NEW DELHI – Controversy over drug price controls continues to pick up speed in India, as pharmaceutical and biotech companies find their bottom lines impacted by unpredictable pricing policies and risk.

India's pricing regime will continue to weigh on the growth of the pharmaceutical sector and impact both local and multinational firms, according to a recent report by Business Monitor International (BMI), even as the government moved this month to create an interministerial committee to review drug price controls.

The number of products affected by price controls has been growing steadily. In 2013, India's National Pharmaceutical Pricing Authority (NPPA) expanded the National List of Essential Medicines from 74 to 348 products; the agency expanded it further in July 2014 by adding another 108 products for diabetes, asthma and heart disease. Among the new products are the diabetes drugs gliclazide, glimepiride, sitagliptin and voglibose; high blood pressure medicines amlodipine and telmisartan; and the cholesterol drug rosuvastatin.

Then-NPPA Chairman Injeti Srinivas said that "in a country where the public health system is deficient, price control is needed" to address the unmet needs of the poor. Srinivas pointed out that though India is one of the fastest-growing economies, "our health status is very, very alarming." The new pricing mechanism was market-based.

The agency has continued to add to the essential medicines list, adding 18 last month. The total number of drugs now affected by price controls is 700.

"Price cuts can be substantial, thereby compounding the uncertainty created, especially as the decision process is carried out with limited consultation with the industry," noted BMI. The "risks will also become more acute as the government looks to reform the pricing regime following the Supreme Court's verdict that existing prices are set at unreasonably high levels."

Adding to the concerns is a requirement that companies may not stop producing drugs in the list without a nod from the regulator.

The ongoing regulatory reforms are a concern for the industry, and could have a distinct impact on the operations of pharmaceutical and biotechnology companies.

"Price controls impose pressures on margins that create an adverse impact on investments in new and more effective medicines," Ranjana Smatacek, director general of the Organisation of Pharmaceutical Products of India, told BioWorld Today.

Smatacek cited a July 2015 study by IMS Health which found that price controls do not improve access to medicines for patients that need them most.

"As we have been saying consistently, our government needs to increase public spending on health care from the very low 1 percent of GDP to at least 2.5 percent in the next two years," Smatacek said. "Secondly, the government should introduce the universal health care coverage it had promised last year. These important measures will be far more effective than price controls."

Other critics of price controls focus on the impact on access.

Dilip Shah, director general of Indian Pharmaceutical Alliance, said companies in the highest price bracket with market share of about 30 percent are, when forced to reduce prices, competing directly with mid-tier companies that have about 40 percent of the market. Both groups, in turn, end up squeezing out smaller companies.

"Their lowering the prices will have direct impact on the lowest segment with volume share of 30 percent. They mainly comprise of [small and medium-sized entities, SMEs]. They would find it difficult to lower their prices further and would thus become victims of the price fixation orders compressing the bandwidth of prices," said Shah.

AN UNPREDICTABLE POLICY

There is general agreement that some kind of market-based pricing policy is a "simple, transparent and balanced formula." The problem has been on its implementation.

"The positive move was 'lost in translation' to a large extent while framing the drug price control order," noted a 2014 paper circulated by the Associated Chambers of Commerce and Industry of India. "The delicate balance that was well struck between availability and affordability of essential medicines" has been somewhat translated into an "unpredictable policy."

Policy unpredictability is an ongoing concern. The NPPA makes decisions on which products to include in the Essential Medicine List in each review cycle. In its report, BMI points to the example of Pfizer Inc., which had the pricing of six products – including Dolonat (paracetamol) – reviewed in August but not a single one in October, the next review cycle. Similarly, six products of Hyderabad-based Dr. Reddy's Laboratories Ltd. were affected in July 2015 but none in October 2015. In the second half of 2015, Alkem Laboratories had the most number of products affected at 27, followed by Lupin Ltd. and Abbott Healthcare at 23 each.

And the price drops associated with NPPA reviews are often quite large. For example, Intas Pharmaceuticals Ltd.'s Sartel (telmisartan and amlodpine) fell by 40 percent, from INR10 (US$0.15) per unit to INR6 (US$0.09), while Glaxosmithkline's Augmentin Duo (amoxicillin and clavulanate acid) fell from INR30 (US$0.45) per unit to INR23 (US$0.35), a decline of 23 percent.