One way or the other prices of all goods and services are subject to some sort of price regulation either through state's intervention or other mechanisms including competition, demand-and-supply equilibrium, purchasing power of people just to mention a few. One argument often heard is why should state control drug prices when prices of other commodities are not controlled. First of all it is incorrect to say that the state does not intervene in regulating other prices.

In the public utility services like transportation, telecommunication, electricity, banking etc., the charges and rates are absolutely decided, monitored and controlled by competent authorities.

Surely medicines are not less important than telephones call charges or insurance premia. So why should the state not ensure that they are available at fair, affordable prices?

For the sake of argument even if state was not regulating other prices, there are very strong reasons to have some sort of control over drug prices. Because unlike an other items, drugs have no alternative. For example when onion prices went up few years ago, people started using lesser quantity to suit their pockets. One cannot do this with drugs.

Unlike other items, the need to buy drugs is immediate, involuntary and obligatory - one can avoid buying clothes at least for some time but not drugs. Whether one begs, borrows or steals, money has to be arranged to reduce suffering and save human life.

Medicines are the only item on the face of the earth, where the decision to buy is not taken by the purchaser but by a third party i.e. prescriber. Therefore if the prescribers and the producers join hands to take advantage of patients' vulnerability, there is no one to stop them except the state.

Though the industry in order to support their argument that the price control on drugs is unjustifiable complaints that India is the only country where drug prices are controlled, there are solid reasons for a country like India to justify DPCO.

Price control is required only when patients have to pay from their own pockets. In India, 80% of the population is dependent upon private medicine and hence health costs are a big drain on people's pockets.

There are other factors that come into play. Drugs constitute 7% of the healthcare costs in USA while in India it is nearly 50%; so the relative impact is higher in India. The mere fact there is no DPCO in US or UK or elsewhere does not mean that there is no price regulation in these countries. Some facts:

In United States, nearly every one is insured against illness. Cost of drugs are reimbursed by insurance companies who keep an eagle's eye on both, prescriptions and prices. If a doctor is found to be unnecessarily prescribing high cost drugs when cheaper alternatives are available, he can loose insurance business. This in effect means he will have to give up profession. Similarly, manufacturers cannot charge more than what they are charging in other countries.

Similarly in the United Kingdom, the entire medical costs are met by the Government through National Health Service. Manufacturers have to negotiate prices with the government. In fact the price control is more rigorous in England than India because there is only one buyer. The NHS pays substantially discounted prices on all medicines. For example Buscopan is sold to NHS at a discount of 42% over the MRP. In any case, individual patients are not concerned.

The effectiveness of the above measures can be gauged from the fact that US Government is currently prosecuting Glaxo USA for billion of dollars for overpaying Glaxo UK for import of ranitidine and thus "cheating" USA.

On the other hand in India, the entire system is based on MRP. What about the transfer prices from a related manufacturer or on loan license? There are cases where there is huge difference between the transfer price (price charged by actual manufacturers/loan licencees to the marketers/manufacturer and the MRP.

The Indian drug manufacturers' another complaint is that they do not make adequate profits. This could be completely proved wrong while analyzing the stock market performance and the market returns of the domestic industry.

On the nation's Stock Exchanges, pharma shares have always remained on very high side compared to other sectors including manufacturing companies be it Siemens or Reliance. Ranbaxy's Rs. 10 share is being quoted at over Rs. 1100 (September 2004). Promoters and their family members who invested Rs. 1000 in 1995 can now sell their shares for Rs. 4,80,000 (September 2004). If the profits were not handsome, why would investors buy these shares at such high prices.

Also, a look at the balance sheets of pharma companies will show their profitability is one of the highest and beats nearly all other sectors except perhaps software. In fact most companies boast of 20 to 50 per cent higher profits than previous years, year-after-year!

India has the highest number of pharmaceutical manufacturers in the world: over 17,000. Surely no business minded person will enter a field where profits are not adequate. Non-pharma large business houses are eager to enter drug business. For instance JK Tyres, Camlin Ink, Raunaq group, LG Electronics have recently shown their interest in drug sector.

Pharma manufacturers pay one of the highest salary packets to their employees. The marketing heads of many pharma companies get more than Rs. 25 lacs+ annual pay packet with other perquisites. Such salaries are unheard of in other manufacturing sectors.
- There must be substantial profits to allow the manufacturers to offer bonus schemes to chemists including some DPCO-controlled formulations.

Though nominally it seems that the drug prices are lowest in the world, it is more important that how does one compare the purchasing parity of various currencies. Is US$1 in USA worth Rs. 46 in India in its purchasing power? Certainly not. Exchange rates are determined based on demand and supply of foreign exchange, not their actual worth. As per UN study, Indian currency is 5 times higher in its purchasing parity compared to its exchange rate of Rs. 46 with US dollar. In other words a dollar's real worth is only about 10 rupees. It is because of this reason that UN employees when transferred from, say, USA to India do not get their emoluments based on bank's exchange rate.

