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Déjà Vu In Pharma Industry

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It’s happening in the West, and is equally widespread in the Eastern part of the globe too, though in different ways and forms, as both the national and international media have been reporting, consistently. The phenomenon is all pervasive, and directed towards stalling almost all possible future laws and policies that a large section of the pharma industry sees as a potential apocalypse for their business models.

It has a wide reach and covers, for example, the policy-decision makers or possible policy-decision makers in the near future, other policy influencers, many hospitals, and the final interface with the patients – the prescription decision makers.

Although, it affects health care as a whole, in this article I shall focus just on the pharma industry.

Looking West:

While looking at the West, I would cite a recent example from the United States. It’s yet another déjà vu for the western pharma industry.

On August 26, 2016, ‘The Los Angeles Times’ in an article titled, “Drug companies spend millions to keep charging high prices” stated, “Of roughly US$ 250 million raised for and against 17 ballot measures coming before California voters in November, more than a quarter of that amount – about US$ 70 million – has been contributed by deep-pocketed drug companies to defeat the state’s Drug Price Relief Act.”

The Drug Price Relief Act of California, is aimed at making prescription drugs more affordable for people in Medi-Cal and other state programs by requiring that California pays no more than what’s paid for the same drugs by the Department of Veterans Affairs of the United States. It would, in other words, protect state taxpayers from being ripped off.

The report also quoted Michael Weinstein, President of the AIDS Healthcare Foundation saying that industry donations to crush the Drug Price Relief Act “will top US$ 100 million by the election, I’m quite certain of it.” He further added, “They see this as the apocalypse for their business model.”

Looking East:

While citing a related example from the eastern part of the globe, I shall draw one from nearer home – India, as China has already been much discussed on this matter. This particular media report on a wide-spread pharma industry practice, though took place in a different form, as compared to the United States, belongs to the same genre, and captures yet another déjà vu involving the pharma players operating in the eastern world, similar to what’s happening in the west.

India:

On August 30, 2016 a report published in ‘The Economic Times’ titled, “Pharma cos offer freebies to doctors, violate code: MP” quoted a serious allegation of a Rajya Sabha Member of the Parliament on this issue. The MP claims, he has evidence of four drug companies’ recently bribing doctors across India to push their products. These four companies include both large Indian and multinational pharma players, and two out of these four features, among the top five companies of the Indian Pharma Market (IPM).

The lawmaker further said, “I am waiting for the minister’s response on this issue. Nothing has come so far. We also have the names of the doctors who have taken bribes, which we will release eventually,”

Another September 06, 2016 report, published by the same business daily in India, categorically mentioned that TOI has documents to establish that one of these companies took hundreds of doctors from across India to places like Vancouver, Amsterdam, Oslo, Venice, New York, Boston, Brussels and Moscow. The documents reportedly include email exchanges between the company executives, city-wise lists of doctors with ‘legacy codes’, names of spouses, passport copies and visa copies, and show how the company has spent several millions of rupees in taking doctors and sometimes even their spouses, ostensibly to attend medical conferences.

Other NGOs have also reportedly submitted proof of the same to the Government for remedial measures in India, against such gross ongoing unethical practices in pharma marketing.

It is worth mentioning here that all these expenses are part of the marketing budget of a company and the sum total of which is built into the ‘retail price to the patients’ of the respective drugs, even in India.

Two broad processes for the same goal:

Thus it emerges, very broadly, there are two key processes followed by many in the pharma industry to achieve the same goal of increasing profit. These are as follows:

  • Marketing malpractices in various forms to influence prescription decision
  • Arbitrary increase of drug prices, for both branded and generic medicines

The justification:

Many global pharma majors still keep justifying, though the number of its believers is fast dwindling, that the high new drug prices have a linear relationship with the cost of new drug innovation. Even for argument’s sake one nods in favor, the critical question that needs to be answered is, if this is the basic or primary axle on which the wheel of innovation moves, won’t affordability and access to drugs for a significant number of the population be seriously compromised?

If not, why is this furor, across the world, is fast assuming a snowballing effect? Why are even the generic drug prices going up steeply even in the United States, where some of the largest Indian drug manufacturers are being questioned for the same by the competent authorities of the country?

I deliberated on a similar subject in my article titled, “The Next Frontier: Frugal Innovation For High-Tech Drugs”, published in this Blog on May 20, 2016.

