Mining of DPCO 2013 : A Captious Study in Search of Betterment

Mining of DPCO: A Captious study in search of
betterment
A THESIS
Submitted in partial fulfillment
Of the requirements for the degree of
Master of Business Administration (Pharmaceutical)
BY
DHWNI SHETH
Batch 2012-2014
DEPARTMENT OF PHARMACEUTICAL MANAGEMENT
National Institute of Pharmaceutical Education and Research
Sector-67, S.A.S. Nagar, Mohali-160062,
Punjab, India.
June-2014

CERTIFICATE
This is to certify that the work entitled, “Mining of DPCO: A Captious
Study In Search of Betterment” has been carried out by Ms. Dhwni
Sheth under my direction and supervision.
Date: __________________
Place: S.A.S.Nagar, Mohali
Signature: ______________________________
Name: Dr. Anil Kumar Angrish
Designation: Assistant Professor
Department: Pharmaceutical Management

National Institute of Pharmaceutical Education and Research
Sector – 67, S.A.S Nagar, Mohali – 160062,
Punjab, India
DECLARATION
I hereby declare that the present work embodied in this thesis entitled, ‘Mining of
DPCO: A Captious Study In Search of Betterment’ has been carried out by me
under the direct supervision of Dr. Anil Kumar Angrish, NIPER.
This work has not been and will not be submitted in part or in full in any other
university or institution for any degree or diploma or to any other organization for
commercial purpose.
Date: ______________
Place: S.A.S.Nagar, Mohali
Dhwni Sheth
Department of Pharmaceutical Management,
NIPER, Sector-67,
S.A.S. Nagar, Mohali-160062
Punjab, INDIA

ACKNOWLEDGEMENT
With immense pleasure, I am deeply grateful to my esteemed guide Dr. Anil Kumar
Angrish (Assistant professor, NIPER) under the guidance of whom this project has been
done. He has been very generous with both his time and his patience in providing inputs
for effectiveness of the project, generosity with which information & ideas were shared
and for displaying confidence in my ideas and potential. I acknowledge his advice and
guidance throughout the year.
I wish to thank Dr. Anand Sharma (Professor, NIPER) and Dr. Sunil Gupta (Assistant
Professor, NIPER) for being my advisor. I appreciate their assistance and feedback on my
thesis.
I owe a very special word of thanks to my friends for helping me immensely throughout
this work and supporting me morally without which it would have been highly difficult
for me to complete this work.
Besides all, I am highly obliged to Mr. Om Patel who guided me to have the information
regarding the Tendering system in Government institutions. Apart I am highly thankful to
the various doctors of Government and other Hospitals who guided me to have the
information regarding the actual prescription pattern in the respective institutions.
I am also thankful to all other faculties, staff members and my colleagues who have in
any way been helpful to me in this project.
Above all, I am thankful to my parents for helping me attain this position in life. I owe all
my love and affection to them.
- DHWNI SHETH

Dedicated to
All divine powers which made me what I am

Table of Contents
I. Executive Summary.................................................................................................................2
1. Introduction.........................................................................................................................1
1.1 Indian Pharmaceutical Industry: Current Scenario......................................................1
1.2 History of Price Regulation in India .............................................................................4
1.3 Essential Medicines ......................................................................................................5
1.4 Flipside of the coin........................................................................................................6
1.5 Jan Aushadhi Initiative: A BOON or BANE................................................................9
1.6 New wave of HOPE as Universal Healthcare.............................................................10
1.7 Need of the Study........................................................................................................10
2. Literature Review..............................................................................................................12
2.1 Health Insurance and Micro insurance .......................................................................12
2.2 Pricing Problem: Incorrect Formula ..........................................................................15
2.3 Order on Drug Prices ..................................................................................................16
2.4 Cheap medicine myth busted .....................................................................................16
2.5 Essential medicines in health care: Current progress & challenges in India .............16
2.6 New Scheme: Free medicine to all .............................................................................18
2.7 Majority of medicines not covered by price control order .........................................20
2.8 Ensure Access to Affordable Drugs............................................................................20
3. Research Methodology .....................................................................................................23
3.1 Primary Objective .......................................................................................................23
3.2 Secondary Objectives..................................................................................................23
3.3 Nature of Source of Data ............................................................................................24
3.4 Limitation of the study................................................................................................24
4. Data Analysis & Interpretation .........................................................................................25
4.1 Interpretation of Domestic Market with reference to Drug Price Control..................25
4.2 80% market is outside purview of DPCO 2013..........................................................26
4.3 Scenario of Cardio Diabetic Market with context of DPCO 2013 .............................37
4.4 Scenario of Analgesic~Paracetamol Market with context of DPCO 2013.................38
4.5 Procurement price comparison of various agencies....................................................39
4.6 New Launches & Top Selling Brands out of Price Control........................................41
4.7 Way forward with compulsory licensing....................................................................43
5. Findings & Recommendations..........................................................................................45

List of Figures
Figure 1 : Human Development Indicators......................................................................................... 2
Figure 2 : Price Regulation in India.................................................................................................... 4
Figure 3 : Break Up of Insurance coverage in India......................................................................... 14
Figure 4 : ATC Classification of drugs in WHO EML (2011) and India EML (2011).................... 17
Figure 5 : Drugs that are banned worldwide but allowed to market in India ................................... 18
Figure 6 : Comparison of Chittorgarh, TNMSC procurement prices and Market prices retail basis19
Figure 7 : Total Domestic Market according to IMS MAT Apr' 2013............................................. 26
Figure 8 : 80% market out of control................................................................................................ 27
Figure 9 : Market scenario of Respiratory Category ........................................................................ 27
Figure 10: Market scenario of Pain/Analgesics Category ................................................................ 28
Figure 11: Market scenario of Anti Malarial Category .................................................................... 29
Figure 12: Market scenario of Gynecology Category....................................................................... 30
Figure 13: Market scenario of Gastro Intestinal Category................................................................ 31
Figure 14: Market scenario of Anti Diabetic Category .................................................................... 32
Figure 15: Market scenario of CNS Category .................................................................................. 33
Figure 16: Market scenario of Anti TB Category............................................................................. 34
Figure 17: Market scenario of Cardiac Category.............................................................................. 35
Figure 18: Market scenario of Anti Infective Category.................................................................... 36
Figure 19: Market scenario of Cardio-Diabetic Category ................................................................ 37
Figure 20: Market scenario of Analgesic (Paracetamol) Category................................................... 38
Figure 21: Procurement of Tamilnadu Medical Corporation ........................................................... 41
Figure 22: Medicines out of control.................................................................................................. 42
List of Tables
Table 1: Global Health Expenditure Database.................................................................................... 3
Table 2: Jan Aushadhi budget allocation during 12th plan................................................................. 9
Table 3: Start of some health expenditure coverage schemes .......................................................... 13
Table 4: Covered population with health insurance schemes........................................................... 14
Table 5: Market-based pricing as per draft 2012.............................................................................. 15
Table 6: Calculation of Cost of Medicine per month ....................................................................... 38
Table 7: What do doctors prescribe? ................................................................................................ 38
Table 8: Procurement price comparison of various agencies………………………………………39
Table 9: Top brands out of control in Chronic Category.................................................................. 43
Table10: Benefit of Compulsory License......................................................................................... 44

List of Abbreviations
DPCO - Drug Price Control Order
NLEM - National List of Essential Medicines
OOP - Out of pocket
MNC - Multinational Company
GDP - Gross Domestic Product
API - Active Pharmaceutical Ingredient
SME - Small & Medium Enterprise
RUD - Rational Use of Drugs
NPPA - National Pharmaceutical Pricing Authority
NPPP - National Pharmaceutical Pricing Policy
LOCOST - Low Cost Standard Therapeutics
TNMSC - Tamilnadu Medical Services Corporation
PCM - Paracetamol
APL - Above Poverty Line
BPL - Below Poverty Line
PSU - Public Sector Undertaking
CPSU - Central Public Sector Enterprise
GMP - Good Manufacturing Practices
GLP - Good Laboratory Practices
GBD - Global Burden of Diseases
WHO - World Health Organization
UNICEF - United Nations International Children’s Emergency Fund
FDC - Fixed Dose Combination
MAT - Moving Annual Turnover
HDI - Human Development Indicator
GOI - Government of India
MOHFW - Ministry of Health & Family Welfare
CBP - Cost Based Price
MBP - Market Based Price
MRP - Maximum Retail Price
JABP - Jan Aushadhi based pricing
COPD - Chronic Obstructive Pulmonary Disease
EML - Essential Medicine List
PHFI - Public Health Foundation of India
ISID - Institute for Studies in Industrial Development
AIOCD-All India Origin Chemists & Distributors

I. Executive Summary
“Failure of perspective in decision-making can be due to aspects of social utility
paradox, but more often result from simple mistakes caused by inadequate thought.”
– Herman Kahn (1922-1983), Futurist
Currently, in India the ratio of private to public spending on health care is nearly 4:1, with over
71% of all OOP expenditure of households accounted for drugs alone. As a result of this, poor
populations are pulled even deeper into poverty. About 38 million people in India (which is more
than Canada's population) fall below the poverty line every year due to healthcare expenses, of
which 70% is on purchase of drugs. The MRP charged by companies is often many times the cost
of production leaving them with profit margins unheard. Price control was meant to address this
problem, particularly in medicines important for India. But it has failed to make any significant
difference. The much-awaited drug price control order (DPCO) 2013, meant to control the price of
medicines does not cover over 80% of the medicines in the market. Many drugs crucial for India's
disease profile have been left out, which means people are unlikely to see any significant reduction
in expenditure on medicines.
The Government notified the new DPCO 2013, bringing 348 essential medicines or 652 medicine
packs of various dosages & strengths under direct price control, as against 74 bulk drugs under
DPCO 1995. With the notification of the order, the National Pharmaceutical Pricing Policy 2012
comes into effect, which was being expected with much anticipation & hope that it would bring
drug prices within reach of common-man but however is has been resulted into a big
disappointment. All drugs under NLEM, which account for 60% of total domestic Pharma market
amounting to nearly Rs. 29,000 crore, would come under price control. These NLEM currently
contribute Rs. 13,033 crore to the total annual sales of Rs. 75,000 crore. This share is estimated to
come down by 12% that is Rs. 11,437 crore annually. So, ultimately policy will negatively impact
sales & margins of Pharmaceutical firms in India.
The draft policy does not address the primary concerns of majority of Stakeholders nor is it
designed to make drugs affordable, a question that ought to have been its basic surmise. There are
serious implications of the proposed policy that would adversely affect the ability of the poor to pay
for life saving medicines.
While market based pricing on the contrary to earlier cost based method can potentially reduce
rates for two-third essential medicines, there are far too many loopholes taking advantage of which
Pharma companies can make consumer instead pay more for some medicines. The DPCO itself
covers only 14 %-17% of the Rs75, 000 crore Pharma market, which means only a small subset of
the market will be impacted. Major lacuna with DPCO 2013 are (a) Fixed Dose Combinations
(FDCs) out of price control, (b) Permission of price increment of roughly 10% on 1st April year
after year,(c) patented drugs not covered which will lead to domestic manufacturers suffering and
MNCs benefitting. There will be lots of opportunity to shift from regulated to unregulated drugs.
Combinations of two drugs (within 348) will be out of price control. An estimated half of all
dosage forms will be out of price control on this account. The policy (NPPP) and its instrument (the
DPCO 2013) are shockingly silent on these escape routes. Since ordinary customers do not

