Response to National Pharmaceutical Pricing Policy 2011

The recommendations of the Taskforce under Dr Pronob Sen submitted to Department

Chemicals & Petrochemicals in 2005, to Explore Options other than Price Control for
Achieving the Objective of Making Available Life-saving Drugs at Reasonable Prices, were
primarily based on the objectives to increase government health spending to at least 2-3%
of GDP by 2010 with focus on primary healthcare and ensure health insurance coverage to
the economically weaker segments. However, India is yet to achieve these goals and
according to the WHO Medicines Report 2011, the GoI spending on medicines as
percentage of total spending is the lowest in the world.

ASSOCHAM unequivocally supports the government in its efforts to improve affordability of
essential medicines. In this context, it may be noted that many countries across the world
use the WHO concept of essential medicines as a means of improving patient access, both
affordability and availability. However to be able to achieve better access of essential
medicines, countries had formulated comprehensive health policies and implementation
plans along with strong monitoring and evaluation systems. Although the draft NPPP 2011
acknowledges the need to implement non-price measures its focus is limited to only price
control. However, price control is only one measure in a range of measures used by other
countries to improve access.

ASSOCHAM would like to point out that drug prices are the lowest in India and the relevant
data as below substantiates this claim:-
1. The WHO Medicines Report 2011 states that medicines prices are quite low in the
highly competitive domestic markets of China and India. Interestingly the drug prices in
China is said to be almost 7 times that of comparable molecules in India.

2. A WHO-HAI study on drug prices across the world showed that for 53 molecules
analyzed, the PPP adjusted prices for the originator brand, lowest cost generic brand and
the most sold brand in India were on-average lower than countries such as Indonesia,
Thailand, China, Malaysia, Philippines and Pakistan.

3. Drug price rises were lower than those of other essential commodities like food. The
yearly rise in drug prices was 12% (Source: IMS) over the past 4 years, compared to
9.4% annual rise in WPI - Food & a 11.8% rise in CPI Food indices.

In view of the above, ASSOCHAM observes that drug Price control alone is unlikely
to improve equitable access to essential medicines in India. Along with
comprehensive health policies and higher government spending for medicine
procurement, there is an urgent need to focus on improving quality standards for
medicines.

The key failures observed under the long tenure of price control regime in India, especially
based on the data for drugs under DPCO 1995, are as below:-


2



1. For 25 of the 74 DPCO molecules, bulk drug manufacturing has moved away from
India to China as there is no incentive for manufacturing the bulk drugs in India once they
were under DPCO. India is now reliant upon imports, specifically Chinese imports, for
these bulk drugs, and only the last stages of drug manufacturing is done in India.

2. The number of players per DPCO molecule reduced from an average of 13 per
molecule in 2006 to 11 players in 2009, and DPCO molecule markets became more
concentrated with the top 5 players accounting from 97% of DPCO markets.
Correspondingly, due to higher competition in non-DPCO molecules, price rises of non-
DPCO molecules have been similar or at times lower than those of DPCO molecules.

a. According to a WHO study comparing the price trends of DPCO and non-DPCO
drugs during 1994 2004, the annual price rise for non-DPCO drugs remained at 3.75%
vis--vis 2.92% for DPCO drugs.

3. New introductions for DPCO molecules dropped, as companies did not invest in
innovations for DPCO molecules, thus depriving patients of any innovations in treatment.

a. Between 2006 2009 new introductions for DPCO molecules diminished from 2.7 to
2.3, while for non-DPCO molecules new introductions increased from 5.0 5.2

4. Rural sales of DPCO molecules have not expanded, thus patients in rural India have
not benefitted from price control owing to poor public healthcare delivery and non-
availability of such drugs through primary care centers.

Having said the above, ASSOCHAMs specific comments on draft NPPP 2011 and the
recommendations to improve access to essential medicines are as outlined below:-

ASSOCHAM welcomes the key principles of price regulation under the proposed NPPP
2011 of based on Essentiality of Drugs & Market Based Pricing. However, ASSOCHAM
finds that the third principle of Control of Formulation Prices only, would have a negative
impact on the formulation manufactures as bulk drugs will be out of price control and that
the bulk drug producers can arbitrarily hike prices. Hence, in a view to ensure that prices of
Essential Drugs do not go out of control, it is necessary to announce ceiling prices for bulk
using the similar WAP based price ceiling formula for formulations.

1. The proposal to cover combination drugs of NLEM and combination of NLEM drug
with any other drug under draft NPPP, goes much beyond NLEM objectives of essentiality
and the Supreme Court direction in the matter.

2. The Essential Drugs as outlined by NLEM 2011 based on the priority healthcare
needs and commonly used medicines at primary, secondary and tertiary healthcare levels
clearly defines the strengths and dosages of medicines.

3. The proposed wide span of price control will mend with industrys ability to invest in
continuous innovation for improved medicines.
3




4. Wider price control does not provide a favorable regime for survival of industry to
continue to make quality medicines available to the population.

