The industry body is lashing out at the regulator for stifling a growing industry. But the members say the drug companies are doing just fine
On 13 April, a day before the Easter weekend, many drug manufacturers went on their breaks feeling a little agitated but mostly helpless. It was the day, the spokesperson of the Indian Pharmaceutical Alliance (IPA), representing its (invite only) members—over 20 large companies including Sun Pharma, Dr Reddy’s, Lupin and Cipla—went public with his anger. Dilip G Shah referred to the pricing policy roll‐out as “arbitrary”, and compliance to guidelines “difficult”. Shah claimed these two factors were adding to the “woes” of the drug industry. With their morning coffee, manufacturers and the drug regulator read Shah’s opinion piece. They made calls, exchanged texts and shared tweets asking each other: Was the regulatory mechanism for the price control of essential medicines hurting the industry so much? The answer was lurking in their own backyard.
The IPA’s internal report, ‘Pharmaceutical Sector Challenges and Opportunities – 2017’, was short. Just 21 pages. But it provided the answer. Price control was the least of the sector’s woes. The chatter to disband the drug pricing regulator—National Pharmaceutical Pricing Authority (NPPA)—under industry pressure, which began six months ago, was grave enough. The NPPA’s recent claim to fame in controlling the prices of stents by treating them as essential medicine in the prime minister’s speeches has intensified the conflict. In hushed tones, senior executives of some of the largest pharmaceutical companies say that they want to work with the regulator and abide by the law but Shah has taken the conflict very personally. He has scapegoated the regulator for unrelated ills. The public posturing of the IPA, which is in sharp contrast to its own report, shows the extent of the misinformation being floated. Instead of working out mechanisms to keep the prices affordable and the industry healthy, not mutually exclusive goals, the anti‐price control drumbeating has diverted the attention from the real challenges of the drugmakers. Even creating doubts in the minds of foreign investors.
The real culprits The piece in The Economic Times and the letter that the IPA sent earlier this month to think‐ tank NITI Aayog’s vice‐chairman Arvind Panagariya, both authored by Shah, point that the industry’s growth rate is declining. From 15% in 2015 to 11% in 2016 and further to 9% ending in February 2017. And why is that so? Because of the “‘arbitrary and unimaginative’ implementation of the drug pricing policy” by the NPPA and the policy initiatives of the Central Drugs Standard Control Organisation (CDSCO), Shah argues. “The aggressive tone, arbitrary selection of words and the argument are not backed with any evidence. Price control is not one of the industry’s primary problems. It exists in one form or another globally,” said a senior executive at one of the largest pharmaceutical companies based in Mumbai, part of the IPA. “Further use of terms like nightmare, arbitrary, imaginative and trust deficit do not help pharma companies—small, medium or large—in working with the government in any way, and shift focus from the real issues plaguing the sector,” he added.
The Ken spoke with senior executives from three large Indian pharmaceutical companies that have a majority market share in some of the price‐controlled drugs and are among the members of the IPA; members of the Indian Drug Manufacturers Association (IDMA), which represents over 1000 small, medium and large companies, independent analysts and government officials. All of whom chose to speak on the condition of anonymity.
They are critical of Shah’s current aggression but still rely on him for a strong voice on all other issues—domestic and international. All these people agreed that in the last three years, price regulation has affected them only marginally, not nearly enough to reverse the growth. They all point towards the IPA’s own annual report, which states that the pharma industry has been on a roll, doubling in size over the last 6 years to reach $41 billion.
What, then is really affecting the industry? Not paying attention to research and development (R&D).
Traditionally, drug companies worldwide have been the highest spenders on research. But not in India. According to the IPA’s recent report, an industry that is worth $41 billion spends about $1.5 billion on R&D, 3.6% of the revenue. Teva, the largest generics maker, spent 7.5% of its sales on R&D in 2016.
Even the IDMA in its internal assessment, ‘Journey towards Pharma Vision 2020’, has stressed R&D as one of the key factors that will determine the industry’s growth and development. A member of the IPA noted that “while the companies are making in India, they are not innovating in India”. The government is gradually withdrawing its financial support in drug discovery and innovative formulation, which has affected the companies. The IPA’s internal report on growth The second factor that is hurting the industry is the relentless inspection from the American drug regulator, the US Food and Drug Administration (FDA). If the industry’s prices are being monitored by the Indian regulator, its quality is under the scanner of foreign regulators.