Marketing malpractices:

Laws are fast catching up to book the offenders resorting to pharma marketing malpractices in most of the countries of the world, including China. This is vindicated by the fact that global pharma players are now paying billions of dollars a fine, in various countries, especially in the West.

Just as no criminal law can totally eliminate any crime, anywhere in the world, despite a heavy dent in pharma’s reputation related to this area, many companies still continue to indulge in such malpractices, blatantly, and even with some brazenness.

India:

Unfortunately, in India, the inertia to catch the bull by the horn and lack of governance in this regard continues, making patients pay a heavy price. As the above media report indicates, both MNCs and the local players indulge into this deplorable activity almost without any inhibition. As many industry watchers believe, some companies have started hiring these services through professional third parties just to create a facade for taking the high moral ground, as and when required, both with the government and also other stakeholders.

Initiating a step in this direction, on December 12, 2014, the DoP announced details of the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’, which became effective across the country from January 1, 2015. The communique also said that the code would be voluntarily adopted and complied with by the pharma industry in India for a period of six months from the effective date, and its compliance would be reviewed thereafter on the basis of the inputs received.

UCPMP, though not a panacea, was aimed at containing pharma marketing malpractices in India. However, as happened with any other voluntary pharma marketing code, be it of a global drug major or their trade associations, similar non-compliances were detected even by the DoP with voluntary UCPMP.  This gross disregard to the code, apparently prompted the DoP contemplating to make the UCPMP mandatory, with legal implications for non-compliance, which could possibly lead to revocation of marketing licenses.

In this context, it is worth recapitulating that the Union Minister of Chemicals and Fertilizer – Mr. Ananth Kumar, in his reply in the Indian Parliament, to a ‘Lok Sabha Starred Question No: 238’ on the UCPMP based on the inputs received, also had admitted:

“The Government had announced Uniform Code for Pharmaceutical Practices (UCPMP) which was to be adopted voluntarily w.e.f. 1st January, 2015 for a period of six months and has last been extended up to 30.06.2016. After reviewing the same it was found that the voluntary code was not working as expected. The Government consulted the stakeholders, including NGO’s / Civil Society members and after examining their suggestions it is now looking into the viability of making the Code Statutory.”

This seems to be yet another assurance, and expression of a good intent by the Union Minister. The fact today is, after extending the UCPMP in its original form up to June 30, 2016 with four extensions and despite the Government’s public admission that it is not working, by a circular dated August 30, 2016, the Government has informed all concerned, yet again, that voluntary UCPMP has now been extended ‘till further orders’.

This not only creates public apprehension on the DoP’s true intent on the subject, but also gives enough room for speculation regarding behind the scene power play by the vested interests to keep a mandatory UCPMP, having sufficient legal teeth, away, as long as possible. Are these forces then also visualizing its enforcement as an apocalypse for their business models in India too?

Thus, the possibility of containing pharma marketing malpractices in India is still charting in the realm of the decision makers’ assurances and no further.

Arbitrary drug price increases:

Arbitrary price increases of important drugs are drawing increasing public ire in the West, the latest being a 400 percent price increase of generic EpiPen of Mylan. This is now being considered yet another business malpractice in the pharma industry, as whole.

No robust regulatory or legal measure is now being followed in the West to contain the drug over pricing public health menace. Thus, it is increasingly assuming a critical political significance today to win over the voters, especially in the forthcoming Presidential election of the United States.

Thus, as reported by Reuters, on September 02, 2016, Hillary Clinton announced that, if elected, she would create an oversight panel to protect the consumers of the United States from large price hikes on longer-available, life-saving drugs and to import alternative treatments if necessary, adding to her pledges to rein in overall drug prices.

She would give the ‘Oversight Panel’ an aggressive new set of enforcement tools, including the ability to levy fines and impose penalties on manufacturers when there has been an unjustified, outlier price increase on a long-available or generic drug.

On September 08, 2016, reacting to these proposed measures articulated by Hilary Clinton, the global CEO of the world’s largest pharma player reportedly commented, as expected, that it “will be very negative for innovation.”

Nonetheless, the bottom-line is, even in the United Sates, a transparent mechanism to deal with arbitrary price increases of the existing important medicines, still charts in the realm of several assurances of the probable decision makers, just as it is India to effectively deal with pharma marketing malpractices.

