| What
will be the WTO's
fallout on drug prices? |
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Today
owing to restrictions certain products cannot be imported; but that
will go next year. It will still be possible to impose price ceilings
on imported drugs, but the policy must be uniform. You cannot put
imports made by a foreign pharma company under price control while
the same product, marketed by a domestic manufacturer, stays out.
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How
will you impose price controls on imports when the pricing mechanism
is based on manufacturing costs?
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Yes,
the problem is how to assess the costs of foreign producers. Add
to that, the yardstick must be about how indispensable is the drug.
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It
will be one decision, if the drug is unique and addresses a condition
that needs immediate attention, different if alternatives exist.
We have to weigh the pros and cons of price control. There is
no choice if there is no production in the country. The lives
of many millions depend on such products.
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In
the case of insulin, for instance, there is zero production in India,
but certain people do import the crystals and convert them into
insulin. But the pricing is cleverly done so that you still come
to the same price even after adding the conversion cost!
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The
policy for other imported formulations is to allow 50% over the
landed cost. Say, that is Rs. 100; then we allow sale at Rs. 150.
If we disallow them even this much, then the industry will either
simply stop importing or even converting
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| How
do you determine which are the drug prices to control? |
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Take
bulk drugs. All those whose sales (going by 1991 data) were Rs.
4 crore or more are listed for price control. That is one angle
to it.
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But
the competition angle says that controls must apply if there were
not more than five manufacturers for any bulk drug, ten for formulations.
Price control could apply even on sales of as low as Rs. 1 crore
if just one bulk drug manufacturer had most of the market itself;
and even that seemingly 'small'
Rs. 1 crore would translate roughly into Rs. 4 crore worth of
end-product!
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The
government also keeps a check on non-scheduled items to see that
market prices and costs do not go wildly out of line.
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| And
how do you fix prices? |
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By
sending in our costing, technology and chemistry people. They watch
entire batches being manufactured by different producers to make
their assessment. Firms are even offered a choice of return profiles;
we offer them option of a 14% post-tax return on net worth, or a
22% - not post tax - on capital employed. It is their choice
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| Does
that not reduce the scope to, say, about only 50 drugs? |
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70%
of drugs were under control earlier. Right now only 38 to 39% of
formulation sales are under price control. The remainder is free.
Industry is not unhappy about the arrangement; they have accepted
the arrangement; they have accepted the inevitability of price control
in a country where only 30% have access to modern medicine.
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But
the reality is that more competition does not always lead to lowered
prices. It has worked like that in certain products - in bulk
drugs such as like ampicillin and a few others. But the price
of formulations have not come down. Their prices have not declined
despite bulk prices going down. The market does not always move
according to expectations!
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| How
are prices determined? |
We
look at what new investments have been made and even partially
completed ones. Wage increases are factored in too; maybe at the
rate of 5% annually. We build these factors.
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Would
you say drugs have some unique character which prevents their prices
from coming down?
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Yes;
it is unlike other consumer products.
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First
comes the 'sovereignty'
issue. A purchase becomes almost inevitable for a person if a doctor
prescribes a certain drug to a person. Few people who are truly
suffering would avoid the purchase altogether. Some may go in for
alternatives at best, but a doctor's
prescription is almost like a commandment.
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Secondly,
demand is highly inelastic. What you very often find is that products
that are sold at a higher price have a better market! That is how
it goes; it is one of the difficult areas.
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Extracts
from an interview with Shri Arun Kumar, Chairman, National Pharmaceutical
Pricing Authority, The Economic Times, Sept 5, 2000.
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