New Delhi: The government is considering the feasibility of linking the permitted annual increase in prices of non-scheduled formulations to the Wholesale Price Index (WPI) in a bid to regulate the prices of drugs. The move, if implemented, could deal a big blow to the pharma industry.

The NITI Aayog has recommended an amendment to the Drug Price Control Order (DPCO) 2013, suggesting that prices of non-scheduled drugs be also be linked to WPI to regulate them like the prices of scheduled drugs. It has also suggested development of a separate index for pharmaceutical products.

“The medicine prices may be linked to pharma commodities WPI rather than general WPI for both scheduled as well as non-scheduled drugs," said the proposal. Mint has reviewed the copy of the proposal.

“The proposal to link price revision of non-scheduled formulations with WPI is under consideration," said two people aware of the matter.

The department of pharmaceuticals (DoP) under the chemicals ministry and NITI Aayog recently had a meeting with the Prime Minister’s Office (PMO) to discuss the proposed changes in the DPCO 2013.

According to DPCO 2013, prices of scheduled drugs are revised in line with the wholesale price index (WPI) of the previous calendar year. As a corollary, the companies are even required to cut the prices if there is a decline in the annual WPI.

However, manufacturers of medicines not under price control are allowed to increase the maximum retail price by 10% annually.

According to DoP, only about 850 drugs are under price control as against the more than 6,000 medicines available in the market of various strengths and dosages.

The recommendation, if accepted, will bring down prices of non scheduled drugs. Pharma lobby groups said the recommendation is without a doubt a considerable blow to an already beleaguered industry.

“The proposed linking of the non-scheduled formulations to WPI based price changes will deal a severe blow to the industry’s innovation efforts. The pharmaceutical industry earns investible surplus for innovation from exports. It has suffered a major setback in the USA in 2017. The increased competition and channel consolidation have eroded their margins. This has significantly impacted R&D funding for the industry. The need for investments in R&D is crucial to the future of the national pharmaceutical industry," said D.G. Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), which represents 20 of the country’s biggest drug makers.

While the prices of all scheduled drugs went up by around 3.4% in April this year. In April last year the price increase was around 2.9%. However, in 2016 the wholesale price index was 0.97% and the industry had to reduce the price, a major disadvantage for pharmaceutical giants in one of the world’s fastest-growing drug markets.

Pharma lobby groups claim that the proposal is not seen as favouring the industry. Some of them have even approached the PMO to rescind the proposal.

“This proposal is a serious adverse development and has the potential to cause irreparable damage to the Indian pharma industry. Given the real annual inflation, increase based only on WPI is not at all reasonable as the industry has to deal with the rising cost of manufacturing. We would earnestly request the government to reconsider the proposal," said Deepnath Roy Chowdhury, president, Indian Drug Manufacturers’ Association (IDMA).

Additionally, according to the proposal, in case of a negative WPI, mandating the National Pharmaceutical Pricing Authority (NPPA) to change the ceiling price of scheduled drugs and it will not be required for individual drugs to reduce their MRPs if they are already lower than such revised ceiling price.

While pharma lobby groups have said that the move has the potential to impact the future of the national pharmaceutical industry, Malini Aisola of the All India Drug Action Network (AIDAN) supported the “equalization of the annual price increase between scheduled and non-scheduled drugs".

“We currently have a situation where there are strong incentives for companies to market non-scheduled formulations to avail to automatic 10% increase. Compounded over five years, the price of a non-scheduled drug goes up by over 60%. This is problematic for drugs that are used for chronic conditions and highly priced products," she said.

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