A global CEO’s lone voice stands out:

In this context, I would start with yet another example of astronomical price increase of a widely used anti-diabetic product, besides EpiPen of Mylan. According to Dr. Mayer Davidson, Professor of Medicine at the Charles R. Drew University of Medicine and Science in Los Angeles, who has carefully tracked the rapid and repeated increases, from 2011 to 2013 the wholesale price of insulin went up by as much as 62 percent in the United States. Whereas, from 2013 to 2015 the price jumped again, from a low of 33 percent to as much as 107 percent.

In the midst of this scary situation, a solitary and apparently a saner voice from the global pharma industry stands out. According to an article published in the Forbes Magazine on September 06, 2016, Brent Saunders, CEO of Allergan, ‘explicitly renounced egregious price increases.’ Saunders also said that the industry needs to ‘end its addiction to price hikes far in excess of inflation, often taken several times in a single year.’ While outlining his company’s “social contract with patients,” Saunders vowed that Allergan would:

  • Limit price increases to single-digit percentages, “slightly above the current annual rate of inflation,” net of rebates and discounts.
  • Limit price increases to once per year.
  • Forego price increases in the run-up to patent expiration, except in the case of corresponding cost increases.

Though this seems to be a lone voice in the pharma industry, it makes the CEO stand much taller than his peers.

India:

On this score, India has already put in place the ‘National Pharmaceutical Pricing Authority’ to regulate the drug prices of primarily those falling under the ‘National List of Essential Medicines (NLEM)’. However, it is a different matter that as per its own public admission, NPPA is still unable to strictly enforce these price controls, with significant incidences of non-compliance. Therefore, the net benefits to the patients in India for having this mechanism, is indeed arguable.

The core issue:

All that we witness in this area are mostly assurances, promises and good intent on the part of various Governments of different political dispensation, over the last several decades. The same indifference to public health care, in general, continues. Nothing seems to be working effectively in the public health care space of the country, even today. A large section of patients, bearing the tough burden of the highest out of pocket health expenditure in India, are under significant consequential stress of all kinds.

An important part of this scenario is well-captured in the statement of the erstwhile Secretary of the Department of Pharmaceuticals (DoP) – V K Subburaj at an event in New-Delhi on April 19, 2016, when he said, “In the entire world, I think our drug control system probably is the weakest today. It needs to be strengthened.”

Is it a legacy? Possibly yes. But, who will fix it, and what steps are we taking now for its satisfactory resolution?

The core issue in the pharmaceutical arena is, therefore, about striking an optimal balance between drug profitability and patient affordability, to avoid any adverse impact on access to drugs for a large majority of population in the world.

Conclusion:

Thus, it appears to me, if those who now decide for the people’s health interest, also refuse to wake up from deep slumber and remain as indifferent as before, soon we may hear or read or experience yet another or more of similar deplorable developments, having serious adverse repercussions on the patients.

Interestingly, despite such incidents, pharma stocks remain generally unaffected and buoyant. Its overall trend continues heading north, factoring-in that no implementable Government action is forthcoming, for obvious reasons. Consequently, pharma business remains as robust as ever, but the patients continue to suffer increasingly more.

Pharma industry in general, has been seriously attempting to wash its hands off for this scary emerging situation, since long. It blames the governments for trying to throttle the money spinning business with ‘unnecessary’ regulations, as discussed above, for something that is only the state responsibility, as they perceive. The governments, in turn, blame the industry and try to regulate it more strictly. Invariably, the patients in need of right and affordable medical care get caught in this cross-fire – some succeed to overcome the health crisis, but mostly exposing themselves to huge financial uncertainty in the future, many others can’t.

When the business continues to flourish with current business ‘practices’, why would the pharma players bother about rapidly tarnishing industry reputation, and public outcry? Does it really matter at all on the ground, for running a money spinning business machine, especially when there exists a fair chance of stalling the new laws and policies, with deep pockets, as alleged by many?

In this scenario, what else a common man would do while falling seriously ill, except praying to the almighty for divine care and blessings for a speedy recovery, along with possibly lamenting, it’s déjà vu in the pharma industry?

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. 

Cheaper Drugs: Happy Patients: Angry Industry

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Recent price reductions of a number of cardiovascular and diabetes drugs falling outside the National List of Essential Medicines 2011 (NLEM 2011), have attracted fury of the pharma industry . By a notification dated July 10, 2014, the National Pharmaceutical Pricing Authority (NPPA) has invoked Para 19 of the DPCO 2013 for these price changes, the implications of which would indeed be far reaching.