understand drugs and their composition and combinations, it is a breeding ground for unethical
practices and improper selling by pharma manufacturers. There are many ways in which this
happens.
Since the implementation of the new Pharma policy, a tussle has been happened between Pharma
companies and trade channels over margins. It is has resulted into stockiest reducing their orders
leading to scarcity of widely prescribed medication like painkillers, anti-infective, cardiac drugs
and antibiotics. Supplies of essential medicines have been particularly disrupted in Gujarat,
Karnataka, Tamil Nadu, West Bengal and Jharkhand. Thus, government’s aim was fair but their
stratagem made it unfair-for both companies & consumer.
 So, this study had been conducted to understand the actual picture of Drug Price Control
Order 2013 & its implications & checking its loopholes behind which affordability &
accessibility of prescription medicines are proclaimed.
 Secondary analysis of IMS 2013 MAT data was also done to analyze scenario of top class
medicines based upon their moving annual turnover in respective categories. By comparing
those data with recently revised NLEM to check out which medicines/combinations are
actually essential & being used, but not included in NLEM. This was aimed to give
suggestive list of essential medicines which should be included in NLEM.
 The study will provide in depth knowledge of other policies & successful programs (Jan
Aushadhi Campaign & Tender Business for procurement of medicines by central
government) which are also working with same aspiration.
 Also the brief study regarding the decision making method of price fixation of essential
medicines (Scheduled/ Non Scheduled) may solve major drawback of Drug Price Control
Order.

Chapter 1
Introduction
1. Introduction
1.1 Indian Pharmaceutical Industry: Current Scenario
India is among the top five emerging pharma markets and has been posting double digit growth on
account of several socio-economic factors, including rising sales of generic medicines, continued
growth in chronic therapies and increasing penetration in rural parts of the country. The pharma
sector in India is expected to clock total sales of US$ 27 billion by 2016, according a recent report
by Deloitte. The study is expecting the sector to register a growth of 14.4 per cent from last
year. India holds over 10 per cent share in the global pharma production with over 60,000 generic
brands across 60 therapeutic categories and manufacturing over 400 different active pharmaceutical
ingredients (APIs).

India is considered as pharmacy of world. Globally, India ranks 3rd
in terms of volume and 13th
in
terms of value. The lower value is due to the fact that Indian medicines are amongst the lowest
priced in the world. The drug prices in China is said to be almost 7 times that of comparable
molecules in India. However, despite this medicine costs continue to be an important component in
the overall Medicare expenditure in the country. The prices of brands in India on-average are lower
than countries such as Indonesia, Thailand, China, Malaysia, Philippines and Pakistan. Still 70% of
citizens do not have access to essential medicine. Even though Government distributes free generic
drugs in public facilities there is still a large portion of non-essential drugs out of price control that
require regulation.
Indians are living longer than before, but illness and disability of a very high order & early death
remain severe health care challenges.
Here are some of findings from the study of Global Burden of Diseases, Injuries & Risk Factor.
Figure 1 : Human Development Indicators
(Source: World Health Organization, 2012)
Following are two contradictory sentences:
 The Planning Commission has proposed a 200% increase in fund allocation for the Ministry
of health and family welfare for the 12th
Plan period (2012-2017). If the proposal is
accepted, the allocation for the Ministry of health is expected to be around Rs. 280,551
crore-232.65% higher.
 Healthcare is among the major reasons for indebtedness in Indian households. India’s
healthcare system already has one of the world’s highest percentages spending on health
coming out of private pockets. As many as 4 crore people of our country plunge into
poverty each year due to expenses on medical treatment. As per available data of World
Bank, public expenditure on health in India was 29.2% of total health spending; against the

global average of 62.8%. India spends 4.1% of GDP on health expenditure. The global
average is 10.4% of GDP.
In India both health expenditure as percentage of GDP and public spending as percentage of total
health expenditure is low when compared to developed countries.
Table 1: Global Health Expenditure Database
Country Total
Expenditur
e on health
as % of
GDP(2010)
Total
Expenditure
on health per
capita
(Intl $,2009)
General
Government
expenditure
on health as
% of total
health
expenditure
(2010)
Private
expenditure
on health as
% of total
health
expenditure
(2010)
Current
EML
USA 18 7417 53 47 Not present
Timor-Leste 9 120 56 44 2004
Maldives 6 412 60 40 2009
Nepal 6 69 33 67 2009
Bhutan 5 274 87 13 2009
Thailand 4 345 75 25 2008
India 4 132 29 71 2011
Sri Lanka 3 193 45 55 2009
Bangladesh 3 48 34 66 2006
Indonesia 3 99 49 51 2006
Myanmar 2 23 12 88 2010
(Source: Word Health Organization Annual report 2012)
So, what is the actual fact?
To discuss that here comes the widely debated & discussed issue “Drug Price Control Order
(DPCO) 2013”.

1.2 History of Price Regulation in India
Figure 2 : Price Regulation in India
Access to essential drugs is a pressing concern in India today. Price control over drugs was first
introduced in the country in the aftermath of the Chinese aggression with the promulgation of the
drugs (display of prices) order, 1962 and the drugs (control of prices) order, 1963. Thereafter, a
series of price control regimes were notified through various orders in the country from time to
time based on different principles, in which the span of control of prices as well as the nature of
control of prices varied from order to order as per the disposition of the respective drug
policies.
Recently, The National Pharmaceutical Policy was approved by the Cabinet and notified in 2012.
Based on this policy, a new Drugs Price Control Order was notified in May, 2013.
In recent past, the Ministry of Health has also revised the National List of Essential Medicines and
notified the new NLEM, 2011. It may be noted that various drug policies adopted from time to
time have tried to cope up with the challenge of striking a balance between the at times varying
requirements of enabling industry to grow and at the same time ensuring affordable and
reasonably priced to the consumers, particularly the poorer masses. This balancing of diverse
and conflicting interests is indeed a difficult task, as is the reconciling of short term interests
with long term goals and concerns.

1.2.1 Drug Price Control Order 2013: Overview
According to the website of Department of Pharmaceuticals, the government has notified the DPCO
2013, issued under the Essential Commodities Act, 1955, will lay the framework of the drug policy
and mechanism of regulating prices. Earlier Drug Prices Control Order 1995 regulated prices of only
74 bulk drugs. The new order will give power to the National Pharmaceutical Pricing Policy 2012 to
regulate prices of 348 essential drugs. As per the new drugs policy, all strengths and dosages
specified in the National List of Essential Medicines 2011 will be under price control.
Main Features of the DPCO 2013
 The new order will bring 348 drugs & their 652 formulations under price control.
 New Drug Pricing Mechanism: The new policy uses a market-based pricing mechanism
against the earlier proposed cost-plus method. At the core of the new regime lies the ceiling price.
This would be calculated by taking the simple average of prices of all brands of a drug with a market
share of 1% or more. The maximum retail price of a drug would factor in a margin of 16% of the
chemist. The prices prevailing in May 2012 will be taken as the reference point for calculating the
caps. This Pricing mechanism has turned out to be fruitful or not, nobody is concern about.
 Companies selling medicines above the government-mandated ceiling rated would have to
slash prices to meet the demands of new rules, but those selling drugs below the ceiling price
wouldn’t be allowed to raise prices.
 Firms that launch new medicines can sell them at or below government-set price caps.
 Existing firms will not be allowed to stop production of any drug without permission from
the government.
 Drug producers will be permitted an annual increase in the retail price in sync with the
wholesale price index.
1.3 Essential Medicines
The concept of essential medicines, first introduced by the World Health Organization in 1977, has
been adopted by many countries including India.
“Essential Medicines are those that satisfy the priority healthcare needs of the majority of the
population. The list specific to India addresses the disease burden of the nation besides being
commonly used medicines at primary, secondary & tertiary healthcare levels.”
The primary purpose of NLEM is to promote rational use of medicines considering the three
important aspects i.e. cost, safety and efficacy. It promotes prescription by generic names.
1.3.1 National list of essential medicine 2011
The National list of essential medicines is one of the key instruments in balanced healthcare
delivery system of a country which includes accessible, affordable quality medicine at all the

primary, secondary, tertiary levels of healthcare. Realizing this GOI, MOHFW decided to have its
own essential medicines list. The first National List of Essential Medicines of India was prepared
and released in 1996. This list was subsequently revised in 2003.
To address the issues of changing disease prevalence, treatment modalities, introduction of newer
medicines and identification of unacceptable risk- benefit profile as well as therapeutic profile of
some medicines, the GOI, MOHFW considered the need for updating the NLEM.
Revision of NLEM was also based on the two important national reference documents i.e., Indian
Pharmacopeia 2010 and National Formulary of India, 4th Edition, 2010. While the former deals
with the standards of identity, purity and strength of medicines the later provides the information
on rational use of medicines particularly for healthcare professionals.
In this core committee meeting it was deliberated that although WHO has prepared an updated list
of “Essential Medicines”, it cannot be adopted as such. The NLEM of India should be country
specific considering the disease prevalence, cost effectiveness of Medicines etc in the country.
1.3.2 Process Adopted For Revision of National List of Essential Medicines
1) National List of Essential Medicines 2003 (Base document)
2) Consultation meetings with Experts
3) Deliberation on Evidence based criteria for addition and deletion of medicines from the NLEM
4) Therapeutic area wise group discussion(Group composition: Clinicians, Pharmacologists,
Pharmacists, Scientists and Regulators)
5) Presentation by groups in open house discussion
6) Deliberations/ discussion and reasoning for additions/Deletions/modifications
7) Draft recommendations for NLEM
8) Consideration and adoption of NLEM by the Core Committee
There is no doubt that with a objective of benefitting the Indian Consumer, government has come up
with DPCO, but have government really checked that their efforts have really benefitted them or not
is still a question?
1.4 Flipside of the coin:
It is a universal truth that we cannot have access to health care without access to affordable drugs.
Statistically, despite a huge network of hospitals, dispensaries and sub-centres set up by the
Government in each and every State, 80% patients still prefer to go to private sector and 71%
of the cost of treatment is on purchase of medicines alone.

