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Drug price control may be re-imposed in India

Price control over essential medicines may be back if margins not lowered.


28 October,2006: India’s chemicals ministry may reconsider imposing price control over essential medicines, if the domestic pharmaceutical industry fails to lower the trade margins of generic drugs on a voluntary basis within a specific time as agreed upon. 

The Union Chemicals Minister Ram Vilas Paswan is favouring a move that could push the draft pharmaceutical policy with price control methods on all drugs included in the National List of Essential Medicines (NLEM) without further changes for cabinet approval, sources said.

Such a move would be a setback to the Indian pharma industry that was intensely lobbying for major changes in the proposed pharmaceutical policy including the revoking of price control. The has made some certain initial gains in this regard, as it brought the minister who was adamant with price control to the negotiating table for a possible review of the draft policy. 

Following this, the chemicals minister decided to slow down the process and also to make further amendments to the draft, after the pahrmaceutical industry offered a voluntary price reduction through a cut in trade margins of generic drugs. 

The pharma industry assurance made the minister announce the decision to keep the draft policy in abeyance until a 14 member committee, majority of its members drawn from the industry, submitted its recommendations on three key issues of concern. In return the industry was to cut down the prices of generic drugs through a voluntary cap on the trade margins. Though generic medicines formed only an insignificant portion of domestic pharma business, the move was projected as a good will effort. The draft review committee was supposed to submit its report on September 29, 2006. 

Though some of the leading domestic drug firms including few Indian Pharmaceutical Alliance (IPA) members and companies like Cipla Ltd and Nicholas Piramal India Limited submitted a list of products where price reduction had taken place, the overall effect was negative. The Indian pharmaceutical industry, in general, failed to provide credible information about the quantum of price reduction that has been voluntarily taken place since the assurance. 

Unless the industry works hard to clear up this mess, the chemicals minister is sure to go ahead with the draft pharma policy, the ministry sources said. 

Industry watchers feel the re-imposition of price controls is a blow to the Indian pharmaceutical industry, but one that it is likely to survive. 

The WTO permits price regulation (and even mandatory production quotas) to meet public health needs and emergencies. However, some members of the government urged different strategies--for example, drawing up bulk contracts with leading suppliers and distributing the drugs directly through public hospitals and health agencies. 

Officials opposed to price controls were particularly concerned about the consequences for one of the country's fastest-growing industries. Pharmaceuticals expanded rapidly under India's pre-TRIPs patent laws that permitted the patenting of processes, but not products, allowing firms to copy foreign molecules and produce cheap generic substitutes. 

TRIPs rules out such practice, but it has created opportunities as well as obstacles for India's pharmaceutical companies. For example, many standard drugs are losing their patents because of firmer restrictions on the length of time international patents can be held, while cheap generic copies can be sold globally. As a result, Indian companies are making a significant impact internationally.

However, rapid growth in international activity has exacted costs. Profit margins have been heavily squeezed as companies have come under pressure to reduce prices. Health maintenance organizations in the United States and public health authorities in Europe have used bulk contracts to drive down the price paid to manufacturers. Improved foreign market positions--gained by a strategy of acquisitions--have greatly leveraged corporate debt. Meanwhile, litigation, especially in U.S. courts, has proved extremely costly. Several leading Indian pharmaceutical companies have seen profits fall over the last three years, even as sales have increased. 

Nevertheless, the growing profitability of the Indian market, worth over $5 billion annually, has offset international pressure on national pharmaceutical companies, and strong profit margins at home have funded global acquisitions. Drug sales in India rose by 18% last year, and prices have been steady, in contrast to the United States and the European Union, which rose by only 2% last year. 

However, price controls may lead to reductions of up to 30%, posing a significant threat to the industry's international growth strategy. Furthermore, they are being introduced as the industry faces other key challenges, notably in research and development. 

Despite those challenges, there are signs that the industry's prospects are improving. After three difficult years, the top five pharmaceutical companies in India have performed strongly over the first half, and second quarter profits may have increased by as much as 75% year-over-year. Success overseas could counterbalance tightening margins at home. In addition, investment in research and development increased by around 50% last year and is expected to rise even faster this year. Furthermore, increased contact with U.S. and European markets is opening up new possibilities, say experts. 





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