Extended price control based on a cost-based method is a fundamental error for medicines in India. The cost of a drug is not the cost of a chemical, but the cost of manufacturing plus the cost of research. This has been entirely omitted in cost-based pricing in the past. The price that India paid for price control is a lack of investment in innovation and science, in the discovery of medicines, which might find solutions to India’s special disease profile. A purely cost-based price control would reduce investment in critical innovation and research, cause acute drug shortages, move bulk drug and intermediate manufacturing to China, adversely impact access and also adversely impact Indian exports.
The cost-based price control has a long-term burden on Indian citizens as it stifles Indian innovation. The cost-based price control policy of 1995 was flawed for a critical reason. The price of a drug is not just the price of manufacturing with a small profit margin. It is unlike making widgets, cars or computers as drugs impact the human system and need to be tested for safety, toxicity and efficacy. It is the price of a manufactured chemical, in addition to the clinical research cost.
In a billion dollar cost of a final drug, the share of toxicity and safety studies and clinical research may be greater than 70%. Before India passed the patent law, Indian companies could duplicate the method of manufacture and use the clinical research data of innovator companies to launch new drugs. While this resulted in generic drugs from India at the lowest cost in the world, India paid a price too. Indian drug companies did not invest in drug discovery research, and no new drugs came from India. In the long term, this was an extraordinary burden on Indian patients, as new drugs came first to the West, and then to India, leading to high price of drugs—for example, for biologic cancer drugs. Indian scientists could not try to find new drugs for Indian diseases such as malaria, dengue, TB, HIV (with Indian subtypes) or diabetes for lack of investment in innovation and