BY OUR CORRESPONDENT
31 October,2006: It is usual for the Indian pharmaceutical industry to witness the everlasting unity among the domestic companies and their MNC counterparts whenever a government decision seems to be aiming at them.
But what made Ram Vilas Paswan, the union minister for chemicals and fertilizers, more worrisome was the growing opposition the draft proposal being met with in different ministries within his own government.
Sharing the industry’s view that it may lead to drug shortage and increased costs contravening against the purported goals of accessibility and affordability, Union Health Ministry, one of key decision makers with respect to the approval of pharmaceuticals, cautioned that increase in the span of price control may lead to companies discontinuing the production of such drugs thereby affecting its supply. It was interesting that following industry, Union Health Ministry was among the first in the ministries to raise sword against the plan of raising price control width.
Commenting on the draft national pharmaceutical policy, the ministry said the policy should, instead of increasing the span of price control, take a balanced approach to consider the weighted average price of the top three brands by value of drugs, as recommended by Pronab Sen committee.
Dr Pronab Sen, who headed the Prime Minister’s special task force to explore non price control options to keep drugs affordable had recommended earlier that all the 354 drugs in the National List of Essential Medicines (NLEM) should be price controlled. Dr Sen said the ceiling of the prices should be the weighted average of three costliest brands in the segment.
The other stake-holder, the Union Ministry for Commerce & Industry too warned that any increase in the span of price control on drugs may affect the export of domestic pharmaceutical industry indirectly. The reduction in the prices of drugs in domestic market will compel several domestic pharmaceutical companies to quote low in export markets.
"Many countries link the purchase prices of drugs to the price of exporting countries. If drug prices in India are low, the suppliers to domestic market will not be allowed to quote a much higher price in foreign markets,’’ a source stated.
Commerce ministry opines that drug companies had a tendency to discontinue the production of drugs under price control and embark on importing them, instead. With the current Drug Price Control Order (DPCO) allowing a 50% mark-up on the landed cost of imported medicines, it proved to be a better alternative for the companies.
“A better price monitoring system would be the ideal way to control drug prices. Any abnormal increase should be tackled on case to case basis as government can anyway ask the companies to lower the prices,’’ the ministry official said.
The commerce ministry also questioned the proposal to strengthen the powers of National Pharmaceutical Pricing Authority (NPPA) to cancel the licences of drug companies in the eventuality of violating DPCO.
Arguing that the proposal is far more intrusive than required by the Apex Court, the finance ministry was next in line to come down heavily on the irrationality of price controls.
“The availability and affordability of the essential drugs can be best ensured by competition in the market. If an essential and life saving drug is not available in the market at a reasonable price, only then the government can intervene and fix a suitable price for the drug,’’ the finance ministry said in a note.
As the essential list has been drawn up on account of the SC directive, the necessity of keeping 74 bulk drugs under price control may be reviewed by the department of chemicals and
petrochemicals, it suggested.
Commenting that the proposed for maximum allowable post-manufacturing expenses (MAPE) at 150-200% far too low, Chidambaram’s ministry pointed out that the industry will require a higher mark-up as it is heavily regulated and has to fulfill stringent manufacturing and quality testing standards.
The consumer affairs ministry also expressed reservations about the practice of using the omnibus Essential Commodities Act to control drug prices. Price control could be exercised through a separate Act. “Note that the DPCO draws strength from the EC Act, and the draft policy proposes to retain linkage for the time being and introduce a new Drug Price Control & Distribution Act later,” the consumer ministry said.
To top it all, the prime minister’s office (PMO), was the latest to sum up the government’s sentiment. PMO has asked the chemicals ministry to prepare a separate cabinet note explaining how the issue of price control can be dealt with without increasing the span of control. It observed that adopting the entire NLEM as the list of drugs to be brought under price regulation is clearly inappropriate and asked to ensure that the list of price controlled drugs remains as short as possible.
PMO has also directed to examine the price variation that has happened in the case of NLEM drugs during the last three years to analyze if there has been any increase in the prices of these drugs during the period.
