"Market-Based" Price Controls In India?

Mar 31, 2014
By Pharmaceutical Executive

India's Department of Pharmaceuticals (DoP) released the Drug Price Control Order (DPCO) in May 2013. It increased the number of drugs on the National List of Essential Medicines (NLEM) from 74 to 348 and offers new paradigms for determining and enforcing price ceilings while maintaining stable drug supply. Biopharmaceutical companies that do business in India need to carefully evaluate the consequences of this legislation.

The DPCO has three primary aims: expanding the NLEM, authorizing the National Pharmaceutical Pricing Authority (NPPA) to regulate prices of India's NLEM, and authorizing the NPPA to regulate price increases of non-essential medicines. The DPCO uses market-based mechanisms to set price ceilings. It works differently, depending on how many products are in a category:

» If a drug is one of many drugs within a given product category, the price ceiling is the simple average of the prices of all drugs that have at least 1% of market share within that category (plus a 16% pharmacists' margin).

» If a drug is the only one within a given drug category, the new price ceiling for that category will be a fixed percent, based on price reductions in similar categories.

Moving forward, all drugs in a product category must be priced at or below the price ceiling or the manufacturer will face monetary penalties. If a drug's price is already below the price ceiling, a price increase is prohibited. The NPPA, however, currently has no mechanism to officially penalize an offending manufacturer. For all NLEM-listed treatments, yearly price increases must be in line with or below the wholesale price index.

The Indian government has also reserved the right to mandate continued production for up to 12 months, to require quarterly drug production reports, and to require six months' notice before production of a given drug ceases. The regulation also exempts all drugs developed and patented in India from price control as a means of incentivizing India-based research and development.

The DPCO results in three key implications for pharmaceutical and biotechnology companies in India, as well as for the country as a place for future clinical R&D:

» Fewer "branded generics."

» No let-up in pricing pressure for non-NLEM drugs.

» No dramatic change in MNC R&D investment in India.