Healthy Skepticism Library item: 20560

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Publication type: news

Govt to regulate rates of 652 medicines; prices set to fall
Economic Times 2013 May 17
http://articles.economictimes.indiatimes.com/2013-05-17/news/39336744_1_essential-drugs-price-control-indian-pharmaceutical-alliance

Full text:

India on Thursday notified new norms that will bring down prices of essential medicines, increase the number of drugs under price control, and alter the way the government regulates prices in the 72,000-crore domestic market.

The new regime will replace an 18-year-old price control order and come into effect 45 days from now. The government will regulate the rates of 652 medicines, a substantial increase over the 74 bulk drugs and their formulations that are currently under price control. The current method of fixing prices on a cost-plus basis will be replaced by market price-linked cap for each drug.

Analysts said the new norms will adversely impact multinational companies as well as local firms producing essential drugs, but makers of niche drugs will not feel the pinch. Experts said many companies would incur losses that would force manufacturers to revisit business models.

“The new policy will adversely impact GlaxoSmithKline and Sanofi Aventis the most. Bottom lines of domestic drugmakers such as Cipla and Cadila would also take a hit. Least impacted will be companies such as Sun Pharma and Lupin,” said Hemant Bakhru of CLSA, a foreign brokerage firm.

Amit Backliwal of IMS Health, a market research agency, said companies would cut promotion expenses for essential drugs.

“With bigger brands becoming affordable, medium-priced drugs would be squeezed out. Many companies incurring significant losses would be forced to take a relook at their business models. And many would look at redeploying their sales force, shifting them from essential drugs to other areas,” said Amit Backliwal of IMS Health.
The Indian Pharmaceutical Alliance (IPA), an industry body that represents big Indian drugmakers, said its analysis of 270 medicines showed that prices would fall by over 20% for half of the drugs. “The maximum price reduction could be as high as 88% for alprazolam, a psychotherapeutic drug, and clopidogrel tablet, a cardiovascular drug. Some HIV combination drugs would become cheaper by 70%,” said IPA Secretary-General DG Shah.

At the heart of the new regime lies the ceiling price. This would be calculated by taking the simple average of prices of all brands of a drug with a market share of 1% or more. The maximum retail price of a drug would factor in a margin of 16% to the chemist. The prices prevailing in May 2012 will be taken as the reference point for calculating the caps. Drug producers will be permitted an annual increase in the retail price in sync with the wholesale price index.

As ET reported in March, companies selling medicines above the government-mandated ceiling rates would have to slash prices to conform to the new rules, but those selling drugs below the ceiling price wouldn’t be allowed to raise prices. This will ensure a fall in the prices of most essential drugs, and price increases in none.

Firms that launch new medicines can sell them at or below government-set price caps. Existing firms will not be allowed to stop production of any drug without permission from the government.

“All the existing manufacturers of scheduled formulations, selling the branded or generic or both versions of scheduled formulations at a price lower than the ceiling price…notified by the government shall maintain their existing price,” the notification on Thursday said.

“All the existing manufacturers of scheduled formulations, selling the branded or generic…at a price higher than the ceiling price…shall revise prices…downward not exceeding the ceiling price,” it added.

Pharma firms would be allowed to increase the price of non-essential drugs by 10% annually.

The drug industry reacted cautiously to the new policy that incorporates its proposal for a market-based mechanism, but threatens to squeeze the margins of most producers. “The new Drug Price Control Order has cleared one ambiguity – on the ceiling price. It has clarified that players selling below the price caps cannot raise prices,” said IPA’s Shah.

Lupin’s Group President Shakti Chakraborty said a market-based mechanism was beneficial, both for patients and the industry. “This will encourage Indian pharma players, specifically small and medium players, to invest more in R&D and also help expand the market,” he said.

“It is also going to help smaller players achieve some price parity in certain niche segments but we need to study this further,” he added.

The new pricing policy seeks to incentivise domestic R&D by allowing locally discovered and developed drugs to skip price control for five years.

A new drug developed using indigenous R&D and granted patent under Indian law can seek exemption from price control from the date it starts commercial production in the country.

Pharma firms would be allowed to increase the price of non-essential drugs by 10% annually.

The drug industry reacted cautiously to the new policy that incorporates its proposal for a market-based mechanism, but threatens to squeeze the margins of most producers. “The new Drug Price Control Order has cleared one ambiguity – on the ceiling price. It has clarified that players selling below the price caps cannot raise prices,” said IPA’s Shah.

Lupin’s Group President Shakti Chakraborty said a market-based mechanism was beneficial, both for patients and the industry. “This will encourage Indian pharma players, specifically small and medium players, to invest more in R&D and also help expand the market,” he said.

“It is also going to help smaller players achieve some price parity in certain niche segments but we need to study this further,” he added.

The new pricing policy seeks to incentivise domestic R&D by allowing locally discovered and developed drugs to skip price control for five years.

A new drug developed using indigenous R&D and granted patent under Indian law can seek exemption from price control from the date it starts commercial production in the country.

The new policy will make it difficult for drugmakers to stop making essential drugs without informing the government. They will have to issue a public notice and alert the government at least six months in advance. More importantly, the government can ask the drugmaker to continue producing an essential drug at a certain level for another year in public interest.

Further, companies will have to disclose to the government on a quarterly basis the levels of essential drugs and bulk drugs they are producing. This data would help the government monitor production and availability of essential drugs and the bulk drugs at a national level. The need for such a move was felt in the new pricing policy as many pharma firms had stopped making and investing in drugs that were put under regulation in the current price regime.

While the ceiling price would be revisited every five years under normal course, the policy contains a provision for revising it before the mandated period in case the market witnesses structural changes or the health ministry revises the essential drugs list. The ceiling prices will reflect the change in market dynamics in two ways – first, if the number of manufacturers producing a drug at prices close to the ceiling decreases by at least 25% compared with the number of drugmakers at the time the cap was determined; and second, if the number of manufacturers producing at a price much lower than the ceiling grows by 25% or more. While the first case would warrant a rise in the ceiling prices, the second would make a case for reducing prices since rates much lower than the ceiling are clearly lucrative.