Keeping the above in mind ASSOCHAM strongly recommends that the Span of price
regulation should be focused on and limited to only such medicines with strengths
& dosages as laid down in the National List of Essential Medicines (NLEM) 2011
based on Essentiality.

5. Co-existence of current drug policy (DPCO 1995) and the NPPP 2011 is against the
principles of price control outlined in the NPPP 2011. Continuing price control for such
drugs which are not part of NLEM is beyond the scope of Essentiality & the Supreme
Court Order in the matter.

Hence ASSOCHAM recommends that the DPCO 1995 should be repealed
simultaneously with the implementation of NPPP 2011.

6. The proposed WAP based ceiling price mechanism for imported drugs with NLEM
ingredients will negatively impact the industry & continued availability of such imported
drugs which are high quality & offer better value to patients by way of efficacy & treatment
compliance.

7. Apart from having better technology & quality, the cost structure of such imported
drugs are completely different from indigenously manufactured drugs. Moreover, the prices
of such imported drugs are determined by the manufacturing company abroad.

8. Another key issue impacting importers margin is the exchange rate fluctuation.

ASSOCHAM therefore recommends that imported drugs should be given a
differentiated pricing based on the CIF price allowing for 50% selling & distribution
margins plus duties. We also suggest that a standard foreign exchange conversion
rate effective April 1
st
each year based on the average of the past six months should
be notified by the government.

9. The proposed WAP based pricing regime hampers innovations to improve treatment
compliance and patient convenience.

a. It discourages introduction of improved formulations with added therapeutic
benefits, new drug delivery systems, sustained release technology that improve treatment
compliance, etc.

10. The WAP ceiling does not factor in investments made in the development of a
formulation / innovations in formulations and thereby commoditize the pharmaceutical
market.


4



11. The policy has the potential for spiraling reduction in ceiling prices:-

a. NPPP 2011 does not provide any measures to prevent downward spiraling
ceiling prices, resulting in a continual reduction in margins that could potentially force
players to reduce spends on R&D or eventually move away from NLEM segment.

b. The policy needs to incorporate an appropriate formula to limit this continual
downward pressure on ceiling prices so as to minimize impact on industry and maintain
availability of essential medicines

12. The annual price increase index does not factor in other inflationary pressures in
pharmaceutical production. Given that pharmaceutical pricing is influenced by multiple
factors such as cost of power, fuel and manufacturing, it would be inaccurate to link
pharmaceutical price rises to WPI as proposed under NPPP.

ASSOCHAM recommends that NPPP 2011 should incentivize continuous innovation
by way of higher prices to allow a conducive regime for drugs with novel delivery
platforms & other innovations for patient compliance & preventing counterfeiting. A
price increase mechanism to give special price on case to case basis should be
formulated.

ASSOCHAM also recommends Consumer Price Index based annual price increases
for formulations under NPPP against the proposed WPI based regime.

Recognizing the need for making available high quality drugs in a cost effective manner
and in order to reduce burden on patients for Essential Medicines ASSOCHAM suggests
that:-

13. Government should immediately remove all duties and taxes on all NLEM drugs to
reduce cost burden on patients.

a. Many countries, including countries which are not economically strong as
India, say, Kenya, Mozambique. Cameroon, Panama, Rwanda and Gabon, have abolished
tariffs on medicines

14. NPPP 2011 should limit trade margins on NLEM drugs. We recommend retailer
margin to be restricted up to 16% and the wholesaler margin up to 8%.

15. NPPP 2011 should explore non-price based alternate strategies to enhance access
to essential medicines to the masses including government procurement and public private
partnerships for strengthening healthcare delivery.

16. GoI should explore innovative funding mechanisms for universal access to
healthcare such as allotting a required percentage of income tax collected for healthcare
insurance coverage to all, with option for co-funding mechanism to increase the defined
reimbursement limits beyond essential healthcare to those who wish to choose.
5



17. GoI should expand distribution in areas of low reach to increase availability of drugs
to the poor and the suggested approaches include:-

a. Government Industry partnership to promote Quality Essential Drugs
Stores

i. Non-conventional distributions channels such as FMCG distribution
channels and linkages to primary health centers as well as using mobile technology to
monitor and replenish drug availability.

Eg:- Tanzanian governments Accredited Drug Dispensing Outlets
(ADDO) scheme:- Small privately operated retail outlets in poor rural areas were trained
and licensed to sell a set list of essential medicines, resulting in improved access for rural
patients

b. GoI should create a National Essential Medicines Fund to promote access
to high quality essential medicines with participation from industry.

c. Large scale procurement of essential drugs by the government at discounted
price for use in public health system and simultaneous strengthening of primary health
centers.

i. This differential pricing system requires developing a distinct
government channel to minimize any potential channel leakage.

ASSOCHAM members from pharmaceutical sector reiterate the commitment to
enhancing access to quality healthcare to the masses and to partner with the
government in its efforts to supply quality essential medicines.