1.4.1 Drawbacks of DPCO
DPCO is full of loopholes, taking advantage of which Pharma companies can instead make you pay
more for same medicines.
There's good reason why we need price controls. The MRP charged by companies is often many
times the cost of production leaving them with profit margins unheard of in any other sector. Price
control was meant to address this problem, particularly in medicines important for India.
One reason is the way prices are determined under the current DPCO. Under the 1995 DPCO, the
drugs prices under controls was decided by taking the cost of manufacture and fixing a certain
percentage as mark-up, which included packaging and distribution costs, retailers' margin, excise
duty and profit. But the current DPCO uses a new formula under which the price is fixed by taking
the average price of brands, having one percent or more of market share and adding 16% as retail
margin.
The prices of the medicines will be fixed by taking the weighted average of the prices of the top
three Brands during the past twelve months. This may result in bringing down the prices by merely
2-4% from the existing levels, which would still be significantly higher than the prevailing prices of
equivalent Generic medicines available in the market, particularly in Jan Aushadhi outlets. It would
thus not give any respite to people as they would continue to shell out almost the same amount as
before.
The researchers found that the coverage of drugs under the DPCO 2013 is limited to only about 17
per cent of the drugs being prescribed and promoted at present in the country. Stating that the price
impact of the implementation of DPCO 2013 is marginal for the retail consumers, the study
projected the absolute decrease in sales because of price control at about Rs 1,300 crore,
approximately 2 per cent of the Rs 75,000 crore worth domestic drug market.
The study also says that of the 100 top selling brands in the Indian market, 55 of the brands fall
outside the scope of price control. Of the top 20 acute brands, eight fall outside, and 13 of the top 20
chronic brands are outside price control. It notes that the Drug Price Control Order (DPCO) 2013
has failed to bring newly introduced drugs under its scope. Of the top 20 newly introduced brands in
the last 24 months, majority (18) are outside price control. Given that the primary objective of price
control is to contain high prices of medicines, the scope of DPCO 2013 will not extend to new
market entrants.
Among the 652 formulations for which ceiling prices were fixed by the National Pharmaceutical
Pricing Authority (NPPA) under DPCO 2013, 394 or 94 per cent products enjoy a market share of
over 25 per cent or greater. In 280 cases, the share of market leader in the product is even greater
than 50 per cent. But the reduction in revenue for a majority of the market leaders would be limited
to the extent of 10 per cent.
According the draft policy, in its present form, it will seem that it is heavily loaded in favor of the
Pharmaceutical Industry, rather than being consumer-oriented. Example of two common drugs,

namely, Cetrizine and Paracetamol tablets, which are also being sold through Jan Aushadhi outlets
set up by the Government, substantiate this point.
 Cetrizine tablets (10 mg) of assured quality are being sold at Jan Aushadhi outlets at MRP
of Rs 2.75 per 10 tablets. Even at this price, the manufacturing companies are making
reasonable profit on this product. In other words, Government is not providing any subsidy
to companies manufacturing this product to keep the price at affordable level. The total
market size of this product in India, (total MAT value) including those being sold under
different brand names, as per IMS Health data of May 2013, is Rs 112.67 crore. About
75% of this market is occupied by ten Pharmaceutical companies, namely,
GlaxoSmithKline, Cipla, Unichem, Lupin Labs, Alkem, Bayer Pharma Ltd, Indoco, UCB
Pharma and Alembic. Cetzine - Fil.C.Captab 10 mg, manufactured by GlaxoSmithKline has
the largest market share of 30.98 % followed by Alday Tabs 10 mg which has a market
share of 7.92 %. The top selling Cetzine, manufactured by GlaxoSmithKline is being sold
at MRP of Rs. 37.50 for a strip containing 10 tablets.
The above information makes it clear that a Cetrizine 10 mg tablet of assured quality, which is sold
in Jan Aushadhi outlets, opened as per initiative of Department of Pharmaceuticals in GOI for just
Rs 0. 275 with reasonable profit to the manufacturing companies, is sold by market leader for Rs
3.75 i.e. at a price which is about fourteen times higher than the bench mark established by Jan
Aushadhi.
 Similar is the case of Paracetamol tablets (500 mg) which are being sold at Jan Aushadhi
outlets at MRP of Rs 2.45 per 10 tablets. Even at this price, the manufacturing companies
are making reasonable profit on this product. In other words, Government is not providing
any subsidy to companies manufacturing this product to keep the price at affordable level.
The total market size of this product in India, (total MAT value) including those being sold
under different brand names, as per ORG data of May 2013, is Rs 109.30 crore. Over 84%
of this market is occupied by eight Pharmaceutical companies, namely, GlaxoSmithKline,
GSK Consumer HC, Themis Pharma, East India Pharma Ltd, Apex, Veritaz Healthcare,
Ipca Labs and Cipla Ltd. Calpol uncoated tablet 500 mg, manufactured by Glaxo
Smithkline has the largest market share of 40.08 % followed by Crocin Tablet manufactured
by GSK Consumer HC, which has a market share of 12.11 %. These products are being
sold at MRP of Rs 18.00 and Rs 20.35 respectively for a strip containing 15 tablets.
The above information makes it clear that a Paracetamol 500mg tablet of assured quality, which is
sold in Jan Aushadhi outlets for just Rs 0. 245 with reasonable profit to the manufacturing
companies, is sold by market leaders for Rs 1.20 (Calpol) and Rs 1.35 (Crocin) i.e. at a price which
is five to six times higher than the bench mark established by Jan Aushadhi. The position about
other medicines would also be similar.
Research report says that it is in favor of pharmaceutical industries but if we see it at a whole then,
% amount of sales which has been curbed is so huge that it may affect growth of Indian
pharmaceutical industry & by that way GDP of Indian economy as pharmaceutical industry is major
contributing lever of Indian economy.

1.4.2 Impact on SME Growth
Due to price control, with bigger brands becoming affordable at bit lower price compare to earlier,
medium-priced drugs would be squeezed out. Many companies incurring significant losses would be
forced to take a relook at their business models and many would look at redeploying their sales
force, shifting them from essential drugs to other areas.
1.5 Jan Aushadhi Initiative: A BOON or BANE
Having learnt from its mistakes, the Government is giving the venture a fresh shot at success as a
more inclusive Jan Aushadhi (JA) format attempts to reach out to private drug-makers, civil society
and consumers. The original plan to sell low-cost medicines remained a non-starter, as State
governments rolled out free medicine schemes. The JA stores will have about 360 drugs from the
National List of Essential Medicines, as compared with the earlier 102. The stores will not be
housed only in Government hospitals, and medicine supplies will be sourced from public and private
drug-makers. The venture has been sanctioned Rs 150 crore for three years by the Planning
Commission.
Phasing of Expenditure during 12th Plan
With the modifications, as proposed in the new business plan, it is expected that the Scheme will
take off in the year 2013-14 and by the end of the financial year; a minimum of 500 new stores will
be opened. The projections for opening of minimum number of stores in the years 2014-15, 2015-16
and 2016-17 are 750, 1000 and 750 respectively.
Table 2: Jan Aushadhi budget allocation during 12th plan
Year-wise Phasing of Expenditure (Rs. in crores)
S.
No.
Item 2013-
14
2014-15 2015-16 2016-17 Total
1 Opening of New
JASs
7.50 11.25 15 11.25 45.00
2 Working Capital 7.49 16.50 24.51 16.50 65.00
3 IT system and
Capacity Building
5.31 5.46 5.50 4.25 20.52
4 Media Campaign 3.50 3.50 3.00 2.00 2.00
5 Administrative
Expenses
1.20 1.50 1.80 1.80 6.30
Total 25.00 36.21 49.61 35.80 148.82
(Source: http://janaushadhi.gov.in/finance_and_budget.htm)

But still it has been a question about the system which has been followed till now. Enough
appraisals have not been done for the system implemented till now. Last year JA has marked five
years of the Government’s initiative to sell low-cost medicine, opened its first store in Amritsar.
But, its record in the last five years has not been good. About 100 outlets operate at present, while
another 50 have shut shop.
1.6 New wave of HOPE as Universal Healthcare
The re-invention of JA comes even as the Centre plans a roll-out of free medicines under its
universal healthcare scheme. They say, there will not be a conflict between the two programmes as
one provided free medicines and the other was low-cost medicines, and there was a requirement in
both categories. About Rs 27,000 crore has been earmarked for the universal healthcare programme
that would be rolled-out later this year.
Here also several facets including procurement and State participation will appear. Government’s
obsession with giving supply-orders to companies offering the lowest price (L1) will make it
difficult for them to balance low-cost and quality. Government needs to tighten logistics,
warehousing etc.
Thus, Govt. is having many such schemes which are parallel running. Government is spending
crores and crores on improvement of Healthcare system but still there is hardly any improvement
from any side. With the change in ruling parties health care schemes will keep on changing but
nobody is there to take lessons from dark past and to make a way for any improvement. In this
scenario of current Indian health care system where will poor patients go? Nobody is there to
answer.
It’s said that, “Rather being mediocre at all, being topper of one is advisable”. So, it’s better that
Government focus on one scheme with the aim of 100% success rather counting on number of
systems. In view of this, the criteria for determining the price of medicines should not be the Market
Based Pricing (MBP) but Jan Aushadhi based pricing (JABP). The ceiling price of NLEM
medicines may be kept at the level of the price of similar medicines in Jan Aushadhi outlets.
1.7 Need of the Study
As discussed above in the introduction portion the about 38 million people in India (which is more
than Canada's population) fall below the poverty line every year due to healthcare expenses, of
which 70% is on purchase of drugs. Yet, the much-awaited drug price control order (DPCO)
2013,over a decade after, meant to control the price of medicines does not cover over 80% of the
medicines in the market. Many life saving drugs including anti-cancer drugs, expensive antibiotics
and drugs needed for organ transplantation drugs, crucial for India's disease profile have been left
out, which means people are unlikely to see any significant reduction in expenditure on medicines.
The government merely lifted the entire National List of Essential Medicines (NLEM) 2011,
comprising 348 medicines, and placed it under price control. The literal translation of the NLEM
into DPCO 2103 has been done without a thought of its implications. The companies have been
provided a convenient escape route.

