India’s $65 billion worth pharmaceutical industry, in a representation to the government on May 16th, sought waiver of ceiling price on all low-priced drug formulations up to Rs 5 per unit. The domestic industry, which comprise many of India’s most profitable companies, has also asked the government for exemption from implementation of a proposed trade margin rationalisation on medicines priced below Rs 10 per unit.
In other words, the drug industry wants to further dilute the government’s 'control' on prices of essential medicines. With the latest demand, it asks the government to completely waive off price cap on every tablets, capsules, vials of injection, sachets, powders etc., with maximum retail price (MRP) of Rs 5 or below. It means; the price of any drug which is sold as tablet or capsule, for instance, in a strip of 10 or 15 units can be increased up to Rs 50 or Rs 75 instantly without any restriction. The industry also wants to get an exemption from any ceiling to be fixed on trade margins on their products priced at Rs 10 or below.
Going by the history of the local pharma industry with regard to pricing, the Department of Pharmaceuticals and the National Pharmaceutical Pricing Authority (NPPA), the government bodies which are responsible for policy making and price regulation respectively-– get easily succumbed to such industry pressures. In fact, the influential industry lobbies know how well they can push such demands without much sound and fury and get it granted as well.
Now, let’s look at the particular nature of pharmaceutical industry and its market in India to get an idea about what these demands mean for the players and the consumers.
As we are aware, India is known as pharmacy of the world as the drug industry here has established its prowess in manufacturing quality generics (copied molecules after patent expiry) with maximum cost efficiency. That is the reason for most countries, both developed and underdeveloped, from across the world seek to import Indian generic drugs to save their healthcare cost with assured quality.
As a matter of fact, the government of India too has put in place ample measures to keep the cost of medicines lower to ensure affordable healthcare for the people. The implementation of Drug Price Control Order (DPCO) by which the government regulates the price of all essential drugs is one of the key measures in the country to make the drugs affordable to the common man. The NPPA, which executes the DPCO, has devised a pricing mechanism to determine the ceiling price of medicines in the country. The proposed trade margin rationalisation on drugs as well as medical devices is another measure to keep the MRP of medicines under control. The government also has a parallel medicine supply mechanism called Jan Aushadhi stores to sell cheaper medicines in the market.
But how low the drug prices are in India
Here comes the contradiction! There is a strange phenomenon in the Indian pharmaceutical market, which is almost unheard in other pharma markets in the world. It is nothing but the co-existence of "generic-generics" and "branded-generics", which is quite official in India and it leads to a complete destruction of the so-called government measures to keep the drug prices rational and realistic. As a result, one can buy the same drug with same dosage with same efficacy and approved by the same authority, under widely varied price tags.
The only difference between the two is having a brand name and not having a brand name. For instance; metformin is a widely used generic drug for managing diabetes. There are several brands of this drug sold in the market. There are also several unbranded metformin formulations available in the market. But the price difference between the unbranded and branded is at least 10 to 12 times.
Compare the prices of a branded-generic and generic-generic formulation of metformin hydrochloride and glimepiride tablet (a fixed dose combination of the two generic drugs) available in the market. While a branded generic tablet of this combination without a brand name costs the patient just Rs 02.86 per unit, the branded one costs Rs 24.83 per unit. And the biggest contradiction here is that the branded tablet that costs about 12 times higher than the generic-generic, sells the most in the market. Thus, the government's price ceiling for this drug combination, calculated from the simple average of the most sold brands of these drugs, is more than Rs 24.00 per unit and that’s the drug’s 'controlled' price under DPCO.
There is no doubt that the generic-generic manufacturer, who sell his formulation at a retail price of Rs 02.86 per unit, makes a reasonable profit and that's why they are in the market. But the profit that is made by the branded-generic manufacturer of the same drug, going by the simple calculation, is 12 times of what the generic-generic manufacturer makes.
The problem lies in the policies
The DPCO is applicable on all drugs included in the country’s National List of Essential Medicines (NLEM). Currently, there are some 384 drugs included in the NLEM, which covers medication for almost all common diseases exist in India, including the acute and chronic.
Under the price control law, the ceiling price of a drug is fixed by taking the simple average of the retailers’ price of top selling brands of that particular drug. It includes the manufacturing cost (active ingredients, excipients/solvents and manufacturing process), marketing cost, trade margin and the margin for the drugmaker.
This method was a shift from the earlier cost-based method of pricing, where the cost data was again collected from the industry. The price cap in this method was also fixed by the government taking the average cost of manufacturing.
Ironically, in both these methods, the basic data to fix the price cap were provided by the industry itself. In fact, the government which is supposed to control the market prices of drugs to maintain the healthcare affordable for the common man by keeping a watch on the industry’s profiteering practices, neither had nor used its own data for fixing the ceiling prices.
In addition, the industry is also allowed to increase its prices every year on an average of at least 10 percent, based on the Wholesale Price Index or an inbuilt flexibility provided in the DPCO.
Conclusion
India’s drug industry, which keep asking for relaxation in price control, now want the government to remove the ceiling on all medicines in the lower price band. Though the industry effectively enjoy all the relaxation even now, this demand is beyond all that and will further push the medicine prices up even for the cheaper generic-generic drugs.
Since the healthcare policies of the government have failed to implement compulsory generic prescription (without mentioning the brand name) by doctors in the country, the branded-generic players will keep spending more to promote their ‘brands’ at the cost of the patient. This will make those brands the most sold in the market, and if the simple average of market price of most sold ones continue to be the deciding factor for DPCO, it will only help making the profits ever rising for the ‘brand’ makers and not to save cost for the patients.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Lok Sabha elections: 4th phase sees over 68% voter participation, West Bengal leads with 76% turnout
May 14, 2024 1:47 AM
Lok Sabha elections phase 4 witnesses around 63% voter turnout, experts weigh in on key contests
May 14, 2024 12:06 AM
Lok Sabha Election 2024: Shiv Sena UBT’s Arvind Sawant highlights Uddhav Thackeray's vision for Mumbai’s progress
May 13, 2024 9:21 PM
Exclusive interview: 'Southern states will be a big surprise,' says PM Modi
May 13, 2024 9:05 PM