The view of the Planning Commission also reflected the same feelings. Or perhaps it went a step ahead to suggest that the government should seek legal opinion to ascertain whether the Supreme Court really intended to bring all 354 NLEM drugs under price control while giving its verdict three years ago.
According to the Commission, through approving such a drastic measure the government would be going back from its current economic policy, which had led to the growth of Indian pharmaceutical industry. For, increase in price control may prove counter-productive as it could discourage new investment and limit competition.
Not the only the various ministries and allied departments but leading research institutions like Council of Scientific and Industrial Research (CSIR) also joined the growing army of dissent against Paswan’s idea.
Denying “reasonable margins’’ to the drug makers would adversely affect their ability to carry out research which is crucial for the steady upkeep of the industry, CSIR noted.
The CSIR view assumes importance because its chief Dr R A Mashelkar’s report on the pharma industry currently serves as the benchmark for many policy decisions and proposals.
Legacy of Price Control.
Increasing the number of drugs to be included in the price control list is one among the array of recommendations Paswan’s ministry proposed in draft National Pharmaceutical Policy 2006. The proposal with a cabinet note meant to be distributed in various ministries seeking opinion included a range of suggestions. Strengthening the drug regulatory system and the patent office; establishing more institutions similar to the National Institute of Pharmaceutical Education and Research (NIPER); rationalization of excise duty on pharmaceuticals; streamlining of the system of bulk procurement of drugs by the government; re-structuring of the National Pharmaceutical Pricing Authority (NPPA); enacting Drugs (Price Management and Distribution) Act; fixation of trade margins on generic-generic drugs at 15% for wholesalers and 35%-retailers; encouraging production of critical bulk drugs etc are a few among them.
However, the expansion of the scope of DPCO was the most discussed issue in the industry circles. Though price control has bee in operation in India since 1963 in the form of various DPCOs, efforts have been made continuously to bring down the number of drugs from its ambit with the number of bulk drugs under price control has gone down from 347 in DPCO 1979 to 142 in DPCO 1987 and to 74 in DPCO 1995.
But the new draft proposes that in addition to the existing 74 drugs and their formulations, the 354 drugs with specified strength as mentioned in the National List of Essential Medicines (NLEM), 2003 have also been included in the Pharmaceutical Policy 2006.
Other systems of price control like negotiated prices, differential prices, reference prices and bulk purchase price, apart from the cost plus method, have also been proposed. The cost of raw materials to fix the prices would be obtained from the manufacturers, central public enterprises in the pharmaceutical sector, import data and market sources.
Aiming to mitigate the possible backlash to the manufacturers in terms margin, it recommended a revision of the Maximum Allowable Post-Manufacturing Expenses (MAPE). Presently 100 per cent over the manufacturing cost, it is proposed to be made 150% in general and an additional 50% MAPE for R&D intensive companies which fulfill the laid down standards.
"For existing 74 drugs under price control MAPE would continue to remain at 100% for one year in order to avoid a sudden increase in prices. It would be increased thereafter. Based on the given percentage of MAPE, prices would be fixed for all drugs in the cost-plus price control system. Wherever possible ceiling prices would be fixed. Maximum Retail Price (MRP) would be inclusive of all taxes as in the case of all other packaged commodities," Paswan explained.
Reasons for Widening Price-Control Net
In an effort to pacify the industry, he said that even though the number of drugs under control will increase from the current 74, span of price control will go up only by 8%. “The 354 formulation drugs will form only 85 of the value terms, while the already specified 74 bulk drugs account for 25%. In all only 33% of medicines are to be brought under price control,” he said.
Clarifying that this step is necessary to abide by the Supreme Court directive to make the essential drugs affordable to the public, he informed that around 675 of the drugs are still outside the ambit of the policy.
The apex court had, in its 2003 order directed the government to consider and formulate appropriate criteria for ensuring that essential and life saving drugs do not fall out of price control.
