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SPTM - NMIMS
Key Growth Drivers – Domestic Formulations Market
• Consolidation leading to better pricing power • Higher growth in the chronic disease segment
• Increasing penetration
• Growing share of middle class and increasing per capita
• Health Insurance
• Product Patent Regime
Indian Pharmaceutical Evolution
Phase III Development Phase Phase II Government Control Phase I Early Years •Market share domination by foreign companies •Indian Patent Act – 1970 •Drug prices capped •Local companies begin to make an impact •Process development •Production infrastructure creation •Export initiatives Growth Phase •Rapid expansion of domestic market •International market development •Research orientation
Innovation and Research
•New IP law – product patent •Discovery Research •Convergence
•Relative absence of organized Indian companies
” - .“The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at affordable prices are available to the vast population of this sub-continent.
Indian Pharmaceutical Industry in the World Pharma Industry • 3 rd in VOLUME SALES • 13 th in VALUE SALES • INDIAN drug prices are lowest in the world 5 .
• What is the Price ? • What can influence the Price ? • Cost based Price or Value based Price ?? 6 .
PRICING MODEL • Value based : Customer • Cost based : Product 7 .
• Relation between Drug Pricing & Country GDP. Per capita income 8 .
55 109.38 Gliclazide 80 mg Ibuprofen 600 mg Indomethacin 25 mg Insulin 100 IU/ml Isosorbide Mononitrate 20 mg Ofloxacin 200 mg Omeprazole 20 mg 63.47 91.67 10.8 201.05 59.76 9.Table I: February 2007 Price.87 144.2 3. It shows the Indian prices are the lowest for all the drugs.67 213.26 UK 324.5 0.85 219.9 1.67 9 .77 0.1 0.39 6.41 4.49 1 2 0.656 111.15 109.55 61. 42.000 $ 37.61 12.54 0.43 32.82 53.5 208 3.52 -0. .133 $ 34.25 363.7 2.98 6.15 6.93 41.43 4.51 192.74 Paracetamol 500 mg Propanolol 10 ml 12.594 0.53 30.63 28.63 124.18 19. Each product is calculated in rupee value per tablet.87 131.59 0.33 2 11.023 $ 35.77 CANADA AUSTRALIA 132.97 9.7 0.2 4 4 0.8 INDIA 6 0.15 3.740 $ 705 $ r Per Capita GDP NAME OF THE DRUG Ciprofloxacin 500 mg USA 423..
0192 0.2836 0.851 0.013 0.2654 0.0471 0.1418 0.0263 1.194 0.5531 0.151 0.0312 0.0373 0.0263 0.0186 0.6319 0.5673 0.2041 29.1617 0.1462 0.0119 0.2074 0.0052 0.1452 0.133 $ CANADA 34.5748 0.8772 0.008 0.4964 0.3125 0.2127 29.1224 0.2956 0.4068 0.6304 0.5673 0.033 0.2548 0.000 $ USA 37.3776 0.3276 0.353 0.808 0.1276 0.265 0.0086 0.2472 0.6154 0.1182 0.0358 0.0298 0.4701 0.503 0.3141 0.0056 0.740 $ AUSTRALIA 705 $ INDIA ( Range Ciprofloxacin 500 mg Gliclazide 80 mg Ibuprofen 600 mg Indomethacin 25 mg Insulin 100 IU/ml Isosorbide Mononitrate 20 mg Ofloxacin 200 mg Omeprazole 20 mg Paracetamol 500 mg Propanolol 10 ml 1.0146 0.3906 0.1362 0.4539 0.Table II: Price per tablet in rupees weighed by per capita GDP Price/GDP)*100 Per Capita GDP NAME OF THE DRUG 42.0878 0.023 $ UK 35.0873 10 .
per capita GDP of a country has at least a partial bearing on the prices of drugs • In the last column the correlation coefficient “ r ” . • The correlation coefficient varies in the range of 0.740 and has an average value of 0.521. 11 . calculated between the per capita GDP of each country and its price of the drug.380. for every drug.
Affordability / Accessibility to larger population 12 . • 5. Regulatory systems on prices. Market structure on price. • 2. • 3. Also the Level of IPR protection. Innovation and R&D spent in terms of % to prices/ revenue. • 4. National income and GDP on prices.KEY DRIVERS FOR PRICE FIXATION • 1.
How the Price of Medicine is decided in various countries ? 13 .
USA… 14 .
