Sunil Jain:Killer cure

RATIONAL EXPECTATIONS

Presumably, it is the coming elections in Bihar that have got Chemicals and Fertilisers Minister Ram Vilas Paswan into overdrive on his plans to control prices of pharmaceutical products.

But while his ostensible plan is to make medicines cheaper for the aam aadmi, his cure looks worse than the disease; indeed, the recommendations of the Task Force constituted for this are likely to stultify the industry just as it is poised to take off.

Take the proposal to do a mandatory de-branding of select drugs first, to lower costs of critical drugs used for ailments like TB, malaria, even AIDS.

On the face of it, it's great since the industry spends around a fifth of its total turnover on sales promotion, so this would lower prices (Naomi Klein would really approve, wouldn't she?).

The reality, however, is that much of the sales promotion is done on non-critical drugs, very little on anti-malarials and stuff like that, so the impact on prices on this account would be minimal.

However, since the drugs would no longer be branded, consumers would no longer pay a higher price for a Glaxo anti-malarial, say. So, all prices would fall to that of the lowest-cost producer.

That's great, but so would the quality""today, one reason you buy a Glaxo or a Ranbaxy product is because of the quality it promises. Once there's no brand, and there's no price advantage, Glaxo and Ranbaxy will just stop production.

This isn't just empty theorising""in the last decade, the production of drugs under the Drug Price Control Order (DPCO) fell by 1 per cent per annum as compared to a 9 per cent growth for the non-DPCO drugs.

During the Mumbai floods, when the authorities desperately needed doxycycline to control water-borne diseases, this DPCO drug was simply not available.

Which is of course also why the Task Force recommends that sick government-owned pharma firms be revived, indeed it is even proposed that it be made mandatory that the central government departments first purchase drugs from these PSUs at pre-approved prices""since these units turned sick because they were not competitive in the first place, it appears prices may have to be raised!

Anyway, the ministry now plans to come up with a Rs 3,000-crore revival scheme for IDPL, which was referred to the BIFR in 1992 and whose closure was ordered in 2003.

Whether this will work or not is an open question, but the reason why the Task Force has recommended government firms produce drugs is that, of around 15,000 registered and unregistered producers, just around 200-300 have Schedule M certificates, which signify good quality""this confirms the view, I guess, that de-branding is a bad idea.

If this isn't enough, the Task Force quietly extends price controls to other parts of the industry. First, there is to be a National List of Essential Medicines (NLEM) which would presumably replace the DPCO, on which there will be price controls.

In addition, there is also going to be a "pre-specified list of therapeutic categories", and the "reference prices (for drugs not in the NLEM) ... would be the ceiling prices of drugs contained in the NLEM".

The Task Force then goes on to say that any significant variation in the relative prices, and cites a figure of 10 per cent by way of example, "would be identified for negotiation"!

What is interesting, as a CII presentation on the matter shows, India has among the lowest drug spends in its peer group""Indians spend just 0.16 per cent of GDP on medicines, as compared to 0.20 per cent in Bangladesh, 0.34 per cent in Pakistan, and 0.19 per cent in China.

Indeed, the study says that while India produces 8 per cent of the world's pharmaceutics in terms of volume, the share is a much lower 1 per cent in terms of value.

Interestingly, for several major drugs, there are a large number of manufacturers, which normally ensure there are no price cartels""there are 101 producers of ciprofloxacin, 67 for gatifloxacin, 67 for diclofenac, and so on.

What takes the cake, of course, is the Task Force's recommendation on patented drugs. While this is where Indian pharma firms are now investing in, the recommendation is "all patented drugs and their formulations should compulsorily be brought under price negotiation prior to the grant of marketing approval.

Failure of such negotiations should then invite either price control or compulsory licensing"""in this case, one of the reference prices to be used is "the prevailing price of the closest therapeutic equivalent in the domestic market".

Firms spend millions of dollars to develop a new drug, and the Task Force is recommending all these be put under price control, not just those that are vital from the point of view of a nationwide epidemic or something""that this is probably contrary to what the new patent act says is another matter.

As in the case of DPCO drugs, where low prices resulted in lower production, the signal here too is that extra R&D is not something worth getting into. Makes you wish Paswan wins the elections in Bihar and moves there as chief minister!