After a span of 18 years, India on Thursday notified new drug price control, significantly altering the way it regulates prices in the Rs.72,000 crore domestic market to keep them affordable for patients.
The new regime will come into effect 45 days from now. The new drug price control will have a much wider coverage with a ceiling for over 652 drugs, compared to 74 bulk drugs and their formulations that are currently under price control.
The current method of fixing prices on a cost-plus basis will be replaced by market price-linked cap for each drug.
This ceiling price would be calculated by taking the simple average of all brands of a drug with a market share of one percent or more. The maximum retail price of a drug would factor in a margin of 16 percent to the retailer. The prices prevailing in May 2012 will be taken as the reference point for calculating the caps. Drug producers will be permitted an annual increase in the retail price in sync with the wholesale price index.
Companies selling below ceiling prices would not be allowed to raise prices, while those selling above the government-mandaed rates would have to reduce prices to conform to the new rules.
Pharma firms would be allowed to increase the price of non-essential drugs by ten percent annually.
The drug industry reacted cautiously to the new policy that incorporates its proposal for a market-based mechanism, but threatens to squeeze the margins of most producers.
The new pricing policy seeks to incentivise domestic R&D by allowing locally discovered and developed drugs to skip price control for five years.
While the ceiling price would be revisited every five years under normal course, the policy contains a provision for revising it before the mandated period in case the market witnesses structural changes or the health ministry revises the essential drugs list.
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