The manufacturers of pharmaceuticals fixe the prices based on: What price can the market bear? How much money is spent on R & D? What is the cost of marketing and distribution? Profits expected What is the improvement in therapeutic efficiency over the products present now in the country? 15 .Prices of drugs in USA are probably the highest in the world • • • Government of USA does not control the prices.
UK 16 .
For most patients the medicines come free as the National Health Services ( NHS) pays the bill for the medicines.. .the profits of the pharmaceutical industries are controlled and the prices of drug products are reigned in. 17 . There are two institutions.UK … very controlled environment • The government of UK goes into a voluntary agreement with • • • • the Association of British Pharmaceutical Industry. Only a few patients pay some small co-payment for their drugs. The National Institute of Clinical Excellence ( NICE) and the Health Technology Board which assess the therapeutic effectiveness and the cost effectiveness of the drug products being made available in UK.
CANADA 18 .
Sweden. France. Switzerland. • Canada also follows procedures like reimbursement and price cuts for costly medicines. 19 . This procedure is known as reference pricing. UK and Italy. • The median price among all these prices is considered and is fixed as the price of the patented product in Canada. Germany.. These policies help the government in offering its population quality medicines at low cost.Canada has a unique way of controlling its drug prices • The Federal Government regulates drug prices. It takes into consideration the prices of a particular patented drug product in seven countries. USA. • Government also takes into consideration how well the new patented product is comparable to the existing drug products in the same category.
Australia 20 .
Australia • has a system called Pharmaceutical Benefit Scheme (PBS). on manufacturers of new medicines. The Australian PBS results in some of the lowest prices for medicines in the world. the manufacturer must provide compensation through price reduction or cash payments to the government or remove the product from the market. which links a new drug’s reimbursement price to a volume level. So the volume of production of the drugs as well as its price is 21 controlled. If the level is crossed. • This uses reference pricing and cost utility methods for Drug Price Control. Australia follows another procedure called Volume Limitation to regulate the prices of medicines. • • • • . It imposes a price-volume agreement.
1% 72% Out of pocket payment 13.5% 26.5% India : 80% out of pocket payment and 20% from others .5% 75. Payment 44.3% 80% 71% 77.5% 11% 17% Insurance Others United States Japan Australia France Germany Canada 35.3% 16% 7.9% 5% UK Spain Italy 81% 72% 73.8% 7% 2% 13.7% 3% 20.9% 11% 4.India’s Healthcare Context is Unique Countries Govt.7% 20% 16% 20.
GoI . MoHFW.Sources of Financing Healthcare Services in India Proportion of Health Expenditure by Financing Source Central Government 6% State Government 13% Local Government 2% Firms 5% Households 72% External Aid 2% Source: National Health Accounts – 2001-02.
November 2004 . people are largely clustered around urban centres where health care facilities exist Source: Network.Access of Medicines to All Proves to be a Challenge Percentage of WHO regions lacking access to essential medicines • This 350 mn.
– Largely above Poverty line Pharma Industry role is restricted to this sector 300 Mn. access to medicines 200 Mn. 650 Mn. Below Poverty line Formal Sector: Those employed with the Public or Private Sector . (no access to medicines) Above Poverty line Need of these patients are primarily for essential medicines 350 Mn.Access to Innovative Medicines 150 Mn. – Formal sector 350 Mn.
BCG Analysis . Therapeutic Equivalents will exist. new combinations. 76% Patented Drugs ~85% of All Patented Medicines will have a Therapeutic Equivalent (1) Includes new salt.7% of the market will be generic or the products will have therapeutic options. OPPI.7% 8. FDA. new formulations.Will Patent Laws Fuel Price Increases? Post 2005 only 2.3% of the Indian pharma market consists of drugs that have no therapeutic equivalent.3% (1) Empirical evidence suggests ~15% of new patented drugs are NMEs with significant therapeutic advantage. 97. 15. new manufacturer or patents for new indications Source: Lu and Comanor (1998).
The Way Ahead… Ensuring Access in Control Free Pricing Regime
Free Market Price
350 Mn. access 2-pronged to medicines Approach
Negotiated prices for Government procurement
650 Mn. (no access to medicines)
Industry to support Government efforts to provide Access
Some take away ……
• 1. Drug prices are dictated by the overall income level of the • people of the country. • 2. Affordability / Accessibility to larger population is critical •
• • • •
3. Drug prices depend on how much control the government is exercising on the pharmaceutical manufacturers. 4. How much research and development is taking place in the field of pharmaceuticals and what is the cost of this R& D. 5. How much the government and the society are concerned about protection of intellectual property rights.
