The drug industry has interpreted the SC order to imply that cost-based formula, which till now applied to 74 bulk drugs, would now be extended to cover 348 drugs in the National List of Essential Medicines (NLEM).
If this interpretation is accepted, the prices of bulk drugs for all the 348 drugs would have to be fixed to arrive at the prices of formulations and combination drugs. Unmentioned strengths would also come under the price net. This would mark a radical departure from the formula arrived at by the group of ministers in the last week of September, which entails fixing the cost of formulations only, restricting the price control regime to the drugs in the NLEM.
The court order is now being construed to mean that the prices of NLEM drugs would now be fixed in accordance with the existing Drug Price Control Order, 1995, which prescribes fixation of bulk drug prices.
"Fixing a very low price would compromise availability (of drugs), create economic pressure for undercutting quality, promote irrational drug use and discourage fresh investments in technology upgrade," a letter of the Indian Pharma Alliance, an industry association representing top 18 drugmakers, to department of pharmaceuticals said. It asserts that the anticipated loss to the industry, which has been pegged at R6,807 crore by pharma market research agency Aiocd Awacs, would not only erode the entire profit component the pharma industry makes today by selling essential drugs, but also significantly eat into the profits the sector makes on non-essential drugs, in turn cutting the incentive to manufacture such essential drugs.
"If you take the net profit as per the CMIE data for drug makers, which estimates it in the range of 10.2% according to the 2011 data, it stands at R6,885 crore. If the loss to the industry on account of marketing only essential drugs would be to the tune of R6,807 crore, which company would continue to manufacture these drugs If you continue to manufacture essential drugs, the industry would incur a loss on every tablet it produces, whether or not it is an essential drug," said DG Shah, secretary general, IPA.
Already, of the 74 drugs under price control today, only 47 are being manufactured. The drug companies claim that they have been forced to discontinue the remaining as they are no longer economically viable.
The court order of last week said the government should not alter the price structure of the drugs as notified vide notification dated 13.07.1999... This direct reference to the 1999 notification, which deals with the conversion cost, packing charges and process loss alarmed the drug industry. Shah also said the costs factored in the 1999 notification are outdated and since then the input and other costs have shot up sharply.
"We are disturbed by the order and any such imbalance in the pricing policy will not be in public interest. The Supreme Court must be made aware that pricing policy needs to be carefully calibrated to avoid adverse trade-off and is best done by the government," the letter said.
The Supreme Court is scheduled to hear the appeal of All India Drug Action Network on drug pricing policy on Thursday. Some industry estimates project that the number of formulations which would have to be brought under control if SC order is implemented would be close to 8,000.