With a market value of USD 42 billion, the Indian pharma industry is one of the biggest both in terms of volume and market value in the world. Outside of that, India is also the largest generic medicine provider in the world accounting to 20 percent of the total pharmaceutical exports.
The major share of the Indian pharmaceutical industry is made up of generic drugs that are of low cost while many of the patented medicines are imported from foreign countries. Even with that being the case, in a move to cut down the prices of common medicines even more, the Indian government is aiming to rationalize trade margins of specific categories of drugs. As a pilot run to this, in 2019, National Pharmaceutical Pricing Authority's (NPPA) limited the trade margins of 41 anti-cancer medicines to 30 percent. Aside from that, during the pandemic, the Indian government limited trade margins of more widely used medical devices which led to the drop in price of some of these products by up to 89 percent.
TMR and the Backlash Recently, NPPA met with multiple stakeholders regarding the trade margin rationalization (TMR) to bring down the prices of more drugs, people in the know told ET. In the meeting, members of The Organisation of Pharmaceutical Producers of India (OPPI), All India Drug Action Network (AIDAN), and Indian Drug Manufacturers Association (IDMA) were present among many others. Rajiv Singhal, who holds the office of General Secretary, All India Organisation of Chemists and Druggists (AIOCD), told ET that “The AIOCD has suggested that the government should come out with a clear-cut definition for generic medicines.
For generic medicines we have suggested a trade margin of 15% to wholesalers and 35% to retailers on MRP”. Rajiv also added that The Department of Pharmaceuticals (DoP) suggested that lower-priced medicines may be exempted from TMR. In another meeting which included the Union minister for health and chemicals and fertilizers Mansukh Mandaviya, NPPA chairman Kamlesh Pant, and representatives of industry associations such as Laghu Udyog Bharati, Small and Medium Pharma Manufacturers Association (SMPMA), Indian Federation of Pharma Generics, these associations suggested for the adoption of “one molecule one MRP” formula instead of the proposed TMR method on non-scheduled drugs.
The one molecule one MRP approach will ensure that the same drugs having similar chemical composition will have the same price. The biggest benefit of this approach is that the price of the drugs will not be influenced by the brand manufacturing them. To get a better picture on the importance of this proposed change, let’s analyze the current pricing landscape of drugs with similar chemical composition in India and why many small and medium drug companies are battling for the adoption of the one molecule one MRP approach.
The Present Scenario As of now, the prices of drugs with similar chemical compositions can vary according to the brands that manufacture those drugs. With the trade margin being the difference between price at which the drug manufacture sells the drug to stockists and the price at which these stockists sell the drugs to the consumers, the current TMR formula offers an unfair advantage to bigger manufacturing companies.
Many experts believe that the price increase in these drugs is caused by the changes these firms make to their maximum allowable post-manufacturing expenses (MAPE). Aside from that, drug manufacturers also add their research and product development expenses to increase the prices of drugs. And this disparity when it comes to the pricing was evident as after the introduction of the new drug price control order (DPCO), the Indian pharma industry lost north of INR 2000 crore.
One Molecule One MRP With the government aiming to introduce TMR on non-scheduled drugs as a measure to reduce the cost of drugs, there has been a significant increase in the number of people who is opposing TMR and is supporting the implementation of the one molecule one MRP approach. Why is that the case? The first reason is that, small and medium drug firms believe that TMR will only help big manufacturers to become even bigger by enabling them to increase the prices of their drugs.
The stockists and other distributors will also promote the drugs from big brands which will make it harder for smaller manufacturers to increase their market presence. The second reason for the increasing number of proponents of one molecule one MRP approach is that, it is a uniform formula which will avoid the losses faced by the pharma industry while at the same time help small and medium drug manufacturers to have a better chance of competing with the bigger players. Aside from that, many industry experts believe that the one molecule one MRP formula will disrupt the market share of bigger drug manufacturers and break the monopoly in the industry.
Drug Price Management around the Globe In the US, the government doesn’t directly regulate the prices of drugs which give drug manufacturers ample freedom to dictate the prices of their products. Also, owing to the multi-faceted repayment system in the pharma space, different buyers get different prices for the same product. And even though, many drug manufacturers and pharma companies have received backlash owing to the increasing price, they have tried to deflect the criticism.
When it comes to the UK, the Pharmaceutical Price Regulation Scheme (PPRS) deals with the pricing of drugs and this body is the result of a non-contractual agreement of the UK Department of Health as well as the members of the Association of the British Pharmaceutical Industry (ABPI ). This body focuses more on limiting the profit margins drug manufacturers make through their sales to the NHS (National Health Service). Aside from that, the UK also has a separate entity called the National Institute of Health and Care Excellence (NICE) to determine the value of new branded drugs. Then, in China, the government has been trying to focus more on a market/demand-driven pricing system for the drugs. Aside from that, the focus is also given to reduce the monopoly in the market and help new branded drugs to find a space in the market.
The country is also heavily negotiating with the drug companies to reduce the prices of drugs so that it will be more affordable for the consumers. A 2018 report stated that, 2.4 million Indian die every year from treatable health issues owing to the increasing price of medicines. And out of the 136 countries that were used in this study, the situation in India was considered to be the worst. At a time like this, it is important that the government and drug manufacturers come together and find a potential solution that will not only make the prices of drugs more affordable but also ensure that small and medium drug companies can survive and grow in the market. And the uniform pricing formula proposed by the one molecule one MRP method provides a great opportunity to achieve the same.
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