Why market cannot decide medicine prices?
Why market cannot decide medicine prices? • Free Market/Invisible hand not possible • Because buyers and sellers have different • • • bargaining strengths Sellers and doctors decide Buyers (patients) have little or no choice Buyers have to make decision usually under distress 30 .
INFO ASYMMETRY • Choice by Intermediaries • Knowledge asymmetry • From which flows information asymmetry 31 .
• In fact more players seems to result in a range of prices. • Therefore competition does not automatically bring down the prices. • Lack of awareness that price is not necessarily a denominator of quality.Competition does not reduce prices ! • Many “Players” but prices of Drugs have not come down. hence Brand Leader often also the Price Leader (Costliest Drug is most sold). 32 . • Same drug is sold at different prices by the same company under different brands.
a unique example of market failure • The doctors and the pharmacists .Competition does not reduce prices ! • Consumption patterns are not affected by prices .companies influence them • Markets are distorted by unfair and unethical marketing practices of drug companies 33 .
00% 20.00% 40.00% 70.00% 0. 2005) Medicines cost account for 80 % of total treatment cost 80.00% 30.Criticality of Affordability of Medicines in India Distribution of Expenditure on Treatment (Non-Institutional) Based on NSS.00% 10.00% Medicines Other Expenditure 34 Medicines Other Expenditure .00% 60.00% 50.
Disease Burden In India Source: World Development Report 2006 35 .
1000 increase in per capita income increases life expectancy at Birth by 3 years.Relevant Observations of the National Commission on Macro Economics & Health. 2005 • Probability of the poor falling sick is 2. • A Rs.3 times more. • An Estimated 3.3% of the population is getting pushed below poverty line on account of medical treatment. 36 . August.
Economic Constraints to Access • Estimated by different sources that 50% to 80% of the Indian population have little or no access • India is the country with largest number of people (649 million) without access to essential medicines • Given that India today is the 3rd largest producer of drugs in the world and exports medicines to over 200 countries. local capacity is not the major constraint 37 .
3% of the population below poverty line in one year • Proportion of private expenditure on Health – >75% • Very large proportion of drugs consumed (85%) procured through retail sales 38 .The Poor Spend More on Medicines! • Poorer populations spend a larger proportion of health care expenditure in buying medicines • Out-of-pocket medical costs push 3.
Drugs should always be available to General public at reasonable price . Drugs are recognized as an “Essential “ commodity.Are Medicines less important? • Telephone rates. Electricity tariff. Insurance premia. Bank Interest rates are regulated. SO WHY NOT MEDICINES to be regulated in public interest ? 39 .
…. • Let us study the regulation of Drug Prices ! 40 .
DPCO .A BOON OR BANE 41 .
Indian Patents Act 42 . 1955 (IPA) was enacted Essential • In the same year. • First Price regulation in Medicines • In 1970. the Drug Prices Control Order issued under the Commodities Act.Pharmaceuticals Price Regulation in India • Prior to 1962 – no price control. price of medicines were high. domination of MNC was introduced in 1962.
DPCO (1962) • Published The price list of products by o Manufacturers o Importers o Distributors o Chemists. 43 .
o Prices of drugs sold in loose were regulated. o Manufacturers to stamp the retail selling prices on the containers of the drugs.DPCO (1963) • Freezing of sales prices of drugs at the level obtained on 1st April 1963. 44 . 1966. • In 1966 the scenario was as follows: o Manufacturers had to secure prior approval of the government before increasing the prices of any formulations in their lists as per the 30th June.
45 . • Voluntary price reductions.IMPACT OF DPCO (1963) ON PHARMACEUTICAL SECTOR • Reduction in the profitability. • Troubled long term growth.
as a result. 26 crore. • The government feared that.Indian Pharma scenario 1940-70 • At the time of independence. drug prices might rise. the bulk drug industry in India • • was in the infancy stage with a meagre investment of Rs. there was Chinese aggression on India and Emergency was declared. • In 1962. the drug industry was bereft of any price control. Till 1962. 46 . Most of the bulk drugs and formulations were imported. 10 crore and a production worth just Rs.
it was made obligatory for the manufacturers to obtain prior approval from the government before increasing the prices of any formulation. 1962 and the Drugs (Control of Prices) Order. statutory control was imposed on the prices of drugs and pharmaceuticals. 1963 were promulgated. The Drugs (Display of Prices) Order. under the Defence of India Act of 1915. 47 . • Under the Drugs Prices(Display and Control) Order of 1966.Indian Pharma scenario 1940-70 • Accordingly. for the first time.
