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Foreign investors, and not just the
ones invested in pharmaceuticals, are in a tizzy. Come Nov 27, the
Supreme Court is expected to decide which way India will go on
pricing of drugs.
The federal cabinet, in a meeting presided over by Prime Minister
Manmohan Singh, had Thursday okayed a National Pharmaceuticals
Policy, expected to trigger a 20 percent drop in prices of
essential drugs including anti-diabetics, painkillers, anti-infectives
and anti-cancer medicines.
This Wednesday, the apex court hears a public interest litigation
filed in 2003 to bring down prices of essential medicines.
While officials are tightlipped in deference to the court, there
is widespread expectation that a fresh pricing mechanism has been
drawn up by the Group of Ministers led by Agriculture Minister
Sharad Pawar.
It is claimed that the mechanism caps prices of 348 essential
drugs, following Finance Minister P. Chidambaram's strong
opposition to a draft policy cleared in September.
The new pricing mechanism is expected to rely on "the simple
average method" for determining the ceiling price of all the
molecules (drugs) under a particular therapeutic area with over
one percent market share, while the draft policy had capped the
price by taking the "weighted average".
International investors don't mind the access argument. Some like
Gilead do lean manufacturing of anti-HIV drugs by way of
non-exclusive licenses in India. But they expect the apex court to
understand India's need for a continued pipeline of innovation.
The United States-India Business Council (USIBC), a premier
advocacy organisation comprising top American and Indian
companies, in a letter to Chidambaram, has appreciated the
decision of the ministerial group Sep 27.
Among them the organisation has listed and appreciated the move to
restrict the span of price control to the National List of
Essential Medicines, the commerce ministry's formula of pricing
based on weighted average price of all brands that have higher
than one percent market share by volume, and the analysis and
incorporation of salient characteristics of price control
mechanisms for essential medicines in other emerging countries.
Their stated concern remains the Supreme Court ruling of Oct 3.
This, some fear, could result in 70 percent of India's
pharmaceuticals market being put under the inconsistent and
inefficient cost-based price control mechanism as per Drugs Price
Control Order of 1995.
This ruling will severely impact the availability of essential
medicines for patients as it will be nearly impossible for
industry to supply essential medicines, USIBC has noted. A
patient-sensitised market based price control method and the
perils of cost-based price control method: that is the main
message.
The weighted average price of all brands, having greater than one
percent market share formula, isn't just expected to create a 20
percent price reduction in 60 percent of the medicines under the
government's National List of Essential Medicines.
It may also result in over 60 percent more patient savings than
the average price of the top three brands formula, initially
proposed in the draft policy.
This methodology, in conjunction with the existing policy of
restricting individual brands from increasing prices beyond 10
percent per annum, is expected to prevent brands below the ceiling
price from raising the prices by more than 10 percent.
The aim is to ensure the continuous availability of
price-controlled medicines, by preventing them from going off the
market on account of an unviable manufacturing environment. This
had happened in the case of cost-based pricing.
Patients should benefit from access to innovation and by the
introduction of new medicines, as players will continue investing
in research and development that ultimately helps in innovative
and more effective medicines.
The cost-based pricing does not factor in research and innovation
efforts, nor the costs undertaken by pharmaceuticals players.
Top intellectual property rights counsel Prathiba Singh argues
against stereotyping of Indian courts.
She tells foreign investors to understand that Indian judges
aren't against innovation at all. But they aren't impressed by
those propagating imports substitution as the innovation argument.
Rohit Bansal is
chief executive and co-founder of India Strategy Group, Hammurabi
& Solomon Consulting. He can be reached at rbansal@amp177.hbs.edu
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