Drug price control order (DPCO) 2013 : What's in store?

Last week on Wednesday, May 15 the department of pharmaceuticals issued the new Drug price control order 2013 (can be accessed here) which will alter price regulation dynamics and substantially increase the number of medicines covered by price cap umbrella. The earlier DPCO order regulated prices of only 74 bulk drugs whereas the current DPCO order will regulate prices of as many as 348 medicines. The DPCO 2013 will come into effect somewhere around July 1st i.e. 45 days from the date of issue of the order. Some say that 45 days is a very short time window for companies to comply. 

The DPCO will now allow National Pharmaceutical Pricing Policy NPPP 2012 to regulate the prices of 348 drugs which are covered under essential meds list 2011 thus effectively replacing the earlier DPCO 1995 order. Shan had previously blogged about draft NPPP over here.See here and here to read our previous posts on this. 

Bitter pill ?

Which drugs will come under price control? 

This order doesn't cover patented drugs. Earlier in March this year the Department of pharmaceuticals (DOP) had issued a draft proposal on price negotiation of patented drugs. Readers may remember that we had posted about this here.

Prices of 652 formulations spanning over 27 therapeutic classes are regulated by DPCO 2013.Prices of some additional anti-cancer drugs including the much talked about Imatinib, Carboplatin, Dacarbazine, Daunorubicn, Chlorambucil, Oxaliplatin and some anti-retroviral cocktails like Zidovudine-Lamivudine-Nevirapine and Stavudine- Lamivudine will now be regulated by the current order. 

New pricing methodology 

Previous DPCO order regulated drug prices based on the manufacturing costs stated by their manufacturers. In the current order however ceiling prices would be calculated by taking simple average of all the drug brands having a market share of more than 1%.The final MRP of the drug would factor in 16% to the retailer. This shifts the ceiling price calculation from a cost based to a market based method. 

But, critics (read patient groups) argue that the previous price regulation method i.e. manufacturing cost based method is important in cases where companies have a monopoly. 

Some industrialists contend that the ceiling price calculation should have been based on a weighted average of prices instead of the simple average formula as currently proposed as the simple average formula fails to provide a level playing field between different companies. 

The catch here is that all the existing manufacturers selling medicines at a price higher than the ceiling price fixed by thee Govt will have to revise their prices downward and all those manufacturers selling medicines at a price below the ceiling price will have to maintain their existing MRP and wouldn’t be allowed to increase their prices. 

After the DPCO 1995 many manufacturers withdrew from market and production levels of many essential drugs fell below critical levels. 

After some lessons learnt the hard way the Govt has incorporated sufficient provisions in the current DPCO to definitively preempt the possibility of an essential drug going off market. 

The DPCO 2013 states that “Any manufacturer of scheduled formulation, intending to discontinue any scheduled formulation from the market shall issue a public notice and also intimate the Government in Form-IV of schedule-II of this order in this regard at least six month prior to the intended date of discontinuation and the Government may, in public interest, direct the manufacturer of the scheduled formulation to continue with required level of production or import for a period not exceeding one year, from the intended date of such discontinuation within a period of sixty days of receipt of such intimation.” 

Incentivizing Innovation: 5 year relaxation from price control 

The DPCO 2013 strives to incentivize indigenous R&D by allowing new drug/new formulation/new processes developed by domestic research and development and patented to be exempted from price control for a period of 5 years. Well this ought to trigger innovation in pharma industry! 

Relevant excerpts from the order: 

Non–application of the provisions of this order in certain cases:

(i) a manufacturer producing a new drug patented under the Indian Patent Act, 1970 (39 of 1970) (product patent) and not produced elsewhere, if developed through indigenous Research and Development, for a period of five years from the date of commencement of its commercial production in the country. 

(ii) a manufacturer producing a new drug in the country by a new process developed through indigenous Research and Development and patented under the Indian Patent Act, 1970 (39 of 1970) (process patent) for a period of five years from the date of the commencement of its commercial production in the country.

(iii) a manufacturer producing a new drug involving a new delivery system developed through indigenous Research and Development for a period of five years from the date of its market approval in India: Provided that the provision of this paragraph shall apply only when a document showing approval of such new drugs from Drugs Controller General (India) is produced before the Government. 

The manufacturers aren’t amused about the price margin erosion, but it seems like a win-win situation for consumers. Here again the key factor will be effective enforcement of the order. Past record of enforcement paints a sorry picture with blatant disregard and open violations of the DPCO provisions.