DPCO (1970) • To reduce the high prices of essential drugs. • To develop research facilities and expansion in a planned manner . • Providing sufficient incentives to the industry to facilitate its growth. • Restriction on excessive profits. • To promote diversification of entrepreneurship in future development of industry thus providing better opportunity for technically qualified Indian personnel's. 48 . • Profit margin were dictated. • Bulk Drugs were divided into “ Essential and Others”.
so long as the overall margin did not exceed the stipulated norm. and an indirect control on the prices of pharmaceuticals. The government stipulated that a company’s pre-tax profit from its pharma business should not exceed 15% of its pharma sales (net of excise duty and sales tax). So. Product-wise margins were also flexible.DPCO 1970 • In its introductory form. a pharma company had the freedom to decide the prices of its products. In case profits exceeded this sum. 49 . DPCO was a direct control on • • • • the profitability of a pharmaceutical business. the surplus was deposited with the government.
50 . • Overall. the Indian pharma industry prospered from 1970 to the next DPCO in 1979. • However. • At that time.DPCO 1970 • Since individual product prices did not require approval from the government. the Indian pharmaceutical industry was largely dominated by MNC affiliates and subsidiaries. bureaucratic hurdles were low. These MNCs were hardly affected by the relatively mild form of DPCO and continued operating in the domestic market. FERA which came in mid 70’s did curb the operations of MNCs.
• Increase in prices of some of the products.IMPACT OF DPCO (1970) • Reduction in profitability due to price control in 1970. 51 .
• The maximum sale prices of selective bulk drugs were fixed: o Category 1 prices (Life saving) – 14% post tax on net worth. 52 . o Category 3 (Others) prices – 12% post tax on net worth. o Category 2 prices (Essential) – 14% post tax on net worth.DPCO (1979) • The bulk drugs were grouped into three different categories.
o Category 3 (Others) prices – 100 % MAPE Maximum Allowed Post Manufacturing Expenses).DPCO 1979 • The maximum sale prices of selective Formulations were fixed based on bulk drugs prices: o Category 1 prices (Life saving) – 40 % MAPE Maximum Allowed Post Manufacturing Expenses). 53 . o Category 2 prices (Essential) – 60% MAPE Maximum Allowed Post Manufacturing Expenses).
the profits as a results was even less. o Considerable time taken for the revision of prices. As the cost increases remain uncompensated for some time. 54 . o While granting price approvals.IMPACT OF DPCO (1979) • Mark up for three different categories turned out to be unrealistic: o Mark ups for category 1 and 2 were much lower than break even level hence they had no incentives to produce. cost accounting based on certain norms was favorable for some while penalized others.
55 .IMPACT OF DPCO (1979) • In the Drug Price Control Order of 1979 which stayed enforced till 1987. the level of manufacture by the pharma industry declined. • With such massive regulation on the prices of most drugs and thereby on the profitability of the manufacturing companies. • For instance. • As a result. 90% of all drugs were under strict price control. no export orders were taken on controlled drugs since their supply had to be under certain parameters. the production of scheduled drugs became unfeasible.
. the profit margin of the industry came down. They were able to foray into various therapeutic segments and there was no need to indulge in any R&D. First of all. With an inadequate profit margin.Until around the1990s. Also process patents had been granted to the industry under the Indian Patent Act of 1970 and the domestic manufacturers simply had to reverse engineer drugs made abroad. the industry never ventured out in the field of R&D. This stifled expenditure on R&D in more ways than one.. • • • • The drug prices were strictly controlled... 56 • .
...Until around the1990s. 57 . it dissuaded foreign players and MNCs from • • entering the market. the imports and exports were meagre. • Secondly. the share of foreign companies in the domestic drug market has continuously declined. In fact. Also..
o Increase supply of produced bulk drugs.DPCO (1987) • Reclassification of three categories of drugs into two categories: a) Category 1 – Drugs necessary for national health program ( 27 drugs – entitled to 75% MAPE Maximum Allowed Post Manufacturing Expenses). Results o regulate reasonable distribution. b) Category 2 – Other essential drugs ( 139 drugs – entitled to 100% MAPE). 58 • .
conversion and packaging while fixing prices in 1979. 59 .IMPACT OF DPCO -1979 • No attention on increase in costs of input.
