The method of calculating ceiling prices of essential drugs has kicked up a row even as the National Pharmaceutical Pricing Authority (NPPA) on Monday notified maximum retail prices of 151 packs of medicines covered under the Drug Price Control Order (DPCO) 2013.
Industry sources told FE that the NPPA has deviated from the formula set for calculating drug prices to pull down the overall ceiling prices of essential medicines. As per DPCO 2013, a drug maker selling an essential medicine as listed under the National List of Essential Medicines 2011 is expected to fix the price of the formulation equal to or below the ceiling price fixed for that formulation by the government.
While this may lead to a sharper reduction of medicine prices, it puts into jeopardy the entire exercise of bringing new drugs under price control. If the controversy persists and investigation is initiated, it will also prove detrimental for millions of patients waiting to get affordable medicines. The impact on industry revenue would also be higher if ceiling prices are below the market determined formula accepted by the Cabinet.
As per DPCO 2013, the method of fixing a ceiling price for scheduled medicines, is of adopting the simple average price of all the brands having market share (on the basis of moving annual turnover) more than and equal to 1% of the total market turnover of that medicine. ?Instead of considering price of a brand, which is more than and equal to 1% of the total market turnover of that medicine when calculating the ceiling price of a particular drug, NPPA has considered simple average of all prices at which that particular medicine formulation is sold even if it holds less than 1% market share,? said sources with access to the minutes of the NPPA meeting held last week, which decided prices of 151 packs of medicines.
This essentially means that if company A sells the molecule paracetamol in three price bands ? Rs 8 premium brand, Rs 5 mid-range brand, Rs 2 low brand — for three segments of the market and holds 1% market share for only its premium priced brand, then DPCO 2013 stipulates that this price (Rs 8) should be taken into account. However, NPPA has calculated a simple average of all three price bands and considered Rs 5 as the price for company A.
?We apprehend that the formula used by the NPPA for calculation of ceiling price of a scheduled formulation is contrary to the formula specified in the NPPP 2012 and the DPCO 2013,? said DG Shah, secretary-general, Indian Pharmaceutical Alliance in a letter to NPPA chairman CP Singh.
The new DPCO 2013 was notified last month and gives teeth to the Cabinet-approved National Pharma Pricing Policy 2012. It puts a price cap on around 652 medicine packs under 27 therapeutic areas. The DPCO 2013, issued under the Essential Commodities Act, 1955, replaced the earlier DPCO 1995, which regulated prices of 74 bulk medicines and their formulation in the country.
?We understand that the first lot of prices being notified is calculated using brands and generic versions having less than 1% market share for companies having more than one brand,? said Shah, adding that this could distort the balance sought to be achieved by the NPPP 2012.
The NPPA chairman refuted the charge. ?We have strictly adhered to the formula as prescribed under DPCO 2013.?
Pharma companies like Cipla, GlaxoSmithKline, Ranbaxy, and Dr Reddy?s Labs, which have a strong portfolio of essential medicines in their product line, would be hugely impacted if ceiling prices are pulled below the estimated levels.
?Based on the DPCO 2013, IMS Health had estimated that the value erosion of the pharmaceutical market would be to the tune of Rs 1,600 crore (around 2.2% of the current pharmaceutical market), post implementation,? said Amit Backliwal, general manager, South East, IMS Health, market data specialising company. The Centre is using data provided by IMS Health to calculate the new ceiling price for essential medicines.
Revised prices of 151 essential medicines, which include hypertensives, antibiotics, and anti-cancer drugs, are expected to be available at the retail level in the next 45 days.
