Could a single word in the new drug pricing policy mitigate the extent of its impact on the pharma industry’s profitability or is this mere wishful thinking? A senior industry source claimed to Apothecurry that the choice of “value” instead of “volume” as a determinant of market share (on the basis of which prices will be fixed) would dull impact. “This reduces the number of brands and increases the average price,” he said.
This person who is closely following developments in New Delhi said he believed that value market share would be used as a metric to arrive at a shortlist of brands. “That’s what I understand,” he said. He asked not to be identified since the policy had yet to be notified.
Which is it?
To recap, on November 22, India’s Union Cabinet approved new drug pricing norms suggested by a Group of Ministers (GoM). The new policy seeks to fix a ceiling price for specific dosage forms and strengths of 348 drugs in India’s National List of Essential Medicines. The ceiling price is to be decided as a simple average of the prices of all brands that hold one per cent or more market share of that specified medicine.
But there is some confusion around what is to be the determinant of market share.
“Volume market share is what the assumption is,” said Mira Shiva, co-convenor of the New Delhi-based All India Drug Action Network which has filed a public interest litigation on drug pricing in the Supreme Court. “But we won’t know before the Union Cabinet submits the document to the Supreme Court,” she said. The next court hearing has been fixed for December 12.
In September, industry body Indian Pharmaceutical Alliance (IPA) while reacting to an earlier iteration of the drug policy had also said that market share would be determined by volume in a statement to media. See here.
No big deal?
Industry experts dismissed the notion that choosing value share over volume share would make a significant difference to the result. Seen either way, the same brands would figure in the list beyond the one per cent mark even if their ranking might alter slightly, they felt. “Materially, it won’t make a difference,” said Tapan Ray, director-general of the Organisation of Pharmaceutical Producers of India (OPPI).
Ray added that it was never in doubt that market share would be determined by value ever since the 2011 draft National Pharmaceutical Policy was published by the department of pharmaceuticals (DoP) and that this parameter was also in the document reviewed by the Union Cabinet. (Check the hyperlink for DoP’s reference to value share in the draft policy).
A spokesperson for IMS Health, the private market research firm whose database is being used by the government said all its calculations were based on value market share. He said there ought not to be much difference in the list even if share was calculated by volume or units sold.
However, he asked to get back to Apothecurry on this last point with an unequivocal response after data analysis. This post will be updated to include any response that comes in from this quarter.
Ameesh Masurekar, director, AIOCD Pharmasoftech AWACS, an IMS rival which publishes its own pharma market audit was of a similar opinion. The difference would be “extremely marginal,” he said. “The gap would not exceed 10 per cent,” he added.
The decision to fix drug prices based on a “simple average” is a change from the “weighted average” method greenlighted by the GoM in September. The latter is widely believed to have been dropped after Union finance minister P Chidamabaram raised objections to it on grounds that it accorded too much importance to brand value.
Still counting
According to IMS Health, the change from the weighted average method to simple average adds roughly Rs 100 crore to the estimated value erosion in the market from new pricing norms taking the total estimated loss in value to Rs 1406 crore or 2 per cent of the overall pharma market.
AWACs reportedly estimated that companies could lose Rs 1485 crore while stockists and traders stood to lose Rs 2671 crore.
In November, the IPA estimated that profitability of the industry from the Indian market would come down by half as Rs 4000 crore of net profit would be wiped out from the industry bottomline thanks to the move to the simple average method. On December 1, it revised this estimate to roughly a quarter. See here here and here.
Hopefully, the fog will lift once the final policy is in public domain.
Pic courtesy eking1989′s photostream on Flickr
The following is a comment that Apothecurry had requested from Sakthivel Selvaraj, activist and health economist at the Public Health Foundation of India. Selvaraj who just spoke to Apothecurry believes that whether or not the value-volume question changes things depends on the market for the specific drug in question, how many players it has and their prices. “Each market is different and has different numbers of players,” he said. “The market for cancer drugs may have hardly any players and here it may make a difference.” He added that data for every molecule should be analysed using both metrics to see if it made any difference. “This is why we are advocating cost-based price control,” he said. “A single market-based criteria will not work since the market (for each drug) is peculiar.”
Apothecurry 
Gauri, Thanks for delving into this very tricky issue. Value or volume, the point that strikes me is the degree of uncertainty that prevails on perhaps the most crucial issue in the industry today. After several rounds of discussions and meetings, much better clarity is expected. It is surprising that we are still oscillating between many unexplained questions. Wondering what scope will be available for modifications after the policy is tabled in the Parliament and the Supreme Court puts its stamp.
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Thanks Gauri; very interesting……..rgds…….k
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Very insightful. Yes policy makers can play around with words and obfuscate the issue – a more balanced approach is needed instead of value or volume it should be therapy area specific as pointed out by Selvaraj of PHFI.
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