NPPA has now decided to examine inter-brand price variation for single ingredient formulations in eight therapeutic groups, which, besides cardiovascular and diabetic drugs, would include, anti-cancer, HIV/AIDS, anti-TB, anti-malaria, anti-asthmatic and immunological (sera/vaccines). In these therapy areas, the Maximum Retail Price (MRP) of the brand(s) exceeding 25 per cent of the simple average price of all in the same molecular category having 1 percent or above market share, would be capped at the 25 per cent level.

Pharma industry, in general, feels that this ‘unwelcoming decision’ of the NPPA, which allegedly goes beyond the scope and spirit of DPCO 2013, would invite great uncertainty in its business environment.

On the other hand, many consider this price reduction as a ‘Good Omen’ for millions of patients suffering from related life-long ailments. They argue, the purpose of this ‘Bitter Pill” of the NPPA, is to send a clear message to the pharma industry to shape-up with responsible drug pricing.

The new Minister’s recent statement:

It may not be a bad idea to take into consideration the above notification of the NPPA in the light of what the new minister of Chemicals and Fertilizers – Mr. Ananth Kumar said on May 28, 2014. According to media report, the Minister expressed his intent as follows:

“… As far as branded medicines of multinational pharmaceutical companies are concerned, we will talk to all of them and try to bring down prices of essential drugs for poor by 25-40 per cent… The pharmaceutical industry is very important for the health of the country, he added…our main mission will be to ensure the availability of all necessary medicines at affordable prices, especially for poor across the country.”

It is, therefore, quite possible that the NPPA’s decision on price reduction of cardiovascular and diabetes drugs has the Minister’s concurrence.

Industry’s key concern:

This recent decision of the NPPA has reportedly angered the industry, as the Drug Price Control Order 2013 (DPCO 2013) clearly articulates two basic criteria for drug price control in India, as follows:

1. Span of price control:

This was re-defined (from DPCO 1995) on the ‘essentiality criteria’ of the drugs, which in turn is based on the National List of Essential Medicines 2011 (NLEM 2011)

2. Methodology of price control:

This was re-defined (from DPCO 1995) with a clear departure from ‘Cost-Based Price Control’ to the ‘Market-Based Price Control’.

The industry alleges violation of these criteria for the recently announced price reduction of a number of diabetic and cardiovascular drugs, as those do not fall under NLEM 2011.

Price variation is of no-use to patients for prescription drugs:

As the prices of non-scheduled formulations are not fixed by the NPPA, which can virtually be launched at any price to the market, there has been a huge variation of prices between the branded generics within the same chemical entity/entities. Following is a quick example:

Molecule Disease MRP of Lowest Price Brand MRP of Highest Price Brand
Telmisartan 10’s Hypertension Rs. 25 Rs. 385
Glimeperide 10’s Diabetes Rs. 40 Rs. 133 (Brand Leader)

From this chart, one may be able to fathom some basis in the NPPA’s argument that similar price variations in many branded-generics are of no-consequence for prescription drugs, as doctors decide the medicines that a patient would take. If doctors were influenced to prescribe high priced medicines, the patients would require paying more for those drugs, further increasing their Out of Pocket (OoP) expenses. It is also not uncommon that highest price brands are category-leaders too, as indicated in the table above.

Key lacunae in DPCO 2013:

  •  NLEM 2011 does not cover many combinations of TB drugs, a large number of important drugs for diabetes and hypertension, which I shall deliberate in just a bit.
  • Many other critical life saving medicines, such as, anti-cancer drugs, expensive antibiotics and products needed for organ transplantation have been left out of price control. In fact, the prices of a number of these drugs have reportedly gone up after the notification of DPCO 2013.
  • The government has now reportedly admitted in an affidavit filed before the Supreme Court that the market value and share of medicines covered by new DPCO 2013, as ‘Essential Drugs’, is a meager 18 per cent of the Indian Pharmaceutical Market (IPM).
  • As a result, DPCO 2013 based on NLEM 2011 undermines the entire objective of making essential drugs affordable to all.
  • All these lacunae in the current DPCO 2013 calls for a major revision of NLEM 2011. The Union Health Ministry has reportedly initiated steps to revise the list considering the existing market conditions and usage of drugs by the patients.

