Jan Aushadhi vs pharma’s NLEM PDF Print E-mail
Thursday, 07 September 2017 04:23
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Why is the prime minister increasing price controls when he’s rolling out a low-cost public supply network?

Much like the Amma canteens in the state, the Tamil Nadu Medical Services Corporation (TNMSC) is doing a good job in providing low-cost medicines to a vast segment of the population, and with a budget that is just around Rs 600-700 crore a year—TNMSC is already providing 305 essential and 411 speciality drugs to all primary and community health centres across the state, using a network of around 30 warehouses in most districts.

Hardly surprising then, that prime minister Narendra Modi is replicating the same model of low-cost procurement across the country through the Jan Aushadhi scheme—according to a CLSA note, 1,700 new stores were added in just the last 15 months and the plan is to have, by end 2017, 3,000 stores across the country. While most pharmaceutical companies will offer a 30-40% discount on direct sales since this eliminates both wholesale and retail margins, TNMSC and Jan Aushadhi call for bids from manufacturers to produce for them exclusively and test these drugs for quality. Whether Jan Aushadhi will do as well as TNMSC depends on whether users have faith in the quality of medicines and also the spread of its chemist network.

The obvious question, of course, is if the prime minister is pushing Jan Aushadhi as a low-cost-high-quality alternative, why have onerous price controls that, going by the latest draft pharmaceuticals policy, are all set to increase dramatically. While direct price controls under the National List of Essential Medicines (NLEM) affect about a fifth of the industry’s production volumes today—with an annual cap on price increases, of course, most of the industry is indirectly covered today—this is expected to rise 2-3 times under the new policy. Since section 5.18 (j) (i) says “all strengths and dosage forms of that medicine shall be liable for price cap”, this means even a combination drug which uses an NLEM item will now be subject to price caps.

Hardly surprising then, that India’s biggest pharmaceuticals firms are looking more towards export markets for their growth though they continue to grow the NLEM business—in all of 2016, for instance, NLEM drug volumes grew 7% while total industry volumes grew a smaller 3%. In the case of Sun Pharma, just 26% of its total revenues came from India in FY17 and it was an even lower 16% in the case of Dr Reddy’s (see graphic). While the government may feel this is all right as long as medicine prices keep falling, it is quite worrying—given the severe shortage of quality inspectors, even if you ignore the probability of corruption, there is no way India can possibly inspect all suppliers; in such a situation, chances are firms with big brands will be more likely to supply better quality drugs.

The new drugs policy, if it is accepted, is only going to make the situation worse. Apart from its not being clear why such draconian price curbs are being planned, the problem is the policy is not even internally consistent, nor does it have its facts right. It justifies price regulations by saying “65% of the medical costs are on drugs”, but you just need to look at data on the diagnostics/hospital market to know this is totally incorrect. Amazingly, as this newspaper has pointed out earlier, the policy itself recognises the deleterious impact of such controls.

So, while lamenting the import-dependence—on China, mostly—for active pharmaceutical ingredients (APIs), the policy talks of how, in the 1950s and 1960s, PSUs were doing a good job of producing these; it says, “the Drug Price (Display & Control) Order 1966 put 18 APIs (raw materials) under price control … from 1996 … imported APIs and Intermediates started becoming hugely lucrative as a price cap on drugs forced the manufacturers … to obtain the cheapest raw material with the basic minimum efficacy/quality”. It takes this one step further and, as an incentive to produce APIs locally, it says medicines produced from them will “be taken out of price control for 5 years and the price control be linked to the indigenous content of the formulations”. Similarly, wanting industry to spend more on R&D—and on new drug discovery, at that—is admirable, the policy doesn’t seem to realise this can’t be done if pharma firms don’t have adequate profit margins.

If the government is pushing a hare-brained policy despite better alternatives—direct negotiations with quality pharma producers to get 40-50% discounts or even exclusive production under Jan Aushadhi—it means the prime minister is not convinced the government-alone model will work. In which case, why push a policy that will ensure quality producers concentrate even more on export markets? Make-in-India, at the end of the day, must have a sizeable component of Make-for-India.


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