Drug Price Control Order | Pharma

May 16, 2013 Sarabjit Kour Nangra

+91 2 39357600 Ext: 6806 sarabjit@angelbroking.com

Drug Price Control Order (DPCO, 2013)

No surprises
After the release of the New Drug Pricing Policy declared in 2012, the final draft of the new Drug Price Control Order (2013) was issued. The pricing policy while replacing the old Drug pricing policy is on the lines of the New Drug Pricing Policy notified earlier. The policy would come into effect in next 45 days post its notification (1st July 2013). According to the new drug pricing order, Govt. will bring prices of 348 essential drugs (all formulations) mentioned in the National List of Essential Medicines (NLEM) under control against the current practice of controlling prices of 74 bulk drugs and their formulations. The formulations will be priced only by fixing a Ceiling Price (CP). Manufacturers would be free to fix any price for their products equal to or below the ceiling Price. The Ceiling Price would be fixed on dosage basis, such as per tablet / capsule / standard injection volume as listed in NLEM-2011. As per indication, roughly around 28% of the Industry has come under the price control, as against around 18% under the current regime.

Calculation of ceiling price of a scheduled formulation

The methodology of fixing a ceiling price for scheduled medicines, is of adopting the Simple Average Price of all the brands having market share (on the basis of Moving Annual Turnover) more than and equal to 1% of the total market turnover of that medicine. A manufacturer, launching a scheduled formulation, shall be free to fix the price of the scheduled formulation equal to or below the ceiling price fixed for that schedule formulation by the Government.

Reference data and source of market based data

The Ceiling Price will be fixed on the basis of readily monitorable Market Based Data (MBD) available with the pharmaceuticals market data specializing company IMS Health (IMS). The Government may in the due course of time come out with other appropriate mechanism of collecting or obtaining the market based data related to drugs and the decision of Government with respect to collection or obtaining of data shall be final. The market based data, for fixing the ceiling price of scheduled formulations for the first time after the notification of this order, shall be the data of May, 2012. The market based data for fixing the retail price of new drugs available in the market, shall be the data available for the month ending immediately before six months of receipt of application for fixing the price of the new drug. The market based data for fixing the ceiling price of a scheduled formulation due to a revision in the first schedule shall be the data available for the month ending immediately before six month of notification of revision in the first schedule. As the IMS data gives price figures for stockist level prices, in order to arrive at the CP (which will be the maximum retail price) the IMS price will be further increased by 16%.
Please refer to important disclosures at the end of this report

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Margin to retailer

While fixing a ceiling price of scheduled formulations and retail prices of new drugs, 16% of price to retailer as a margin to retailer shall be allowed as against earlier 20%.
Maximum retail price

(1) The maximum retail price of scheduled formulations shall be fixed by the manufacturers on the basis of ceiling price notified by the Government plus local taxes wherever applicable, as under:
Maximum Retail Price = Ceiling price + Local Taxes as applicable

(2) The maximum retail price of a new drug shall be fixed by the manufacturers on the basis of retail price determined by the Government plus local taxes wherever applicable, as under:
Maximum Retail Price = Retail Price + Local Taxes as applicable

Ceiling price of a scheduled formulation in case of no reduction in price due to absence of competition

Where the average price to retailer of a scheduled formulation, arrived has the effect of(a) No reduction in average price to retailer with respect to the prices to retailer of the schedule formulation & (b) There are less than five manufacturers for that formulation having one percent or more market share,
The ceiling price shall be calculated as under:

I.

In the event of other strengths or dosage forms of the same scheduled formulation is available in the list of scheduled formulation, the average price to retailer shall be calculated by applying (to the highest priced formulation to the retailer under consideration) the average reduction in the average selling price to the retailer of other strength and dosages w.r.t to the highest priced formulation taken for calculating the average price to retailer of such strengthens and dosage forms. To which the retail margin is added to compute the ceiling price. In the event of other strengths or dosage forms of the scheduled formulation is not available in the schedule but there are other scheduled formulations in same sub-therapeutic category as that of the scheduled formulation, then the Ceiling Price shall be calculated by applying (to the highest priced formulation to the retailer under consideration) the average reduction in the average selling price to the retailer of other scheduled dosages in the same sub therapeutic category as that of the scheduled formulation under consideration w.r.t to the highest priced formulation taken for calculating the average price. To which the retail margin is added to compute the ceiling price.

II.

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III.

In case the other strengths or dosage forms of the scheduled formulation are not available in the schedule and there is no sub therapeutic category of the scheduled under consideration, the ceiling price shall be calculated by applying(to the highest priced formulation to the retailer under consideration) the average reduction in the average selling price to the retailer of other scheduled dosages in the same therapeutic category as that of the scheduled formulation under consideration w.r.t to the highest priced formulation taken for calculating the average price. To which the retail margin is added to compute the ceiling price.

