Pharma regulator NPPA warns industry of stricter price action

The National Pharmaceutical Pricing Authority (NPPA) has warned the pharmaceutical industry of stricter price regulation, a move which could weaken sales growth of the sector.

“The pricing regime will be strict than what it is so far. The government is answerable to the people,” NPPA Chairman Bhupendra Singh said at an Indian Drug Manufacturers Association event in Mumbai on Saturday. He did not specify the proposed actions.

The move comes in the backdrop of government scrutiny of industry practices which found excessive trade margins and exorbitant drug prices among others.

Singh said trade margins for 25 per cent of drugs sold in the country ranged from 100-1,200 per cent. Pharmaceutical sector experts have disputed the claim.

On an industry-wide basis, pharma companies recorded sales of Rs 1.16 trillion in 2017. Sales grew 5.5 per cent in 2017, the slowest in the past eight years because of an increase in the number of products under price caps and delayed product approvals. 

The government had proposed capping of trade margins in the draft pharmaceutical policy last year. A committee appointed by the Ministry of Chemicals and Fertilisers, too, had recommended a cap on margins in 2016 but no action has been taken yet.

Within the sector, there has been a buzz that the draft policy has been put in the cold storage because of opposition from industry but Singh’s comments suggest the government is serious to introduce steps to make drugs more affordable. 

“India has the most liberal pricing regime,” Singh said while criticising the industry for unfair practices.

“The NPPA chairman’s views are misleading. In 2016, a study had found that the average trade margins for 96 per cent of the drugs sold in country was 23 per cent, while only in four per cent of drugs, the margins were found to be 71 per cent,” said D G Shah, secretary general, Indian Pharmaceutical Alliance.

Shah and other industry executives said non-branded generic drugs have higher trade margins and these constitute only four per cent of the total industry’s turnover. “The government actions will result in slowdown of sales and investment by companies in domestic sector,” Shah said. 

“If the government caps trade margins, over 90 per cent pharmaceutical sales will not be impacted. Retailers could get affected and in some cases prices of drugs could get lower,” said S V Veeramani, former president of Indian Drug Manufacturers Association.

According to executives, non-branded generic drugs with high margins are sold in the hospital category and in rural markets where drugmakers do not have their own sales and distribution set-ups. Distributors in rural areas are given higher margins to incentivise sales, they said.