Invocation of a ‘Safeguard Provision’ in DPCO 2013:

Probably anticipating this scenario, a key safeguard provision was included in Para 19 of DPCO 2013, which reads as follows:

“Fixation of ceiling price of a drug under certain circumstances:

Notwithstanding anything contained in this order, the Government may, in case of extra-ordinary circumstances, if it considers necessary so to do in public interest, fix the ceiling price or retail price of any Drug for such period, as it may deem fit and where the ceiling price or retail price of the drug is already fixed and notified, the Government may allow an increase or decrease in the ceiling price or the retail price, as the case may be, irrespective of annual wholesale price index for that year.”

It now appears, NPPA could realize the key limitations of DPCO 2013, which was put in place rather hastily, in course of its implementation for over one year. Consequently, the patients’ long standing plight with high drug costs for many common life style diseases that are not featuring in NLEM 2011, prompted the the drug regulator in its above notification to bring 108 non-scheduled formulation packs of diabetic, cardiac and other drugs under Para 19 of DPCO 2013, catalyzing an outcry within the pharmaceutical industry in India. Out of these 108 formulation packs, 50 come under anti-diabetic and cardiovascular medicines.

Many important drugs are outside NLEM 2011:

Following is an example of the important cardiovascular and anti-diabetic drugs, which are not featuring in the NLEM 2011 and have now been brought under Para 19 of DPCO 2013:

Sitagliptin, Voglibose, Acarbose, Metformin hcl, Ambrisentan, Amlodipine, Atenolol, Atorvastatin, Bisoprolol, Bosentan,  Gliclazide, Glimepiride, Miglitol, Repaglinide, Pioglitazone, Carvedilol, Clopidogrel, Coumarin, Diltiazem, Dobutamine, Enalapril, Rosuvastatin, Simvastatin, Telmisartan, Terazosin, Torasemide, Trimetazidine and Valsartan, Enoxaparin, Eplerenone, Esatenolol, Fenofibrate, Heparin, Indapamide, Irbesartan, Isosorbide, Ivabradine, Labetalol, Levocarnitine, Lisinopril, Metolazone, Metoprolol, Nebivolol, Nicorandil, Nitroglycerin, Olmesartan, Prasugrel, Prazosin, Propranolol, Ramipril.

More reasons for industry outcry:

As reported in the media, the industry outcry reportedly highlights, besides what I have cited above, the following:

  • The price control order under Para 19 has been notified without any prior consultation with the industry.
  • The manner and method in which this unilateral decision has been taken is untenable.
  • The NPPA’s reasoning, about exploitative pricing by the industry as the reason for such a move, is incorrect given that every product category (in consideration) has approximately 30-70 brand options across price ranges for physicians and patients to choose from. The premise that products are not accessible due to affordability is misplaced. (The above table explains this point).
  • Disease environment was same when the government had cleared the policy and no “extraordinary circumstance” has emerged since then for the regulator to invoke Para 19 in public interest.
  • NPPA has exceeded its brief and gone into policy-making.

NPPA’s rationale for invoking Para 19 of DPCO 2013:

On the other hand, following reasons were cited by the NPPA for taking this decision:

  • The aim of DPCO 2013 is to ensure that essential drugs are available to all at affordable prices. The Supreme Court of India vide its Order dated November 12, 2002 in SLP no. 3668/2003 have directed the Government to ensure that essential and life saving drugs do not fall outside the ambit of price control, which has the force of law.
  • The Ministry of Chemicals and Fertilizers has delegated the powers in respect of specified paragraphs of the DPCO 2013, including paragraph 19, to be exercised by the NPPA on behalf of the Central Government in public interest.
  • There exist huge inter-brand price differences in branded-generics, which is indicative of a severe market failure as different brands of the same drug formulation identical to each other vary disproportionately in terms of price.
  • The different brands of the same drug formulation may sometimes differ in terms of binders, fillers, dyes, preservatives, coating agents, and dissolution agents, but these differences are not significant in terms of therapeutic value.
  • The main reason for market failure is that the demand for medicines is largely prescription driven and the patient has very little choice in this regard.
  • Market failure alone may not constitute sufficient grounds for Government intervention, but when such failure is considered in the context of the essential role that pharmaceuticals play in the area of public health, such intervention becomes necessary. This assumes greater significance, especially when exploitative pricing makes medicines unaffordable and beyond the reach of most, putting huge financial burden in terms of out-of-pocket expenditure on healthcare.
  • There is very high incidence of diabetes in the country, which affects around 61 million persons and the figure is expected to cross 100 million by 2030 as per the projection of the International Diabetes Federation; and it is estimated that every year nearly 1 million people in the country die due to diabetes and hypertension.
  • The drug regulator categorically mentions that In accordance with the guidelines issued by the NPPA, after approval of the ‘Competent Authority’, these price fixations of non-scheduled formulations under Para 19 of DPCO 2013 have been made.