Price of scheduled formulations for the existing manufacturers

All the existing manufactures of scheduled formulations, selling the branded or generic or both the versions of scheduled formulations at a price higher than the ceiling price (plus local taxes as applicable) so fixed and notified by the Government, shall revise the prices of all such formulations downward not exceeding the ceiling price (plus local taxes as applicable). Provided, that in case of scheduled formulations produced or available in the market before the date of notification of ceiling price, the manufacturers shall ensure within a period of 45 days of the date of such notification that the maximum retail price of such scheduled formulation does not exceed the ceiling price (plus local taxes as applicable). All the existing manufactures of scheduled formulations, selling the branded or generic or both the versions of scheduled formulations at a price lower than the ceiling price (plus local taxes as applicable) so fixed and notified by the Government shall maintain their existing maximum retail price. Annual increase in maximum retail price may be carried out as per the increase in the wholesale price index with respect to previous year.

Revision of ceiling price of scheduled formulations

The Government shall revise the ceiling prices of scheduled formulations as per the annual wholesale price index (WPI) for preceding calendar year on or before 1st April of every year and notify the same on the 1st day of April every year. The manufacturers may increase the maximum retail price (MRP) of scheduled formulations once in a year, in the month of April, on the basis of the wholesale price index with respect to previous calendar year and no prior approval of the Government in this regard shall be required. 1) As and when the National List of Essential Medicines is revised by the Ministry of Health and Family Welfare or five years from the date of fixing the ceiling price under this Order whichever is earlier. 2) When the number of manufacturers of a scheduled formulation, having price of a scheduled formulation more than or equal to seventy five percent of the ceiling price fixed and notified by the Government,
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Drug Price Control Order 2013 | Sector Update

has decreased by twenty five percent or more than the number of manufacturers as existing on the reference date. 3) When the number of manufacturers of a scheduled formulation, having prices of their scheduled formulation equal to or lower than twenty five percent of the ceiling price fixed by the Government, has increased by twenty five percent or more than the number of manufacturers as existing on the reference date.

Fixation of ceiling price of a drug under certain circumstances

Notwithstanding anything contained in this order, the Government may, in case of extra-ordinary circumstances, if it considers necessary so to do in public interest, fix the ceiling price or retail price of any Drug for such period, as it may deem fit and where the ceiling price or retail price of the drug is already fixed and notified, the Government may allow an increase or decrease in the ceiling price or the retail price, as the case may be, irrespective of annual wholesale price index for that year.

Imported Drugs
The Ceiling Price determined for drugs falling under the span of control would be the same for another scheduled drug. There will be no separate determination of Ceiling Price for imported drugs falling under the span of control.

Pricing of the formulations covered under Drugs (Prices Control) Order, 1995
The prices of scheduled formulations, which are also specified in the First Schedule to the Drugs (Prices Control) Order, 1995, fixed and notified under the provisions of the said order, up to 31st May, 2012, shall remain effective for further one year i.e. up to 30th May 2013 and the manufacturers may revise the prices of such scheduled formulations as per the annual wholesale price index for the previous calendar year announced by Department of Industrial Promotion and Policy and thereafter the formula for pricing the scheduled drugs.

Non-price Control Drugs

Under the existing price control regime, the prices of Non-Scheduled drugs are monitored, and in case the prices of such drugs increase by more than 10% in a year, subject to certain criteria, government fixes the prices of such medicines from time to time. In the proposed policy, all essential drugs are under price control. It would follow that non-essential drugs should not be under a controlled regime and their prices should be fixed by market forces. However, in order to keep a check on overall drug prices, it is proposed that prices of such drugs be monitored on regular basis, and where such price increase is of above 10% per annum, the Government would be empowered to have the price of these drugs reduced to below this limit, for the next 12 months.

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Retail Price of New Drug

The price to retailer of a new drug, not available in domestic market, shall be fixed by the Government on the principles of Pharmacoeconomics of the new drug, on the recommendation of a Standing Committee of Experts formed within 60 days of this notification of this order. The retail price of such new drug shall be fixed by adding sixteen percent margin to retailer on the price to retailer as fixed.

Conclusion:
The proposed drug pricing policy, is in line with the earlier New Drug Pricing Policy declared in 2012 declared. The order has recommended that the retail price of essential 348 drugs will be fixed at simple average price of brands that have more than 1 % market share. We dont believe that the policy in its current form is not negative, as the policy is based on average price mechanism and thus follows competition. Given the price competition, the policy is unlikely to have any major negative implication for the sector. However amongst the domestic and MNC player, the latter would be impacted the most, as they mostly price their products much higher than the competition and then derive their 100% of the sales from domestic markets. The domestic companies not having very huge exposure to the domestic market, will be insulated to a large extent, as the pricing is not the key growth driver for their growth. Their products are therefore competitively priced. Mover, with the realist price control under place, which is more attuned to market forces, the industry will boost the overall volume growth in the Industry, the main growth driver for the industry. Thus, we maintain our positive view on the sector, with Lupin, Cadila Healthcare, DRL, Aurobindo Pharma, IPCA Labs, Dishman Pharmaceuticals and Indoco Remedies.

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