1) A 500 mg Paracetamol tablet is under price control but its 650 mg strength is not.
2) Individual drugs are under price control but their combinations which outsell single ingredient
preparations are not. The combinations not covered under NLEM account for Rs 31,866 crore or
almost 45% of the total Pharma market of Rs 71,246 crore in 2012.
The Ministry of Health, Government of India revised the National List of Essential Medicines of
India (NLEMI 2011) in June 2011, eight years after the last revision. The NLEMI 2011 contains
348 medicines and was prepared over one and a half years by 87 experts. Though there are some
positive aspects to the list such as the documentation of a detailed description of the revision
process, inclusion of many experts from various fields in the review committee, well written
description of the essential medicines concept and others, a critical review of the list reveals areas
of major and minor concerns. Improper medicine selection like the inclusion of a nearly obsolete
medicine such as ether, an anesthetic agent; non-inclusion of pediatric formulations; spelling errors;
and errors in the strengths of formulations diminishes the significance of the NLEMI 2011. In its
present form, the NLEMI 2011 did not align with the Indian Pharmacopoeia, and the National
Health Programs as well as the National Formulary of India 2010. Formatting errors, non-inclusion
of an index page, syntax and spelling errors may also undermine the usefulness of the NLEMI 2011
as a reference material.
Moreover, to show how effective DPCO has been, the government has compared the price
reductions due to DPCO with the highest price of a drug. It makes more sense to use the price
charged by the company with the highest market share for comparison. Out of the 390 formulations
for which prices have been notified, 212 formulations the company with the highest sales does not
have the highest price. So, the price reduction achieved by DPCO is nowhere as dramatic as
claimed by the government. (Source: Current prices of DPCO covered formulations are available
with company name on the website: http://www.medindia.net/drug-price)
Effective average price reduction would be just 11% and the impact on the Pharma market as a
whole would be a mere 1.8%. This undermines the entire objective of making essential medicines
more affordable to Indians. There is the need to expand the scope of price control to include all
dosages and combinations. In sum, coming in 2013, a decade after the Supreme Court asked for it,
the DPCO is clearly late. But even worse, it is too little.
Having idea about an ambiguity or inadequacy in the Drug Price Control Order 2013 to uncover the
loopholes of Government heath care system & to put forward some points for consideration for
betterment of healthcare system study was conducted.

Chapter 2
Literature Review
2. Literature Review
Impact of price control has been explored by many researchers. The studies have shown their
support against the price control. The reports together highlight the fact that despite being the
“pharmacy of the global south”, India has been creating a situation where in its own citizens
have to pay huge amounts of money to buy drugs.
2.1 Health Insurance and Micro insurance
Some astonishing facts regarding the Indian healthcare industry:

 Even among the BRIC countries India lags behind on public and private per capita
spend as a % of GDP
 75% Out of Pocket (OOP) spending - Too high by far and definitely not a healthy model
of financing
 40% of hospitalised are pushed below poverty line or into lifelong debt due to lack of
financial planning
 85% of In-patient Care delivered on the Private Hospital platform with unregulated and
variable pricing methods
 These are the ground reality why the India needs the better health insurance penetration.
Another better option is health micro insurance, now-a-days it is extending in India with
high CAGR.
These tables show that day by day new insurance policies are coming and more and more
people are enrolled under them. But the main thing is that under these schemes still the
medicines given free are not purchased efficiently or at the time of need the stock outs are felt.
So one of the issues is that government should take care about is to make the separate tender
system to procure the drugs to provide to the beneficiary of these schemes. Just like many of the
NGOs like RED CROSS, WHO, UNICEF used to do, procurement of medicines separately for
the special health scheme beneficiary.
Table 3: Start of some health expenditure coverage schemes
1962 ESIS
1964 CGHS
1986 Mediclaim voluntary health insurance
1999 Privatization of health insurance
2003 Yeshasvini Health scheme
2007 Rajiv Arogyashri scheme
2008 RSBY
2009 Kalaignar
2009 RSBY Plus, Vajapayee Arogyashri scheme
(Source: http://www.srtt.org/institutional_grants/pdf/compendium.pdf)

Table 4: Covered population with health insurance schemes
(Source: http://www.srtt.org/institutional_grants/pdf/compendium.pdf)
Let us also have the look for opportunity in the insurance sector to expand like anything due to
untapped urban plus rural market.
Figure 3: Break Up of Insurance coverage in India
Unsecured
83%
Community
Insurance
4%
CGHS
3%
Pvt. Sector (self
funded)
5%
ESIS
3%
Pvt. Health
Insurance
1%
Indian
Railways
1%
Break Up of Insurance coverage in India
SCHEME
TOTAL COVERED POPULATION IN 2009-2010
(IN MILLION)
UNIT OF
ENROLLMENT
NO. OF
FAMILIES
NO. OF
BENEFICIARIES
CGHS Family 0.87 3
ESIS Family 14.3 55.4
RSBY Family 22.7 79.45
Rajiv Arogyashri
Scheme
Family 22.4 70
Kalaignar Family 13.6 35
Vajapayee Arogyashri
scheme
Family 0.95 1.4
Yeshasvini Individual NA 3
Total Gov sponsored
scheme
Na 247
Private health Insurance Individual Na 55
Grand Total 302
Opportunity

2.2 Pricing Problem: Incorrect Formula (Lokesh Singh, Down To Earth, March 15, 2013)
The Drug Policy 1995 uses cost-based pricing to fix the price of essential drugs. It includes cost
of raw material, cost of conversion and maximum allowable post manufacturing expenses of
100 per cent. The draft National Pharmaceutical Pricing Policy 2011 introduced market-based
pricing. According to this, the ceiling price would be fixed after calculating the weighted
average price of three top-selling brands of an essential medicine (‘Faulty formula’, Down To
Earth, November 30, 2011). The 2012 draft has kept the market-based pricing, but changed the
formula. Prices would be fixed after taking the simple average price of all brands that have
market share of one per cent or more.
Cost-based pricing is being followed since 1979 and is the best option(S Srinivasan, managing
trustee of LOCOST, a Vadodara based non-profit organization, March 2011). Srinivasan was
instrumental in filing the affidavit in court. In the affidavit; petitioners have demanded that cost-
based pricing formula should be retained. They have also asked for replication of the Tamil
Nadu government drug procurement model in the country.
Table 5: Market-based pricing as per draft 2012
Cost of medicine for a month’s treatment
Drug Disease Market-Based
pricing (Rs.)
Cost Based
Pricing (Rs.)
Metformin Diabetes 35 14
Atorvastatin High Blood Cholesterol 127 17
Atenolol High Blood Pressure 38.5 8
(Source: Prices from IMS MAT 2013)
Tamil Nadu Medical Services Corporation (TNMSC), an autonomous drug procurement
agency, procures drugs from manufacturers and supplies them to public health facilities in the
state. The model has been successfully replicated in Rajasthan and Kerala.
The difference in prices calculated as per cost-bases pricing, market-based price, and the
TNMSC is huge, says Srinivasan. For instance, the cost of 10 tablets of 10 mg of Atorvastatin,
the drug that prevents stroke, by the market leader is Rs 110. When calculated according to
cost-based pricing, the tablets cost Rs 5.60. The average price of all brands that have more than
one per cent market share is Rs 50. Tamil Nadu government’s public procurement price for this
medicine is only Rs 2.10.

2.3 Order on Drug Prices (Times of India, July 2013)
2.5 Essential medicines in health care: Current progress & challenges in India (Dipika
Bansal & Vilok K., Journal of Pharmacotherapeutics, November 2013)
Essential Medicine Concept, a major breakthrough in health care, started in 1977 when World
Health Organization (WHO) published its first list. Appropriate use of essential medicines is
one of the most cost-effective components of modern health care. The selection process has
evolved from expert evaluation to evidence-based selection. The first Indian list was published
in 1996 and the recent revision with 348 medicines was published in 2011 after 8 years. Health
expenditure is less in India as compared to developed countries. India faces a major challenge in
providing access to medicines for its 1.2 billion people by focusing on providing essential
medicines. In the future, countries will face challenges in selecting high-cost medicines for
oncology, orphan diseases and other conditions. There is a need to develop strategies to
improve affordable access to essential medicines under the current health care reform.
It was mentioned that the current 3rd
edition of NLEM (2011) has 348 medicines and 653
formulations and dosage forms. Forty-seven drugs included in the previous list have been
removed and 43 new drugs are being added in the current list. It contains 14 medicines for
HIV/AIDS and 33 oncology medicines. There is a difference in the number of drugs according
Drug distributors reiterated their demand to the government to help pharmacies that have been
impacted due to drug price control order.
While this move has come as a relief to patients, chemists and druggists in the country are
unhappy as the move has eaten into their profit margin. It has affected local distributors as
pharmaceutical companies have cut their profits by 2.5% from the existing 6.5%.
2.4 Cheap medicine myth busted (Singh & Associates, Pharmabiz, 2013)
The report says that the price control rules do not seem to be the result of genuine intentions to
provide relief to consumers. They have found that 18 of the top 20 new drug formulations
ranging from anti-diabetes and anti-cancer medications to vitamins introduced by
pharmaceutical companies in India over the past two years are outside price control.
The top-selling new brand, based on 2013 data from the pharmaceuticals industry, was a fixed
dose combination of sitagliptin and metformin, used to treat diabetes, but outside price control.
Examples of other drugs outside price control are those used to treat cancers, formulations
containing vitamin D and calcium, a drug used to treat skin warts and drugs against HIV.
A network of health activists called the All India Drug Action Network has challenged the
DPCO in the Supreme Court, contending that price caps should be imposed by taking into
account the actual production costs of drugs instead of market prices as the DPCO does.
As a gist of the study done by Singh at el. DPCO “paradoxically” punishes drug companies that
have priced their products below price caps by forcing them to freeze their prices. It indirectly
designed to kill the small and medium Pharma industry. These rules punish those who charge
less than the ceiling prices. Small companies often don’t have deep pockets and could be badly
hurt by increases in raw material prices or currency fluctuations.

to WHO Anatomical Therapeutic Classification (ATC) between WHO and NLEM of India.
India doesn′t have a separate list for children. However, Indian Academy of Pediatrics (IPA)
has published EML for children in 2011 (1st
edition) with 134 medicines. Availability and
affordability are key components in equitable access to essential medicines.
Figure 4: ATC Classification of drugs in WHO EML (2011) and India EML (2011)
EMs to promote rational use of drugs (RUD)
The more drugs available for an indication, the more complex is the decision and potentially,
the less rational is the choice. Thus selected safe, efficacious and cost-effective essential drugs
decrease the complexity of prescribing drugs and will promote RUD. Because prescribers need
to know about fewer drugs, they can have a better understanding of the drugs they do
prescribe.“Development and use of NEML” is one of the key interventions to promote RUD.
“Development and use of NEML” is one of the key interventions to promote RUD. Worldwide
more than 50% of all medicines are prescribed, dispensed or sold inappropriately, while 50% of
patients fail to take them correctly. In India some of the internationally discarded drugs like
analgin, nimesulide, nitrofurazone, etc., are allowed to be marketed.
20
25
17
18
11
20
35
9
28
62
9
15
17
24
16
40
23
20
18
19
8
37
33
7
24
100
10
18
20
20
14
37
Fixed dose combinations
Not included
Various
Sensory organs
Respi
Antiparacitic
Nervous sys
Musculo skeletal sys
Antineoplastic
Antiinfective
Hormones
Genito urinary sys
Derma
CVS
Blood and blood forming
Alimentary tract and metabolism
WHO India