1995 60 .DPCO .
1995.O. 1955 (10 of 1955).Section 3 . • It shall come into force on the date of its publication in the Official Gazette . the Central Government hereby makes the following Order. namely:- • This Order may be called the Drugs (Prices Control) Order. : In exercise of the powers conferred by section 3 of the Essential Commodities Act. 18 (E).The Gazette of India .Extraordinary PART II . dated the 6th January. 1995 ORDER S.Sub-Section (ii) Ministry of Chemicals and Fertilizers Department of Chemicals and Petrochemicals New Delhi.
1995 • is an order by the Government of India under Section 3 of • the Essential Commodities Act. has been vested with the National Pharmaceutical Pricing Authority (NPPA). method of implementation of prices fixed by Government and penalties for contravention of provisions among other things. The powers of implementing the provisions of implementing provisions of DPCO. • 62 . It provides the list of price controlled drugs.Drugs Price Control Order (DPCO). lay down the procedures for fixation of prices of drugs. 1955 to regulate drug prices.
the Retail Price are fixed as MRP = (MC+CC+PM+PC) x (1+MAPE/100) + excise duty (MC = material cost including cost of bulk drugs/excipients: CC = conversion cost. 1987 and 1995 as per pharma policy of the Govt. PC = packaging charge. • Under the current DPCO 1995. rest “Decontrolled” category . • DPCO 1995 – Only one category under Price control with a uniform MAPE of 100% is granted – “Controlled” category. PM = cost of packing material. 63 MAPE = Maximum Allowable Post-manufacturing Expenses) .DPCO -1995 • DPCO was revised in 1979.no price control but still prices are monitored and regulated ! follows : Included Conversion cost .
Internal rate return of 12% based on long term marginal costing. the central government sets the maximum sale prices of bulk drugs. 2. No person can sell a drug at a price higher than the one fixed for it including the local taxes. 64 • • • • • . the post tax return is 18% and a return of 26% on capital employed is provided. While fixing the price of a bulk drug Government may take into consideration: 1.A post tax return of 14% on net worth.Calculation of Fair price of bulk drug • According to the provisions of the order. 3. If the production is from basic stage.Return of 22% on capital employed.
the maximum sale price is fixed at 2/3rd cut off level or weighted average price. depending upon the situation.Fixation of maximum sale price of the drug When the number of manufacturers of the said drug is more than one. .
1995 Formulation Prices as per formula 74 APIs & Its Formulations Under Price Control For indigenous Drugs = Cost + 100% MAPE For Imported Drugs = Landed Price + 50% margin Cost Based Pricing of APIs Price Control of Any Pack in Public Interest 66 .Regulation for Pricing & Availability in India DPCO.
.Formation of NPPA • In 1997 . 67 ..
. manpower and skills for the pharmaceutical sector. –implement the provisions of the DPCO Responsible for development of infrastructure. Work for the promotion and coordination of basic. NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA) ACTIVITIES AND RESPONSIBILITIES: All matters relating to NPPA including its functions of price control and monitoring.MINISTRY OF CHEMICAL AND FERTILIZER DEPARTMENT OF PHARMACEUITICAL ORGANIZATION AND STRUCTURE. applied and other research in areas related to the pharmaceutical sector and for international co-operation in pharmaceutical research.
159 dated 29. The Resolution mentioned that the Government had been experiencing that the present mechanism for the fixation and revision of prices of bulk drugs and formulations was cumbersome. complicated and time consuming.08. an independent body of experts in the Ministry of Chemicals and Fertilizers was formed by the Govt.NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA) The National Pharmaceutical Pricing Authority (NPPA). of India in 1997. Resolution published in the Gazette of India No. .97.
NPPA NPPA is an organization of the Government of India to fix/ revise the prices of controlled bulk drugs and formulations and to enforce prices and availability of the medicines in the country. under the Drugs (Prices Control) Order. . 1995.
The Indian Pharma Pricing Regulator Enforce DPCO 1995. Multi-Disciplinary. Adv. Sr.NPPA. MOF in the Authority Monitor Prices of Non-Scheduled Packs & Correct Aberrations. Policy 71 . Eco. DGCI. Policy NPPA Determine & Recover Overcharging Fix & Regulate Price of Schedule APIs & its Formulation Established in 1997. Take Action Inputs for Govt. CAB. as per Govt. Detect Violations.