Constituents of the same Ministry with conflicting view points:

Though both NPPA and the Department of Pharmaceuticals (DoP) come under Mr. Ananth Kumar, the new Minister of Chemicals and Fertilizers, both these constituents seem to have conflicting views on this important issue.

The pharma industry reportedly has sought the DoP’s intervention in this matter. The DoP, in turn, is learnt to have requested for the opinion of the Ministry of Law on using ‘Para 19′ provision in favor of public interest by the NPPA, invoking the power assigned to the drug regulator.

Another route for the industry is to legally challenge the said notification of the NPPA. However, one should keep in mind that a PIL is still pending before the Supreme Court questioning the validity DPCO 2013.

The arguments for and against:

Taking all the above points into consideration, the following two important areas of debate have now emerged on this NPPA notification, both in favor and also against:

A. Nothing has materially changed since DPCO 2013 was put in place:

Industry sources highlight that he following two points, that triggered NPPA’s invoking Para 19, have been there for a long time, including the period when the National Pharmaceutical Pricing Policy 2012 (NPPP 2012) was formulated:

-       Huge price differences among various branded generics of the same molecule

-       Cardiovascular ailments and diabetes have assumed endemic proportion

The other group counters that, if mistakes were made while formulating the NPPP 2012 because of intense pressure from vested interests in the erstwhile regime, why corrective actions can’t be taken now?

B. NPPA has exceeded its brief:

Industry sources question, how could NPPA possibly issue such notification of price reduction for non-scheduled formulations, as it is not a policy maker?

Others counter with equal zest: Of course NPPA is not a policy maker, it is a drug price regulator… And as a price regulator, it has implemented Para 19 of DPCO 2013 in the right earnest with the requisite powers conferred on it.

The impact:

According to published data, after the latest price revisions of diabetic and cardiovascular drugs, around 21 per cent of the anti-diabetic drug market faces the ceiling price, while the total market of cardiovascular medicines under price control is now estimated at around 58 per cent, with an overall adverse impact of reportedly Rs 550 Crore on the Indian Pharmaceutical Market. Overall price reduction for these two categories would range between 5 and 35 per cent, the average being around 12 per cent.

MNCs seem to have been hit harder:

An additional bad news for the MNCs is that the scope of Para 19 has now gone beyond the generic space and included even patented product.

For the first time a patented product Sitagliptin has been brought under the purview of Drug price Control order. This decision could give an unprecedented handle to the NPPA to regulate prices of even patented drugs through invocation of Para 19 of DPCO 2013 in future.  Moreover, many high-priced branded generics of MNCs are brand leaders too. Thus, in a relative yardstick, invocation of Para 19 would hit the MNCs harder, creating an uncertainty in their business environment.

Conclusion:

Drug prices are cheapest in India in dollar terms, claims the pharma industry. Does this claim hold much water? May be not, because it should be realistically seen in terms of Purchasing Power Parity (PPP) and Per Capita Income in India. In that sense many would argue that drug prices in India, on the contrary, are not cheaper at all.

Moreover, it is important to take into cognizance the huge inter-brand price differences in branded-generics due to a flawed system, as patients have no role to play in choosing a drug (within the same molecule) that they would need to buy. It is the doctor who is the sole prescription decision maker, where price, per se, may not play a very significant role.

In a situation like this, despite the anger of the industry, many would ponder whether or not NPPA’s engagement and reasoning, on behalf of the Government, to bring some sense in the madness of drug pricing in India be just wished away?

Cheaper medicines in general and generic drugs in particular, would always make the patients and the payor happy, leaving the industry mostly angry.

