DEADLY DIAGNOSIS

Union Minister of Chemicals and Fertilisers Ram Vilas Paswan’s proposal to increase the number of drugs under price control could stifle the industry and affect medicine production

By S S Jeevan and Puja Mehra

Following the floods in Mumbai in July 2005, health centres were frantically looking for an antibiotic, Doxycycline, to deal with the outbreak of a waterborne skin disease called leptospirosis. The medicine, however, was just not available because all drug companies had discontinued production after it was brought under price control in 1995. Doxycycline is not a very expensive drug. After the prices were reduced by about 15-20 per cent, it cost Rs 3 per tablet. So why had the Government put it under price control?

The draft National Pharmaceutical Policy 2006, unveiled by Union Minister of Chemicals and Fertilisers Ram Vilas Paswan on July 1, has left the industry in the cold and consumers searching for answers. The Government intends to increase control over drug prices— adding 354 drugs to the existing 74 in the National List of Essential Medicines. This, the industry believes, will make several of these drugs unviable and ultimately lead to cuts in production. Says Ajit Dangi, director general of the Organisation of Pharmaceutical Producers of India, “This is a retrograde step which can cripple the industry disrupting supply and availability.” Agrees D.G. Shah, secretary-general of the Indian Pharmaceutical Alliance (IPA), and says there could be shortages of essential medicines and lead to emergence of spurious and counterfeit medicines in the long run. And this in turn could lead to importing medicines at expensive prices in the long run. The policy also makes it mandatory for companies to put the maximum retail price (MRP) on every piece of medicine from October 2. “This is to ensure that there is no overcharging at any stage,” says G.S. Sandhu, chief vigilance officer, Department of Chemicals and Petrochemicals. The policy will allow the Government to virtually dictate profit margins—8 per cent for wholesaler and 16 per cent for retailer in the case of price-controlled medicines, and for other drugs, 10 per cent and 20 per cent, respectively.

Analysts predict that the policy will reduce the net profit margins for most companies from the current 9.7 per cent to less than 5 per cent. The industry’s concern is that a cap on profits will dry up funds needed to develop the infrastructure for expanding the generics business (generic drugs are those that are not protected by patents and hence companies can mass produce them at low costs) and funding R&D to develop new drugs. “By expanding the span of price control, the Government will severely impact the sector’s ability to invest in R&D, hurt its competitiveness and retard its expansion in the global generics market,” says Wockhardt Chairman Habil Khorakiwala.

Estimates on the Government’s enhanced control over the affected proportion of the drug market vary. While the Government figures say it will be about 35 per cent, industry experts put it between 50 and 70 per cent. The draft is now being circulated among government departments and will come up for Cabinet approval later this month. Paswan’s proposals have, in fact, come as a bolt from the blue. His ministry was expected to give up its control over drug pricing, as it has done consistently over the past 30 years— from over 400 to just 74 at present. Two government committees had also recommended the same, which had led to the speculation that the list would be further trimmed to just 30 drugs. The trigger for Paswan’s populism appears to be the Supreme Court’s admission of an appeal on essential commodities. By bringing 354 drugs under fresh price control the Government might be successful in making them cheaper by 30-70 per cent, but in the long run this could drive out competition.

The rationale behind the alarming move is unclear. According to a study commissioned by the Indian Pharmaceutical Alliance to ORG-IMS, most of the medicines brought under the latest price control are inexpensive, their prices have remained stable over the last three years in the face of intense competition. “The Government’s focus should be on improving infrastructure rather than killing the spirit of enterprise,” says Satish Reddy, COO, Dr Reddy’s. While Paswan admits that the industry may be unhappy with his policy, he says the measures are justified to bring down the “unjustified” increase in prices of drugs. “Some drugs extract 1,000 times profit, making them out of the reach of poor patients,” he says. The industry counters this. Says Kewal Handa, MD, Pfizer, “Governments in most other countries, including some African nations, bear 50-85 per cent of the healthcare costs. But 85 per cent of Indians pay for their healthcare from their pockets.”

If there’s any consolation for the industry, Paswan has revised the maximum allowable post-manufacturing expenses (MAPE), which are now 100 per cent over manufacturing cost, to 150 per cent in general and 50 per cent additional MAPE for R&D intensive companies. But even here, for the 74 drugs already under price control, MAPE would continue at 100 per cent for another year to prevent any sudden price escalation. And in a move widely welcomed by everyone, prices of anticancer and anti-HIV/AIDS drugs would be totally exempted from Central taxes and drugs that cost Re 1 per tablet would be out of price control.

A drug policy for India can succeed only if it makes medicines affordable and at the same time allows discovery of new drugs. The sector has made it to the top three pharma industries of the world by launching copycat versions of patented drugs at low costs over the last 30 years. This is because the Patents Act, 1972 allowed reverse-engineering of novel drugs under patent, as long as a different process was used. Indian companies now need to develop their own drugs instead of just mass producing cheap copies of those discovered by global majors. This can, however, no longer be the mainstay for the industry as India stepped into the product patent regime on January 1, 2005. But the real growth opportunity in new drug discovery needs heavy doses of investments. Price controls or caps on profit seriously hamper the industry’s ability to spend on R&D. Drug prices in India are among the lowest in the world, even lower than in most developing countries. Citing the example of Poiglitazone, a medicine for diabetes, which costs Rs 4,500 in the US but only Rs 240 here, Khorakiwala says, “Our industry has made prices the most affordable in the world. It has done more to make medicines accessible to wide sections of the Indian population than any government scheme.”

Consumer complaints over the rising unaffordability of some life saving drugs due to the new patents regime may have been at the back of Paswan’s mind during the formulation of the controls- heavy policy. A couple of years ago, the cost of an anti-cancer drug called Gleevec had suddenly jumped from Rs 10,000 to Rs 1,20,000 after a Swiss-based company, Novartis AG, got the exclusive marketing rights to manufacture the drug in India. Such developments will hurt consumers, but India’s commitment to the World Trade Organisation on patents means that they can not be wished away.

Paswan will have to deal with such paradoxes. On one hand, he has to ensure cheap medicines for the poor and on the other he must provide oxygen for the industry to grow and discover new drugs. Controlling prices may lead to shortages, and curtailing profits may sound the death knell for business. Maybe Paswan needs to leapfrog in a patent era and explore alternative mechanisms such as public-private partnerships like drug quotas for poor patients and improve the fundamentals of the healthcare system. Everybody needs to win in this politics of life and death. After all, it is a question of survival.

(India Today, August 7, 2006)