72 .Functions of NPPA • (1) To implement and enforce the provisions of the • Drugs (Price Control) Order (DPCO). if any. • To recruit/ appoint the necessary staff for efficient functioning of the Authority. identify shortages. • (3) To monitor the availability of drugs. as per rules and procedures lay down by the Government • (2) To undertake and/or sponsor relevant studies in respect of pricing of drugs/formulations. 1995 in accordance with the power delegated to it. and to take remedial steps.
• (6) To render advice to the Central Government of • changes/revisions in the drug policy. for bulk drugs and formulations • (5) To deal with all legal matters arising out of the • decisions of the Authority. exports and imports. profitability of companies etc. • (7) To render assistance to the Central Government • in parliamentary matters relating to drug pricing. 73 .Functions of NPPA • (4) To collect/maintain data on production. market share of individual companies.
NPPA ORGANIZATION Chairman Member Secretary Advisor (pricing) Director (monitoring &enforcement division) Director (Admin. Division) Bulk drugs Director (Formulation division) Director (legal division) .
NPPA ORGANIZATION Chairman Member Secretary Advisor (Pricing) • Bulk Drug Pricing • Form-I.II & VI Examination • Policy Matters • Customs / Excise Issue • Right to Information Bill .
• ORGANIZATION … Contd Director (Formulation Division) • Formulations Pricing • (Form III & IV) • Availability / Shortage of bulk drugs/formulations • Production & Import/Export of drugs & formulations • Parliament Questions / Assurance & VIP ref.1995 R&D aspects Pharma Index . Director (Monitoring & Enforcement Division) • Monitoring & Enforcement of prices of bulk drugs & formulations. • • • • both Scheduled and non-scheduled Form-V examination Inclusion / Exclusion of drugs under DPCO.
Any other references on the above Director (Admin Division) • Establishment • General Admn.ORGANIZATION … Contd Director (Legal Division) • Identified cases of overcharging on bulk drugs & formulations • • and related issues. Legal matters & follow up of the pending court cases. • Co-ordination • Vigilance .
concerned manufacturer/company .1995 . Following steps are involved in fixation/revision of bulk drug prices :- Step1: Identification of bulk drugs Drug taken up for study on the basis of:.PROCEDURE FOR PRICE FIXATION / REVISION OF BULK DRUGS As per par 3 of DPCO. 1995 prices of scheduled bulk drugs are fixed by the NPPA.validity period .Drug produced in the country for which no price has been notified under DPCO.
every year. • • • In case of non. and verification by plant visits.scheduled drugs : in FORM 2 The manufacturers of bulk drugs are required to furnish details of list of bulk drugs produced by him and the costs of each of such unit in FORM 2 within thirty days of commencement of order. After the commencement of order. 1995/cost-audit report etc.Step 2:Collection of data Data is collected by issuing questionnaire/Form I or II of DPCO. if required. the manufacturer should furnish the same details in FORM I by 30th of the September. • In case of scheduled drugs : in FORM I • The manufacturers of bulk drugs are required to furnish details of list of scheduled bulk drugs produced by them and the costs of each of such unit in FORM I within days of commencement of order. .
Plant capacity is assessed considering 330 working days for normal operation of plant leaving 35 days for scheduled maintenance of plant. Step 4 : Preparation of Technical Parameters Technical parameters are prepared based on data submitted and collected. The achievable production level is considered at 90% utilization of assessed capacity allowing 10% production loss on account of unforeseen break down. 80 .Step 3 : Preparation of actual cost statement Prepare on basis of data submitted / collected & verified during plant visit.
The customs duty and other taxes as per the current budget are considered. para 3 of DPCO. While projecting the future cost.PROCEDURE FOR PRICE FIXATION / REVISION OF BULK DRUGS Step 5 : Preparation of Estimated Cost The estimated cost for the pricing period are then prepared based on actual cost & the technical parameters. an increment is recognized at 5% per annum in respect of salaries & wages. 1995. . Step 6 : Calculation of Fair price of bulk drug Fair price is calculated by providing returns as specified in sub para (2).