Keenly observing the recent series of events and taking note of a number of highly credible viewpoints, besides a couple of seemingly spoon-fed, ill-informed and run-of-the mill type editorials, this is about time for the stakeholders to judge without any bias what is right for the country, its people and of course the business to work out a win-win solution, dousing the likes of ‘Fire in The Blood‘, once and for all.

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. 

The New Government To Ponder: Is “Market Based Drug Pricing Policy” An ill Conceived One?

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According to a recent media report, Mr. Ananth Kumar, the new minister of Chemicals and Fertilizers has recently made a statement, as follows:

“… As far as branded medicines of multinational pharmaceutical companies are concerned, we will talk to all of them and try to bring down prices of essential drugs for poor by 25-40 per cent… The pharmaceutical industry is very important for the health of the country, he added…our main mission will be to ensure the availability of all necessary medicines at affordable prices, especially for poor across the country.”

This statement assumes great significance for the Indian Pharmaceutical Industry and simultaneously rekindles hope for many patients, as the minister expressed intent that the new government wants to revisit the current drug price control system of India.

However, why did the minister in his above statement single out MNCs for discussion, is not very clear, just yet. Most probably, this is due to much published reports that branded generics from MNCs, which are outside price control, usually cost more than others, for whatever may be the reasons. Anyway, that could be the topic of another discussion in this blog.

The backdrop of DPCO 2013:

After a protracted negotiation and lobbying by the Indian Pharma Industry and others with the then UPA II Government, a well sought after paradigm shift took place in the drug price control regime of India.

In the new “National Pharmaceutical Pricing Policy 2012”, the span of price control was changed from bulk-drug based to all drug formulations falling under the ‘National List of Essential Medicines 2011 (NLEM 2011)’. The methodology of price control was also radically modified from the cost-based to market based one. Accordingly the new Drug Price Control Order (DPCO 2013) was notified on May 15, 2013.

The decision to have new drug policy was taken as a last minute sprint, as it were, primarily driven by the immense pressure generated by the Supreme Court on the UPA II Government for pussyfooting this important issue over almost a decade.

Hurried action after prolonged inaction:

The last Drug Policy of India was announced in 2002, which was subsequently challenged by a Public Interest Litigation (PIL) in the Karnataka High Court on the ground of being inflationary in nature. The Honorable Court by its order dated November 12, 2002 issued a stay on the implementation of the Policy.

This judgment was challenged by the Government in the Supreme Court, which vacated the stay vide its order dated March 10, 2003 and ordered as follows:

“We suspend the operation of the order to the extent it directs that the Policy dated February 15, 2002 shall not be implemented. However we direct that the petitioner shall consider and formulate appropriate criteria for ensuring essential and lifesaving drugs not to fall out of the price control and further directed to review drugs, which are essential and lifesaving in nature till 2nd May, 2003”.

As a result, DPCO 1995 continued to remain in operation pending formulation of a new drug policy as directed by the honorable court, since then.

Unfortunately, the then government did not show any urgency to come out with a new drug policy, even thereafter, for about a decade.

Fortunately, in the recent years, coming under intense judicial scrutiny and pressure due to a PIL on the subject before the Supreme Court of India, the then Government was compelled to come out with the New National Pharmaceutical Pricing Policy 2012 (NPPP 2012), rather hurriedly, effective December 7, 2012.

That was the ‘grand beginning’ of a new paradigm of ‘market-based’ drug price control regime in India.

Hype and rapid disillusionment:

Many stakeholders, barring some NGOs, felt at that time that DPCO 2013 could be a win-win strategy for both the industry and patients, as it would apparently be less intrusive for the pharma players.

Along side, through ‘Public Relations’ overdrive, hype was created by vested interests to generate a feeling that the drug prices are coming down by 30-40 percent, as a result of the new market-based price control regime.

That could well be true for a handful of drugs, but the fact is that the industry was adversely impacted by around 2.3 percent and the span of price control came down from 20 percent of the just pervious DPCO 1995 to 18 percent in DPCO 2013, not impacting the industry as much as it was hyped before.

Realization of these facts was just enough for the public disillusionment to set in.

