Industry and NPPA Reason for Their Version of Drug Pricing As India Grapples with Drug Use and Acquisition Regulations

GoM Decision Looms As Stakeholders Hope for Different Pricing Mechanisms

A meeting to discuss India's National Pharmaceutical Pricing Policy (NPPP; 2011) was held on 4 April between the Group of Ministers (GoM) and Agriculture Minister Sharad Pawar. While the results of the meeting are yet to be disclosed, stakeholders such as drug price regulator the National Pharmaceutical Pricing Authority (NPPA) and the drug industry are each hoping for a different pricing methodology to be agreed upon—cost-based and market-based methodology respectively—and have provided their own reasoning to support their case.

According to Kewal Handa, the managing director of Pfizer India, past experiences have shown that cost-based pricing has not been beneficial for industry growth—unlike market-based pricing, where the price of the top three brands is used to arrive at pricing levels. Handa added that regulators should not expect all industry players' prices to converge at one point as this would be against promoting competition, reports CNBC.

Meanwhile, the NPPA has revealed that a study conducted on the prices of 34 cancer drugs found that market-based pricing may not be the best solution for the Indian market, reports Business Standard. The NPPA analysis covered all the strengths of the cancer drug formulations under the National List of Essential Medicines. While the NPPA was unable to calculate a weighted average for the top three brands of all 34 drugs, an analysis of the weighted average of the top three brands of 14 showed that market based pricing would result in higher prices that prevailing ones. This is against the spirit of the draft NPPP, an undisclosed NPPA official revealed to the source.

Health Ministry Prescribes Rational Drug Use to States

In addition to trying to control the cost of drugs, the Indian government is also trying to promote rational use of drugs. In this regard, the health ministry is directing state governments to set up Drugs and Therapeutics Committees (DTC) and Pharmacy and Therapeutics Committees (PTC) in hospitals, reports India Pharma News. The central government is setting up DTC and PTCs for hospitals under its ambit. In addition to this, it is in the process of framing treatment guidelines that will be followed by both public and private facilities.

Competition Commission Not Ready to Regulate FDI

The Foreign Investment Promotion Board (FIPB) will continue to regulate acquisitions of greater than 74% by foreign pharma firms in India, reports Times of India. This is because the Competition Commission of India (CCI) is not yet prepared to regulate this function, as it does not have the legal mandate to do so. Furthermore, the health ministry is against the CCI becoming the regulator of such merger and acquisition activities as it feels that public health concerns may be ignored, the source added.

Outlook and Implications

The GoM meeting on the NPPP 2011 has occurred as planned after being deferred by a week. The results of the meeting are likely to decide the fate of the pricing methodology followed by the NPPA. The draft NPPP, 2011 initially had market based pricing. However this was opposed by the health ministry for the same reason as that cited by the NPPA—such a policy would see prices of generics increase across the board for essential drugs (see India: 17 February 2012: New Twist in Indian Pricing Policy As MoH Opposes Proposed Mechanism). Whether the draft has since been changed and market-based pricing completely scrapped is not known. Industry experts are of the view that a mid-ground between the two methodologies can be reached, if the pricing is procurement based. Thus, while the NPPP 2011 started off with relatively few controversies, being more balanced than its predecessor NPPP 2006, problems are now beginning to materialise. However, unlike the NPPP 2006, the government is under mandate by the Supreme Court to roll out NPPP 2011 to bring all essential drugs under price control, and thus make medicines more affordable in the country.

Meanwhile, promoting rational use of drugs is also key for India, where, while some parts of the population suffer from lack of access, unethical promotion sees unnecessary consumption by others. Therefore, the government's initial steps towards endeavouring to form treatment guidelines are commendable, and the World Health Organization (WHO) will be a vital partner in framing these. However, ensuring that these guidelines are enforced and thus ensuring that the population's out-of-pocket healthcare payments are reined in will be the potential future stumbling block to such goals.

Finally, in yet another policy designed to ensure drugs remain accessible and affordable to its population, Prime Minister Manmohan Singh and the Planning Commission decided in 2011 that foreign investments in the pharma sector will be more closely scrutinised by the FIPB. This was due to fears that excessive acquisitions by the global pharma industry would lead to drug price increases on account of 100% foreign direct investment (FDI) allowance in the country. However, the CCI was to take over this activity in April this year. Now, with the FIPB continuing to govern foreign acquisitions, there are likely to be concerns among multinational firms regarding the regulator's plan to add additional caveats to acquisitions; the FIPB has proposed to the health ministry that foreign pharma firms should be allowed to acquire a domestic company only if the target firm's domestic production (particularly of essential drugs) will not be affected (see India: 27 February 2012: Indian Government Looks to Safeguard Domestic Drug Manufacturing from Foreign Acquisitions).