In the United States, the minimum wage is US $ 6.50 per hour; in UK about GBP 4. An unskilled person needs to work for less than 10 minutes to buy 10 tablets of paracetamol (even if his insurance company or government was not to reimburse). In India a person will need to work for at least one hour to buy equivalent amount of the same drug, which incidentally is one of the cheapest. So the cost of the cheapest drug is 600% more in India compared to the United States.

While seeking higher prices, manufacturers often resort to quoting figures from developing countries to compare prices. These arguments are merely self-serving and misleading. Unlike India, most countries accept the Paris Convention on patents and hence pay royalties to original manufacturers if the drugs are produced locally. Naturally the prices are higher. Why should this be taken as reason to justify higher prices in India which had not accepted the patent regime and manufacturers did not have to pay even one paisa as royalty.

As explained above currency parity is difficult to establish and prices based on exchange rates are deceptive. And, the standards and cost of living are different. How does one compare drug prices in Malaysia - with far higher income levels and standard of living - with India?

Except for Nigeria, Egypt and Jordan, there is hardly any pharma manufacturing industry in other developing countries of Asia and Africa which are dependent on import of drugs from other countries. Naturally the prices are higher.

Custom duties, where applicable, increase the prices. This is not applicable to India because the drugs are locally manufactured. Chemists margin are different in different countries and have an impact on retail prices. Local taxes are different that have an impact on prices.

Local rules governing pharmacies are different. For example in some countries, fully qualified B.Pharm graduates have to man drug stores; therefore the cost 'goes up. In India more than 60% shops do not have even a person with D.Pharm. Many states allow 5-year experienced shop keepers to be classified as "pharmacist." Hence the labour costs are very low.

Even if the above reasons were not operative, how does it matter if the prices are higher, or lower, in other developing countries? After all prices in India have to be dependent on local manufacturing costs, local margins, local distribution costs and local purchasing power. The fact that some other government of some other country is less than vigilant or less than willing or powerless with respect to drug prices does not mean that India should do the same. In most cases, these figures are given merely to complete documentation in files to justify higher prices.

India with its huge population and market has advantage of "economy of scale" and even if all other factors were not applicable, the prices have to be lower compared to other developing countries.

Does competition decide the drug prices

Let us first look at some of the prices of same molecules sold under different brand names. The variations are miles apart. Some examples:
- Fexofenadirie 120mg: one tablet of Alernes (Dabur) costs Rs. 4 while Aliegra (Hoechst) is priced at Rs. 7 - the difference being 75%.
- Two brands of cetirizine are priced at Rs. 1.60 and Rs. 2,60 per tablet: a difference of 62%.
- GlicUmde: Glidiet (Modi-Mundipharma) is priced at Rs. 28 (for 10 tablets) compared to Rs. 65 for Diamicron (Serdia) a difference of over 230%.
- The cost of one course of acyclovir for herpes is Rs. 1,666 for Torrent brand compared to Rs. 812 for Zydus Cadila brand.
- The difference in the cost of Risperidone is beyond imagination: Less than Rs. 8 for all manufacturers except Johnson & Johnson that costs Rs. 135! A difference of 1,800%.
- Amlodipine prices are widely different: Amlodac 10mg is priced at Rs. 14 for 10 tablets while Amlovas of equal strength costs Rs. 35 for 10 tablets - gap of 250%.

Unlike the developed countries, there are no standard guidelines on the selection of medicines. For example in England, the National Institute of Clinical Excellence (NICE) issues periodic consensus guidelines on the exact option, in correct sequence, for treatments of various diseases like Asthma, Hypertension, Diabetes etc. Such system has several advantages: firstly, it is scientifically valid; secondly, it is cost effective and thirdly it protects the doctors from legal litigations.

In India every doctor decides on his own which medicine to give. Not infrequently the choice is scientifically inappropriate and financially costly. Let us look at some examples:

The correct treatment of chlamydial genital infection is either tetracycline (cost Rs. 14) or doxycyctine (cost Rs. 28). Yet most, if not all doctors are somehow "persuaded" to prescribe ofloxacin (cost Rs. 100) by manufacturers. Why does it happen? Because high profits lead to higher promotional efforts and larger prescriptions.

Many clinical trials have established that there is insignificant difference in the efficacy of omeprazole (cost Rs. 20 for 10 tablets) and pantoprazole (cost Rs. 60 for 10 tablets). Yet large number of doctors prescribe pantoprazole apparently influenced by manufacturers.

Same is the story of enalapril (Rs. 10.50 for 10 tablets of 2.5mg) and perindopril (Rs, 94 for 10 tablets). Incidentally against a price difference of 1:9 in India, the difference in UK is only 1:2 between the two molecules.

Why does this happen? Because pharmaceutical manufacturers in India have tremendous influence over prescribes. The policy framework of DPCO and its implementation is not helpful at all; in fact it is making the matter worse. Due to various rules and regulations, mostly the axe of DPCO falls on what we call as the reference (initial) molecule which gets price controlled, leaving the related molecules to mint money for producers.