Figure 5 : Drugs that are banned worldwide but allowed to market in India
Name of Drug Use Reason for Withdrawal
Metamisol Analgesic Agranulocytosis
Oxyphenebutazone Analgesic Bone marrow depression
Nimesulinde Analgesic Liver toxicity
Furazolidone Antidiarrheal Cancer risk
Nitrofurazone Antidiarrheal Cancer risk
Cerivastatin Dyslipidemia Rhabdomylosis
Phenolphthelin Stimulative Purgative Cancer risk
Thioridazone Antipsychotic Arrythmia
(Source : WHO Report 2011)
Example, success of Delhi model for improving access to medicines
In 1994, medicine supply was irregular and uncoordinated in government hospitals and
dispensaries. An EML committee drew up a common list of 250 EMs for hospitals and 100
medicines for dispensaries to overcome this problem. STGs for most commonly occurring
problems in adults and children were also issued at primary health care centers. Usage of these
medicines by the hospitals run by Delhi government resulted in a sharp fall in procurement
prices and a 30% saving in annual medicine bill. These savings led to more than 80%
availability of medicines at health facilities. Positive changes were also seen in the prescribing
behavior.
India's perspective
The current list (2011) has been revised after 8 years. Like WHO EML, regular revisions are
necessary at least once in 2 years. National Drug Policy has also been enacted since 1979 with
current draft of National Pharmaceutical Pricing Policy 2011. However, it is important to
emphasize on reproductive health medicines in NEML of India. Complementary medicines list
should also be maintained at various levels of health care. There is also a need to incorporate
the concept of EML for children in India as pediatric population comprises 31% of the total
population of India.
In conclusion, the essential drugs concept introduced since 1975 is now widely accepted as a
highly pragmatic approach to provide the best of modern, evidence-based and cost-effective
health care. The challenge is to regularly update drug selections in the light of new therapeutic
options, changing therapeutic needs, the need to ensure drug quality and continued development
of better drugs, drugs for emerging diseases and drugs for coping with changing resistance
patterns. There is also a need to fill gaps in availability, accessibility and affordability of
medicines to the poor.
2.6 New Scheme: Free medicine to all (Raj Pradhan, Economic Times, November 13, 2013)
During the 12th Five Year Plan, a centrally aided scheme to provide for ‘free medicines for all’
in Public Health Facilities was to be launched. What was supposed to be there in this scheme is
that, all State Governments will be encouraged to constitute medical supplies corporations on
the lines of Tamil Nadu Medical Supplies Corporation (TNMSC) to supply free, quality generic
medicines mainly essential medicines to both indoor and outdoor patients who would seek care

in Public Health Facilities (about 50% of the total number of patients, including the erstwhile
20% of unreached, very poor people). The total cost of the Scheme during the plan period
would be Rs 28675 crores for running costs and an additional Rs 1293 crores as one-time
capital costs. The centre’s contribution at 50 % would be Rs 15631 crores.
A centrally aided scheme to provide for ‘free medicines for all’ can be launched also for those
patients (about 50 % of all patients) who will seek care from private practitioners working
within the framework of Universal Health Care System. For these patients the government will
pay for the quality generic medicines to be bought in bulk. During the plan period, the Scheme
would cost be Rs 80,000 crores, out of which the Centre would contribute Rs. 40,000 crores.
Somehow the government allocated 100 crore Rs. To make the central procurement agency to
work out the plan for this scheme but it couldn’t get materialized within the time frame but in
near future the scheme can be launched. If it happens it will be the radical change in the whole
Indian drug procurement system but it has to cross a number of hurdles before to see the
market. How it will be very much beneficial to the people and government, let’s have a look on
the financial benefit based on the tendering prices and market prices.
Figure 6 : A comparison of Chittorgarh, TNMSC procurement prices and Market prices
retail basis
Generic Name of Drug Unit Chittorgarh
Tender Rate
(Rs.)
MRP Printed on
pack/strip(Rs.)
TNMSC Prices
2010-11(Rs.)
Albendazole Tab. IP 400
mg
10 Tablets 11.00 250.00 4.62
Alprazolam Tab IP 0.5
mg
10 Tablets 1.40 14.00 0.45
Arteether 2 ml Inj. 1 Injection 9.39 99.00 9.71 for 80 mg
per vial
Amylodipine Tab 5 mg 10 Tablets 2.50 22.00 0.42,2.5 mg
Cetrizine 10 mg 10 Tablets 1.20 35.00 0.50
Ceftazidime 1000 mg 1 Injection 52.00 370.00 8.77 for 250 mg
inj.
Atorvastatin Tab 20 mg 10 Tablets 18.10 170.00 2.30 for 10 Tabs
, 10 mg
Diclofenac Tab IP 50 mg 10 Tablets 2.20 25.00 0.63
Diazepam Tab IP 5 mg 10 Tablets 1.90 29.40 0.47
Amikacin 500 mg 1 Injection 6.95 70.00 6.78 per vial
(Source: http://www.tnmsc.com/tnmsc/new/html/pdf/drug.pdf)

2.7 Majority of medicines not covered by price control order (Rema Nagarajan, Times of
India/December 1, 2013)
It was mentioned in the government's own admission in an affidavit filed in court, the market
value and share of medicines covered by DPCO is just 18% of the country's pharma market.
An independent evaluation of the National Pharmaceutical Pricing Policy, by the Public Health
Foundation of India (PHFI) and the Institute for Studies in Industrial Development (ISID) for a
forthcoming report explains that government's own affidavit admits that only 18% of anti-
diabetics, 19% of anti-TB medicines and 6% of the respiratory therapeutics segment are under
price control. This is despite India being the diabetes and TB capital of the world, and facing
high prevalence of asthma and chronic obstructive pulmonary disease (COPD).
In fact, the PHFI-ISID evaluation shows that in 43% of drugs studied, the sales leader will face
little or no impact from price control.
Price control was meant to address this problem, particularly in medicines important for India.
But it has failed to make any significant difference.
In sum, coming in 2013, a decade after the Supreme Court asked for it, the DPCO is clearly
late. But even worse, as the PHFI-ISID study reveals, it is too little. Given how much rides on
this for the aam aadmi, that is a tragedy of mammoth proportions.
2.8 Ensure Access to Affordable Drugs(Dr. Jayashree Gupta’s blog,
http://www.drjayashreegupta.blogspot.com, January 30, 2014)
It raises question that despite this acknowledgement of ground realities by the high and the
mighty, how is it that essential medicines continue being unaffordable to masses?
Acting on the directions of the Supreme Court of India in 2003 to formulate appropriate criteria
to identify essential and life saving drugs and ensure that they come under price control,
Government of India came out with DPCO 2013. It took over a decade to formulate this policy.
It was mentioned that, How the DPCO-2013 actually impacts us. Does it serve the purpose;
does it make essential and life saving drugs affordable?
A study by LOCOST (2012) says that 50 % of the top-selling 300 medicines (IMS 2009) are not
in the National List of Essential Medicines, 2011. This means that there is something wrong,
either with the way medicines are prescribed and sold or with the list of essential medicines!
As per PHFI-ISID 2013, only 17% (Rs 11,798 crore) of the total domestic market of Rs. 71246
crores (2012) is under price control. Even in medicines covered under DPCO, 2013, most
ceiling prices provide for huge margins.
Being active member of Consumers India, she has been advocating for adoption of Jan
Aushadhi-based pricing under DPCO-2013. Jan Aushadhi outlets have been opened by the
Government & they have demonstrated that quality medicines can be sold at 10-25% of the
price at which they are normally sold in the market and that too without any subsidy from the
Government! The prices of medicines sold in Jan Aushadhi outlets are fixed by the Government

at cost plus nominal profit basis and they could have been easily adopted as the reference price
while determining prices of essential medicines under DPCO 2013.
Few points to emphasize upon certain issues,
 Leaving out Fixed Dose Combinations (FDCs) from the ambit of DPCO-13 is another
major area of concern.
 80% of the paracetamol market outside DPCO 2013
 70% of anti-diabetic market out of DPCO 2013
 Non-standard strengths another escape route
 The National List of Essential Medicines (NLEM) calls for immediate review in the
light of above facts!
Government Unawareness of the high profit margins
It is not that Government is not aware of the high profit margins in this critical sector. The study
by the Ministry of Corporate Affairs in Government of India had recently revealed that several
leading pharmaceutical companies are resorting to mark up of 1100% and more! The Jan
Aushadhi experiment has also proved that there is huge gap between the cost of manufacturing
and sale price of medicines in the market. Above all, who can conceal the truth about pricing
from the National Pharmaceutical Pricing Authority (NPPA), an arm of the Central
Government!
The question was raised by ministry that what is surprising is, even after knowing that 4 crore
people of our country plunge into poverty each year due to high cost of medical treatment, why
is it not coming out with a policy, which provides effective relief to consumers?
No shortcut to making affordable medicines available in each and every Pharma outlet
Govt seems to be inclined to tackle this problem by increasing expenditure on procurement of
medicines, so that free medicines are available to patients visiting Govt health facilities. This
would, no doubt, be a welcome gesture. But it will benefit only those patients who visit Govt
facilities. As mentioned above, private sector accounts for nearly 80% cost of out-patient
treatment in India on the whole. Even in Tamil Nadu, where proper availability of medicines in
public health facilities is being ensured by procuring medicines at reasonable prices through the
efficient system established by TNMC; nearly 70% people go to private sector for treatment.
So, policy interventions alone can help in making affordable medicines available through the
network of over six lac pharma retail outlets!
Cost of promotion & expenditure on doctors surpasses all other costs
One major factor, responsible for high cost of medicines is the cost of promotion &
expenditure on doctors. As a matter of fact, it may far surpass the cost of production and all
other costs!

