Will India's latest round of price caps force pharma out of the market?
What do the type 2 diabetes drug glimepiride, blood pressure treatment telmisartan and clot-prevention medication heparin all have in common? The treatments have all been price-capped by India’s National Pharmaceutical Pricing Authority (NPPA) – a recurring trend in the developing nation that has the pharmaceutical industry on edge.
On July 11, the NPPA capped prices on 108 drugs, less than one year after the agency capped prices on 546 other treatments. Moves like that have the pharmaceutical community dismayed by what appear to be extreme measures meant to slash the prices of drugs used for treating cancer, HIV/AIDS, tuberculosis, malaria, cardiovascular disease and diabetes. And then there is the knowledge that NPPA could cut prices further at any time.
As a regulatory body, the NPPA has the right to fix the maximum retail cost of any pharmaceutical product under India’s Pricing Control Order. Noting that there is widespread variability between different brands of the same formulated molecule, the NPPA suggests that much of pharmaceutical pricing is arbitrary and unfair.
But although there had previously been a tacit understanding that the NPPA’s price controls would be limited to drugs on the National List of Essential Medications (NLEM), the NPPA has broadened its cost-cutting policies to include non-NLEM drugs as well in recent years.
The NPPA’s cost-capping criteria
Current NPPA policy states that whenever the maximum retail price of a brand exceeds 25% of the sample average for that formulation, that drug will be capped at the 25% level. In addition, at launch, drugs are to be benchmarked against the most expensive drug in the category and capped at that price. This is a built-in price control mechanism for any future products coming to market in India.
With up to 30% of medications capped under the NPPA initiative, the impact will inevitably be felt across the industry. According to an article in the Times of India earlier this month, at this point 58% of cardiovascular (CVD) drugs are capped, as are 21% of diabetes drugs. Overall, cost reductions range from 10% to 35%, with the average being 12%. While most companies doing business in India will be affected, the hardest hit include Sanofi, Astrazeneca, Merck, Ranbaxy Labs and Zydus Cadila.
When pharma companies balked that the NPPA’s capitation decisions were instituted without consulting the industry, the agency cited “extraordinary conditions” and reiterated that it has the right to fix prices in order to support public interest. The regulatory body contends that pharmaceuticals play an essential role in public health, which is a social right. Given that 70% of the country lives in complete poverty and 60% of household medical costs are allocated to pharmaceuticals, this perspective makes sense in context.
Nonetheless, the one-sided, seemingly arbitrary approach of the NPPA has created a sense of unease and distrust throughout the industry – far from an ideal environment for doing business in any market.
India’s chronic disease conundrum
There is another major factor to take into account when considering the price cuts -- epidemiology. In January, an article written by Dr. Ahijit Mandal and published in the Journal of Family Medicine and Primary Care addressed the growing prevalence of type 2 diabetes and hypertension in India. According to his article, 3.8% of rural adults and 11.8% of urban adults have type 2 diabetes.
Not surprisingly, hypertension is a major public health concern, with up to 17% of rural adults and 40% of urban adults defined as clinically hypertensive. Given these statistics, decreasing the cost of pharmaceuticals in these categories (the two categories that were most impacted by the cost cutting) could decrease long-term health care costs in India and save many lives.
Pharma fights back
Sujay Shetty, leader of pharmaceutical and life sciences at Pricewaterhouse Coopers in India, called the price caps “very unexpected and unfortunate.” At Sanofi India, which is expected to lose 30% of its revenues as a result of the latest round of cuts, Managing Director Shailesh Ayyagar said that the decision “startled and disappointed” the pharmaceutical industry. Shetty went so far as to predict that “better players will be driven out of the market” as a consequence of the price caps and the corresponding drops in pharma revenue.
Even if the companies end up staying, major changes loom on the horizon. “We are evaluating the impact of [the NPPA’s] order on our ability to continue offering our products with the same value proposition,” said Ayyagar of Sanofi’s current mindset.
There may be an opportunity lurking somewhere within this seemingly intractable situation. But for the time being, business as usual is an unsustainable model in India.
- www.outsourcedpharma.com What will latest price caps in India mean for big pharma?
- Times of India Pharmaceutical companies like Ranbaxy Laboratories, Sanofi India and others fume at price control order
- National Library of Medicine Study of Prevalence of Type 2 Diabetes Mellitus and Hypertension in Overweight and Obese People
- Times of India Major diabetes, cardiac drugs to become up to 35% cheaper