The industry is quick to provide "scientific evidence" based on isolated trials, often defective and deceptive, to prove that their molecule is "superior" to reference molecule. Often the alleged superiority, even when present, is 1-2% but costs 200-300% more.

The solution lies in controlling the profits on all molecules belonging to the same class as well as other drugs used in the same therapeutic area. For instance, if the price of diazepam is fixed leaving other benzodiazepines uncontrolled, then prescriptions will shift to them. And, if the price of chloroquine (costs less than one rupee per tablet) alone is fixed leaving other anti-malarials untouched for one or the other administrative or policy reason, then prescriptions will shift to uncontrolled agents such as mefloquin or artemether. The danger is not only that poor patients will pay more (artemether costs Rs. 23 per tablet) but there will be long-term scientific repercussions. For example, mefloquin or artemether are scientifically reserve drugs and should only be used for chloroquin resistant strains of malaria or in cerebral malaria. If they are indiscriminately consumed, the day is not far off when all the three malarial parasites in India will become resistant to all agents.

Similarly, if ranitidine price is controlled, prescriptions will shift to other H-2 receptor antagonists like famotidine or to sucralfate or omeprazofe and its related molecules.

A noteworthy example is that of phenylpropanolamine (PPA) v/s psuedoephedrine. Actifed, a cough and cold remedy of Glaxo is an international brand. All over the world it cpntains pseudoephedrine while in India it contains phenylpropanolamine. Last year PPA was found to be causing strokes. Coldarin issued front page ads to inform readers that its product was free from PPA. Yet recently they themselves have changed their own formula by using the discredited, dangerous PPA. Why? Because PPA is cheaper while psuedoephedrine is not only expensive but under price control. Since both are decongestants, they should be subjected to similar price controls or remain out of price control. (Not to mention the fact that DCGI failed to ban PPA that stands outlawed in the west.)

Cough syrups and tonics have a total sale of over 800 crores including the so-called Branded generics - a typically Indian nomenclature that does not appear on ORG retail audit. These are supplied to chemists to sell without prescriptions, particularly in semi-urban and rural areas. A bottle of cough syrup with a printed price of Rs. 24 is given to chemists for Rs. 10. He can make a profit of over 150%. Producer's cost is below Rs. 7. Similarly a bottle of tonic with MRP of Rs. 50 is sold to chemists for Rs. 22. Its actual cost is less than Rs. 10.

There are many diseases that require drugs belonging to several therapeutic areas. For instance H. pylori eradication needs a proton pump inhibitor (omeprazole or lansoprazole or pentaprazole), an antibiotic (amoxycillin or clarithromycin or oxytetracycline) and an imidazole (metronidazole or tinidazole or secnidazole). It would serve no purpose to control prices of one PPI, one imidazole and one antibiotic because prescriptions will invariably shift to uncontrolled more profitable drugs.

Misconception on "Essential Drugs"

Unfortunately, the well-intentioned nomenclature of "Essential Drugs" coined by WHO several years ago in another context is sought to be used by the drug manufacturers to claim that medicines that are not included in the Essential Drugs list should be outside the price control mechanism. Nothing could be more unfair.

All drugs are essential for specific patients. Is it fair to control the price of chloroquine that costs hardly 80 paise and is used for 3 days since it falls in the Essential Drug List and leave out leflunomide that costs Rs. 45 per tablet and is to be taken daily by patients unfortunate enough to suffer from crippling rheumatoid arthritis? If any thing, leflunomide needs price control even more than chloroquin.

Is streptokinase (Price Rs. 2,500) required to treat heart attack less essential than drugs that fall in the "Essential Drugs List"? Are we suggesting that heart attack occurs only in rich patients?

The cost of amifostine (used in ovarian cancer) is Rs. 4,500 per vial and the dose is 2 vials per day! The cost of triptorelin (for prostate cancer) is Rs. 6,500 per vial. Dose: one vial per 28 days till the unfortunate sufferer lives and the cost of paclitaxel (for breast cancer) therapy is Rs. 11,000 every week.

Selective profit control based on total volume, market share etc is not the answer to patients' problems. It may have an economic base but lacks scientific reasoning. A more humane and more scientific approach is required.

An overall profitability ceiling is required in a country like India because manufacturers migrate from DPCO-controlled to non-controlled drugs. For example Lyka Lab, known for antibiotics, went into cough mixtures. Due to lack of enforceable legislation on the lines of US Anti-Trust law, there is large scale price fixation. Example: the first batch of one brand of sildenafil 50mg was priced at Rs. 12 per tablet. Within a week another brand was launched with a price tag of Rs. 18 per tablet; the first brand quickly hiked the price in the very second batch! All the five subsequent brands are today equally priced at Rs. 18. If the companies were in the United States, there is every probability that all concerned CEOs will be behind bars!

(The author is editor MIMS India)