India May Go For Reference Pricing As Negotiated Pricing May Endanger Compulsory License Policy

Reference pricing leaves room for scaling down prices via compulsory licenses.

MUMBAI – India is likely to formulate a reference pricing mechanism for introduction of patented medicines contrary to a negotiated pricing system as had been widely believed.

A senior industry source said the Department of Industrial Policy and Promotion under the Ministry of Commerce recommended – some time ago – to the Ministry of Health & Family Welfare a pricing system that draws from the experience of developed countries and regulatory agencies.

DIPP held the view that reference prices – on the basis of the prevailing norms in six or seven countries – may provide a good balance for pricing of patented molecules in India. Although the exact policy parameters to be used are still hazy, the source noted that pricing formulas of drugs in Australia, New Zealand and a few institutions like the U.K.'s National Health Service may be considered.

Drug prices in Australia for oncology drugs are roughly 30% lower than in the U.S. thanks to comparative effectiveness policies imposed by Australia's Pharmaceutical Benefits Scheme (Also see "Australia Has Cheapest Drugs Compared To OECD Countries, UK Says" - Scrip, 22 Feb, 2010.).

Reference Pricing: A Better Option

The Indian government appears to be strategically avoiding a negotiated pricing system for patented compounds that would not align with compulsory licensing policies used for exorbitant prices or drug shortages and would give ammunition to global companies to litigate.

“If a negotiated price is reached between a drug company and the government but still allows for the conditions to invoke a compulsory license, that may not be an ideal situation,” said the source familiar with the policy's movements.

In addition to studying the policies of other countries and institutions, the government is expected to factor in the per capita incomes or purchasing powers in those countries. Given that a majority of healthcare costs in India are borne by the patients, replicating the models in the developed countries may not be feasible, the source said.

Years Of Drag

Pricing of patented drugs has been a controversial subject in India. A committee that was tasked with proposing a draft policy framework in December 2006 has not come up with any recommendations.

The issue is revived now as the government has prioritized drug pricing as a key issue, and a powerful group of ministers have held individual discussions with representative associations of Indian and multinational companies as well as patient groups like the All India Drug Action Network.

In October 2011, the Department of Pharmaceuticals argued for a price control on 348 drugs, acting on a directive by the Supreme Court to devise a program to reach quality and affordable medicines to the poorest in India (Also see "With Over 348 Drugs In Proposed Pricing Policy, India Aims To Balance Industry Growth With Affordable Drugs" - Scrip, 31 Oct, 2011.).

Earlier this year in a decision that stunned many, India granted the first compulsory license to Natco Pharma Ltd. for Nexavar (sorafenib) mainly on grounds that the cancer drug was priced exorbitantly by innovator Bayer AG, making it unaffordable .