National Pharma Policy

The Cabinet has approved a long-pending National Pharma Policy, which may result in prices of essential drugs including anti-diabetics, painkillers, anti-infectives and anti-cancer drugs, reducing by around of 20%.
The government did not disclose details of the drug policy, but sources say that it cleared the fresh pricing mechanism which was drawn up by the Group of Ministers led by agriculture minister Sharad Pawar on Wednesday. The GoM drew up a new mechanism which capped prices of 348 essential drugs, following the finance ministry’s strong opposition earlier this month to the draft policy cleared in September. Experts say that an average reduction of around 20% in essential prices is substantial, given the fact that most consumers have to bear out-of-pocket medical expenses. The new pricing mechanism uses “the simple average method” for determining the ceiling price of all the molecules (drugs) under a particular therapeutic area with over 1% market share, while the draft policy had capped the price by taking the “weighted average”.
The government will present the policy before the Supreme Court on November 27, the day it meets to hear the PIL filed in 2003 to bring down prices of essential medicines. The SC had earlier asked the government to continue with the cost-based pricing mechanism to cap prices of essential drugs. It now remains to be seen whether the court will accept the government’s proposal which is a market-based pricing formula.
The Cabinet is believed to have included key riders, including the annual increase, which will be allowed to drug companies to increase prices. Also, when a company changes the original formulation by adding a new ingredient, it would come under price control.
The reactions from pharma companies were, however, mixed. Though the industry was relieved that the existing cost-based formula was not employed to cap prices, it felt that there would be an additional impact as a result of the new formula of arithmetic average, as against the earlier weighted average mechanism. Health activists were, however, not too happy with the Cabinet decision. The 20-30% reduction in prices is not substantial, according to Anant Phadke of Jan Swasthya Abhiyan, a patients’ group, demanding that the government heed the SC’s opinion and impose cost-based price control.
The new pricing mechanism will lead to a price erosion of over Rs 1,400 crore, according to research consultancy IMS, while AIOCD estimated the impact to be around Rs 1,800 crore. Though the tweaked pricing formula would lead to an additional impact on companies, but when calculated on an industry size of over Rs 67,000 crore, it is marginal, around 2-3%, or over Rs 1,500 crore. The scope of the policy is around 17% of the total pharmaceutical market, while coupling it with the existing medicines under price control, the coverage increases to around 30%.