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Report from India
Multinational drug companies in India are in a quandary. India's drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), increased the retail price of 62 domestically manufactured drugs in April 2011. The affected drugs are primarily used to treat diabetes and rely on domestically produced insulin. Local drugmakers are rushing to ramp up production of these drugs to take advantage of the price hike. Meanwhile, larger multinational firms, which have long sought retail price increases from the Indian government for their imported medicines (to treat diabetes as well as other conditions) are largely feeling disappointed because their pleas have been turned down.
The pricing process
That said, the 1–2% increase that is usually applied falls below inflation levels. Global drug manufacturers importing into India have not benefitted from a price increase on their products for nearly a year. According to NPPA, and as described below, this is because global firms failed to provide necessary details about their imports, which are needed by NPPA to calculate a retail price.
NPPA asks importers to disclose the cost of manufacturing, the selling price of the drug in the country of origin, and the cost of the same drug in approximately a dozen other countries. The regulator then uses a specific calculation to determine the cost of the imported drug in India. NPPA allows up to a 50% markup for the domestically determined cost.
Global manufacturers importing drugs into the country are requesting retail price increases based on insurance and freight costs that they must pay to bring in the drug products. NPPA, however, claims that the overall goal should be to "make drugs affordable," according to NPPA Chairman S.M. Jharwal, whose office was taken over in May 2011.
Drug affordability and accessibility are especially important for diabetics in India, adds Jharwal. NPPA increased the price of locally manufactured human insulin by 18.55% after considering the rise in packing material costs needed to send the drug products across the country.
The global response
Imported insulin brands of multinational firms, such as Indianapolis-headquartered Eli Lilly, Denmark's Novo Nordisk, and France's Sanofi, make up two-thirds of the insulin market share in India. Objecting to NPPA's price hike, Eli Lilly is taking the issue to local courts and Novo Nordisk is seeking a governmental review of NPPA's decision.
Other global drug manufacturers are likely to follow suit, but Pfizer's Mumbai headquarters is trying a different approach. Pfizer has been seeking a price increase in India for its imported drug Medrol (the generic version is methylprednisolone) used to treat allergic disorders and arthritis. NPPA denied the company's request, and, says Kewal Handa, managing director of Pfizer Limited, an open dialogue with the concerned officials is the best medium to adopt in this instance. "If the NPPA reduces prices, we cut costs. If it increases drug prices, multinationals should also benefit.'' Although he did not specifically comment on Medrol, Handa says that multinationals should engage in dialogue with Indian authorities, "either personally with the government, or use the good offices of the association that caters to multinational drug majors to address their grievances.''
The ongoing battle
Incidentally, it is not just insulin that is under scrutiny. Branded breast-cancer medications that contain the ingredient letrozole are also being reviewed, as are a host of other imported medications. Meanwhile, NPPA is still waiting for global drug manufacturers to share certain details about their imported brands meant for the local market. One NPPA official says, "They have not acceded to our requests."
G.G. Nair, past president of the Indian Drug Manufacturers Association, says all imported medicines follow a price-control formula. "There are two categories of imported medicine: patented in India and not patented in India. Another category is that of equivalent drugs available in the local market and not available [in the local market]. If it is not available, multinationals can fix any price and import into India and the NPPA can't intervene,'' he says. However, because the Indian rupee appreciation factor is calculated to determine the domestic cost of a medicine, Nair says that NPPA has initiated measures to ensure that importers of medicines pass on the benefits of cheaper imports, on account of the stronger rupee, to consumers.
In the meantime, the battle over pricing continues. In April 2011, NPPA issued notices to multinational as well as domestic drug companies for overcharging consumers, claiming arrears of $521 million through Jan. 31, 2011. Of this amount, $46 million was recovered. Several cases are still in litigation.
—A. Nair is a freelance writer based in Mumbai