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Tonic for the industry, trial for the patients

• 14/09/1992
• Down To Earth

IT"S A sweet end to the bitter battle for the Rs-5,000-crore pharmaceuticals industry. The new draft drug policy promises more profit to the industry, and in doing so, puts the need for inexpensive medicines on the back burner. The industry has used every trick in the book, including contrived shortages, illegal premiums on bulk drugs and overcharging, in its two-year struggle to expedite this more liberal policy. Observers of the pharmaceutical industry expect medicine prices to rise by as much as 20 per cent to 35 per cent on policy implementation.

According to a policy note tabled in Parliament by chemicals minister Chinta Mohan, fewer bulk drugs (basic drugs used in medicinal formulations) will now be kept under price control. The number is expected to fall from 143 to 59 bulk drugs. The policy is expected to have just one list of drugs with a 100 per cent mark up on the manufacturers"cost of production to take care of their promotional and retailing expenses. At present, there are two lists: one of drugs needed by the National Health Programme which are allowed a 75 per cent mark up and the other of essential drugs, which are allowed a 100 per cent mark up.

Wholesalers and retailers also stand to gain, as a higher mark up means a larger retail margin. ``The main aim (of the policy) is to see that investment in pharmaceuticals, by the year 2000, triples,"" says M S Gill, former petrochemicals secretary, in whose tenure the new policy was drafted. The Drug Price control Order (DCPO) 1987, now in force, has in effect cut the industry"s margin to less than five per cent. The new policy purports to raise this to 18 per cent.

However, the monthly per capita consumption of medicines is already minuscule, at Rs 4. Increases in drug prices will further push the poor out of the country"s health care system. Amit Sengupta of the Delhi Science Forum, an organisation of scientists from varying fields, says: "Higher production of drugs does not necessarily mean better availability as prices of drugs will also go up. Even at current prices, which are among the lowest in the world, a large portion of the population has no access to medicines."

Gill, on the other hand, says there was popular misconception that cheap drugs could be supplied only though an elaborate system of controls. It was necessary to create a situation where the industry would invest or plough back money in pharmaceuticals. Unremunerative prices under DPCO 1987 had forced the industry to diversify into diagnostics and other non-medicine products.

The industry would prefer a single control mechanism on its profit before tax, leaving it free to set the prices of most formulations. Says N D Rajpal, resident director of Alembic Chemical Works Ltd, "Industry would be content with a seven or eight per cent profit before tax. Companies making medicines from scratch (the basic stage) could get another four per cent as incentive. Under such circumstances, higher production would make sense."

At present, several manufacturers are reportedly withholding supplies of bulk drugs and formulations, in effect pressurising the government to expedite price revisions of bulk drugs and formulations, some of which have been pending for four months. The industry argues, the prices of several inputs have gone up by as much as 50 per cent in one year following rupee devaluation. The Bureau of Industrial Costs and Prices (BICP), which clears price revisions, can take several months to revise drug prices owing to staff shortage and a huge backlog of applications.

To get around this, the new policy proposes doing away with the practice of fixing prices of every bulk drug, formulation and pack, and, instead, setting a leader price for formulations in standard packs. A leader price is the average of the production cost of a range of manufacturers of one commodity; in effect, it proposes to penalise the laggards and reward the efficient producers. In addition, the industry claims it has to pay heavy taxes. Nearly 40 per cent of the sale price of medicines comprises different kinds of taxes, says A P Gupta of the South Delhi Chemists Association. Overcharging
However, manufacturers of bulk drugs have been overcharging under the guise of special processing, packaging, forwarding and compaction charges, none of which is permitted under DPCO 1987. For example, manufacturers of the bulk drug ampicillin trihydrate, input for an antibiotic, have been charging Rs 3,400 per kg against the DPCO 1987 ceiling of Rs 2,216 per kg. The government has sent out circulars to companies and state drug controllers to determine the quantum of overcharging. This will later have to be deposited in a government account called the Drug Price Equalisation Account. For instance, the ministry of chemicals and fertilisers had noticed overcharging on one of the Ranbaxy drugs, brustan. Based on an application the price was fixed at Rs 7.56 for a strip of 10 tablets. The company was, however, selling its products for Rs 8.21 for the strip. Ranbaxy argued it had applied to the BICP for price fixation in 1985 but as there had been no response for four months it had started producing the drug. The DPCO order permits a company to go ahead if BICP does not recommend an alternate price within 120 days.

According to government estimates, over 60 pharmaceutical firms have to deposit Rs 260 crore in the drug price equalisation account for charging more than the stipulated DPCO prices. Just Rs 16 crore have been deposited since 1980 when the DPEA was set up. Companies are not taking to the controls kindly with 12 companies addressing the Supreme Court to get their liabilities reassessed and others like Pfizer and Cadila appealing to high courts. Two multinationals, Glaxo and Hoechst, have the highest outstandings at Rs 71.78 crore and Rs 77.8 crore. On the formulations front, the government has instructed 15 companies to lower the prices of 21 medicines by up to 25 per cent to bring them in line with DPCO guidelines.

DPCO 1987 lays down a long procedure for selecting drugs for price control. The new policy will replace this by a "market-oriented" mechanism -- if there are five producers of the bulk drug and 10 formulators, the drug could be kept out of price control.

But giving companies the freedom to fix prices could lead to cartelisation. In a recent case regarding vitamin C, despite three price revisions by the government totalling Rs 53 per kg, the two domestic manufacturers -- Sarabhai Chemicals and Jayant Vitamins -- complained they were not breaking even. Stockists are reportedly still complaining about a vitamin C shortage. Industry sources, however, discount chances of cartelisation, saying the industry is too fragmented.

In another simplification of the price revision procedure, the new policy proposes to link the prices of medicines to the wholesale price index. Manufacturers of formulations can raise prices on their own provided the increase is less than 70 per cent of the increase in the index.

Many diseases can be treated by more than one drug with different prices and efficiencies. A case in point are anti-tuberculosis drugs. The old treatment regimen depended largely on sodium PAS which costs a third of the newer drugs such as ethambutol. Sodium PAS is four-fifths as effective as ethambutol and much cheaper but owing to higher profits from the second, it has been given short shrift. Production of sodium PAS fell to 59 tonnes in 1989 from 69 tonnes in 1986 while that of ethambutol rose to 2,978 tonnes from 2,188 tonnes.

The new policy also does little to maintain a quality check on drugs. The bulk of production comes from the small sector and it is up to the state drug controllers to keep tabs. Keeping the small sector out of price control may help in decentralisation and employment generation but it is a trade off with quality.

Meanwhile, pharmaceutical manufacturers, large and small, can go laughing to the bank while the common person awaits better health care.

• Tags:
  • Drugs
  • Industry

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