Drugmakers reap benefits of pricing gap

Regulations to keep profits from inter-brand price difference under check to be put in place by National Pharmaceutical Pricing Authority

Even as pharmaceutical companies are opposing the latest regulatory move to keep a check on inter-brand price difference, market data show that in some cases the maximum retail price (MRP) of various brands of the same medicine varies by as much as 1,700-1,800 per cent. That leaves a huge profit margin for drug firms even after paying wholesalers and retailers.

Data also depicts pricing parity is more significant between brands sold by domestic manufacturers and those marketed by multinational firms. While most multinationals attribute high prices of their products to better quality, standard procedures and efficacy, industry experts and regulatory authorities say the difference in MRP is due to higher cost incurred in marketing and promotion coupled with better profit margins.

This is despite the fact that the ceiling price in case of even regulated medicines provides for up to 16 and eight per cent extra margin for retailers and wholesalers, respectively. Besides, it also takes into account packaging and conversion cost. Regulatory officials say despite having such margins within the price caps, companies make extraordinary profits.

For instance, latest data compiled by Monthly Index of Medical Specialities show a price difference of over 1,733 per cent between Novartis' Femara and Biochem's Oncolet, two different brands of letrozole used in the treatment of breast cancer. While a strip of 10 tablets of Femara (letrozole 2.5 mg) is priced at Rs 1,815, the MRP of Oncolet is Rs 99. Similarly, four tablets of Sanofi's Actonel are priced at Rs 2,000, whereas the same formulation Risedronate 35 mg is sold by Cipla as Risofos at an MRP of Rs 110 for four tablets.

However, price differences exist between two indigenously manufactured brands as well though the parity might not be so much as is in the case of those sold by multinational companies.

Drug price regulator National Pharmaceutical Pricing Authority (NPPA), which brought under price control around 50 new formulations in the anti-diabetes and cardiovascular segment, said, "There exists a huge inter-brand price difference in branded-generics/off patent drugs."

According to the regulator, such inter-brand price difference indicates a "severe market failure". To fill this gap, it identified eight therapeutic areas with disease intensity and said if the price of any drug in these categories is more than 25 per cent higher than the most expensive medicine among the regulated products, then the price of such drugs will be capped by NPPA.

Currently, under the National Pharmaceutical Pricing Policy, the government directly regulates the prices of 348 medicines.

NPPA used a rarely used provision of Paragraph -19 of Drugs Price Control Order (DPCO), 2013. It empowers NPPA to reduce price of medicines in "extraordinary" circumstances in public interest to bring under price control additional products, where there are huge inter-brand price differences because of extraordinary margins. Paragraph 19 empowers NPPA to reduce price of medicines in "extraordinary" circumstances in public interest.

However, domestic as well as foreign drug makers have now approached different courts in the country against the regulator's move.

Indian Pharmaceutical Alliance (IPA), representing domestic firms such as Sun Pharma, Cadila Health, Lupin and Torrent, have filed a writ petition in the Bombay High Court (HC) opposing the price cut. The Organisation of Pharmaceutical Producers of India (OPPI), the industry association of all big multinationals present in India, including Novartis, Pfizer and Sanofi, has approached Delhi HC.

These companies argue that NPPA's move is out of the purview of the pricing policy, which mandates the authority to only regulate prices of 348 medicines. Besides, curtailing margins would mean companies would not be able to invest in research and development and good manufacturing practices, which is an integral part of the pharmaceutical industry.

THE BITTER PILL

• Maximum retail price (MRP) of different brands of the same medicine varies by as much as 1,700-1,800 per cent
• Pricing parity is more significant between brands sold by domestic manufacturers and those marketed by multinational firms
• This is despite the fact that the ceiling price in case of even regulated medicines provides for up to 16 and eight per cent extra margin for retailers and wholesalers, respectively
• According to the regulator, such inter-brand price difference is indicative of a "severe market failure"
• Domestic as well as foreign drugmakers say curtailing margins would result in lesser investment in research & development and good manufacturing practices