. Indeed, Piramal and a good number of other companies fell afoul of this law not too long ago and saw some drug prices fixed by the government in spite of these drugs falling outside the purview of drug price control. This also meant that companies could not change prices of these brands again with consulting the drug price regulator.
True, Abbott may launch its patented drugs at a hefty premium but that it is already doing anyway. The concerns of rising drug prices in the context of the Abbott-Piramal deal, to my mind, are overdone.