Roughly 28% of the R70,000-crore Indian pharmaceutical market will soon come under a benign market-based price regulation as against 18% under the existing opaque cost-based control regime. This will lead to modest revenue losses (up to 6% by an industry estimate) at several pharmaceutical companies, but others, especially the smaller ones, might even benefit.
As the government on Thursday notified the new Drugs Prices Control Order (DPCO) 2013 replacing the 1995 order, the industry was largely relieved and uncomplaining, as they see future benefits from the removal of normative costing for controls and find the new system more transparent.
Happily for the industry, the new DPCO brings 348 ?essential drugs? under regulation but not their combination-drugs ? a move the government had once threatened, which would have extended price control to 75% of the market and hit the industry hard.
If one takes the number of formulations as found in retail pharmacist shelves, a little over 650 under 27 therapeutic areas will come under regulation (the 348 drugs defined in terms of specified strengths) as against 76 bulk drugs and their 1,550 formulations at present. It is another matter that only 40 of these bulk drugs and around 800 of the formulations are being produced at present, as the industry discontinued manufacturing other products to escape price control, one reason why the span of controls declined sharply from 50% in 1995 to 18%.
This is how the new regulation would work: the National Pharmaceutical Pricing Authority (NPPA) would determine the ceiling prices of each of the 348 drugs as the average market price of all products (of that drug) with a minimum 1% market share. Retail prices in May 2012 will be taken as the cut-off for calculating the ceiling price.
Earlier, the ceiling was fixed under a cost-plus formula, which allowed up to 150% post manufacturing expenses (which included trade margins and profits of companies) and needed a complex variety of data. ?A change from cost-based to market-based pricing methodology is expected to have some transparency and be directionally more prudent for the pharmaceutical industry from a longer term perspective,? said Tapan Ray, director general of Organisation of Pharmaceutical Producers of India (OPPI), an industry body which consists of mainly foreign multinationals present in India.
The government, which acted under a Supreme Court directive to bring all essential medicines under price control, kept enough safeguards to ensure that prices of the DPCO 1995 drugs did not flare up due to the policy change. It has been stipulated that these drugs’ prices can’t be increased for a period of one year and even after that, hikes would be only to factor in inflation. It has also retained powers to intervene in the market under extraordinary circumstances and even fix the ceiling prices to be lower, disregarding the new norm.
According to market research firm IMS Health, some popular antibiotics will become cheaper by up to 23% due to the new policy. Significant price variations could be seen in cardiovascular, gastrointestinal, analgesic and dermatological categories also. 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.
As per the DPCO 2013, ?in case of scheduled formulations produced or available in the market before the date of notification of ceiling price, the manufacturers shall ensure within a period of 45 days of the date of such notification that the maximum retail price of such scheduled formulation does not exceed the ceiling price (plus local taxes as applicable).?
?The price regulator has started some work and it will come out with a list of revised prices over the next couple of weeks. This will be effective in the market 45 days after NPPA’s notification to allow chemists to liquidate stocks with existing prices,? said DG Shah, general secretary of Indian Pharmaceutical Alliance (IPA).
The policy also said that the price of a new drug, not available in domestic market, shall be fixed by the government on the principles of ?pharmacoeconomics? of the new drug, on the recommendation of a standing committee of experts, which will be formed within 60 days of notification of this order.
While controlled price will be revised every five years or as and when the National List of Essential Medicines is updated or revised, if there is a significant change in the market structure of a product, the government can revise the ceiling price even earlier. The new policy also states that in case of an emergency or circumstances of urgency, ?with a view to achieve adequate availability and to regulate the distribution of drugs?, the government will have the authority to direct any bulk drug manufacturer increase the production of any drug under price control and also ?direct them to sell the formulations to institutions, hospitals or any agency as the case may be.?
Under the new policy, while fixing a ceiling price of scheduled formulations and retail prices of new drugs, 16% of price as a margin to retailer would be allowed. Another key feature of the new policy is that companies will be allowed to annually raise prices of regulated drugs in tandem with the wholesale price index (WPI).
However, they will also have to cut these prices if there is a decline in the index. WPI-based inflation eased to a 41 month-low of 4.89% in April.
The government will also monitor drugs outside the price control to ensure that ?no manufacturer increases the maximum retail price of a drug more than 10% of maximum retail price during the preceding 12 months and where the increase is beyond 10% of maximum retail price, it shall reduce the same to the level of 10% of maximum retail price for next 12 months.?
The new policy also allows for exemption in order to promote innovation and R&D and the following drugs will be kept out of any type of price control for 5 years: A new drug patented under the Indian Patent Act, 1970 (product patent) and not produced elsewhere, if developed through indigenous R&D; drug manufactured in the country by a new process developed through indigenous R&D and patented under the Indian patent Act, 1970, (process patent); and a formulation involving a new delivery system developed through indigenous R&D.
The new policy also gives any gazetted officer of the central or state government the power to enter, search and seize drugs that he deems has not followed any provision under the new order.
