Drug firms ask govt to raise ceiling prices of drugs under price control

Argue 20-90% rise in raw material prices could lead to production issues and shortage in domestic markets

Pharmaceutical companies have approached the government to raise the ceiling prices of drugs under price control, at least temporarily. If the government yields to the drugmakers’ demands, it would be a rare move under the Drug Price Control Order (DPCO) of 2013.

With rising raw material prices pinching margins, firms say they might have to cut production, which will impact availability. Prices of imported active pharmaceutical ingredients (API) or bulk drugs — raw material used for making medicines — have gone up 20-90 per cent in the past few months.

The impact on the domestic industry is significant, as about 16 per cent of drugs worth Rs 198 billion of the Rs 1.23-trillion domestic pharma market is under price control. The ceiling price for these drugs is fixed by the National Pharmaceutical Pricing Authority (NPPA) and is reviewed every year, based on the wholesale price index (WPI). For all other drugs, firms are free to increase prices by 10 per cent every year.

“Companies are individually requesting the government to increase prices of formulations under a price cap. When those prices were fixed, API prices were low. Now, the increase is hurting them. We support the demand, as companies will be incurring losses by producing these medicines and may be forced to cut production, which will impact availability,” said D G Shah, secretary general of the Indian Pharmaceutical Alliance, which represents the domestic drugmakers. 

Indian drugmakers depend heavily on China for sourcing of bulk drugs. According to a KPMG-CII study, 60-70 per cent of bulk drugs are imported from China. Supplies from China have been disrupted, as companies are upgrading their plants or have shut them down due to environmental concerns.

A senior executive of a firm that requested the government to consider raising ceiling prices said: “We hope the government takes steps to ensure the industry gets some relief. The situation is expected to continue for a few quarters and the dependence on China cannot be avoided. Not just for APIs, companies also rely on Chinese manufacturers for chemical intermediates that are used for making drugs.”

Some firms with large portfolios under the National List of Essential Medicines are Cipla, Cadila Healthcare, GSK Pharmaceuticals India, Alkem Laboratories and Sun Pharmaceutical Industries, among others.

According to Kedar Upadhye, global chief financial officer of Cipla, the supply issues from China could continue for another year. “At a consolidated level, we have seen 30-40 basis points increase in manufacturing costs because of API price hike. But in respect to impacted products (where API prices have gone up), the impact will be much higher. Supply disruption and API price hike is a double whammy for companies, as many of the formulations, where these raw materials are used, are under price cap.” 

Upadhye said there was no overnight solution to switch to another source country for APIs. “We cannot do much in the short term but to absorb the cost increase for the time being. The Chinese manufacturers have huge capacities,” he said.

Deepnath Roy Chowdhury, national president of the Indian Drug Manufacturers’ Association (IDMA), said member companies had approached the association with concerns about rising raw material costs and to explore ways to offset the cost pressure. IDMA is keeping a close watch on the situation and may take up the matter in Delhi soon. 

Experts said the government had the power to fix, increase or decrease price of formulations (whose price is already fixed), irrespective of WPI, under clause 19 of the DPCO. The rule states that such action could be initiated in case of extraordinary circumstances and in public interest.

S V Veeramani, immediate past president of IDMA, said if remedial measures were not taken immediately, possibility of drug shortage cannot be ruled out.