Drug cos want market based pricing but may hurt consumers

With GoM set to take a call on framing the drug pricing policy, India's largest association of pharma companies has submitted a study to show the pricing formula should be market based. But critics say this could end up in increasing drug prices reports CNBC-TV18's Archana Shukla.

Do you feel you pay more or pay less for medicines in India? With the government mulling control of drug prices, the question is what is the right pricing formula? Should prices factor in just the cost of manufacturing and profit margins, or also a percentage that a firm spends on promoting and marketing the drug?
Many feel the current strategy of pricing drugs based on total costs is the right method as against pricing a drug based on market competition. That's because including promotional spends on building brands could lead to higher prices. And the market perception too is that leading brands are consequently the highest priced.
However industry body, Indian Pharmaceutical Alliance has tried to counter this perception. An IPA study submitted to the government has data highlighting three key points:
One: in most therapy areas, prices of the top three medicine brands by sales are lower than many brands that do not have much market share.
Two: drugs priced in the mid-low range in their category see maximum sales volumes.
Three: drugs priced in the top 20% of the price band see minimal sales volumes.
So the IPA is pushing for a market-based pricing formula.
DG Shah, secretary general of Indian Pharmaceutical Alliance says, "Data shows that maximum drugs sold are of mid priced category. Hence taking weighted average of top three brands will be the right way to fix a ceiling price. It will see an average of 10% price reduction across the board."
"What about the money that is being spent on promotion of brands. Many of them are on the unethical side, which is basically passed on to the consumers. You look at the tender prices for the same companies. Obviously they are not going to go into a loss, which means that they are managing at that cost. So, how can you have 30-40 times more than that in the market?" says Mira Shiva of All India Drug Action Network.
But industry argues that focusing only on lowering pricing could compromise quality.
"We need to cross subsidize drugs. If we want to sell at a lower price to government we need to sell it at market price to those patients who can buy it", says Shah.
The ball is now in the Group of Minister's court and the biggest challenge will be balancing the need to make drugs affordable, and the very health of the pharma industry.