Patented Drugs’ Pricing: Apprehensive Voices Could Turn into a Self-Defeating Prophecy

On February 21, 2013, the Department of Pharmaceuticals in a communication to the stakeholders announced that the committee to examine the issues of ‘Price Negotiations for Patented Drugs’ has since submitted its report to the Department. Simultaneously the stakeholders were requested to provide comments on the same urgently, latest by March 31, 2013.

This committee was constituted way back in 2007 to suggest a system that could be used for price negotiation of patented medicines and medical devices ‘before their marketing approval in India’.

In that process, the Committee reportedly had 20 meetings in two rounds, where the viewpoints of the Pharmaceutical Industry including FICCI, NGOs and other stakeholders were taken into consideration.

Simultaneously, the Committee had commissioned a study at the Rajiv Gandhi School of Intellectual Property Law and Indian Institute of Technology (IIT), Kharagpur to ascertain various mechanisms of price control of Patented Drugs in many countries, across the world. The Committee reportedly has considered this ‘Expert Report’ while finalizing its final submission to the Government.

Scope of recommendations:

The Committee in its final report recommends price negotiations for Patented Drugs only for:

  • The Government procurement/reimbursement
  • Health Insurance Coverage by Insurance Companies

Issues to remain unresolved despite price negotiation:

In the report, the Committee expressed the following view:

  • Even after calibrating the prices based on Gross National Income with Purchasing Power Parity of the countries where there are robust public health policies, with the governments having strong bargaining power in price negotiation, the prices of patented medicines will still remain unaffordable to a very large section of the population of India. Such countries were identified in the report as UK, Canada, France, Australia and New Zealand
  • The government should, therefore, extend Health Insurance Scheme covering all prescription medicines to all citizens of the country, who are not covered under any other insurance /reimbursement scheme.

Three categories of Patented Drugs identified:

The committee has identified three categories of patented drugs, as follows:

1. A totally new class of drug with no therapeutic equivalence

2. A drug that has therapeutic equivalence but also has a therapeutic edge over the  existing ones

3. A drug that has similar therapeutic effectiveness compared to the existing one

The Committee recommended that these three categories of Patented Drugs would require to be treated differently while fixing the price.

A bullish expectation of the Government on Patented Drugs market:

The report highlights that the Indian Pharmaceutical Industry has currently registered a turnover exceeding US$ 21 billion with the domestic turnover of over US$ 12 billion.

The report also estimates that the total value turnover of patented medicines in India, which is currently at around US$ 5 million, is expected to grow at a brisk pace due to the following reasons:

  • Rapid up-gradation of patent infrastructure over the past few years to support new patent laws with the addition of patent examiners.
  • Decentralization of patent-filing process and digitization of records.
  • Increase of population in the highest income group from present 10 million to 25 million in next 5 years.

All these, presumably have prompted the Government to come out with a ‘Patented Drugs Pricing’ mechanism in India.

Pricing Mechanism in China: 

Just to get a flavor of what is happening in the fast growing neighboring market in this regard, let us have a quick look at China.

In 2007, China introduced, the ‘New Medical Insurance Policy’ covering 86 percent of the total rural population. However, the benefits have so far been assessed as modest. This is mainly because the patients continue to incur a large amount out of pocket expenditure towards healthcare.

There does exist a reimbursement mechanism for listed medicines in China and drug prices are regulated there with the ‘Cost Plus Formula’.

China has the following systems for drug price control:

  • Direct price control and competitive tendering

In this process the Government directly sets the price of every drug included in the formulary. Pharmaceutical companies will require making a price application to the government for individual drug price approval.The retail prices of the drugs are made based on the wholesale price plus a constant rate.

Interestingly, unlike Europe, the markup between the retail and wholesale price is much higher in China.

Apex body for ‘Patented Drugs Price Negotiation’: 

The Report recommends a committee named as ‘Pricing Committee for Patented Drugs (PCPD)’ headed by the Chairman of National Pharmaceutical Pricing Authority (NPPA) to negotiate all prices of patented medicines.

As CGHS, Railways, Defense Services and other Public/Private institutions cover around 23 percent of total healthcare expenditure, the members of the committee could be invited from the Railways, DGHS, DCGI, Ministry of Finance and Representatives of top 5 health insurance companies in terms of number of beneficiaries.

Recommended pricing methodology:

For ‘Price Negotiation of Patented Drugs’, the report recommends following methodologies for each of the three categories, as mentioned earlier:

  1. For Medicines having no therapeutic equivalence in India:
  • The innovator company will submit to the PCPD the details of Government procurement prices in the UK, Canada, France, Australia and New Zealand for the respective Patented Drugs.
  • In the event of the concerned company not launching the said Patented Drug in any of those reference countries, the company will require to furnish the same details only for those countries where the product has been launched.
  • The PCPD will then take into consideration the ratio of the per capita income of a particular country to the per capita income of India.
  • The prices of the Patented Drug would be worked out for India by dividing the price of the medicine in a particular country by this ratio and the lowest of these prices would be taken for negotiation for further price reduction.
  • The same methodology would be applicable for medical devices also and all the patented medicines introduced in India after 2005.