The difference is in the approach the IPA is using against each—conciliatory for the US FDA and head‐on for the NPPA, remarked an independent pharma analyst in Delhi, who doesn’t want to be named. The IPA’s internal report on inspections by the US FDA The inspections conducted by the US FDA in 2015 and 2016 have resulted in the closure of plants over quality issues. A blow to not only the export market but also the local industry as the profits from exports are ploughed back into the local market, said a senior executive of an Ahmedabad‐based pharma company, which is also a member of the IPA. The IPA’s unpublished report, which The Ken has a copy of, resonates with the ground realities of the industry. But the irony is that the larger issues are not part of the public discourse. One wonders if they are at least being discussed with the decision‐makers. And that brings us to the much‐talked about price control, which even Shah dismisses in one graph of his 21‐page report.
The impact of controlled prices As the number of drugs under price control increased—from 348 in 2015 to 376 earlier this month—the IPA under Shah kept the public opinion focused on it. It is widely perceived that the drug companies are being squeezed on this account. However, according to the calculations of a new document prepared by the NPPA, which is not yet public, only overpriced brands face some degree of squeeze.
With the 376 drugs under some price control, until March 2017, “about 60% of the companies remain unaffected because they were already selling their products below the ceiling prices on their own, on account of market competitiveness”. For the remaining 40% brands, “the price reduction compared to highest prices brand is 10% or less which is nothing, if we see it in the context of exorbitantly high trade margins in the pharma sector,” states the document. “Margins are not being touched at all. We are slashing only the exorbitant trade margins, and this does not affect the growth of the industry,” said NPPA chairperson Bhupendra Singh. To use another set of statistics, from an independent body named Pharma Track, 15.6% of the Indian pharma market is under price control. Extent of squeeze An estimated 2‐4% of revenue shrinks due to price regulation.
The consensus is that the majority of the market is out of price control An estimated 2‐4% of revenue shrinks due to price regulation. The consensus is that the majority of the market is out of price control. But what does hurt within this is the present inefficient mechanism. For instance, if the prices of innovative dosage forms of the listed drugs are to be controlled, how much time should be granted to the manufacturers to implement the controlled prices. Also, can controlled prices be applied on a pro‐rata basis? Price control has limited impact on the revenues of the sector. But it is neither throttling the industry nor is it as arbitrary as Shah has consistently projected it to be.
Why then is Shah upset with the regulator? The real bone of contention is the motivation behind the price regulator’s overreach. It is an ideological war between pro‐industry and pro‐ consumer, which, frankly, is no war. The two parties can easily be on the same side. The Ken tried but could not ascertain if the top honchos of the 20 member companies are in sync with the stance that Shah has been taking. Ideology clashes Discontent with the price regulator has been brewing not just in the IPA, but within the government departments too, as The Ken reported in November.
On 28 March, it surfaced again at a meeting at the Prime Minister’s Office. The secretaries of the Department of Industrial Policy and Promotion and Department of Pharmaceuticals (DoP) and additional secretary of health and the chief executive of NITI Aayog—who are collectively referred to as ‘pro‐market boys’ among Indian bureaucrats—took their complaints of the “over performing” drug pricing regulator to the principal secretary. But the principal secretary Nripendra Misra, like the prime minister, is tom‐tomming price control of drugs as a major public service. “After assuming office, mechanisms were put to bring down prices of medicines even if that meant pharma companies are unhappy with us,” said prime minister Modi at a hospital inauguration in Surat on 18 April. Yet, the NPPA chairperson Singh was asked to defend the role of the regulator, which he did. In a written reply, Singh has proposed a clear strategic vision balancing the twin objectives of the government—affordable drugs and a thriving pharma industry. His answer is a new ‘National Pharmaceutical Policy’.
To look into the matter, the DoP has set up a committee, whose objective is to ensure enhanced access to drugs and a streamlined price control mechanism. Unhappy earlier, angry now, Shah’s defence was that the IPA’s internal report was prepared in February. “The new data was not available on the domestic market then. The ET piece, thus, focused on the arbitrary implementation of the pricing policy leading to a drop in the growth rate, based on more recent data,” he said. (He did not specify how recent is the recent data.) A one-man army, who knows the corridors of the government and the leaders of large companies in the industry, Shah is the lone voice for the entire sector. Now, with the gossip galore, small, medium and large drugmakers are seeking clarifications on where does the actual power lie. Even the government has set up a committee focused on pricing regulation.
Will the real issues be addressed with the same urgency?