Return of 22% on capital employed. No person can sell a drug at a price higher than the one fixed for it including the local taxes.A post tax return of 14% on net worth. 2.Internal rate return of 12% based on long term marginal costing. While fixing the price of a bulk drug Government may take into consideration: 1. the central government sets the maximum sale prices of bulk drugs. 3. If the production is from basic stage. the post tax return is 18% and a return of 26% on capital employed is provided. 82 • • • • • .Step 6 : Calculation of Fair price of bulk drug • According to the provisions of the order.
depending upon the situation. Step 8 : Notification of bulk drug price in official Gazette . the maximum sale price is fixed at 2/3rd cut off level or weighted average price.Step 7 : Fixation of maximum sale price of the drug When the number of manufacturers of the said drug is more than one.
price list to the Government.The Government can. • 84 . keeping in mind his requirements for captive consumption and requirements of other manufacturers of formulations and the planned growth of pharmaceutical industry.. • The Government can direct any manufacturer of bulk drugs to sell the same to manufacturers of formulations. within 30 days of introduction of Finance bill... Every manufacturer or importer of a bulk drug has to furnish each year.
85 .Any new product developed through indigenous R & D with a product patent under the provisions of Indian Patent Act.NATIONAL PHARMACEUTICAL POLICY. 1970 is exempted from price control for a period of 15 years from the date of commencement of the commercial production in the country.2] • With a view of encouraging innovation the government of India had exempted the price control to certain specified products this include the following: • 1.2002[1.
NATIONAL PHARMACEUTICAL POLICY2002[1. under the provisions of Indian Patent Act. Any new formulation developed through indigenous R & D process with a process patent for the formulation involving newer delivery system.. 86 .2] contd . 1970 is exempted from price control till the expiry of patent from the date of commencement of the commercial production in the country. New product developed through indigenous R & D process with a process patent under the provisions of Indian Patent Act. • 2. • 3. 1970 is exempted from price control till the expiry of patent from the date of commencement of the commercial production in the country.
1995. a manufacturer using scheduled bulk drug in his formulation is required to apply for fixation of price of formulation within 30 days of fixation of price of such bulk drug (s). 2 months from the date of receipt of the complete information from the company.Procedure for Pricing of Formulations Prices of formulations based on scheduled bulk drugs are fixed in two ways:(A) Based on applications of the manufacturers and (B) On suo-motu basis. The time frame for granting price approval on formulation is . As per para 8 (2) of Drug (Prices Control) Order (DPCO).
(a) Examination of Technical Parameters Checking the Quantity of Bulk Drug as per label claim. In the case of imported bulk drug used in the formulation. the notified price or actual price is considered. weighted average import price is considered vis-à-vis the price submitted by the applicant .Procedure : A. (b) Examination of Prices of Bulk Drug When notified price of bulk drug exists. The overage claim is allowed as per batch production record or norms fixed by Govt.
(c) Examination of Excipient claims (d) Examination of RM. 578(E) dated 13. .99. CC.O. (e) Application of MAPE Maximum allowable post manufacturing expenses (MAPE) is given at 100% on the ex-factory cost for indigenous formulation.07. while MAPE up to 50% of the landed cost is allowed for imported formulation. PC and PM cost Are considered as per the norms notified in the Gazette vide S.
+P. +C.C. = [M. steps are taken for suo-motu revision. Broadly the procedure given above is followed.C.Motu Cases If the manufacturers or companies do not apply for revision of formulation prices as required under Para 8(2) of DPCO.". 1995 "R.D.C. .P.(f) Working out the retail price The retail price of formulations are worked out as formula given in para 7 of DPCO. Suo . 1995 within a period of 30 days of price reduction of bulk drug or fall in other statutory levies. (B).M.+P.] x [1+MAPE/100] +E.
MECHANISM FOR PRICE REVISION AND REVIEW UNDER DPCO’1995 . • The government may fix/ revise the price of scheduled or non. • In case the companies are not satisfied with prices fixed by NPPA. • The manufacture cannot increase the prices set by the govt. 91 .scheduled bulk drug and their corresponding formulations. available under DPCO 1995 • In case the manufacture is not satisfied with the price. he may re-appeal for the revision of price by making an application in the form III or IV. and the manufacturer is not supposed to sell it at a price exceeding the price so fixed or revised.form III or IV. an appellate administrative mechanism with the Govt.
Initiative taken by NPPA (GOVT. instruction. • In 26 cases of non scheduled packs. • 60 companies voluntary reduced the price to follow the Govt.) • Compulsory printing of MRP of Medicines • Annual Cap of price increase for non scheduled category reduced from 20% to 10% from April 2007. • Efforts to revive Central Public Sector Companies with view to increase availability and keep prices stable 92 . NPPA fixed and notified the prices in public interest.
consumers • 93 . Civil Society capacity building through NGO’s.) • Notification on Official Website. Compendium of • • Prices Online Facilities for Application and Complaints NPPA – Centre for Information Facilitation and Grievance (CIFG) handling created at large numbers of places.Initiative taken by NPPA (GOVT.