Are Regulatory Agencies Really Regulating?
In India also it is illegal for doctors to accept gifts from Pharma Companies in cash or kind. But
who cares?
The Medical Council of India (MCI) was set up to regulate medical profession. MCI and State
Medical Councils are empowered to take disciplinary action when prescribed Code of Ethics is
not observed by the doctors. They are even empowered to debar doctors from practicing
medicine. Had they acted on their mandate, courts would have been spared of thousands of
cases being filed due to unethical medical practices! And consumers would have been spared of
the trauma of unending fight to safeguard their right to health!
A separate Department of Pharmaceuticals was set up by the Government of India in July 2008
with the vision to ensure abundant availability, at reasonable prices within the country, of good
quality pharmaceuticals of mass consumption.
The National Pharmaceutical Pricing Authority (NPPA) was set up much earlier in 1997 with
the mandate to fix/revise prices of scheduled drugs and monitor enforcement of prices.
Are they able to fulfill their mandate satisfactorily?
One initiative taken by the Department of Pharma, soon after it came into existence, was launch
of ‘Jan Aushadhi’ Scheme, with the opening of first ‘Jan Aushadhi’ outlet at Amritsar on 25th
November 2008. After demonstrating that quality drugs in generic form can be made
available to consumers at 10-25% of the price at which similar drugs are available in the market
in branded form, it languished into invisibility with only 93 Jan Aushadhi outlets opened across
country in over five years of its launch! Just imagine, in a country being serviced by over six lac
chemist outlets, what impact can be made by these 93 odd Jan Aushadhi outlets!
Government can make a difference by adopting right policies
Govt may not be successful in reaching out to masses through Jan Aushadhi Outlets, but it can
definitely make a difference by formulating and implementing right policies.

Chapter 3
Research Methodology
3. Research Methodology
3.1 Primary Objective
To study the impact of Drug Price Control Order 2013 on Healthcare system in India and to
screen out problems and proper solutions.
3.2 Secondary Objectives
 To study the impact of DPCO on Indian Healthcare system as a whole & determine the
success ratio of the same
 To find out escape route for pharmaceutical companies in pricing of medicines
 To find out the problems associated with National List of Essential Medicines

 To suggest efficient method for preparation of National List of Essential Medicines
3.3 Nature of Source of Data
The study is based on secondary data which is collected from various websites e.g.
www.nppaindia.nic.in, www.dfda.goa.gov.in, www.pharmabiz.com, www.janaushadhi.com,
www.telegraphindia.com, www.businessworld.in; various newspaper articles & blogs i.e.
drjayashreegupta.blogspot.in etc.
Major Source of Data collection & Data Analysis was IMS data of MAT April 2013. Data
Analysis has been shown in form of Graphs prepared in Microsoft Excel to create better
understanding of data.
3.4 Limitation of the study
 All the numerical terms of data are completely based upon IMS Data 2013 & data
analysis is manual without using any statistical tool. Available time and resources were
limited so data comparison of all medicines of widespread therapeutic categories was
not possible.
 Constant up gradation of NPPP & NLEM list may show some changes with respect to
bulk drugs, their combinations & prices mentioned in study with the currently updated
data.
 Due to limitation of time, study couldn’t cover up the correlation between other related
features like Drug Procurement system at various Institutional & Government Hospitals
and integration of various government initiated health care systems which can be useful
for increasing accessibility & affordability.

Chapter 4
Data Analysis & Interpretation
4. Data Analysis & Interpretation
4.1 Interpretation of Domestic Market with reference to Drug Price Control
It is known to everyone the biggest loophole of DPCO 2013 which is its applicability to only
those medicines which are included in NLEM 2012. NLEM 2012 contains only 348 medicines
with certain strength & route of administration. Moreover, in upgraded NLEM there are very
few combinations which have been included. They are trying to make it correct but still
majority of fixed dose combinations are out of purview of DPCO2013.
It is shown in the graph nearly 50% of the domestic market is covered by combinations in
various therapeutic areas, this way majority chunk automatically falls out of control. Amongst

remaining plain molecules certain top brands are their which are having different strength, so
this way they fall out of control. Thus, it proves that there is there is urgent need for
improvement in National List of Essential Medicines.
Figure 7 : Total Domestic Market according to IMS MAT Apr' 2013
4.2 80% market is outside purview of DPCO 2013
It can be inferred total 80% market in terms of sales from various therapeutic categories fall
outside price control due to different reasons. Let’s decode it step wise according to therapeutic
categories.
Combination Plain Grand Total
Total Number of
Plain/Combination
27486 34967 62453
Market Value according to MAT
APR'13 (Crores)
29115.22 29583.94 58699.38
0
10000
20000
30000
40000
50000
60000
70000
Number/MarketValue
Total Domestic Market According to IMS MAT April 2013 data

Figure 8 : 80% market out of control
( Source: Times of India, December 1,2013)
4.2.1 In Respiratory Category 94% market is outside price control : How ?
Figure 9: Market scenario of Respiratory Category
94
90
88
86
85
82
82
81
71
63
Respi
Pain/Analgesic
Antimalarial
Gynae
Gastro
Antidiabetic
Neuro
AntiTB
Cardio
Antiinfective
Out of Reach (% share of TC segment not within
price control)
Total Number of
Plain/Combination
3358 1571 4933
Market Value according to
MAT APR'13 (Crores)
3559.61 1288.40 4848.02
0
1000
2000
3000
4000
5000
6000
Number/MarketValue
Respiratory Category

 In the Respiratory Category according to IMS MAT April 2013 1st
brand in terms of
sales is a combination by ABBOTT - PHENSEDYL which is worthy 225 crores which
is out of price control.
 Other top selling 11 Brands in this category are also combinations which are not
included under NLEM.
 As we can see in graph 70% market is of combination which has nearly worth Rs. 3300
out of 4900 crore market.
 Thus majority chunk of the market is grabbed by those top selling combinations which
have never been under price control so that is how 94% of share remains uncontrolled.
4.2.2 In Analgesics Category 90% market is outside price control : How ?
Figure 10 : Market scenario of Pain/Analgesics Category
 Out of total market of 4770 crores top selling brand 1st
brand is covering 87 crore
market that is also a combination by SANOFI - COMBIFLAM 400 mg tablet.
 2nd
brand is single molecule but as dosage strength is fixed for the NLEM medicines,
another major brand which is VOVERAN by NOVARTIS (100mg) covering 63.2 crore
market falls automatically out of DPCO2013 [Category - Antirehumatic non steroidal]
 3rd brand is single molecule (DOLONEX - Piroxicam molecule) by PFIZER which has
not been included under DPCO which is also covering 57 crore market which itself is
huge chunk. (Same category)
Total Number of
Plain/Combination
3105 3290 6395
APR'13 (Crores)
2739.29 2030.91 4770.21
0
1000
2000
3000
4000
5000
6000
7000
Number/MarketValue
Pain/ Analgesics Category

 So, ultimately this way as we can see in graph majority of brands either combination or
plain molecules due to some or the other reason falls outside control.
4.2.3 In Anti Malarial Category 88% market is outside price control : How ?
Figure 11 : Market scenario of Anti Malarial Category
 It is shown in this category, as like other therapeutic divisions it has not many
combinations but still first 15 top selling brands are out of DPCO due to some or the
other reason. Entire category is of 456 crores of which these 15 brands only grab 239
crore. So, this way half of the market falls out of the purview of DPCO.
 Reason behind is major molecules such as Artemotil has not been included. Artesunate
has condition to be combined with other two molecules so that also falls out of DPCO,
rest Chloroquine & Primaquine phosphate have different concentrations other than
mentioned under NLEM, so this keeps them out of DPCO.
 Out of those 15 first brand 7 brands including highest selling RAPITHER Inj. Worthy
Rs. 47.8 crore market share is from IPCA laboratories. So, Price control authorities
should keep their eye on the company’s strategy to keep themselves out of control.
Total Number of
Plain/Combination
126 370 496
APR'13 (Crores)
115.95 340.79 456.74
0
100
200
300
400
500
600
Number/MarketValue Anti Malarial Category

4.2.4 In Gynaecology Category 86% market is outside price control: How ?
Figure 12 : Market scenario of Gynaecology Category
 Here as it’s shown in graph though combinations have 50% market in terms of numbers
but in terms of valuation it has much more market share compare to plain molecules.
 Out of top 10 brands of this category 8 are combination & rests of 2 are plain molecules
- all of them have not been added under price control.
 1st brand is DEXORANGE which is multi vitamin liquid Iron syrup by FRANCO
INDIAN - 142 Crore brand which means huge chunk is cherished by such kind of
companies which hardly noticed by pricing authorities.
 Iron formulations covered under DPCO are only 1%. So, these are the reasons why 86%
is outside DPCO.
Total Number of
Plain/Combination
1186 1236 2422
APR'13 (Crores)
1762.19 1331.40 3093.60
0
500
1000
1500
2000
2500
3000
3500
Number/MarketVlue
Gynaecology Category

4.2.5 In Gastro Intestinal Category 85% market is outside price control : How ?
Figure 13 : Market scenario of Gastro Intestinal Category
 1st Brand is by WOKHARDT - SPASMO-PROXYVON CAPS which 135 crore brand
which is combination which is out of price control.
 Most surprising matter is that after 8 years what they (NPPA) have included is
Ranitidine Injection 25mg/ml. We all know that with high dose of all antibiotics usually
doctors prescribe Ranitidine to avoid acidity & ulcers. But they are in oral solid forms.
And out of total market of single molecule worthy 2600 nearly 360 crore is covered by
Ranitidine Oral Solids.
 Other natural molecules such as Sennoside, Atropin, Itopride which are non allopathy
still has market. But no consideration for Price Control. They also have nice market
share in terms of value.
 So, this are points for consideration for drug price control authorities.
Total Number of
Plain/Combination
2213 1559 3772
APR'13 (Crores)
3643.19 2605.33 6248.52
0
1000
2000
3000
4000
5000
6000
7000
Number/MarketValue
Gastro Intestinal Category

4.2.6 In Anti Diabetic Category 82% market is outside price control : How ?
Figure 14 : Market scenario of Anti Diabetic Category
 1st
brand HUMAN MIXTARD 30:70 INECTION by ABBOTT which is 212 crore
brand which is a combination, so out of DPCO. Nearly 60% formulations are
combination so top 25 brands are outside DPCO.
 Not a single molecule from GLIPTIN category molecule has been included.
 About 60 million Indian population is diabetic. At least one from each family must be
taking oral anti diabetic but what they have included is just 6 % medicine. Only 2 in
number. What is the logic behind, nobody knows. This all together makes 82% market
out of control.
Total Number of
Plain/Combination
1121 1080 2201
APR'13 (Crores)
2674.16 1562.39 4236.55
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Number/MarketValue
Anti Diabetic Category

