The corollary of the above headline could well be: “Are drug price hikes the key growth driver for the Indian Pharmaceutical Market (IPM)?”
Whenever the first question, as appears in the headline of this article: “Is drug price control a key barrier to growth of the IPM?”, is asked to the pharma players, irrespective of whether they are domestic companies or multinationals (MNCs), the answer in unison would quite expectedly be a full-throated ‘yes’. Various articles published in the media, including some editorials too, also seem to be on the same page, with this specific view.
Likewise, if the corollary of the above question: “Are drug price hikes the key growth driver for the IPM?”, is put before this same target audience, most of them, if not all, would expectedly reply that ‘in the drug price control regime, this question does not arise at all, as IPM has been primarily a volume driven growth story.’ This answer gives a feel that the the entire or a major part of the IPM is under Government ‘price control’, which in fact is far from reality
Recently, a pharma industry association sponsored ‘Research Study’, conducted by an international market research organization also became quite vocal with similar conclusion on drug price control in India. This study, released on July 2015, categorically highlights ‘price control is neither an effective nor sustainable strategy for improving access to medicines for Indian patients’. The report also underscores: “The consumption of price-controlled drugs in rural areas has decreased by 7 percent over the past two years, while that of non-price controlled products has risen by 5 percent.”
I argued on the fragility of the above report in this Blog on September 7, 2015, in an article titled, “Drug Price Control in India: A Fresh Advocacy With Blunt Edges”.
Nonetheless, in this article, going beyond the above study, I shall try to put across my own perspective on both the questions raised above, primarily based on the last 12 months retail data of well-respected AIOCD Pharmasofttech AWACS Pvt. Ltd.
Pharma product categories from ‘Price Control’ perspective:
To put this discussion in right perspective, following AIOCD-AWACS’ monthly pharma retail audit reports, I shall divide the pharma products in India into three broad categories, as follows:
- Products included under Drug Price Control Order 2013 (DPCO 2013), which are featuring in the National List of Essential Medicines 2011 (NLEM 2011)
- Products not featuring in NLEM 2011, but included in Price Control under Para 19 of DPCO 2013
- Products outside the ambit of any drug price control and can be priced by the respective drug manufacturers, whatever they deem appropriate
The span of price controlled medicines would currently be around 18 percent of the IPM. Consequently, the drugs falling under free-pricing category would be the balance 82 percent of the total market. Hence, the maximum chunk of the IPM constitutes of those drugs for which there is virtually no price control existing in India.
According to the following table, since, at least the last one-year period, the common key growth driver for all category of drugs, irrespective of whether these are under ‘price control’ or ‘outside price control, is price increase in varying percentages:
Value vs Volume Growth (October 2014 to September 2015):
| Month | DPCO Product Gr% | Non-DPCO Products Gr% | Non-NLEM Para 19 Gr% | IPM | ||||
| 2015 | Value | Volume | Value | Volume | Value | Volume | Value | Volume |
| September | 2.8 | 1.2 | 10.9 | 1.1 | 11.5 | 9.0 | 9.9 | 1.4 |
| August | 3.3 | (2.7) | 14.5 | 2.4 | 15.2 | 13.7 | 13.0 | 1.6 |
| July | 5.1 | (0.6) | 14.2 | 4.1 | 11.8 | 9.9 | 12.9 | 3.3 |
| June | 5.6 | (0.1) | 16.2 | 6.2 | 14.6 | 11.7 | 14.8 | 5.0 |
| May | 5.3 | (0.3) | 12.1 | 3.4 | 7.2 | 4.3 | 11.0 | 2.6 |
| April | 11.1 | 5.3 | 18.4 | 9.6 | 11.9 | 9.6 | 17.2 | 8.7 |
| March | 17.6 | 9.5 | 21.7 | 13.0 | 15.6 | 13.2 | 20.9 | 12.2 |
| Feb | 13.9 | 7.6 | 20.0 | 10.1 | 14.4 | 9.9 | 18.9 | 9.6 |
| Jan | 6.9 | 1.8 | 14.0 | 3.7 | NA | NA | 12.7 | 3.3 |
| 2014 | ||||||||
| December | 8.0 | 0.7 | 14.8 | 3.2 | NA | NA | 13.6 | 2.7 |
| November | 3.1 | (3.4) | 12.6 | 0.3 | NA | NA | 10.9 | (0.4) |
| October | (2.4) | (5.7) | 6.8 | (1.7) | NA | NA | 5.2 | (2.6) |
Source: Monthly Retail Audit of AIOCD Pharmasofttech AWACS Pvt. Ltd
Does ‘free drug-pricing’ help improving consumption?
I would not reckon so, though the pharma industry association sponsored above study virtually suggests that ‘free pricing’ of drugs would help improve medicine consumption in India, leading to high volume growth.
