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BW Businessworld

A Pill Hard To Swallow

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The central government's move to bring more essential medicines under price control is facing stiff opposition from all quarters. Not just domestic drug manufacturers but also global industry associations such as the Pharmaceutical Research and Manufacturers of America (PhRMA), the European Federation of Pharmaceutical Industries and Associations (EFPIA) and the World Health Organization (WHO) are questioning the pricing criteria devised by the Indian government.

The draft National Pharmaceutical Pricing Policy (NPPP) 2011 suggests capping the price of 348 essential drugs and their combinations at the weighted average price of the top-three brands by value.

According to industry news reports, WHO's contention is that the way India obtains drug price data is faulty. India uses data from IMS Health, which collects medicine volume and prices at one point in the supply chain, usually at the wholesale level. WHO has also criticised the government for limiting its data collection to the domestic market.

PhRMA and EFPIA say the initiative would harm India's goal of expanding access to medicines and could stifle bio-pharmaceutical innovation, without which Indian patients may not benefit from the introduction of new medicines.

During its golden jubilee celebrations in Mumbai on 6-7 January, the Indian Drug Manufacturers Association (IDMA) had decided to oppose certain provisions in NPPP.

Now, 74 bulk drugs and 1,577 formulations based on these drugs are under price control. According to sources, only 47 bulk drugs out of the 74 notified in the First Schedule of the Drug Price Control Order (DPCO), 1995 are now under production. The new policy will bring at least 60 per cent of the formulations under price control; right now, it is less than 20 per cent.

"The NPPP 2011 proposes to add 1,154 drugs and 6,441 formulations, raising the span of control to 75 per cent of the retail market. The proposed additions will enlarge the scope of price regulation by over eight times the current volume to about 68,000 packs making the task unwieldy and ineffective," says D.G. Shah, secretary-general of the Indian Pharmaceutical Association (IPA).

IPA claims Indian drug makers are likely to lose about Rs 3,000 crore through the new pricing plan. It says the aggregate profit before tax of the pharmaceutical industry will reduce sharply by 22.4 per cent under the proposed policy. Also, leading domestic companies will be hit even harder as they are among the brand leaders and have a larger share of the domestic trade sales, IPA argues.

Drug prices will be fixed through market-based, instead of cost-based, pricing, based on periodic data provided by manufacturers. Further, instead of pricing the bulk drug, the government will fix a ceiling price for the formulation. The policy also suggests drugs costing a maximum Rs 3 per unit for top three brands to be exempted from price control.

"Our suggestion is to increase this exemption to a minimum of Rs 5 per unit," says N.R. Munjal, outgoing president of IDMA. He feels it is not practical to control prices of over 60 per cent of formulations based on average price of three top brands in the Rs 60,000-crore domestic pharma industry.

Already, a few non-governmental organisations have approached the Supreme Court questioning the government's move to separate ceiling prices of drugs from their bulk manufacturing costs, citing this would increase the prices of many essential drugs.

(This story was published in Businessworld Issue Dated 30-01-2012)