The Drugs Prices Control Order of 1995 set maximum prices for 74 bulk drugs but India now plans to restrict cost regulation to 348 ‘essential’ formulations. By abandoning bulk drug price controls India hopes to eliminate some of the unintended negative consequences of the policy.
Adam Bianchi, chief operating officer at Cutting Edge Information, told in-PharmaTechnologist: “Over the last decade those older price controls have been blamed for the decline of bulk and API (active pharmaceutical ingredient) production in India and the rapid ascent of Chinese bulk manufacturers.
“This hollowing out of India’s traditional foundation in the pharmaceutical industry has accelerated as China’s industry has moved aggressively up the value chain of drug production.”
The draft National Pharmaceutical Pricing Policy 2011 explains why this has occurred: “[Cost based pricing] allows virtually no space for a new entrant to come in at an uncovered price point. As a result, production activity and competition in the product segment tend to stagnate.”
By dropping price controls for bulk drugs the authors of the draft hope to stimulate industry growth. Similarly, changing the policy is expected to end a bottleneck to competition in the formulation sector.
“Since the bulk drug manufacturer is constrained to sell at a fixed price, the manufacturer is always likely to give preference to an existing buyer. This constrains the emergence of new companies and formulations in the price controlled segment and is inherently anti-competitive”, the draft reads.
Limiting availability
As well as restricting the emergence of new formulations, bulk drug price controls are said to have cut availability of existing products. Of the 74 bulk drugs included in the 1995 document, one-third are no longer in production.
“This has had a cascading effect on the formulations manufactured from the concerned bulk drugs which in turn has affected the availability of such formulations. The consumer-patient has been adversely affected in the process”, the draft reads.
Other aspects of the draft cover changes to price control of formulations. Indian credit rating agency ICRA estimates the changes will bring three-fifths of drugs under price control, compared to one-fifth under the current system. ICRA expects prices of one-third of effected drugs to drop by 20 per cent.