Decontrolling Drug Prices
ON September 22, 2014, the National Pharmaceutical Pricing Authority (NPPA) withdrew at the behest of the central government, which was bowing to the pressure from drug companies, its July 10 order capping the prices of 108 life-saving drugs. These drugs are essential for treating a whole range of diseases from diabetes to cancer, to tuberculosis, to HIV/AIDS to cardiac diseases.
The sequence of events is as follows. The ministry of chemicals and fertilizers had issued the Drug Price Control Order (DPCO) on May 15, 2013, whose paragraph 19 empowered the government to fix the ceiling prices of Life Saving Drugs in the “public interest”. On May 30, 2013, the ministry delegated this power to the NPPA which had already been in existence since 1997. On May 16, 2014, the NPPA decided to fix the prices for a range of Life Saving drugs, and issued internal guidelines on May 29, 2014, followed by an order on July 10, 2014, where it announced ceiling prices on the basis of a certain mark-up over the unit average cost. The drug companies challenged this order and went to Bombay High Court, but even before the High Court could come to any decision on the matter, the government has decided to withdraw the order.
The purpose of recounting this sequence of events is to underscore the fact that the Narendra Modi government’s only contribution to this entire sequence of events has been the withdrawal of the order; it was not responsible in any way for the decision to cap life-saving drug prices. Modi was sworn in as prime minister on May 26, by which time the decision to cap drug prices had already been taken, and within a mere three days of which the internal guidelines were issued by the NPPA. The Modi government was responsible neither for the DPCO, nor for entrusting the NPPA with the task of implementing the DPCO, nor with the decision of the NPPA to cap the prices of 108 life-saving drugs. But it was responsible for the withdrawal of the order by the NPPA.
LARGE INCREASE IN
PROFITS OF DRUG COMPANIES
As a result of the withdrawal, the drug companies will get a large increase in their profits, much of which will go to the foreign drug companies. This is because the domestic firms tend to charge lower prices than the foreign MNCs, so that any capping of prices affects the latter far more than it affects the former. While drug companies put the figure for the increase in profit at Rs 640 crores per annum, independent researchers estimate that this figure will amount to thousands of crores. And if the government removes the NPPA altogether from its role of controlling drug prices, i.e., removes caps from a range of other drugs, then the drug multinationals’ additional profits will be multiplied many-fold.
According to market research firms, the gains of some of the big players in the absence of a price cap, on the assumption of the low estimates of increased gains, will be as follows: Sanofi (about Rs 139 crores), followed by Zydus Cadila (about Rs 40 crores), Ranbaxy (about Rs 38 crores), Cipla (about Rs 19 crores), Lupin (about Rs 32 crores), DRL (about Rs 14 crores) and Sun Pharma (about Rs 25 crores). Company sources suggest that out of a total market of around Rs 77,000 crores, these 108 drugs account for an estimated Rs 5,500 crores, which means that, on the basis of the low estimate of increase in profits, the average increase in the price will be around 12 percent. But not only is this average figure a gross underestimate, but, for particular drugs, the price rises are estimated to be quite astronomical. Some of the drugs whose prices will be significantly increased are the following:
PRICES WITH AND WITHOUT DECONTROL
Name of Drug
Decontrolled Prices (Rs.)
Controlled Prices (Rs.)
Blood Pressure/ Heart
Tab Cardace 5mg.
Tab Seloken XL 50
Tab Losar 50mg.
Tab Moxicip 400
Tab Taxim O 200
Tab Augmentin 625
Tab Taribid 200
Tab Storvas 10
Tab Alprax 0.5
Tab Alprax 0.25
Inj. Huamn Mixtard
Tab Amaryl 2
Anti Rabies (Kamrab)
Tab Decdak 2
Tab Zyloric 100
Tab Ocid 20
What is particularly noteworthy is the increase in the price of the anti-cancer drug Glivec which is supposed to go up from Rs 8500 to Rs 10800! This increase is not only astronomical, but also significant for a different reason altogether, namely that Glivec has been at the centre of a controversy between the Indian government and the Swiss multinational Novartis which produces it.
