In small doses

Fertiliser and Chemicals Minister Ram Vilas Paswan seems to save scored with his move to check the sustained increases in pharmaceutical prices, through the National Pharmaceutical Pricing Authority (NPPA). Apart from the drugs that are under the Drug Price Control Order (DPCO), the NPPA also monitors the prices of other important drugs and has, in some cases, fixed the prices of drugs that it felt were excessive. Indeed, as a report in this newspaper points out, the NPPA found that the number of cases where prices rose beyond the allowed limit was 79 in January 2007, but fell to 15 by April, 11 in July, eight in September and just one in October. On average, according to data tracked by the consumer-data firm ORG, retail prices of pharmaceuticals rose by less than 10 per cent between October 2006 and October 2007, but there would be wide variations "" everyone has his or her favourite horror story about how much of a price increase there has been in the medicines that they take.

The problem, however, is that the data provided by the pharmaceutical industry indicate a completely different picture. This shows, for instance, that over a five-year period, drug prices have fallen in real (i.e. inflation-adjusted) terms "" a claim that would seem to fly in the face of facts. The industry also has the stock responses that it has trotted out every time price control is threatened: Indian drug prices are barely 5 per cent to 30 per cent of those prevailing in countries like Pakistan and Indonesia. The industry also points out that when you look at the total cost of health care in the country, the medicines produced by it add up to only 15-20 per cent of total costs "" hospital care (17 per cent) and diagnostics (24 per cent) are equally large, if not larger, and there is no control on these costs. So, the first thing that needs to be done, and there is a Group of Ministers looking into the matter of a new drugs pricing policy, is to get agreement on the facts. In one meeting, industry leaders pointed out that the huge inflation and profiteering that the ministry was referring to (where a drug that cost 50 paise was being sold for Rs 5) applied to unbranded generics, which comprised less than 10 per cent of the market. In any case, it does appear difficult to see cartelisation in an industry which has more than 10 brands for most major molecules; in cases like the popular antibiotic ciprofloxacin, this goes up to over 100.

The real issue is the impact of such price controls on supply. If, as the data shows, the production of drugs goes down in response to controls, the loser is the patient. In the last decade, the production of DPCO-drugs fell 1 per cent a year, while non-DPCO drug production rose 9 per cent a year. The other issue that needs to be considered is the cost of research. While the big international drug firms spend upwards of 15 per cent of their turnover on R&D, the figure for Indian firms is under 5 per cent. Strict price controls will put an automatic ceiling on this growth. Indian R&D is important because there is hardly any research on drugs for tropical diseases. Some international firms have shifted their focus to these issues because they now see a potential market, but the industry needs to see healthy returns to justify research outlays as it takes 10-12 years to develop a drug, and just one in five drugs that are tried gets to the market. In short, there is an outcome that can be seen only after 10-15 years while the impact of price controls can be seen almost immediately. The two need to be balanced.