Industry uncertain over new drug pricing policy

On November 22, the Union Cabinet finally gave its approval to a new drug pricing policy . Under the terms of the policy, prices of essential drugs will be based on the simple average price of all brands within a category that have at least one per cent market share.

This could reduce drug prices, especially prices of expensive anti-infectives such as cefotaxime, ceftazidime, cloxacillin and anti-bacterials such as amikacin, azithromycin and gentamicin.

To that extent, the new policy will be good for the end consumer.

On its part, the pharmaceuticals industry seems relieved after the announcement but still sees a lot of uncertainty. In particular, it is worried about the stance of the Supreme Court, which has already favoured a cost-based pricing method.

There is relief because for the industry, the worst-case scenario was cost-based pricing. This would have given the government more discretionary powers in deciding the input price, drug conversion cost, mark-up and final price.

While the new policy will calculate the simple average of market prices of brands with at least one per cent market share, it may not be easy to arrive at that figure. There are many brands in India for most drugs. In some cases there are as many as 70 or 80 brands. Getting all the prices, working out the averages and monitoring them may not be easy, though this criteria still makes it possible to execute the new pricing.

Many in the industry are therefore waiting to read the fine print.

The Supreme Court has already favoured cost-based pricing. How the new policy will be looked upon by the court is still not clear.

"It definitely seems better than cost-based pricing and is therefore good. But the larger issue of arriving at a balance between access to medicines and innovation or research by industry does not seem to have been addressed," says Satish Reddy, COO and Managing Director, Dr Reddy's Laboratories.

The industry wants the government to recognise and factor in its rising R&D costs and quality maintenance costs. It has been advocating market-based pricing as this will take into account the weighted average price of brands that have more than one per cent market share in a segment.

In other words, it takes into account the market share and size of the drug and adjusts this to a new mean price, which would be reasonable for the industry.

Consumer bodies have, however, been opposing this on the grounds that it would lead to overpricing of drugs. Currently, only 74 drugs are under price control. The government now wants to bring 348 drugs in the National List of Essential Medicines (NLEM) under price control.