Inter-ministerial group recommended Linking Patented Drug Prices to Per-capita Income

An inter-ministerial group formed in 2007 and entrusted with the responsibility of regulating prices of patented medicines recommended using a per capita income-linked reference pricing mechanism. The proposal by the group is expected to reduce prices of several patented dugs by up to one-third. However it will hit the profitability of foreign companies.
The committee suggested fixing the price of patented drugs by comparing the price at which these drugs are procured by governments in the UK, Canada, France, Australia and New Zealand. The committee recommended that the retail price is to be fixed by adjusting it to the per capita income of the country. The new mechanism is to be applicable for patented drugs that don’t have any therapeutic equivalents in the market.

For patented drugs that have similar alternatives in the market, the price is to be fixed in such a manner that it should not lead to an overall increase in the treatment cost. If the global launch of the patented drug takes place in India, the retail price will have to be based on the cost of developing the drugs and other factors. Prices of patented drugs are currently unregulated. Patented drugs account for 1% of the $13-billion domestic market. This share is expected to grow to 5% of the estimated $50-60 billion drug market by 2020.
The Indian Pharmaceutical Alliance, the representative body of big Indian drugmakers, supported the reference-based system. The Organisation of Pharmaceutical Producers of India (OPPI), the lobby body of multinationals however stated that the cross-country per capita income-linked proposal is fundamentally flawed.

The Indian government is of the opinion that if patented drugs are not regulated, these would remain unaffordable for most Indians. A WHO study stated that as many as 79% of Indian patients pay for their healthcare expenditure from their own pockets. However it must also be noted that if the government fixes the prices of these drugs at excessively low levels, companies may stop selling drugs in the market.

Historical Backdrop

India had adopted a new product patent regime in 2005 after it became a signatory to TRIPS, an international intellectual property protection agreement, providing 20 years of marketing exclusivity to the patent holder. Global innovator companies such as GSK, Bayer AG, Novartis, Merck & Co and Bristol Myers Squibb who started launching their drugs in India continue to remain jittery about the government’s policies aimed at reducing healthcare costs. They complain that India’s implementation of intellectual property rights has been unsatisfactory.