So the present one aims to control only the prices of essential drugs and this way it differs fundamentally from the earlier drug price control order intended at ending monopoly on drugs by companies. He urged the companies to stop pursuing narrow goals and accept the policy proposal in larger national interest.
Despite all the outcry, there remains a section, other than Paswan and his people in his chemicals ministry, which is more than convinced about the merits of bringing more medicine under the purview of price control.
``Only nearly a quarter of India’s population has access to essential drugs. Price control can contribute to increasing access of medicines, ‘’ said Amit Sen Gupta of All India Peoples’ Science Network
Moreover, drug price control is not peculiar to India. In most of the countries majority of drugs is available through public-funded institutions and health insurance mechanisms. Insurance providers serve to depress drug prices as drug firms would be bound to reduce the prices to be part of such schemes.
In the UK, through the pharmaceutical price regulation scheme, the department of health and the Association of British Pharmaceutical Industry negotiate profit rates from sale of drugs to the national health scheme. In contrast, in India, where retail sales account for 70% of sales, the only mechanism available is direct price control, Gupta averred.
``The bottom line for the pharmaceutical industry is that it should make available medicines to those who need them, if that is not ensured, there is little justification for allowing the industry to operate,’’ he summed up.
Also, there is a growing chorus to caution that price negotiations could be the only effective tool to make certain life-saving drugs affordable in a product patent era wherein the costs of new generation treatments go astonishingly high.
``If the pricing trends of certain recently-launched drugs, which are considered the only available options for some disease conditions, are any indication, the cost of life saving treatments can reach unafforable to the majority of patients in the coming years,’’ observed an industry analyst preferring anonymity.
Price Control & the Act of Drug Vanishing
Experts in the field, however, strongly feel that any sort of mandatory pricing dictates will be respected only in breach than in observance. Experience gained from the different price control regimes over the years show that the industry not only tried to divert production to decontrolled areas but tried to frustrate government’s efforts by violating the provisions under DPCO or taking advantage of loopholes.
A recent study revealed that over the last one decade nearly a fifth of all drugs kept under price control have either vanished from chemists’ shops or smartly evaded the control norms. One of the common methods to escape price control net is to produce the drug with a needless medicine. For instance the price-controlled doxycycline when produced with lactic acid bacillus, the combo goes out of price control net.
A majority of medicines have also been outsmarted by alternatives that are outside price control, according the report.
Further, once the prices are fixed by the government, the companies can approach the court of law contesting the downward fixation or even challenging the inclusion of some drugs under price control and get stay orders.
So no price controls can be effective in the case of widespread violations of the provisions. Price control is not a substitute for generic competition. What is possible to get done under generic competition is not likely to be done with the price control or is very difficult to get done in a product patent regime, experts point out.
With all odds turning against, Paswan’s draft drug policy meets with hurdle after hurdle each day. Even as the going of price control proposal getting tough, the whole gamut of the pharmaceutical industry bask in the sunshine of the new-found support from various quarters of the administrative machinery
While going ahead with the idea of increasing the span of price control with a stated objective to ensure the affordability and accessibility of essential medicines in draft legislation for a new national pharmaceutical policy, Paswan could never have visualized such an insurmountable upheaval from the industry.
Certainly he must have anticipated some opposition for any kind of government control over the drug prices as reducing the number of drugs under the current drug Price Control Order (DPCO 1995) has been one of the long standing demands of the Indian pharmaceutical sector. But definitely not the one of present scale and gravity.
It is also an instance of a kind of unity which is so rare in an industry whose diverse and pleuralistic structure often contradicts with itself. Here, a policy initiative that could evoke a favourable response from multinationals need not find the same with the desi firms. So is a directive welcomed by the `bigger’players may not trigger a similar feedback from the small-time entrepreneurs within the desi matrix.
Drug price control: A Recipe for Disaster?
The industry which refuses to take Paswan’s words at face value think that the move would only spell doom for the industry through reversing all the gains and growth it strived to achieve through the years.
