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A pharma pricing web

State must get out of insulin price-setting

Business Standard  |  New Delhi 

The National Pharmaceutical Pricing Authority, or NPPA, has turned down the request of drug companies to raise insulin prices. Domestic insulin-makers Biocon and Cadila had argued that the cost of production and packaging had become higher, and multinational corporation Eli Lilly wanted the depreciation in the rupee vis-à-vis the dollar to be factored into the price. The NPPA says it has taken this step to protect consumers — as many as three million Indians take insulin shots every day. As a result, insulin prices are at their 2009 levels, when the NPPA last revised prices, though the rupee has depreciated 35 per cent against the dollar since then. This can be seen as a subsidy for diabetics — except the bill is picked up by the insulin makers. A news report indicated that the affected companies may seek a review of the NPPA directive from the department of pharmaceuticals.

The incident brings to light the complex set of rules and regulations the government has woven over the years. While domestic insulin makers come under direct price control, companies that import and sell are prescribed a profit margin over the cost of production. This has caused two severe conflicts. One, the NPPA says the importers often inflate their cost of production in order to get a higher price. Thus, Eli Lilly had taken the NPPA to court when it refused to accept the cost of production the company had submitted. In June 2011, the Delhi High Court asked the NPPA to accept the cost and raise the price accordingly. The NPPA accepted the costs but cut the profit margin from 35 per cent to 17 per cent; the result was that the maximum retail price (MRP) of Eli Lilly’s insulin remained unchanged.

The other is the conflict it has caused between domestic producers and importers — the age-old war of words between the domestic and foreign lobbies. Imported insulin happens to sell at much higher prices than domestic insulin. This has caused considerable heartburn among the domestic companies. With their lower prices, they ought to be happy because that way they can drive the importers out of business. But multinational corporations, in spite of their higher prices, command almost 75 per cent of the Rs 750-crore-per-annum market. The reason is that diabetics never experiment with insulin and stick to the brand recommended by their doctor. A patient is unlikely to switch to another brand of insulin just because it is cheaper. So, what Indian insulin makers want is a level playing field with the multinationals. The lack of it, they argue, has kept more domestic players from getting into the insulin market.

There is an argument to be made in favour of price controls when the producers are making super-normal profits. But there is hardly any evidence of that in the sector. Eli Lilly has said that its profit margins have shrunk to one to two per cent. Price controls clearly have outlived their utility. If there is market dominance by one or two insulin makers, the matter is best left to be investigated by the Competition Commission of India.

First Published: Tue, August 07 2012. 00:01 IST