What Will Latest Price Caps In India Mean For Big Pharma?

India's pharmaceutical pricing regulator NPPA has cut and capped the prices of more than 100 drugs that treat diseases ranging from diabetes to HIV to malaria. The price cap, which officially took effect on July 11, 2014, is aimed to make essential medicines more affordable and accessible in India, where 70 percent of the population lives in extreme poverty and nearly all of its population is without health insurance.

These latest changes are in addition to an increase in the number of drugs subject to price control in the country, which was enforced last year.

How is Pharma responding?

Although this plan could mean good news for overall healthcare of the Indian population, drug makers like Sanofi, Abbott, and Ranbaxy, which all have stakes in the multibillion dollar pharma market in India, are unhappy that the Indian government did not consult with pharma companies before making the decision.

Pharma and other global medical industries committed to have stability and predictability in the regulatory environment. They expected to have this reinforced by officials in India's Ministry of Chemicals and Fertilizer, who had previously "assured that there would be no volatility in pricing, that Government would work in close consultation with industry, and that the intent was to build trust and cooperation," Business World reported.

However, NPPA’s "arbitrary and unilateral action" is not in alignment with those sentiments, potentially driving out some of the bigger players in India's pharma market and impacting quality.

 "While we appreciate the government's intent to improve affordability...the manner and method in which this unilateral decision has been taken, is untenable," Sanofi India's Managing Director Shailesh Ayyangar explained to Business World on Monday.  "We are evaluating the impact of this order on our ability to continue offering our products with the same value proposition." Ayyangar added that the decision has "shocked and disappointed" the pharmaceutical industry.

Sujay Shetty, PwC's India leader of pharmaceuticals and life sciences, echoed this sentiment, telling the Economic Times that the price cap is very unexpected and unfortunate. Although the pharmaceutical industry expects the essential medicines list to be revised from time to time, the disappointment came from the fact that this change took the industry by surprise.

In response, the NPPA said it was using its right to fix the prices of any drug "in extraordinary circumstances, if it considers necessary so to do in public interest."   

What does the future hold?

Cost controls obviously could impact already tight profit margins for pharma companies, as generic drugs in India are already sold at much lower prices compared to other markets. At least three India-based small-scale drug manufacturers anonymously admitted that manufacturing these "essential" drugs under price caps would not be viable. In fact, a number of SMEs are even considering the developping nutraceuticals, herbals, and cosmoceuticals rather than contract manufacturing for Big Pharma, according to Business World.

At least 10 to 15 percent of companies had begun to diversify their portfolios after the cost controls in 2013 came into effect.