Shyamal Majumdar: The wrong prescription

If the Indian pharmaceutical industry is suffering from insomnia, the credit goes to the furious pace at which Chemicals & Fertiliser Minister Ram Vilas Paswan is working these days.

The minister has indeed moved fast to expand the list of drugs under price control from the current 74. In the process, however, he has ignored the bitter lessons of history.

Till 1979, 347 drugs were under the Drug Price Control Order (DPCO). Result: India's fragmented industry of 20,000 companies is still stunted in terms of revenues. The total value of the country's drug sales, including exports, is less than what a company like Pfizer rakes in from a single product like Lipitor, an anti-cholesterol drug.

India's top 10 pharmaceutical companies spend only 3.3 per cent of their revenues on research compared with the 10 to 11 per cent spent by Western companies. 

Drug prices vs availability
	Annual price growth	Annual availability growth
Decontrolled drugs	10.60%	9%
Controlled drugs	1%	(-) 1%
Prices of 5 top bulk controlled drugs
Name	Price (Rs)  in Dec 1994	Price (Rs) in April 2004-	% annual avg growth
Insulin (10 ML Inj)	140.42	121.80	(-) 1.43
Ranitidine (10 Tab 150 MG)	13.64	4.48	(-) 7.26
Erythromycin (10 Tab 250 MG)	30.80	30.65	(-) 0.05
Betamethasone (10 Tab 00.5 MG)	3.88	3.52	(-)1.01
Carbamazepine (10 Tab 200 MG)	15.39	13.84	(-) 1.09
Prices of top 5 decontrolled drugs
Amoxycillin (15 Cap 500MG)	71.44	88.03	3.72
Cephalexim (10 Cap 500MG)	93.88	96.76	0.42
Diclofenac (10 Tab 100MG)	10.11	20.53	11.15
Paracetamol (10 Tab 500 MG)	2.65	7.20	18.57
Valporic Acid (10 Tab 500 MG)	49.24	51.01	2.88

After 1979, however, India has been slowly relaxing the stranglehold of price control. The number of drugs listed in the DPCO fell to 142 in 1987, and to 76 in 1995. The NDA government had proposed to prune the list of controlled drugs to 30 but its efforts were stalled by a High Court order. The matter is now in the Supreme Court.

The wheel is now being sought to be rolled back. Paswan says most of the 300-odd drugs outside the controlled list are "essential drugs" and should be brought under price control in the interests of the society at large.

But in his eagerness to rein in the industry, the minister has conveniently ignored the advice given by the National Pharmaceutical Pricing Authority (NPPA), the body that is supposed to monitor the price control.

In a letter dated June 22 this year, NPPA Chairman Vinay Bansal said clearly that "price control affects availability adversely. An ORG analysis for 13,132 brands, of which 2,999 are in the controlled sector, shows that volume growth suffered significantly in the controlled sector."

Bansal's letter said while the annual volume growth declined by 1 per cent in the controlled basket, the annual growth in the uncontrolled sector was 9 per cent. Clearly, the chairman felt a case for his intervention in the control-free drugs market did not exist.

There is enough data to show that it is competition "" and not price control "" that will improve affordability and availability of essential drugs. Consider the following: anti-cancer drug Neupogen, which is imported and cannot be under price control, cost Rs 7,000 in 1994 when it was launched. Its price today has come down by 80 per cent to Rs 1,500. The price of Recormon 2000, used in cases of kidney failure, has dropped by 40 per cent "" to Rs 500 from Rs 850 in five years. The list is endless.

When Bansal pointed out the availability problem, he could have given the example of three Vitamin A products that are used to fight night blindness in children. The public-sector Kerala State Drugs and Pharmaceuticals shut down its plant after the NPPA reduced the price of these products, making production unviable. Glaxo soon followed suit, leaving Nicholas Piramal as the only "surviving" Vitamin A manufacturer in the country.

There are several good arguments why price controls would hurt, not help, consumers. It is the profits on new, successful drugs that prompt the intensive research and development to find the next generation of miracle cures. A successful drug must pay for its own research, as well as the research on the unsuccessful ones on which the company also risked money.

According to pharmaceutical industry estimates, a new drug costs Rs 200 to Rs 1,000 crore to develop in India. In view of the insufficient returns, multinational drug companies do not invest in R&D on products aimed at sub-continental diseases.

For instance, in the case of malaria, the focus of multinational companies is on drugs that can combat "travellers' malaria" only, aimed at tourists from Western countries visiting the sub-continent. Also, no MNC will ever invest in a product that can cure diseases such as fluorisis, which is rampant in Rajasthan. The disease is caused by fluorine in water, leading to killer infection of gums.

The Indian Pharmaceuticals Alliance says the prices of drugs "" even those on the decontrolled list "" are 2 to 15 per cent cheaper than those available in countries like Pakistan and Sri Lanka. But Paswan counters this by quoting an NPPA study that shows that the prices of controlled drugs rose annually by a mere 1 per cent compared to 10.6 per cent in the case of decontrolled drugs.

An analysis by the Delhi Science Forum also supports this conclusion. The price movement of 28 essential drugs showed that prices went down in six of the eight controlled. On the other hand, the prices of some of the 20 drugs outside the controlled list showed an increase in excess of 20 per cent. The analysis also showed wide variations in the prices of different brands of a formulation, and the top-selling brand in a formulation is not the cheapest one.

These are figures that find the pharmaceutical industry on a weak footing. With the minister more inclined to accept the argument that market mechanism alone does not stabilise drug prices and the market share of a brand is not dependent on its price, the industry, it seems, is destined to spend many more sleepless nights.