Medicines and profit

Under pressure from pharmaceutical companies, the ambit of drug price control has been decreasing continually.

These days, there is a debate going on in official circles about what should be the formula for determining the prices of medicines in the forthcoming drug price policy. Should this formula be cost based or market based? If the formula were cost based, then the prices of the medicines would be less but companies may not be able to earn huge profits, however, if it is market based, then the profits of the companies would increase but medicines would go unaffordable for poor.

A decision regarding this policy needs to be taken in coming days. It is noteworthy that the government has not initiated this discussion. The fact is that the Supreme Court has directed the government to decide about the policy to determine the prices of all the 348 essential medicines mentioned in the national list, while hearing a public interest litigation (PIL) on the matter. This public interest litigation was filed by an organisation named ‘All India Drug Action Network’ in which they have requested the Court to direct the government to control the prices of the essential medicines.

It is worth noting that for more than 30 years, under the pressure from the pharmaceutical companies, the ambit of drug price control has been decreasing continually.  In 1979, 347 types of medicines used to come under the Drug Price Control Order and remained within the reach of the common people. From 1987, only 142 medicines were left that came under the ambit of this order and in 1995, this number was further reduced to 74. Today, merely 74 medicines are under Drug Price Control Order, which is just a small fraction of the pharmaceutical market. It is obvious that since prices of these medicines were set free from governmental control, their prices increased and they no longer remained within the reach of the common people. Although, due to the competition between the companies producing ‘generic’ medicines, small manufacturers keep the prices of medicines low yet big established companies keep their prices high. In this scenario, due to the reduction in the ambit of Drug Price Control Order, the prices of medicines have increased greatly.

Amidst all this, a new patent law has come into force and now for the manufacture of the medicines bearing new patents, the provision of compulsive licensing has also been greatly restricted due to which the patent-bearing companies has a monopoly in the field of medicine manufacturing. The leniency in drug price control policy has resulted in the increase in the prices of ‘generic’ medicines as well as other medicines and consequently, these medicines are going out of the reach of common people.

In 1995, when the government abridged its control on drug prices to only 74 drugs, the companies got the freedom to increase the prices of ‘essential medicines’. If we try to observe the prices of medicines, we see that the popular antibiotic medicine ‘Ciprofloxacin’ is sold at the rate of Rs 39 per tablet by 'FDC' and the same medicine is sold by Ranbaxy for Rs 98.  Similarly, a medicine for breast cancer named ‘Letrozole’ is sold by ‘Biochem’ at the rate of  Rs 99 per tablet and the same medicines is sold by ‘Novartis’ for Rs 1815. There are many more examples like these, which show that there is a difference ranging from 100 to 3,000 per cent in the prices of the same medicines sold by different companies.

Committee constituted

Responding to the public interest litigation filed by ‘All India Drug Action Network’, when the Supreme Court directed the Government of India to announce its drug price control policy for essential medicines, a committee was constituted under the chair of minister of agriculture, Sharad Pawar. It is noteworthy that in 2011, a list of 348 essential medicines was announced.  From these medicines, the 652 formulations are prepared. In addition to this, when combined with some other medicines, 7,000 types of formulations are prepared from these medicines.

Presently, the prices of those 74 medicines, which come under the ambit of drug price control policy; are determined by a formula based on the cost of these medicines. Before this, in 1979,  prices of 347 medicines, which were under the drug price control policy, used to be determined by cost-based formula. Under the chairmanship of Sharad Pawar, the ministerial committee, which was entrusted with the task of making drug price control policy,  suggested a new type of formula altogether. This formula may be called price-based formula. According to this formula, the price of every medicine would be based on the weighted average prices of the medicines of those brands of medicines that have more than 1 per cent of market share. Weights would be the market share of each brand. In this, brands would be weighed according to their market share. However, pharmaceutical companies are against this formula or we can say any type of price control, but they are happy with the fact that this formula is not cost based.

It is known that after the control on the prices of 348 medicines, these medicines with total market of rupees 29,000 crores, which is 60 per cent of the domestic market, would come under the domain of price control. According to pharmaceutical companies, their profit would erode by 15 to 17 per cent, once this policy comes into force. However, if we look at it carefully, we would find that after the enforcement of this price control policy, the prices would remain almost the same. Possibly, a few companies, which were selling these medicines at a high price, may have to reduce their prices a little. The organisation that filed this PIL, that is, ‘All India Drug Action Network’ says that the common man would not get any relief from this drug price control policy which is based on the market prices and high prices of medicine would get legal sanction.

On the other hand, the finance minister too is not in the favour of this decision. He opines that drug price control policy should be cost-based as it was earlier. The common person would get relief only if cost-based formula is used to determine the prices of medicines. However, companies are aggressively lobbying with the government for not agreeing to the suggestion of the Finance Minister. They say that cost-based formula would affect high-level pharmaceutical industry and they would have to turn to foreign markets instead of domestic markets. But we must understand that this is an opportunity with the government to catch the bull and make essential drugs affordable for poor and also the public health system, with no extra cost.