4.2.7 In Central Nervous System Category 82% market is outside price control : How ?
Figure 15 : Market scenario of CNS Category
 As we can make out from graph that in this therapeutic category combinations have less
market compare to plain molecule market but still 82% market is out control. On
analysis I could found that reason behind is first 20 plain molecules 10 have not been
included in DPCO.
 Common molecules which any person associated with pharmacological field must be
aware of such as Pregabalin, Clobazam, Beta Histidine, Leviracetram, Clobazepam,
Valproic Acid have not at all been include in NLEM.
Combinati
on
Plain
Grand
Total
Total Number of
Plain/Combination
876 4030 4906
APR'13 (Crores)
839.92 2605.64 3445.56
0
1000
2000
3000
4000
5000
6000
Number/MarketValue
Neuro/ CNS Category

4.2.8 In Anti TB Category 82% market is outside price control : How ?
Figure 16: Market scenario of Anti TB Category
 India has highest number of MDR TB. NPPA talks about affordability & accessibility.
When they are aware about monthly cost of medication for any MDR TB patient is 8000
Rs. Still they haven’t considered any single molecules for price control.
 Out of top 10 Brands 8 are combinations so, they are out of DPCO. In that 6 are of
LUPIN, so LUPIN is leading brand. That too, out of that 4 are of same combination but
of different packaging size & delivery system (Film & Coated tablets) so, it becomes
mandatory for pricing authorities to check different tactics of different companies.
Total Number of
Plain/Combination
274 177 451
APR'13 (Crores)
219.82 96.63 316.44
0
50
100
150
200
250
300
350
400
450
500Number/MarketValue
Anti TB Category

4.2.9 In Cardiac Category 71% market is outside price control : How ?
Figure 17 : Market scenario of Cardiac Category
 1st brand is top selling brand by UNICHEM _LOSAR H Film which is a combination so
falls out of control. Though combinations have less market share compare to plain
molecules, still 71% market is not covered.
 From the data analysis major reason what I could make out it molecules such as
Prazosin, Ramipril, Telmisartan, Nicorandil which are very common molecules for
cardiac treatment are not covered under NLEM.
Total Number of
Plain/Combination
2019 3602 5621
APR'13 (Crores)
2473.59 4394.15 6867.74
0
1000
2000
3000
4000
5000
6000
7000
8000
Number/MarketValue
Cardiac Category

4.2.10 In Anti Infective Category 63% market is outside price control : How ?
Figure 18 : Market scenario of Anti Infective Category
 As per latest 13th edition of DPCO price list announced on 27th march, 2014 many anti
infective combinations such as AUGMENTIN & other such have been added under
price control still many loopholes are there.
 There are 7 new vaccines which have been added in WHO list of essential medicines but
there is no single vaccine which has been added in NLEM. Market is full of
combinations of different concentrations so, 63% market in terms of value is outside
price control.
Total Number of
Plain/Combination
3001 7073 10074
APR'13 (Crores)
3630.21 6237.45 9867.67
0
2000
4000
6000
8000
10000
12000
Number/MarketValue
Anti Infective Category

4.3 Scenario of Cardio Diabetic Market with context of DPCO 2013
Figure 19 : Market scenario of Cardio-Diabetic Category
Table 6: Calculation of Cardio Diabetic Market
70% of Anti-diabetic market out of DPCO 2013
Drugs(Category) Combination Singles Total Combination
Atenolol(Hypertension) 40 186 629 70%
Metformin(Diabetes) 2251 2251 4502 50%
 Here as it’s shown in table & graph, we can interpret that in anti hypertensive market of
Atenolol 70% market is made up of combinations which is shown as the inner shell in
the graph.
 While outer shell represents that of anti diabetic market of metformin 50% market is
made up of combinations.
 So, this way most of the Cardio Diabetic market is outside the purview of price control.
Issue related to pricing methodology:
According to DPCO 1995 pricing method followed was Cost Based Pricing. Later on as per
NPPP 2011, weighted average of price top 3 brands according to sales was implied.
Now, as per mentioned under NPPP 2012 pricing method followed is simple average of prices
all the brands having market share greater than 1%. So, it means it is market based price which
70% ( Atenolol)
30% (Atenolol)
50% (Metformin)50% (Metformin)
70% of cardio diabetic market out of DPCO 2013
Combinations
Singles

has turn into disastrous situation in medicine pricing decision. Here, table shown below is proof
of that,
Table 7: Calculation of Cost of Medicine per month
Cost of Medicines for a month's treatment
Drug Disease Market based pricing(Rs.)
Cost based
pricing
Metformin Diabetes 35 14
Atenolol High blood press 38.5 8
Atorvastatin High blood press 127 17
So, we can say that cost based price was indeed better one. This is not the end. Here comes the
real issue that even when doctors are having enough awareness about difference of prices of
various medicines, still they don’t prescribe it. So, no matter how much improvement
government will bring in NLEM, until unless they bring mandate for doctors to prescribe
NLEM medicines there will be no improvement.
This way, output heavily relies on the implementation by doctors.
Table 8: What do doctors prescribe?
On Doc part: What do they prescribe?
Category Branded Generic
Anti hyperlipidemic Strovas - 96/10 tablet Atorvastatin - 8.20
Antidiabetic Amaryl - 117.4/10 tablet Glimepiride(2 mg) - 11.81
4.4 Scenario of Analgesic~Paracetamol Market with context of DPCO 2013
Figure 20 : Market scenario of Analgesic (Paracetamol) Category
2056.97
514.244
0
500
1000
1500
2000
2500
Combination drugs Single ingredient
MarketValue(Incrores)
Type of Formulation
80% Market share of the PCM remains outside DPCO
2013

As we all know that Paracetamol which the basic analgesic which may be used by 90% of
population of India. But, as majority of available medicines are in combination with one or
other peer molecule, they fall outside price control. From graph we can make out that these
combinations are huge in number. According to IMS data total market value of PCM
formulations is 2571 crores, out of which nearly 2056 crore is covered by combinations.
So, Control is essential at this basic level and for that creating understanding is the foundation
stone.
4.5 Procurement price comparison of various agencies
Table 9: Procurement price comparison of various agencies?
Name of the
Medicine(10
Tab)
Category
Market
Leader
before
DPCO Used
to charge
Ceiling
price
under
DPCO
Jan
Aushadhi
prices
LOCOST
price(Cost
of Man+
Retail
Margin)
TNMSC
procured
prices
Catrizine 112.67
crore market
Anti allergic
37.50 (GSK)
14 times
higher profit
18.1 - 15
times
more
2.75
1.20/10
tab
0.9(2011%
lower than
DPCO)
Albendazole
Worm
infection
140 (GSK)
91 - 10
fold
mark up
8.50(')
Amlodipin 5 mg
Anti
hypertensive
30.6
(3060%
of cost
price)
4 1
Atorvastatin 10
mg
Anti
hypertensive
75.30
(strovas)
59.1 7
2.10 (2814%
lower than
DPCO)
Paracetamol(500
mg)
Analgesic
13.65 (GSK
crocin/calpol)
6 times
higher
2.45/10
tab
In pharmaceutical industry, the cost of manufacturing a drug is relatively low compared to the
price it is sold at. By selling drugs at inflated prices, big companies & retailers pocket a large
share of the money paid out by the consumer.
Here is the price comparison of various categories followed by different organizations. From
table we can infer it out that medicine like Cetrizine which is in very common use is being sold
at Rs.3.75/tablet when the same medicine is being procured by Tamilnadu Medical Corporation
at Rs. 0.9/tablet. So, it’s clearly shown that companies are charging 2011% profit on single
medicine. While under Jan Aushadhi scheme price kept is 2.75 which is inclusive of cost of
manufacturing + Retail margin.
Thus, it provides window for pharmaceutical companies to charge profits on their products. So,
it can be middle way for balancing both industries as well consumers.

LOCOST (Low Cost Standard Therapeutics) which is public, non-profit charitable trust
registered in Baroda, Gujarat which allows poor Indians to access drugs at affordable prices.
TNMSC is Tamilnadu state board for procurement of medicines for their local hospitals &
people which has been proved very much successful. The same model is also successfully
implemented in Kerala & Rajasthan.
NPPA is in a way to implement the same model at National level inviting all states to take
active participation in developing efficient model for medicine procurement.
The TNMSC Model
When TNMSC was set up, drug procurement in the state was scattered, with each public
hospital sourcing drugs on its own with no standard procedures.
TNMSC, which relied heavily on information technology systems and processes to streamline
drug procurement, helped in dramatically bringing down drug prices.
For instance, the price of 10 strips of antibiotic ciprofloxacin tablets in 1992-1994 (before
TNMSC) was Rs. 525. That fell to Rs. 88 in 2002-2003. Similarly, the cost of 100 Norfloxacin
tablets fell from Rs. 290 to Rs. 51.30 during the same period.
These improvements have helped bring down the average cost of drugs for inpatients in Tamil
Nadu’s public hospitals to Rs. 102, according to the National Sample Survey Organization’s
(NSSO) sixtieth round survey in 2004.
In comparison, the average cost of drugs was Rs. 3,268 in Haryana, Rs. 2,166 in Himachal
Pradesh and Rs. 3,187 in Rajasthan.
The total average cost of a patient’s hospital stay in Tamil Nadu was the lowest at Rs. 255.

Figure 21 : Procurement of Tamilnadu Medical Corporation
(Source : http://forbesindia.com/article/on-assignment/tamil-nadu-medical-services-corporation-
a-success-story/15562/1#ixzz30LMuSPJC )
The key to TNMSC’s success is its tendering process and a passbook system for distributing
drugs. It floats tenders at the beginning of every year to identify suppliers for about 250 drugs,
which are the most used and usually cover the treatment spectrum. When the purchases are state
funded, it follows a two-tier tendering process where first technical bids are evaluated and then
price bids decide the supplier.
TNMSC follows a stringent testing process — it currently has about 11 laboratories empanelled
with it. These labs test the first batches of every drug supplied and subsequently also random
samples picked from TNMSC’s 25 warehouses spread across the state. Earlier, drugs used to be
supplied in bulk. The corporation put an end to it and insisted on blister packaging and special
labeling for it in English and Tamil, which made it difficult to divert them.