“From the consumer point of view, this policy is a recipe for disaster. In the short run it will bring down prices. But in the longer run, during shortages, it will lead to emergence of spurious or counterfeit drugs. Thereafter, if imported the cost will go up significantly,” said D G Shah, Secretary General, Indian Pharmaceutical Alliance (IPA).
“In 1995, 74 drugs were brought under price control. At the time of framing the 1995 policy, their sales value constituted 50% of the market. It has since come down to just 21% in 2006. One can attribute this phenomenon to the introduction of new drugs. But doing so is failure to recognize the reality that no new investments have come into this segment and that existing resources have also been diverted to products outside price control,’’ Shah noted.
Sharing the idea, Indian Drug Manufacturers’ Association (IDMA), the representative body for the medium and small-scale pharma companies, opines that it was not price control but competition that brought the prices down. “If implemented, this negative move can cripple the whole pharma industry, kill its confidence and vitality,’’ remarked an IDMA spokesperson.
Ajit V Dangi, Director General of the MNC-dominated Organization of Pharmaceutical Producers’ of India (OPPI) also echoed a similar sentiment: “The move will act as a barrier to our growing markets and it will lead to the destruction of Indian pharma companies.’’
Pointing out that the prices were already lowest in India, lower than even neighbouring countries like Bangladesh, Sri Lanka and Indonesia, Dangi questioned the rationale behind reducing the prices further.
“The cost of medicines forms hardly 15% of total cost of health care even for a serious ailment like cancer. It is the transaction costs, including various duties and taxes that push up the total costs of the drug. So the easier way to reduce prices is to cut taxes such as excise duty,’’ suggested Dangi.
Besides pharma bodies, collective industry associations like CII and FICCI too joined the fray to take arms against what they saw as one of the most detrimental of industrial policies in the recent years.
“The regressive policy would result in massive increase in span of control. It is a disservice to public health. It will have an adverse impact on the mergence of India as global player. It will also have ramifications on export realization , hurt the potential of drug discovery ,’’ said Federation of Indian Chambers of Commerce and Industry (FICCI).
Sharing the FICCI view, Confederation of Indian Industry (CII) expressed the apprehension that it is a return of the `Control Raj’ Through the proposal the policy is breaking away from the tradition of gradual reduction in span of control. “By increasing the control, prices will be reduced further. This will drastically impact the margins of the drug companies and could also affect quality,’’ opined Ajay Piramal, Chairman, CII National Committee on Drugs and Pharmaceuticals and Chairman, Nicholas Piramal India Ltd.
The move would be more damaging to the leading players in the industry. This will surely erode the ability of the national companies to invest in research and development, penetrate the global markets, CII said.
Pharma Industry’s Arguments Unfounded
Paswan, however, vehemently countered these concerns of the industry. Accusing the industry for spreading a canard, he argued that the span of control would not increase to 50-70 % as suggested by certain quarters. Nor would the prices of all drugs freshly brought under price control come down by 30-70%.
“It is not true that price control resulted in drug companies’ discontinuing production of controlled drugs. Neither have shortage of medicines created. There was no availability problem for the drugs under price control,’’ the minister argued.
His chemicals and fertilizers ministry also attacked the notion that the net profit of the drug makers would come down from 9 to 5% in the proposed regime.``The 74 drugs currently under control have over 1,500 formulations and over 20,000 pack sizes. As against there are only 400 formulations and 7-8000 pack sizes of the new specified strengths of over 300 essential drugs,’’ said a ministry official.
Further, the 74 drugs are high turnover drugs because of their mass consumption, while the most of 300 essential drugs might not be. As a result of the proposed price control, the price of low-end essential drugs would come down by 10-30% while that of high-end drugs(which are comparatively few in number) would decrease by 30-70%, the official noted.
All these arguments fell thoroughly flat as they found very few takers in the industry circles. Maybe, they are quite accustomed with such ``policy makers’ usual stuff’’.
Nonetheless, the entire spectrum of the industry, regardless of MNC or desi, big or small forged out a unity against the proposal which is unprecedented or unheard of in the annals of the decades old history of India’s pharma sector.
BY OUR PHARMA CORRESPONDENT