As stated earlier, the above report of IMS Health highlights, “The consumption of price-controlled drugs in rural areas has decreased by 7 percent over the past two years, while that of non-price controlled products has risen by 5 percent.”
On this finding, very humbly, I would raise a counter question. If only free pricing of drugs could help increasing volume growth through higher consumption, why would then the ‘price-controlled non-NLEM drugs under para 19’, as shown in the above table, have generally recorded higher volume growth than even those drugs, which are outside any ‘price control’? Or in other words, why is the consumption of these types of ‘price controlled’ drugs increasing so significantly, outstripping the same even for drugs with free pricing?
The right answers to these questions lie somewhere else, which I would touch upon now.
Are many NLEM 2011 drugs no longer in supply?
DPCO 2013 came into effect from from May 15, 2013. Much before that, NLEM 2011 was put in place with a promise that all the drugs featuring in that list would come under ‘price control’, as directed earlier by the Supreme Court of India. Even at that time, it was widely reported by the media that most of the drugs featuring in the NLEM 2011 are either old or may not be in supply when DPCO 2013 would be made effective. The reports also explained its reasons.
To give an example, a November 6, 2013 media report stated: “While the government is still in the process of fully implementing the new prices fixed for 348 essential medicines, it has realized that most of these are no longer in supply. This is because companies have already started manufacturing many of these drugs with either special delivery mechanism (an improved and fast acting version of the basic formulation) or in combination with other ingredients, circumventing price control.”
Just to give a feel of these changes, the current NLEM 2011 does not cover many Fixed-Dose Combinations (FDC) of drugs. This is important, as close to 60 percent of the total IPM constitutes of FDCs. Currently, FDCs of lots of drugs for tuberculosis, diabetes and hypertension and many other chronic and acute disease conditions, which are not featuring in the NLEM 201, are very frequently being prescribed in the country. Thus, the decision of keeping most of the popular FDCs outside the ambit of NLEM 2011 is rather strange.
Moreover, a 500 mg paracetamol tablet is under price control being in the NLEM 2011, but its 650 mg strength is not. There are many such examples.
These glaring loopholes in the NLEM 2011 pave the way for switching over to non-NLEM formulations of the same molecules, evading DPCO 2013. Many experts articulated, this process began just after the announcement of NLEM 2011 and a lot of ground was covered in this direction before DPCO 2013 was made effective.
Intense sales promotion and marketing of the same molecule/molecules in different Avatars, in a planned manner, have already started making NLEM 2011 much less effective than what was contemplated earlier.
Some examples:
As I said before, there would be umpteen number of instances of pharmaceutical companies planning to dodge the DPCO 2013 well in advance, commencing immediately after NLEM 2011 was announced. Nevertheless, I would give the following two examples as was reported by media, quoting FDA, Maharashtra:
1. GlaxoSmithKline (GSK) Consumer Healthcare having launched its new ‘Crocin Advance’ 500 mg with a higher price of Rs 30 for a strip of 15 tablets, planned to gradually withdraw its conventional price controlled Crocin 500 mg brand costing around Rs 14 for a strip of 15 tablets to patients. GSK Consumer Healthcare claimed that Crocin Advance is a new drug and therefore should be outside price control.
According to IMS Health data, ‘Crocin Advance’ achieved the fifth largest brand status among top Paracetamol branded generics, clocking a sales turnover of Rs 10.3 Crore during the last 12 months from its launch ending in February 2014. The issue was reportedly resolved at a later date with assertive intervention of National Pharmaceutical Pricing Authority (NPPA).
2. Some pharmaceutical companies reportedly started selling the anti-lipid drug Atorvastatin in dosage forms of 20 mg and 40 mg, which are outside price control, instead of its price controlled 10 mg dosage form.
Why DPCO 2013 drugs showing low volume growth?
From the above examples, if I put two and two together, the reason for DPCO 2013 drugs showing low volume growth becomes much clearer.
Such alleged manipulations are grossly illegal, as specified in the DPCO 2013 itself. Thus, resorting to illegal acts of making similar drugs available to patients at a much higher price by tweaking formulations, should just not attract specified punitive measures, but may also be construed as acting against health interest of Indian patients…findings of the above ‘research report’, notwithstanding, even if it is accepted on its face value.
In my view, because of such alleged manipulations, and many NLEM 2011 drugs being either old or not in supply, we find in the above table that the volume growth of ‘Price Controlled NLEM drugs’ is much less than ‘Price Controlled non-NLEM Para 19’ drugs. Interestingly, even ‘Out of Price Control’ drugs show lesser volume growth than ‘Price Controlled non-NLEM Para 19 drugs’.