4.6 New Launches & Top Selling Brands out of Price Control
Figure 22 : Medicines out of control
(Source: www.pharmabiz.com)
 As we can see in the graph from data anaylysis what I could found that 55 top brands
out of 100 are outside DPCO.
 In the Acute Category 8 Brands are outside & in Chronic Category 13 Brands which we
can see in the table mentioned below. Thus, forget about rest when top brands are not
controlled what is the fun of having price control !
 Out of 20 new launches in past 24 months, 18 are outside price control. Morover they
are allowed to increase retail price in sync with the wholesale price index.
 Thus, we can say that there must a robust model which is structured enough to control
all this issues as well price at every stage.
Above shown figure shows that 13 brands from leading companies out of top selling 20 in
chronic category are out of price control. They are mainly of Respiratory, Cardiac & Diabetic
category. This is a huge mistake.
55
8
13
18
0 10 20 30 40 50 60
100(Top selling brands)
20 ( Acute Category)
20 ( Chronic Category)
20 ( Newly Launched in last 24…
Out of Control

Table 10: Top brands out of control in Chronic Category
No of top 20 Chronic brands that are not
covered under price control
Rank Brand Company
2 Glycomet USV
4 Foracort Cipla
5 Seroflow Cipla
6 Galvus Met Novartis
7 Skinlite Zydus
8 Cardace Sanofi
9 Telma Glenmark
10 Betnovate GSK
12 Januvia MSD
13 Janumet MSD
16 Telma H Glenmark
17 Budecort Cipla
18 Aerocort Cipla
(Source: Rank based on MAT June 2013; AIOCD-AWACS Market Intelligence Report 2013)
[AIOCD Pharmasofttech AWACS Pvt. Ltd. is a pharmaceutical market research company formed by All Indian
Origin Chemists & Distributors Ltd. (AIOCD Ltd) in a joint venture with Trikaal Mediinfotech Pvt. Ltd.]
4.7 Way forward with compulsory licensing
Government should make use of Compulsory license for making cheaper drugs available even if
they are under patent. This tool, though available since 1995 under WTO’s agreement on
intellectual property rights called TRIPS (Trade Related Aspects of Intellectual Property
Rights), was used for the first time in India recently (March 2012), and has helped reduce the
price of cancer drug ‘Nexavar’ by 97%. Why not use this provision for other expensive
medicines as well!
Government should look forward to make patent law consumer friendly so that patent holders
are not able to perpetuate their patents on flimsy grounds. Recent judgment of Supreme Court
(2013) in the case of anti-cancer drug Glivec has demonstrated how the cost of treatment can be
reduced from Rs 1,20,000 per month to Rs 8500 per month at one stroke if only the right
decisions could be taken!

This kind of move have become essential as innovative medicines from big Parma’s will remain
uncontrolled no matter how much stringent environment we create in terms of price.
Table 6: Benefit of Compulsory License
Benefit of Compulsory licensing Price Reduction of 97%
Medicine (cancer) Price
Branded Nexavar(BAYER) 284428
Generic Nexavar (NATCO) 8800

Chapter 4
Findings & Recommendations
5. Findings & Recommendations
Key findings:
The long awaited National Pharmaceutical Pricing Policy 2012 which was being expected with
much anticipation and hope that it would bring drug prices within the reach of common-man,
has, however, been a big disappointment. The draft policy does not address the primary
concerns of majority of Stakeholders nor is it designed to make drugs affordable, a question
that ought to have been its basic surmise. There are serious implications of the proposed policy
that would adversely affect the ability of the poor to pay for life saving medicines. Some
concerns:
 The policy is incomplete since it covers just off-patent medicines being marketed in
the country. Any National Pricing Policy should be comprehensive and consolidated

covering all medicines being sold in India irrespective of their patent status or source.
 Irrespective of mechanism used, the end result should be availability of medicines at
affordable and fair prices. Unfortunately, if implemented in its current form NPPP-
2011 will result in the prices of most medicines going up many folds in near future. In
addition, foreign pharmaceutical manufacturers will enjoy unfair advantages not
available to domestic sector.
 Notionally, the price regulation is envisaged to “increase” from 74 bulk drugs and
their formulations to 348 medicines in literal compliance with Supreme Court
directions. However such increase in coverage is meaningless if the end result is hike in
most drug prices.
 The price regulation is supposed to cover only those molecules that are included in
the National List of Essential Medicines (NLEM).In a way NLEM is a misnomer
because it does not cover all essential medicines. There is a difference between the
term “essential” used generically in English and “Essential” used as a proper noun in
NLEM. No medicine can be categorized as “unessential.”
 NLEM has a limited, narrow context. Under severe budgetary constraints, it is simply
not possible for the state to buy and distribute all medicines for all disorders to all
patients. NLEM is meant to serve as guidance for procurement and distribution of most
needed drugs for public health sector. Based on the availability of specific drugs in a
particular setting such as Primary, Secondary or Tertiary Health Centre, the
government employed doctors can be advised to prescribe those medicines which
are available free of cost. Most PHCs have a 10% and hospitals 20% additional
allocation of funds to buy non-NLEM drugs.
 Drugs included in the NLEM are generally restricted to reference molecules.
a. For example for the treatment of high blood pressure, just one ACE inhibitor
enalapril is included in NLEM. Since the list does not include subsequently
launched ACE inhibitors such as fosinopril, imidapril, lisinopril, perindopril,
quinapril, ramipril and trandolapril, their prices will not be regulated.
b. Only one agent losartan belonging to another anti-hypertensives group called
Angiotension II Receptor Blockers (ARBS) is included in NLEM. Therefore
prices of widely used other agents including candesartan, irbesartan, telmisartan,
valsartan and olmesartan will not be regulated.
c. Among drugs used in asthma except for salbutamol and hardly used ipratropium,
all other critical agents in high usage such as terbutaline, salmeterol, formeterol,
bambuterol, theophylline, doxofylline, montelukast and zafirlukast will have no
ceiling prices.
Inclusion of reference molecules alone for price regulation will naturally induce
manufacturers to shift production from regulated to non-regulated drugs in the same
therapeutic category. In this respect the new policy suffers from the same deficiency as
DPCO 1995.

 Drugs listed in NLEM on their own are not adequate to meet clinical needs in many
disorders. For example, for the treatment of migraine, not a single globally used
“triptan” is included.
 The state sector currently caters to the medical treatment of less than 20% of the
population. Thus more than 80% people of India are dependent on private medical care.
Private practitioners do not and cannot be made to prescribe only reference medicines
listed in NLEM. Thus about 80% of the people will not benefit from price regulation.
Restricting price regulation to drugs for use primarily in state funded health
services is of limited utility because bulk users in the public sector buy both generic
and branded medicines on negotiated or tender-based prices and therefore hardly need
NPPP-2011 to moderate prices.
 Market Based Pricing (also called competition based pricing) is applicable to only
those items (such as TV set, shoes, clothes etc.) where the consumer is the decision
maker capable of assessing the relative merits of various brands on sale and voluntarily
decides to buy one or the other product in his best interest suiting his pocket. In the
field of pharmaceuticals, the paying consumer has no say and has no alternative but to
buy as directed by the doctor. All decisions are taken by doctors who “do not pay”
but often “get paid.” Due to aggressive, incentive based promotion, the top selling three
brands are nearly always the more expensive brands. Due to the government-sanctioned
legitimacy for such high pricing, manufacturers of lower priced equivalents will be
induced to push up the prices and simultaneously increase expenditure on promotion.
Has any country ever experimented with the concept of Market Based Pricing in
pharmaceuticals?
 There are many products where there is just one brand (example: Revital). In such
cases, the producers will be free to charge at will and immensely benefit from a faulty
policy.
 Among multi-ingredient formulations, many top selling brands are not identical. For
example the three top selling medicines for anaemia, Dexorange, RB Tone and
Hepatoglobin contain different iron molecules (ferric ammonium citrate, ferrous
gluconate and iron and ammonium citrate respectively while only ferrous sulphate is
listed in NLEM). Even if two or even more brands are similar, a slight change will
make them different and not only take them out of price regulation but in the process
make them the only brand with no equivalents. The formula proposed to calculate the
ceiling prices of such combination products with different ingredients in different
quantities is immensely complicated, convoluted and impractical. In any case by the
time a legal solution is found to a disputed price, if at all, lot of money would have
changed hands from poor patients to wealthy producers. The only solution is
uniformity in composition based on scientific rationality and prohibition on all
other Fixed Dose Combinations. Till the time this happens the proposed policy cannot
be effectively applied to multi-ingredient products.
 Under the proposal, all drugs being sold for Rs. 3 or less per unit (tablet, capsule) will
be exempted from price regulation in addition to being automatically eligible for hike
in pricing based on WPI for manufactured goods year after year. One out of every

three medicines sold in India is priced below Rs. 3 per unit. Thus Crocin brand of
paracetamol which is currently sold for Rs. 20 for 15 tablets will be free to increase
the price to Rs. 45 even though the cost of production is no more than Rs. 3.50
(based on bulk drug price of Rs. 205 per kg plus NPPA-determined conversion cost).
The new policy, if implemented will mean that the price of Crocin can reach Rs. 65 for
15 tablets based on average WPI-linked hike of 7.5% compounded in the next five
years.
 The arbitrary exemption from price regulation given to drugs costing up to Rs. 3 per
unit is inherently irrational. If a tablet containing 500mg of paracetamol(Crocin) can
be priced at Rs. 3 (currently Rs. 1.35), if a tablet containing anti-allergic pheniramine
25mg (Avil) is permitted to be sold for Rs. 3 (current price 35 paisa) then what should
be the price of a rational multi-ingredient product that contains both paracetamol
500mg and pheniramine 12.5mg? Earlier such a product (Cosavil) used to sell for
less than 80 paisa per tablet. Will some company re-introduce the combination in the
form of a kit containing two tablets for Rs. 6? Nothing surprising since such kits,
already in vogue in the treatment of tuberculosis and peptic ulcers, are quite rational.
 No pharmaceutical pricing policy, worth its name, can exclude the pricing of patented
medicines being marketed in the country. One ampoule of Herceptin (trastuzumab)
used in breast cancer costs Rs. 1.1 lac per dose! Such exorbitantly expensive drugs are
totally unaffordable. Nearly all MNCs operating in India market or will market
patented medicines in addition to off-patent products. Under the NPPP 2011, even if
prices of some of the top selling off-patent brands of MNCs get marginally and
temporarily moderated, they will have the luxury of improving their balance sheets by
huge profits earned on patented medicines if not subjected to any regulation. Such a
situation will not only continue to hurt patients but also place domestic drug units at a
very unequal, disadvantageous footing.
 In all there are just over 1,700 molecules being used as medicines in various countries.
In India just over 900 are being marketed. NLEM that has 348 drugs is supposed to be
updated once every 5 years. The policy is not forward looking in the sense that new
drugs will need to wait for 5 years or more before they are considered for inclusion in
NLEM and consequently brought under price regulation. The gap between NLEM-
2003 and 2011 is eight years. Therefore the review will depend on whether the NLEM
is really updated in five years or not.
The above concerns are illustrative rather than exhaustive. There are many other anomalies in
the proposed policies such as pricing of suspension, injections etc. that need to be addressed.
From the foregoing it is abundantly clear that the NPPP, 2011, though already inordinately
delayed, unfortunately seems to have been drafted in hurry (after 8 years still in hurry) and
without any concern for public good or national interest. The NPPP, therefore, needs to be
revisited and redrafted.

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