Questions started popping-up almost immediately:

Unfortunately, many key questions started popping-up just at the very onset of its implementation process. Besides many others, some basic questions raised on DPCO 2013, a good number of which went into litigations and/or departmental reviews, are as follows:

  • Implementability of new ‘Ceiling Prices (CP)’ for market stocks within 45 days of notification by the respective companies.
  • Criteria of calculation of 1 percent market share for brands.
  • How would already existing different drug delivery systems of the same drug substance be considered to work out a common CP?
  • How reliable is the IMS Data, based on which CP calculation would be done by the NPPA?
  • What will happen to those NLEM 2011 drugs for which IMS does not provide any information?

Erstwhile Finance Ministry wanted to continue with cost plus formula:

When the new draft National Pharmaceutical Pricing Policy (NPPP) had gone for comments from various ministries of UPA II Government, the key recommendations of the then Ministry of Finance were reportedly as follows:

  • The proposal to limit the NPPP to control prices of only formulations leaving aside bulk drugs is not supported.
  • Top priced brands in many therapy areas are also the brand leaders. As a result, high prices of such drugs while calculating the ceiling prices would push up prices of many low priced drugs significantly.
  • The current system, which is a cost plus system is adequate to cover all legitimate costs for a manufacturer, particularly when the costing is being done annually and should be continued.
  • The same cost plus system should also apply to other formulations where additional therapeutic elements will be added. Related incremental cost in those cases can be considered to determine the ceiling price of combination formulations.
  • The Maximum Retail Prices (MRP) for all NLEM 2011 drugs may be fixed by the NPPA accordingly and the pharmaceutical companies would be free to price these NLEM products at any level below the MRP.
  • Annual indexation of price with WPI is not supported. The cost analysis should determine the quantum of increase.
  • Data related to prices and market shares should be collected from sources other than IMS even for drugs covered by them. The methodology to be followed by NPPA for evaluating IMS data and for collecting the data for medicines from other sources should be included in the NPPP.
  • A phased movement towards 100 percent generic manufacturing, as recommended by the Ministry of Health (MoH), for all drugs under the NLEM should be considered.

Current imbroglio over ceiling price fixation:

A recent media report highlighted that even almost 15 months after the announcement of DPCO 2013, National Pharmaceutical Pricing Authority (NPPA) fails to fix prices of 111 scheduled formulations due to scanty available information.

According to this report, though NPPA has revised prices of over 400 formulations out of around 652 as per DPCO 2013, it has now come out with a list of 103 formulations for which prices could not be fixed due to insufficient information. Besides, it could not fix the prices of eight more formulations, as the NLEM 2011 did not provide required information, such as, strength, route of administration and dosage form.

Thus, it appears that required price control of essential drugs as per DPCO 2013 is in a limbo today because of serious implementability issues, over and above its other (de)merits, as discussed above.

The fundamental question:

The fundamental question that is now being raised by many is, whether from patients point of new there was any need to change from ‘Cost Based Price Control (CBPC)’ to the new ‘Market Based Price Control (MBPC)’ system?

As a result, a Public Interest Litigation (PIL) is still pending before the Supreme Court challenging DPCO 2013.

This judicial scrutiny could put the MBPC concept in jeopardy, placing the pharma price control system back to CBPC mode, unless the new government takes a pre-emptive strategic move well before hand.

The New Minister’s recent statement rekindles hope for action:

There are now more reasons to justify why the new Minister Mr. Ananth Kumar should revisit MBPC mechanism, sooner. As I wrote in one of my earlier blog post that “The New ‘Market Based Pricing Model’ is Fundamentally Flawed”.

Conclusion:

From the statements of the new Minister of Chemicals and Fertilizers herein, and also the new Health Minister, as quoted in my last blog post, it appears that the Department of Pharmaceuticals (DoP) would continue to remain with the Ministry of Chemicals and Fertilizers, at least for some more time. This is quite contrary to the general expectations that DoP would be a part of the Ministry of Health in the new regime.

That said, besides full implementability of DPCO 2013 for all essential drugs, the Ceiling Price (CP) calculation methodology also appears to be fundamentally flawed, its misuse and abuse by some pharma players, as highlighted in my earlier blog post, have also been a subject of great concern and consumer aghast.

With this rapidly evolving scenario, unless the new minister Ananth Kumar steps in to sort out the conundrum with deft handling, unlike his almost defunct predecessor in UPA II, or till the Supreme Court intervenes responding to the PIL on DPCO 2013 related issues, the growing dissatisfaction of the affected section of stakeholders and the constraints of the NPPA would continue to linger, poor patients being the ultimate sufferers.

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.