Government decides to revise NLEM 2011:
The wave of general concerns expressed on the relevance of NLEM 2011 reached the law makers of the country too. Questions were also asked in the Parliament on this subject.
Driven by the stark reality and the hard facts, the Union Government decided to revise NLEM 2011.
For this purpose, a ‘Core Committee of Experts’ under the Chairmanship of Dr. V.M Katoch, Secretary, Department of Health Research & Director General, Indian Council of Medical Research (ICMR), was formed in May 2014.
The minutes of the first and second meetings of the ‘Core Committee of Experts’, held on June 24, 2014 and July 2, 2014, respectively, were also made public.
On May 5, 2015, the Union Minister for Chemicals and Fertilizers Ananth Kumar said in a written reply to the ‘Lok Sabha’ that “The revised NLEM would form the basis of number of medicines which would come under price control.” This revision is taking place in the context of contemporary knowledge of use of therapeutic products, the Minister added.
Would pharma sector grow faster sans ‘price control’?
If ‘drug price control’ is abolished in India, would pharma companies grow at a much faster rate in volume with commensurate increase in consumption, than what they have recorded during ‘limited price control’ regime in the country? This, in my view, is a matter of conjecture and could be a subject of wide speculation. I am saying this primarily due to the fact that India has emerged as one of the fastest growing global pharmaceutical market during uninterrupted ‘drug price control regime’ spanning over the last 45 years.
Nevertheless, going by the retail audit data from the above table, it may not be necessarily so. The data shows that volume growth of ‘out of price control’ drugs is not the highest, by any measure. On the contrary, it is much less than ‘price controlled drugs under para 19 of DPCO 2013′, which are mainly prescribed for non-infectious chronic diseases on a large scale.
I am referring to AIOCD-AWACS data for just the last 12 months, because of space constraint, but have gone through the same for the entire DPCO 2015 period, till September’15. The reason for my zeroing in on DPCO 2015 is for the three simple reasons:
- The span of price control in this regime is the least, even lesser than DPCO 1995, which was 20 percent.
- It is much more liberal in its methodology of ‘Ceiling Price (CP)’ calculation, over any other previous DPCOs
- It has also a provision, for the first time ever, of automatic price increases every year for price controlled drugs, based on WPI.
A safeguard for patients?
Medicines enjoy the legal status of ‘essential commodities’ in India. Thus, many believe that ‘drug price control’ is a ‘pricing safeguard’ for Indian patients, especially for essential medicines and ‘out of expenses’ for drugs being as high as over 60 percent.
In the prevailing health care environment of India, the situation otherwise could even be possibly nightmarish. The key reason for the same has been attributed to ‘market failure’ by the Government, for most of the pharmaceutical products, where competition does not work. I discussed this issue in my article titled, “Does ‘Free-Market Economy’ Work For Branded Generic Drugs In India?” of April 27, 2015, in this Blog.
In India, ‘drug price control’ has successfully passed the intense scrutiny of the Supreme Court, along with its endorsement and approval. Any attempt of its retraction by any Government, without facing a tough challenge before the Apex Court, seems near impossible.
Conclusion:
The fundamental reasons for overall low volume growth, or in other words, price-increase driven value growth of the IPM, I reckon, lie somewhere else, which could be a subject matter of a different debate altogether.
As I said in the past, IPM grew at an impressive speed consistently for decades, despite ‘drug price control’, and grumbling of the industry for the same. This high growth came from volume increase, price increase and new product introductions, the volume growth being the highest.
Most of the top 10 Indian pharma players, came into existence and grew so fast during the ‘drug price control’ regime. The home-grown promoter of the numero-uno of the IPM league table, is now the second richest person of India. These are all generic pharma companies.
Generally speaking, Indian pharma shares even today attract more investors consistently than any other sector for such a long time. Granted that these companies are drug exporters too, but they all gained their critical mass in partly ‘price controlled’ Indian market. The criticality of the need for consistent growth in the domestic market, by the way, still remains absolutely relevant to all the pharma players in India, even today, despite…whatever.
Growth oriented overall Indian pharma scenario remaining quite the same, ‘drug price control’ with a current span of just around 18 percent of the IPM, can’t possibly be a growth barrier. Otherwise, how does one explain the highest volume growth of ‘price controlled non-NLEM drugs’, which is even more than ‘out of price-control drugs’?
Be that as it may, in my view, implementation of public funded ‘Universal Health Care (UHC)’ by the Indian Government, in any form or calling it by any other name, can possibly replace DPCO. Similar measures have been adopted by all the member countries of the ‘Organization for Economic Co-operation and Development (OECD)’ in this area, though following different paths, but nevertheless to attain the same goal.
Lamentably enough, the incumbent Government too has not ‘walked the talk’ on its number of assurances related to this core issue of health care in India.
Still, the hope lingers!
By: Tapan J. Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.