Last year, the Supreme Court had refused a patent to Novartis for Glivec because it ruled that Glivec was only a modification of an existing drug and hence could not be patented in India. This brought forth severe condemnation from the lobbying groups in the US which are opposed tooth-and-nail even to the existing Indian patent regime. They complain that, notwithstanding the amendment to the Indian Patents Act 1970 to make it “TRIPS-compatible”, the Indian patent regime still does not go as far as they would like, which is not surprising since the amendment had occurred during UPA-I when the Left had a say in its formulation.
The president of PhRMA, the leading lobbying group for the drug makers in the United States, John Castellani, called the Glivec ruling of the Indian Supreme Court, "yet another example of the deteriorating innovation environment in India", and proclaimed that "protecting intellectual property is fundamental to the discovery of new medicines." Patents, he claimed, help drug companies secure profits which provide them with the incentive for innovation of new drugs.
Castellani’s argument about patents is vacuous for several reasons: first, the bulk of the basic research for new drugs is done in universities and academic institutions, with the drug companies contributing at best only a fraction of the total expenditure needed to bring a new drug to the market. Second, by institutionalising monopoly control over technology, patents actually discourage path-breaking research, and encourage only minor modifications to existing products that perpetuate the monopoly position of the current producers, which is precisely what the Supreme Court had objected to in its Novartis ruling. Third, there is absolutely no evidence that the profits the drug multinationals were making in the less benign patent regime (of the sort that existed in India earlier and that they complain still exists to an extent in India) are inadequate for covering the costs of research and development on new drugs. And, fourth, drug companies spent huge amounts on lobbying, including giving large donations to the campaign funds of US law makers, for changing patent laws, which, if spent on R&D even within the less benign patent regime, would be quite adequate for the innovation of new drugs; and so on.
But let us leave aside these self-seeking arguments of the drug multinationals and come to the core issue: why did the Narendra Modi government jack up to an astronomical extent the price of the very drug which the Supreme Court of India had been so concerned about that it had even refused a patent to Novartis?
The withdrawal of the July 10 order of the NPPA took place on the eve of Narendra Modi’s departure for the US. There can be little doubt that Modi whose “make in India” is an open invitation to foreign multinationals to make India their happy hunting ground, was giving a signal to them that he would look after their interests, whatever may be the patent regime in place.
It is estimated that India produces about 40 percent of the generic drugs sold in the United States, and much of US-funded aid to HIV/AIDS efforts in Africa and across the developing world is spent on generic drugs from India. In fact 90 percent of the 11 million people living with HIV/AIDS in developing countries are on generic drugs, most of which come from India, a country that has been rapidly acquiring the reputation of being “the pharmacy of the developing world”. In 2000, the cost of treating one person with anti-retroviral drugs was about $10,000 a year, which was a serious hurdle for treating HIV/AIDS patients. It has now dropped to $140, mainly because of the loosening of the stranglehold of the drug multinationals, a process in which India, thanks inter alia to the intervention by the Left in the amendment of the patent regime, has played an important role. The multinationals obviously do not like this and have been pressing the Obama administration to push the Indian government into doing their bidding. Modi appears to have fallen into that trap.
What is significant is that the Modi government did not even wait for the Bombay High Court judgement before reversing the decision of the NPPA, which, given the judiciary’s inclination towards keeping life-saving drugs cheap, could have gone in favour of the NPPA; and even if it did not, the government could have taken the matter to the Supreme Court. And failing even that, it could have enacted fresh legislation to keep life-saving drug prices low. Its hasty retreat therefore can only be attributed to a desire to curry favour with the drug multinationals, and the Obama administration that acts as their mouthpiece.
The increase in drug prices will have a particularly severe impact on the budget of a state government like Kerala that gives free life-saving drugs to needy patients. The Modi government in its eagerness to please multinational capital, is obviously hell-bent on rolling back whatever welfare programmes some state governments have introduced.
Considering the fact that, according to a former minister of poverty alleviation in the union cabinet, India has about 4.1 crore patients with diabetes, 4.7 crore with coronary heart disease, 22 lakhs with tuberculosis, 25 lakhs with HIV/ AIDS, and several lakhs (mostly unreported) with cancer, the adverse impact of the drug price increase will be quite pervasive.