2. For medicines having a therapeutic equivalent in India:

  • If a therapeutically equivalent medicine exists for the Patented Drug, with better or similar efficacy, PCPD may consider the treatment cost for the disease using the new drug and fix the Patented Drug price accordingly
  • PCPD may adopt the methodology of reference pricing as stated above to ensure that the cost of treatment of the Patented Drug does not increase as compared to the cost of treatment with existing equivalent medicine

3. For medicines introduced first time in India itself:

  • PCPD will fix the price of such drugs, which are new in the class and no therapeutic equivalence is available, by taking various factors into consideration like cost involved, risk factors and any other factors of relevance.
  • PCPD may discuss various input costs with the manufacturer asking for documented evidence.
  • This process may be complex. However, the report indicates, since the number of medicines discovered and developed in India will not be many, the number of such cases would also be limited.

Negotiated prices will be subjected to revision:

The report clearly indicates that ‘the prices of Patented drugs so fixed will be subjected to revision either periodically or if felt necessary by the manufacturer or the regulator as the case may be.’

Strong voices of support and apprehension:

A.  Support from the domestic Indian Pharmaceutical Industry

Interestingly there have emerged strong voices of support on this Government initiative from the domestic Indian Pharmaceutical Industry, as follows:

  • Indian Pharmaceutical Alliance (IPA) has commented, “This policy is in the right direction as we know that Compulsory License (CL) cannot address the need of price control for all patented drugs, so this policy takes care of that issue of a uniform regulation of price control for all patented drugs”. IPA had also suggested that the reference pricing should be from the developed countries like UK, Australia and New Zealand where the 80 percent of the expenditure being incurred on public health is borne and negotiated by the government.
  • Pharmexcil - another pharma association has commented, “This report is balanced and keeps India’s position in the global market in mind while recommending a pricing formula.”
  • Federation of Pharma Entrepreneurs (FOPE) & Confederation of Indian Pharmaceutical Industry (CIPI) had submitted their written views to the Committee stating that FOPE supports price negotiation mechanism for Patented Drugs and strongly recommends that Compulsory License (CL) provisions should not get diluted while going for price negotiation.
  • Indian Drug Manufacturer Association (IDMA) supported price negotiation for all Patented Drugs and recommended that the issue of CL and price negotiation should be dealt separately.

However, the Organization of Pharmaceutical Producers of India (OPPI) feels, as the report indicates, ‘Price Negotiations for Patented Products’ should be made only for Government purchases and not be linked with ‘Regulatory Approval’. They have already expressed their serious concern on the methodology of ‘Patented Products Pricing’, as detailed in the above report.

B. Apprehension within the Government

Even more interestingly, such apprehensive voices also pan around the Government Ministries.

Though the DoP has proposed in the report that once the Patented Drug Policy is implemented the issuance of CL may be done away with, the Department of Industrial Policy and Promotion (DIPP) has reportedly commented with grave caution, as under:

“If it is decided that Price Negotiations on Patented Drugs should be carried out then, the following issues must be ensured:

(i) Negotiations should be carried out with caution, as the case for Compulsory License on the ground of unaffordable pricing of drugs [Section 84(b) of the Patent Act] will get diluted.

(ii) Re-Negotiations of the prices at periodic intervals should be an integral part of the negotiation process.”

C. Apprehension of other stakeholders 

The NGOs like, “Lawyer’s Collective HIV/Aids Unit” and “Medicines Sans Frontiers (MSF)” reportedly have urged that the price negotiation should not be allowed to weaken the position of CL for the Patented Drugs.

They had mentioned to the Committee as follows:

“As regards the plea of the patent holder that they had spent a large sum on R&D, one should note that most of the funds for R&D come from the Governments of their respective countries”. They further stated, “when the cost of production of the patented drugs is not known, it would be impossible to negotiate the price in a proper manner.”

The DoP report states that the other members of the NGOs also seconded these views.

Conclusion:

Not so long ago, on January 12, 2013, one of the leading dailies of India first reported that in a move that is intended to benefit thousands of cancer patients, Indian Government has started the process of issuing Compulsory Licenses (CL) for three commonly used anti-cancer drugs:

-       Trastuzumab (or Herceptin, used for breast cancer),

-       Ixabepilone (used for chemotherapy)

-       Dasatinib (used to treat leukemia)

For a month’s treatment drugs like, Trastuzumab, Ixabepilone and Dasatinib reportedly cost on an average of US$ 3,000 – 4,500 or Rs 1.64 – 2.45 lakh for each patient in India.

I reckon, a robust mechanism of ‘Price Negotiation for Patented Drugs’ could well benefit the global pharmaceutical companies to put forth even a stronger argument against any Government initiative to grant CL on the pricing ground for expensive innovative drugs in India. At the same time, the patients will have much greater access to patented drugs than what it is today, due to Government procurement of these drugs at a negotiated price.

On the other hand, apprehensive voices as are now being expressed on this issue, just hoping for drastic measures of grant of frequent CL by the Government for improved patients’ access to innovative drugs, could well turn into a self-defeating prophecy – making patients the ultimate sufferers, yet again, as happens most of the time.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Leave a Reply

You must be logged in to post a comment.