In a bid to lower the prices of 348 essential drugs, the Indian government has cleared the Pharma Policy. The Cabinet approved the measure, the aim of which is to put in place a regulatory framework for pricing of drugs to ensure their availability at reasonable prices.
The Supreme Court of India had set a deadline of 27 November 2012 for the government to finalise the policy, even as the apex court asked it not to alter the existing mechanism of cost-based drug pricing.
India is the third largest producer of medicines by volume in the world and exports to more than 200 countries. In 2010-11, the production turnover of the Indian pharmaceutical sector stood at £11.89bn (Rs 1,050bn; US$18.97bn).
The announcement of the policy has come as a relief to the domestic drug industry, since it has been pending for the last 18 years. That the policy has taken so long to finalise is due to the differences between ministries of health and chemicals and fertilisers. Other stakeholders, industry and non-government organisations had also expressed their concerns about the suggested pricing model.
A major deviation in the new policy is the adoption of market-based pricing for fixing formulation prices instead of the cost-based formula followed at present. Under the new system, drug prices are to be fixed on the basis of the average price of all those brands in a therapeutic segment that have more than 1% market share. Bulk drugs have also been exempted from the ambit of price control.
The span of price control is now limited to a national list of essential medicines, which account for about 30% of the market. The industry has also moved away from a cost-based to a market-based pricing system, which takes into account all the costs incurred by a company.
Drug majors that follow a premium pricing model will be affected, since their operating margins are set to contract significantly. However, the impact will be less on domestic majors like Dr. Reddy’s, Sun Pharma, Lupin, Ranbaxy and Cipla, due to their presence in the export space. Multinationals like GSK and Pfizer could see their earnings per share for the financial year 2013 reduced by 15-20%.
Companies that have a higher exposure to the domestic market, such as GSK Pharma and Sanofi India, that mainly focus on the Indian market will be more hurt by the measure than the domestic majors.
Although currently small and narrowly focused on a few disease areas and countries, the biosimilars opportunity is set to expand
The policy is silent on price control with regard to patented drugs. Several high-priced, life-saving patented drugs have been introduced to the market by multinationals since 2005, and these have been outside the Indian government’s price control. But these should have been brought under price control in the new policy, which would have made many more drugs available at a cheaper rate to the populace.
Another area where more legislation is likely to be forthcoming in India is biosimilars. Although currently small and narrowly focused on a few disease areas and countries, the biosimilars opportunity is set to expand with payers pushing for their wider adoption to manage burgeoning drug costs.
In countries such as Brazil, India and China, the need to broaden healthcare coverage to large populations has to be balanced against limited budgets and growing demand for innovative drugs. Biosimilars offers a one-stop solution.
In some cases, such as South Korea, India and Brazil, it is a key macro-economic driver of growth, attracting foreign capital by creating manufacturing and R&D centres of excellence.
According to market estimates, the global market for biosimilars is around $30bn, with a compound annual growth rate in excess of 50% during 2010-15. This growth is driven by upcoming patent expiries of leading biologics and a financial crisis coupled with increasing healthcare costs that has required systems in almost all developed countries to look for low-cost alternatives.
almost all major Indian drug makers have outlined plans, identified products and set aside investment budgets to develop a robust product pipeline
Several Indian drug majors like Dr. Reddy’s Laboratories, Cipla, Lupin and Wockhardt are all set to cash in on the opportunity, and almost all major Indian drug makers have outlined plans, identified products and set aside investment budgets to develop a robust product pipeline.
The Department of Biotechnology, along with the drug regulator, has recently floated draft guidelines for biosimilar drugs. The proposed norms outline specific requirements for pre-marketing and post-marketing data, apart from guidelines for pre-clinical and clinical trials for biosimilars. The move is aimed at upgrading and maintaining the quality of biosimilar products that are manufactured in India.
Moreover, follow-on or modified biologics already exist in China and India. For instance, Reditux, a copy of rituximab manufactured by Dr. Reddy’s, has been available in India since 2007, but its approval has been based on a smaller body of evidence than is likely to be required in Europe or the US.
China and India have developed their own regulatory pathway to manage the approval of biosimilars. While often drawing on the European framework, these generally set a lower barrier in terms of clinical trial requirements and regulatory control. This enables local manufacturers to enter the markets on a more level playing field, but it also potentially provides a lower cost entry point for international players.
A looser structure of this kind has already fuelled the launch of modified biologics within the oncology and EPO markets in key countries such as China.
Going forward, government initiatives are expected to boost the biosimilars market in south-east Asian countries, principally as a means of sustaining their domestic industry. Within the concentrations of biopharmaceutical manufacturing globally, bioclusters are already emerging in this region.
South Korea in particular, with plans to become a leading biosimilars player, is actively expanding its clinical trials and production infrastructure, cultivating bio-specialised manpower, reinforcing global export capability and building R&D.
- Companies:
- GlaxoSmithKline
- Cipla
- Dr Reddys Laboratories
- Wockhardt Group
- Lupin Pharma
- Sun Pharmaceutical Industries
- Pfizer
- Sanofi
