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 Overview
of reviews on drug pricing and financing
The focus of this report is on the key issue of pricing of
drugs and pharmaceuticals in India. A number of studies on drug pricing are
reviewed (appended to this chapter) which are focused on various aspects such
as the Indian pharmaceutical industry (IPI), concepts of the pricing policies
and regulations including the drug price control order (DPCO), the
pharmaceutical policy (PP 2002), Indian patents regime (IPR) etc and the
present perspectives and future accomplishments.
Indian Pharmaceutical Industry
The articles on pharma industry and its position in the global arena (Anirudh Gopala Krishnan, 2002;
N Lalitha, 2002; Pradeep Agrawal, 2001; P Saibaba, 2001). Indicate that the Indian
pharmaceutical industry is the largest in the developing world, having carved
itself a niche in the manufacturing and export of drugs. The Indian Chemical
Manufacturers Association (ICMA) reports that there are 10,000 manufacturing
units across the country, of which 290 are in the large-scale sector,
including 45 multinational companies. Further ICMA reports that India is
“emerging as one of the largest and cheapest producers of pharmaceuticals in
the world, accounting for nearly 8.5 percent of the world’s drug requirement
in terms of volume, and ranks amongst the top 15 drug manufacturing countries
in the world.” The pharmaceutical industry of India attained phenomenal growth
in domestic production in the past two decades reducing the dependence
on imports significantly.
Pharmaceutical
Policies, Trips and Implications for Indian Drug Pricing
Few
studies have focused specifically on the impact of pharmaceutical policies,
including intellectual property related issues (Amit
S Ray, 2003; Veena Mishra,
2001; Anant Phadke, 2000;
Abhay Kumar; Richard Gerster,
2000). These
studies indicate that the Indian Patent Act 1970 was a milestone in India’s march
towards self-reliance in the field of drug production as it allowed Indian
drug companies to produce a drug invented by any Multi National Company (MNC)
through a different chemical or engineering process. The IPA 1970 adopted a
policy of ‘process patents’ instead of the earlier policy of ‘product
patents’. Because of this process patent regime, Indian drug companies
started manufacturing many drugs previously monopolized by MNCs, thereby curtailing monopoly pricing. Therefore IPRs benefited the developing countries by
encouraging foreign investment, by enabling transfer of technology and
greater domestic research and development. Overall the Indian Patents Law of
1970 secured the Indian market. Since then, India has done without product
patents with the exception of production processes that may be patented for
seven years. In addition, the law allowed for compulsory licenses granted by
the state, in case of a patent holder not granting voluntary licenses on fair
conditions.
Major changes can be expected in
the Indian pharmaceuticals industry from 2005 due to the agreement on TRIPS,
under which India will be required to introduce product patents for
pharmaceutical products. This will likely to lead sharp increases in the
prices of newly patented drugs. Some
studies dealt with the tracking of existing drug pricing practices.
These reviews indicate
that the pricing of medicines
in India has always been a controversial issue. The key players have been the
drug companies themselves, the government and the judiciary (Economic and
political weekly, 2003).
The Tenth Five Year Plan has suggested setting up of an
independent pharmaceutical regulatory authority dealing with major issues
such as drug pricing, quality control and licensing of drugs. The Plan,
however, advises against deregulation of prices of essential drugs in the
next few years. The Plan document, approved by the National Development
Council (NDC), pointed out a wide gap between regulation and implementation
regarding the quality of drugs (Amiti Sen, 2003).
Studies by Anant Phadke, 2003; Amit
Sen Gupta, 1996 etc shows that the India’s drug
pricing mechanism has proved to be ineffective in keeping down drug prices. Drug prices in India are not only rising
but the pricing system is grossly irrational and exploitative. Depending upon
the monopoly rights, the manufacturers or the traders pocket huge profits by
exploiting the consumers. According to the industry, drug prices in India are
the cheapest in the world. Yet within the country, prices of drugs have been
increasing and access to these medicines is increasingly getting restricted
to those who can afford (Lalitha N, 2002). The
main reason for low drug price level in India is low purchasing power of
Indian patients in the health care system where very few are covered by
health insurance and controlled drug pricing system (Sanjay Kumar, 1995). In
addition few studies (Roy V, Rewari S 1998)
discussed about the ambiguous drug pricing and claimed that there exists a
wide variation in prices of drugs manufactured by different companies. In the
absence of comparative information on drug prices and their quality it is
difficult for physicians to prescribe the most economical treatment.
The India Health Report 2003
conveys that the pharmaceutical industry is already feeling the impact of
globalization. Indian companies such as Dr Reddy’s Laboratories, Ranbaxy, Wockhardt, Sun
pharmaceuticals, and Cipla have begun marking
significant investments in product research in anticipation of the new IPR
regime. The
implications of the recent changes in pharmaceutical policy are the drug
discoveries, which are very expensive and time consuming. The estimates for
the development of a new chemical entity (NCE) in India is often quoted at
$US90-100 million in comparison with $250 millions in US due to lower input
costs in India. For every 10,000 new chemical entities in discovery, ten
enter pre-clinical treatment, five enter human trials, and only one may be
approved. Product patents limit competition, grant monopoly power, and
encourage high prices.
India should now actively explore ways in which the
advantages of the new regime can be maximized and disadvantages minimized. Indians
must try to make the best of the present scenario, as India is relatively
better off than many other developing countries because it has a reasonably
well-developed pharmaceutical sector. Indians must do their best to help make
Indian firms more capable of undertaking research and development and to be
more competitive in exports. This can be facilitated by providing generous
tax incentives for undertaking research and development, and by allowing
liberal imports of raw materials with minimum import duties. Export
procedures should also be further simplified so that they do not become a
hindrance in the growth of exports. Indians should also actively encourage
technological collaboration with foreign firms and the inflow of foreign
direct investment in the pharmaceuticals industry as ways to bring new
technology, research and managerial capabilities into this important sector
of the economy.
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