Aiming to regulate the prices of non-NLEM medicines, the country's policy think tank Niti Aayog has proposed to the government an amendment to the Drug Price Control Order (DPCO) 2013 to link annual hike allowed upto 10 per cent in prices of non scheduled drugs to wholesale price index (WPI).

The Aayog, department of pharmaceuticals (DoP) and Prime Minister’s Office recently discussed the proposed amendments in the DPCO 2013.

Meanwhile, the Indian pharmaceutical industry reeling under slow growth due to price cut imposed by the government, has expressed reservation over Niti Aayog's proposal to link annual hike allowed upto 10 per cent in prices of non scheduled drugs to wholesale price index (WPI). If the 10 per cent ceiling is reduced to WPI based price changes, the innovation would suffer most and market sentiment would weaken, said industry captains.

Currently there are 850 drugs under National List of Essential Medicines (NLEM) out of 6,000 formulations in the domestic market. Aiming to regulate prices of non NLEM medicines by linking it to WPI, the Aayog suggested amendment to  the Drug Price Control Order (DPCO) 2013. Creating separate index for pharmaceutical products was also recommended by the government's think tank. Aayog has proposed to link prices of both scheduled and non-scheduled drugs to pharma commodities WPI.

As per DPCO 2013, prices of scheduled drugs are revised in line with WPI of the previous calendar year. If annual WPI decreases, the drug makers have to reduce the prices of scheduled medicines. Meanwhile non- NLEM drug makers are permitted to hike MRP by 10 per cent annually.

If agreed, the Aayog's suggestion will lead to a decline in prices of non NLEM drugs.

Expressing concern over the Aayog's suggestions, the pharma industry honchos said it is a setback for pharma industry.

Increasing prices of drugs under the non-price controlled category is only opportunity for Micro, Small & Medium Enterprises (MSMEs) to transform as they are already suffering a major setback under the DPCO 2013. They could, because their products are priced relatively low and big firms have offered head room for increase. The 10 per cent per annum ceiling allows them to take such increases.

However, if annual price increases for even non-scheduled formulations are linked to WPI based price changes, the MSMEs would remain disadvantaged forever, said DG Shah, secretary general, Indian Pharmaceutical Alliance.

Even for the larger enterprises, the investible surplus for innovation comes from the non-scheduled drugs (which allow upto 10 per cent increase per annum) and exports to rich countries. However, the export-funded innovation has suffered a setback as larger enterprises are experiencing margin pressures in the US and elsewhere. This is evident from the financial results for 2017-18. If the 10 per cent ceiling is also decreased to WPI based price changes, it will affect the innovation, he said.

As the industry has witnessed in the last six months, prices of many raw materials have risen by 30 per cent to 50 per cent. The 2017 WPI based price change was not sufficient to cover these cost escalations. A case by case application for additional price increase is not only time consuming and subject to divergent views but also discretionary. The 10 per cent ceiling provided some cushion to the industry for such contingencies, said Shah.

Though very few companies take full 10 per cent annual increase for the entire portfolio of non-scheduled drugs, the distinction between the scheduled and non-scheduled is a major driver of investment. The elimination of this distinction would have impact not only on the market sentiment, but discourage further investment, while to a patient, paying Rs. 11 instead of Rs. 10 pr strip would not make much difference, he added.

The pharmaceutical industry, like IT industry, is a knowledge based industry. At the same time, unlike IT, pharmaceutical is a very high risk industry. Yet returns for pharmaceuticals are almost one-third to one half of what the IT earns. The data for the Q4 FY18 shows that PAT for pharmaceuticals is expected to decline 9 per cent Y-O-Y.

Already there are reports about the USTR’s sharp reaction to price regulation of medicines and devices in India. It would be prudent to not attract further attention by the proposed change of linking non-scheduled formulations to WPI based price changes. The cost-benefit analysis weighs against the proposed change.

Deepnath Roy Chowdhury, president, Indian Drug Manufacturers’ Association (IDMA) said “This is very serious development. Indian pharma industry will not be able to generate funds for any innovative or development work.”

Vinod Kalani, co-chairman, FOPE said “Considering the annual inflation, price hike based on WPI is not reasonable because the pharma industry has to cope up with rise in manufacturing expense. The Aayog's proposal will have a negative impact on pharma sector growth.”