Pharma Inc-GoM meet to tackle thorny pricing

Written by MG Arun | Soma Das | Mumbai/New Delhi | Updated: May 14 2012, 08:00am hrs
As key stakeholders in the pharma industry associations of drug makers, drug retailers and civil society groups meet the group of ministers (GoM) led by agriculture minister Sharad Pawar on pharma pricing in New Delhi on Monday, two issues will be hotly debated: The span of control and the method of price fixation.

The meeting assumes significance in the light of the ongoing debate on the high prices of certain medicines, leading to the patent office recently resorting to compulsory licensing, a governmental intervention, that allowed domestic drug maker Natco offer a cancer drug (Nexavar) at a fraction of the original cost charged by the innovator, Germanys Bayer.

During Mondays meeting, the first ever involving all stakeholders since an unsuccessful, earlier one when Ram Vilas Paswan was minister for chemicals and fertilisers, top pharma manufacturers bodies including the Indian Drug Manufacturers Association (IDMA), the Organisation of Pharmaceutical Producers of India (OPPI) and the Indian Pharmaceutical Alliance (IPA) will be unanimous in putting across evidence to prove why the earlier method of cost-based pricing was flawed, and stress on the need to move to a market-based pricing mechanism. IDMA represents domestic pharma companies, while OPPI is the body for international drug companies operating in India.

The GoM has been set up to examine crucial aspects of the proposed National Pharmaceutical Pricing Policy or NPPP prepared by the ministry of chemicals and fertilisers.

The industry feels cost-based pricing, or pricing based on the cost of producing drugs, is unfair to companies that stick to good manufacturing practices (GMP). The time has come to move away from cost-based pricing since you cannot have the same norms for those who make drugs from a garage and those who do it out of US FDA-audited facilities, said DG Shah, secretary general, IPA.

Last year, the government proposed to bring all the 348 drugs on the national list of essential medicines (NLEM) under a price control regime, from 74 earlier. This covers 27 therapeutic areas including cancer, HIV and cardiovascular, among others. The industry had argued that out of 74 drugs under price control, only 47 are now being manufactured, and companies have discontinued the others as they are no longer viable.

This has had a cascading effect on the formulations (end products) manufactured from the concerned bulk drugs which, in turn, has affected the availability of such formulations, a former pharmaceuticals department official said.

Industry representatives are expected to request the ministers to spare the unlisted strengths, different combination drugs and, most importantly, warn against merging the new list with the older list, which it claims would kill the industry by taking the span of price control to over 75% of the Rs 60,000-crore drug market. This industry says such moves would make most drugs under the price net disappear from market in times to come as incentives to produce and market these drugs fade.

The pharma industry has always been in favour of price monitoring as opposed to price control, Ranjit Shahani, president of OPPI and head of Swiss major Novartis India operations, told FE in an earlier interaction. At Monday's meet, drug makers are expected to argue for a transparent, evidence-based system of fixing the price of the drug. The NPPP had suggested that the government cap the prices for essential drugs based on the average price of top-selling brands. However, the industry had said this is not equitable.

Our fear is that the proposed ceiling price formula will not result in equitable price reduction, said Shahani. While four brands with 25% market share will face price reductions, customers buying brands that comprise the balance 75% market share will see no benefit.

The health ministry and health organisations too are against the benchmarking against top-selling brands, saying such brands also happen to be the most expensive drugs in the market. Fixing the price ceiling on the priciest drug brands, they say, would mean inviting cheaper drug makers to sell at higher rates and pulling up the average rate of medicines, instead of controlling their prices which is the rationale of such a policy.

Shahani said that as an alternative, in order to provide quality and affordable medicines to the rural masses and those below the poverty line, pharma companies could supply products at a significant discount for government purchases.

Domestic manufacturers too vouch for market-driven pricing mechanism. My view is that if a drug is marketed by more than five companies, there is competition that will rein in the prices, and it should not be controlled, said YK Hamied, chairman and managing director, Cipla. If theres a monopoly drug, or a drug with less than five companies making it, it should come under price control. So should any imported, finished drug.

Earlier this month, Cipla reduced prices of some of its cancer drugs anywhere between 59% and 76%, taking them below that of Natcos drugs, expected to be launched in the market soon, and raising the possibility of a price war in the segment.

However, IPAs Shah says that brand leaders are not always price leaders. Price reduction will give access to drugs, but the viability of manufacturing these will be under threat, he said. Also, the industry argues that providing access to medicines should be a greater priority since drugs will continue to be unaffordable to large sections despite lower prices.

Around 35% of our population that lives below the poverty line will not be able to afford medicines at any price because of the huge socio-economic disparities, said OPPIs Shahani. Any efforts at price control will, therefore, be unsuccessful at reaching the loftier goal of healthcare for all.