The new pricing policy draft 2011 has ignited heated debate amongst the industry leaders, healthcare experts, policy makers and the government.

Even as the policy makers and opinion leaders have lauded the price control on essential and life saving medicinal drugs, pharma industry leaders and manufactures consider it as uncalled for, as it would stymie their business prospects domestically as well as internationally.

But a deeper analysis of the pricing policy shows that the government had put its control only on certain selected formulations and generic medicinal products which are essential life saving drugs especially for cancer and HIV drugs.

The new pricing policy draft may not only impact the bigger pharmaceutical industries and MNCs which are having their reach across the globe but also the newer once which are planning to foray in to formulations or end product manufacturing areas. So in a way, it will definitely impact the inflow of investments in the formulations sector.

“As this is the right time for the Indian industry to explore the global markets, the government shouldn’t have brought the price regulations, because it is going to impact our exports of formulations. The clients in the global markets will demand products at prices that are available in the Indian market” said Satish Reddy, MD. Dr. Reddy’s laboratories Ltd.

Since the bulk drug and the API manufacturing industry are kept out of the ambit of price control, it augurs well for API and bulk drug manufacturers as they are free to fix product prices. It will enable them to avoid dependence on Chinese imports and to develop new and advanced technology. This will help them face the future challenges in case the Chinese government puts any regulations on importers in future.

“As the Active Pharmaceutical ingredients (APIs) are out of price control order, it will give a boost to production of bulk drug industry in India to a very large extent. This has given the Indian industry the freedom to fix their own prices,” said Dr.P.V.Appaji, executive director, Pharmexcil.

As India is already heavily dependent on the Chinese API imports, the price control exception for APIs will enable the Indian manufacturers to develop new technologies and effectively face any future challenges that may arise from the Chinese exporters opined K.V.Rangarao, executive Director, Bulk Drug manufacturing Association, Hyderabad.

Earlier pricing policies
The price control over drugs was first introduced in the aftermath of the Chinese aggression with the promulgation of the Drugs (Display of Prices) Order, 1962 and the Drugs (Control of Prices) Order, 1963.

Thereafter, a series of price control regimes were notified through various orders in the country from time to time based on different principles. These were the Drugs Prices (Control) Order of 1966, the Drugs Prices (Control) Order of 1970 issued under the “Essential Commodities Act 1955 by declaring drugs to be essential commodities under the EC Act, 1955. Thereafter the Drugs Prices (Control) Order of 1978, Drugs Prices (Control) Order, 1979 and Drugs Prices (Control) Order, 1987 were issued following the declaration of the Drug Policy, Drug Policy, 1979 and Drug Policy 1986.

All these policies were broadly meant to have an effective control over prices of essential drugs, and later bulk drugs, as well as their availability while at the same time meeting the industry needs of growth, cost-effective production, innovation and strengthening of capacity.

The Drug Policy of 1994, as implemented via the Drugs Prices (Control) Order, 1995, was introduced in the context of the liberalization of economy and the abolition of industrial licensing, as well as allowing of foreign investment in the country, including in the drug industry. The principle for price control broadly adopted in this policy represented a radical departure from the earlier policies. This envisaged control over prices on the basis of drugs on the basis of economic criteria as represented in the market share of different companies in the context of total market sales turnover of various drugs.

As per the criteria of 1994 Policy, a list of 74 bulk drugs was identified and these drugs as well as the formulations based on these drugs (currently about 1577 in number) were brought under the price control regime. Certain exceptions such as for small scale units, drugs produced through indigenous research and development, etc were envisaged for exemption under the policy. In the year 2000, further liberalization in the economy was effected, in light of which, Foreign Direct Investment (FDI) in the pharma sector was brought in the automatic route and the limit raised up to 100 per cent. Following this, a new pricing policy was introduced in the year 2002 which further liberalized the span of control over pricing.

Need for new pricing policy
In the year 2011 the Ministry of Health revised the NLEM and notified the new NLEM, 2011. Here it is important to note that all the earlier policies have tried to strike a balance between industry growth on the one side and ensuring affordable and reasonably priced to the consumers, particularly the poorer masses on the other.

To meet the challenges brought about by the competitive international pharmaceutical industry in a globalised economic environment, the Government has enunciated the National Pharmaceuticals Pricing Policy, 2011 (NPPP-2011) to replace the 1994 policy. In fact the NPPP-2011 is in continuation of the policy announced earlier in 2002.

Objectives of the present policy
The main objective of the present policy is to put in place a regulatory framework for drug pricing so as to ensure availability of required medicines – “essential medicines” – at reasonable prices even while providing sufficient opportunity for innovation and competition to support the growth of industry, thereby meeting the goals of employment and shared economic well-being for all.

The regulation of drug prices in the National Pharmaceuticals Pricing Policy 2011 is based on three important principles, the essentiality of drugs, market-based pricing and control of formulations price.

The fact that out of the 348 medicines listed in the NLEM-2011, only 34 drugs are included amongst the 74 drugs listed in the First Schedule of “The Drugs (Prices Control) Order, 1995 (DPCO 1995), has forced the policy- makers to change the current principle of economic/market share criteria.

According to this, the bulk drug - API – may not fully reflect the ‘Essentiality’ of the actual drug formulation which is considered as the subject of focus due to the possible applicability of the API in manufacture of various formulations which may or may not be considered “Essential” for the larger healthcare needs of the masses.

In fact only 47 bulk drugs out of the 74 notified in the First Schedule are now under production. This had a cascading effect on the formulations manufactured from the concerned bulk drugs which in turn has affected the availability of such formulations. The consumer-patient has been adversely affected in the process.

The task of pricing both the bulk drug and the formulation makes it complicated and time- consuming without commensurate direct benefits to the consumer who is actually affected only by the price of the final end product, i.e., the formulation - made from the bulk drug rather than its bulk constituents.