Govt mulls new price formula for patented drugs – Linking patented drug prices to per capita income
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The Department of Pharmaceutical (DoP) has come up with a formula to price patented drugs in order to end a constant irritant for global drug makers, but given the complexity its implementation may be tricky. A government panel has proposed that prices of patented medicines be based on the country’s per capita income, a move that would substantially reduce prices of costly drugs made by global pharmaceutical firms.
This formula-based pricing of expensive drugs will eliminate the uncertainty associated with the discretionary approach followed by the government currently, which disturbs earnings expectations of companies. A panel formed under the ministry of chemicals and fertilizers has recommended setting up a committee to negotiate with drugmakers to fix prices of costly drugs used to treat deadly diseases such as cancer, HIV and hepatitis.
The formula will take the price of drugs in five advanced countries such as the UK and France, and their per capita income, the draft guidelines said.
“If we compare the per capita income with the prices of patented medicines in countries like Australia or France, prices in India are comparatively high and hence, they need to be regulated,” a senior ministry official told Reuters, declining to be identified because he was not authorized to speak with media.
The final price will be arrived on the basis of Indian purchasing power. The government’s move to control the prices of patented drugs is based on the argument that Indian administrators do not posses the strength like the UK or France which have more bargaining power since they contribute substantially to healthcare.
“These countries have a wide coverage of health insurance by their government and therefore have high bargaining power in deciding the price of patented drugs through negotiation,” said the draft. Firms such as Pfizer, Bayer and Roche are holding back from launching patented drugs to escape indiscriminate controls by government.
In March 2012, the Indian patent office directed German drug maker Bayer’s kidney cancer drug Nexavar-—sold at Rs 2 lakhs, to be sold at Rs 8,880. The government mulled to control prices of three cancer drugs manufactured by Roche and Bristol-Myers Squibb. Prices in the UK, Canada, France, Australia and New Zealand will form the base of the calculation.
The proposal, posted late on Monday on the ministry website, cites as an example the lung-cancer drug erlotinib HCL, sold by Roche Holding as Tarceva. In India, it costs Rs 35,450 for a month’s course of 100 mg tablets, equivalent to Rs 1,21,085 in France and Rs 1,21,650 in Australia. Based on per capita gross national incomes, if the drug costs Rs 35,450 in India, its respective cost would be just Rs 11,643 in France and Rs 10,309 in Australia based on per capita income in the respective countries, the report said.
The government will then take into account the ratio of per capita income of these countries to the per capita income of India. The Indian price will be fixed by dividing the price of a particular medicine in those countries by the income ratio, and the lowest of the prices would be the local price.
“This policy is in the right direction as we know that Compulsory License (CL) cannot address the need of price control for all patented drugs, so this policy takes care of that issue of a uniform regulation of price control for all patented drugs”, said D G Shah of Indian Pharmaceutical Alliance (IPA) the lobby group of Indian drug makers.
The intention to do away with uncertainty may be correct, but the formula complicates the mechanism given that negotiations between drug makers and those governments are secretive.
In most cases, neither the companies, nor the governments disclose their pricing to retain the advantage. The DoP has suggested that once the patented drug policy starts, the issuance of Compulsory License may be done away with. Compulsory License is a mechanism under the trade related intellectual property rights that allows a generic company to manufacture copies of patented drugs by offering royalty to innovator companies.
The committee is of the view that once patented drugs go under price regulation it won’t be possible for the government to permit copycats on the ground of high prices. But it has suggested that CL can be issued on other grounds apart from price like non-affordability or during emergency situations. In case of drugs that are launched first time in India, the committee has noted that it will examine the drugs and their input cost before fixing a price.
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