Fewer "branded generics"
To understand how this new policy will impact prices within the Indian market, consider the following three cases:
» Because Novartis' desferrioxamine mesylate is the only drug within its product category, it experiences price reduction as a fixed percentage of its current price. In
order to determine the price reduction for desferrioxamine mesylate, the NPAA considers the average reduction in similar product
categories. For desferrioxamine mesylate, the price reduction will be 24.80%, the average price reduction for antidotes. This
will reduce the price per unit from its current R170.40 to R128.14.
» GlaxoSmithKline's hepatitis B vaccine is significantly more expensive than the other seven options. Because the new price ceiling is determined by an arithmetic,
and not a weighted average, the price ceiling for hepatitis B vaccines will force the price of GSK's vaccine significantly
down from over R300 to a maximum of R87, a roughly 75% reduction.
» A local manufacturer (Pavior Pharmaceuticals) offers a more expensive factor VIII concentrate injection than the only alternative,
Baxter's cheaper version. According to clearly outlined DPCO policy, the new price ceiling for factor VIII concentrates will become the average of
current prices, or about R5400. Baxter's factor VIII is priced well below where the new price ceiling would be, so Baxter
will not face mandatory price reduction. This is a particularly interesting case, as the DPCO aims to impact high-priced branded
options that compete against a set of generic and "branded generic" alternatives. Baxter's product has over 90% of market
share, so the price ceiling will not have any impact on the category spend.
In order to understand the reach of the DPCO's price reduction policies, one must fully understand the India market. Consumers
and physicians in the country are very brand-conscious, even when it comes to medications. As a result, higher drug prices
don't necessarily lead to lower market share. Indeed, for almost half of the product categories under the DPCO (47%), the
most commonly used drug is also the most expensive. Consider the hepatitis B vaccine market from case No. 2. GSK's product,
despite being the most expensive by a wide margin, has a disproportionate 26% market share. This is because market share and
price are not inversely related in this product category as would typically be expected. Thus, this category demonstrates
DPCO's potential success. Though GSK's drug is the only therapy that will face significant price reduction due to its high
market share, the weighted average of prices in this category will be slashed in half from R140 to R70.
As a result of the DPCO, price differentiation for NLEM-listed medications will become increasingly difficult. More importantly,
the DPCO may impact locally-manufactured generic alternatives as it reduces the price of the MNC branded options, thus decreasing
the price gap and perhaps making the MNC brand more attractive. As price differentiation within each product category decreases,
so too does the potential for a middle tier, products that are neither the most nor the least expensive in the category of
"branded generics." This will lead to a decrease in the overall number of "branded generic" NLEM products across all categories.
No let-up in pricing pressure for non-NLEM drugs
An estimated 70% of the India drug market is not listed on the NLEM and will not face new price ceilings or mandatory price
reductions. However, medicines not listed on the NLEM will only be permitted a 10% annual price increase. In addition, pricing
opportunities remain limited by patient affordability and the threat of compulsory licensing. The Indian government has a
history of implementing compulsory licensing and revoking patents for drugs it considers too expensive. Nine drugs for either
cancer or diabetes have faced patent problems ranging from compulsory licensing to revocation of patents to denial of patent
infringement in India (see chart). These patent problems have led to cheaper generic alternatives for high-cost medicines
in India, and have also positioned India as a country in which exceptionally high-priced therapies are unlikely to launch
Recent IP Precedents in India
MNC R&D investment in India will not change dramatically
The DPCO incentivizes India-based research and development of drugs. However, the likelihood that this will influence investment
decisions by MNCs is negligible. MNCs often have established R&D centers outside of India. Since revenue from NLEM drugs for
MNCs in the context of their global revenues is very small, it is very unlikely that many of these companies will make a large
R&D investment in India because of the DPCO.
The Indian government is heavily involved in regulating prices for medicines in India by using the DPCO to set price maximums
for essential medicines. Going forward, the Indian government may also look to other larger areas of the pharmaceutical/biotech
market to introduce new and increased regulation to make medicines more affordable. To be successful in a changing India market,
manufacturers need to constantly review the changing policy landscape and reassess their India strategy carefully.
Ram Subramanian is a Director, he can be reached at firstname.lastname@example.org
; Nikhil Mutyal is a Consultant, he can be reached at email@example.com
; Emma Nechamkin is a Consultant, she can be reached at firstname.lastname@example.org
; all at Simon-Kucher & Partners