1. DPCO dose too strong, hits medicine access: IIM study

DPCO dose too strong, hits medicine access: IIM study

A recent study confirmed what many analysts feared: That regulation of the kind prevalent now could dent access to medicines, an outcome opposite to what the government wants.

By: | Ahmedabad | Updated: April 6, 2016 2:38 AM
vitamin d A recent study confirmed what many analysts feared: That regulation of the kind prevalent now could dent access to medicines, an outcome opposite to what the government wants. (Reuters)

The Drug Price Control Order (DPCO) 2013 that expanded the span of regulation to 60% of the $22-billion Indian pharmaceutical market appears to have come a cropper. A recent study confirmed what many analysts feared: That regulation of the kind prevalent now could dent access to medicines, an outcome opposite to what the government wants.

According to the joint study by the Indian Institutes of Management in Ahmedabad and Udaipur, in the year that immediately followed the complete roll-out of the DPCO 2013, the sales volumes of the price-regulated oral solid formulations grew slower than they would have in the absence of the new policy. Of all the 105 such formulations subjected to the “event study”, statistically significant cumulative abnormal change (CAC) in sales volumes were noticed in case of 89; of these, 37 witnessed an increase in the number of pills sold due to the DPCO and the balance 52 a decrease, confirming the regulation’s overall negative impact on sales volumes of oral solids. On average, the number of pills sold of these drugs dipped from the constructed non-DPCO scenario by 3.39 crore units.

An event study estimates the impact of an event (the DPCO 2013, in this case) on stock returns. The CACs are results of the IIM study — the difference between the actual changes in sales volume and what is predicted for the event-free scenario.

The latest story comes on top of another independent study (by Jane Wan in 2013) that predicted that the DPCO 2013 would erode the value of the Indian drug market by 2.2% or $290 million annually. An IMS Health study had concluded that while the CAGR for products on the national list of essential medicines (NLEM) — whose ceiling prices are fixed under the DPCO — declined 7% post DPCO, that of non-NLEM medicines grew 7% in rural areas. The IMS Health report also concluded that the DPCO was ineffective in reaching rural areas.

Arvind Sahay of IIM-A, who did the latest study with Saravana Jaikumar of IIM Udaipur, told FE that the DPCO appeared to cause a decrease in marketing efforts by drug companies for the molecules under price control, leading to a fall in sales volumes, especially in the more vulnerable areas. “Take, for example, the case of the humble anti-pyretic paracetamol, which is among the molecules most adversely impacted by DPCO. Sales of this molecule have decreased by a staggering 1 billion pills in just one year,” Sahay said.

The study by IIM faculties also reveals certain other things: The more expensive a molecule, the higher the increase in sales volume due to DPCO; molecules prescribed for chronic illness benefit from DPCO.

As price regulation is “too blunt a tool and leads to undesirable outcomes”, Sahay said, “a more effective way may be cutting the margins in the distribution chain which, on an average, are as high as a 30-40% or even higher”, Already, online players like Netmeds and Pharmeasy are working towards this, he said, making these drugs cheaper by 20-25% by obviating the distribution chain.

In May 2013, a new DPCO was brought in replacing the 1995 version that had imposed cost-based controls on 74 bulk drugs and their formulations, increasing the span of controls more than threefold. Under the existing DPCO, price ceilings (to the retailer whose margin is fixed at 16%) for 348 NLEM drugs (680 when defined in terms of strength) are set using what is called a ‘market-based’ mechanism. For most drugs, the price ceiling is the simple average of the prices of all brands in the market with market share of at least 1%. While price increases of NLEM drugs are restricted to be in line with or below the wholesale price index, the non-NLEM products are allowed a maximum price increase of 10% in any one-year period. “Increase in sales volumes of non-NLEM could be attributed to increased marketing efforts by drug companies. And there were instance of reduced marketing efforts for the regulated drugs to cut costs,” Sahay said.

The IIM study did not cover injectables and oral solutions.

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