. M. GROWTH. COMPETITION 94 .Changing Norms of Price Fixation IMPACT ON DRUG PRICE COMPARED TO COMMODITY PRICING.S.
successive Drug Policies have • specified different norms : • Number of drugs under Price Control –From 342 in the DPCO of 1979 to 74 drugs in the DPCO of 1995 (still under operation) • • Criteria used to determine the drugs to be kept under price control – in the DPCO of 1979 the criteria for choosing which drugs under price control based on how essential the drug was.Changing Norms of Price Fixation • Over the last three decades. • later DPCOs. now 100% . rely on market criteria – MAPE allowed: Maximum Allowed Post Manufacturing Expenses : 40% to 75% in 1979.
expenditure on R&D was almost stagnant and it was only in the 1990s that expenditure on this front really picked up 96 . the • • proportion of drugs under price control declined to 65% and to 40% respectively. With a large number of drugs being taken out of price control. the production of these drugs became feasible again. • In the initial days of Indian pharmaceutical industry (till 1986). As a result.DPCO 1987 & 1995 • In the DPCO of 1987 and then in the DPCO of 1995. the manufacture of these drugs increased.
there were factors other than the decontrol of drug prices which propelled R&D. foreign trade in drugs increased thereby raising the level of competition in the domestic and international market and necessitating greater R&D. under the TRIPS agreement. 97 • • . Secondly.POST DPCO 1995 …. For instance. This shut the door on reverse engineering and made expenditure on R&D an inevitability for the local players. In 2000…R&D expenditure enhanced. profit margin for the domestic drug • • manufacturers increased thereby enabling local players to provide for R&D. • First of all. However. process patents were replaced with product patents.
Post DPCO 1995 … • Drug Prices remain under control & slightly • higher than the all commodities price but well compared IPM remain quite competitive 98 .
00 Milk (half litre) 12.45 Diarrhoea 1.00 Amoebiasis 1.00 Asthma 0.50 Rs) Cup of tea 5.20 (return) 8.00 Thali meal 30.00 Suburban train ticket Bus fare (minimum) 3.70 Blood pressure 1.75 Angina (chest pain) 0.50 Banana 2.10 Diabetes 0.50 Newspaper 2. Commodity Prices ( • • • • • • • • • • • Common headache 1.00 Egg 2.00 Inland letter 2.75 Common cold 1.55 Arthritis 1.00 Common allergy 0.Medicines V/s.00 Public telephone call 1.50 Gas trouble (antacid) 3.00 99 .
000+ listed and unlisted companies in the market Molecule Number of Brands Ciprofloxacin 101 Gatifloxacin 67 Cetrizine 83 Diclofenac 67 Rabeprazole 49 Atenelol 49 Glimeperide 40 100 .Indian Pharma Market is Competitive • • • • • • • • • • • • Large number of Companies in the Industry… 40 or more brands in each Molecule – Intense competition – ensures prices are low • 10.
Drug Price Control Order (DPCO) • • Since 1970. companies are at a liberty to charge whatever they 101 . the Government has endeavoured to regulate the prices of some drugs through successive Drug Price Control Orders (DPCO) • • DPCO regulates the prices of only a fraction of the drugs in the market • • In the case of all other drugs.
DPCO Impact on MS
Market Shares of Drugs under DPCO
Year Number of Drugs 347 142 74 74 Approximate Market Share (%) 80 60 40 20
1979 1987 1995 At Present (2008)
Impact of DPCO in Growth
2007 10 130 63 50 90 150 120 110 108 91 % Variance In – house data based analysis by NPPA (Source : ORG Data) 106 .Growth in Scheduled Drugs Position as of start & 12 years of DPCO. of formulators Jan 1995 Human Insulins Ciprofloxacin Oral Solid Ranitidine Oral Solid Cefotaxime Injectables Cefadroxil Oral Solid 4 59 30 24 47 Sept.1995 Name of Bulk Drug No.
References: • 1.http://nppaindia.in – Tapan ray website on health care – presentation on Price scenario 108 .in/index1.html • Dept of Pharmaceuticals annual report 2012 • www.tapanray.nic.