India's Department of Pharmaceuticals on 15 May published the Drug (Price Control) Order (DPCO) 2013, bringing 652 drugs under government price controls, which will make use of market-based pricing calculations to set retail price ceilings. Prices of drugs included in the DPCO's remit are expected to fall by an average 10–15%.
IHS Global Insight perspective | |
Significance | The Indian government has published the Drug (Price Control) Order (DPCO) 2013 after long deliberations, bringing 652 drugs under price control, representing around 30% of the market and an estimated INR72,000 crore (USD13.13 billion) in sales. |
Implications | The DPCO clarifies the retail price ceiling – a simple average of all brands with a 1% market share, plus a 16% margin for pharmacists. A number of measures are outlined to ensure that problems with supply that occurred following the 1995 DPCO are not repeated. |
Outlook | The expansion of DPCO's scope is expected to produce wide variations in terms of price reductions depending on drug; although the average fall may be 10–15%, some predict up to 88% price reductions for drugs in the oncology, cardiovascular, and anti-HIV segments. |
India's Department of Pharmaceuticals on 15 May published the Drug (Price Control) Order (DPCO) 2013, authorising the National Pharmaceutical Pricing Authority (NPPA) to regulate prices of drugs on India's National List of Essential Medicines (NLEM) 2011 using new market-based rules. This will see the number of drugs under government price controls increased to 652, including combination products, from just 74 bulk drugs previously. The Times of India estimates the size of the total market affected at INR72,000 crore (USD13.13 billion), or 30% of the whole market. The publication is the culmination of months of negotiations between government departments, and will take effect 45 days from the publishing date.
Market-based calculation
The DPCO's price controls will be in the form of retail price ceilings, with a market-based calculation of price replacing the current cost-plus system. This will mean that retail price ceilings for any particular drug are set based on a simple average of current retail prices of all brands with a market share of at least 1%. A 16% margin for pharmacists is included in the calculation, with May 2012 the reference point. Companies selling products above this ceiling will be required to adjust prices downwards, while firms will not be permitted to push up the prices of drugs below the ceiling. Firms will then only be permitted to increase prices each year in line with the wholesale price index. Newly launched medicines will need to be priced at or below the price ceilings. The price ceilings will be fixed until subsequent NLEM revisions, or following set increases or decreases in the number of manufacturers of a given medicine.
A number of measures are introduced to ensure stable supplies of essential drugs. Companies wishing to cease sales of a drug included on the list will be required to issue a notice to inform and seek permission from the government six months prior to cessation. The government has the authority to require firms to continue production for up to 12 months. Companies are also required to inform the government of their production levels each quarter in relation to NLEM-listed drugs.
Manufacturers of non-essential medicines will be allowed to increase their prices by 10% a year, while new products which are discovered and developed in India could seek exemption from price controls for five years.
For a link to the DPCO, including a list of the affected medicines in 27 therapeutic areas, see here.
Outlook and implications
Indian patients stand to benefit from cheaper access to higher quality drugs at more affordable prices, and the DPCO may help improve the performance of the Jan Aushadhi public generic stores. Forecasts of the exact implications for drug prices vary. The Economic Times reports Indian Pharmaceutical Alliance (IPA) estimates that around half of prices will fall by around 20%, but the IPA projects 70% reductions for certain HIV/AIDS combination drugs, and up to 88% reductions for the anxiety drug alprazolam (affecting Pfizer's Xanax and generics) and Sanofi (France)/Bristol-Myers Squibb (US)'s blood-thinner Plavix (clopidogrel).
The introduction of price controls will put pressure on profit margins, and will be the first time that multinational companies' (MNCs) drugs come under price controls in India. MNCs' off-patent branded drugs are those most likely to be priced above the market average. The use of the market-based pricing calculation has been cautiously welcomed by local industry as supportive of small- and medium-sized firms' research and development (R&D) activities. There are a number of other specific measures in support of domestic firms, including five-year exemption from price controls for any locally discovered and developed drug, while locally researched and patented novel process of manufacture, or of drug delivery, can also benefit from five-year exemptions. It remains to be seen exactly how the pricing controls will be enforced in practice.
Related articles
- India: 25 April 2013: Indian pricing regulator receives 400 replies to essential medicine data requests
- India: 10 December 2012: India announces new drug pricing mechanism
- India: 3 October 2012: India's GoM requests monitoring of NLEM drug production levels following price controls