Price cap on 348 essential drugs under new policy

Tags: Policy

Move negative for Glenmark, Glaxo, DRL, Cadila: Nomura

The government on Thur­sday approved a new drug pricing policy designed to increase the number of drugs deemed essential that are subject to price caps, two ministers said.

The move will curtail prices of costly brands sold by domestic and global drugmakers in a market that already has rock-bottom medicine prices. Analysts and industry officials were sceptical about the benefits of the policy.

The prices of 348 drugs deemed essential will now be regulated, compared with 74 previously. Valued nearly $13 billion, India’s domestic drug market is the fourth largest in the world by volume. US-based Abbott Laboratories has the largest market share followed by India’s Cipla and Sun Pharma.

The new policy is expected to cover up to 30 per cent of the total drugs sold in the country, according to industry reports.

Under the new policy, the ceiling price of a particular drug will be calculated by taking the arithmetic mean of the prices of all the brands that have more than 1 per cent market share, a Union minister told Reuters.

“Generics are available in India at the cheapest prices in the whole world. So by doing this, the government is not going to achieve much more,” said Ameet Hariani, managing partner at Hariani & Co, a Mumbai-based law firm that advises key drugmakers and large companies.

Price regulation makes sense in the case of drugs where there is a monopoly or a duopoly, he said.

While the move is negative in theory for pharmaceutical companies, its impact will be limited, Nomura said in a note. The policy is likely to be more negative for companies such as GlaxoSmithKline Pharmaceuticals, Dr Reddy’s Laboratories, Glenmark Pharmaceuticals and Cadila Healthcare, Nomura said, as their drugs are priced higher than some others.

Patented drugs are not covered by the policy, though India is considering a mechanism to regulate prices of medicines that are covered by patent protection.

PTI adds: “The National Pharmaceutical Pricing policy has been approved by the Cabinet with an objective to put in place a regulatory framework for pricing of drugs to ensure their availability at reasonable prices,” an official source said.

The source said the government also considered providing sufficient opportunity for innovation and competition to support the growth of the pharma industry.

Last month, the Supreme Court had set a deadline of November 27 for the government to finalise the policy while asking it not to alter the existing mechanism of cost-based drug pricing.

A group of ministers, headed by agriculture minister Sharad Pawar, had earlier proposed to fix prices based on weighted average of brands that have more than 1 per cent market share.

The policy was earlier approved by a group of ministers on September 27 and was subsequently sent to the Cabinet.

After being unable to frame a policy for price control of essential drugs in its previous term, the UPA-II government had last year circulated a draft national pharmaceutical pricing policy, 2011 through the department of pharmaceuticals.

It took long to finalise the policy due to differences between ministries of health and chemicals and fertilisers. Other stakeholders, industry and NGOs, had also expressed their concerns over the pricing model suggested.

In 2010-11, the production turnover of the Indian pharma sector stood at Rs 1.05 lakh crore. India is the third largest producer of medicines by volume in the world. It exports to over 200 countries.

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