CHANGING REALITIES -- Proposed Pharma Policy 2017

Dilemma is to Protect the Consumer or Promote Industry? 

The Indian pharmaceutical sector is largely fuelled by exports. It is the third-largest foreign exchange earner for India. However, recent trends have shown

• Declining CAGR
• Non-adherence to quality standards and norms
• Increasing competition from other countries
• Overdependence on imports for key starting materials (KSMs), intermediates, and APIs.
• Lack of focus on R&D and drug discovery.

Over the last five years, many changes have affected the pharmaceutical sector, which have necessitated a fresh, comprehensive national policy to maintain and enhance its global competitive edge in quality and prices. The Department of Pharmaceuticals (DoP) has recently circulated a draft Pharmaceutical Policy. The broad ambitions outlined in the policy include:

1. Making essential drugs accessible at affordable prices to the common masses;
2. Providing a longer term stable policy environment for the pharmaceutical sector;
3. Making India sufficiently self-reliant in end to end indigenous drug manufacturing;
4. Ensuring world class quality of drugs for domestic consumption & exports;
5. Creating an environment for R&D to produce innovator drugs.

Its a perfect example of the ‘catch 22’ situation.

The policy tries to strike a balance between making life saving drugs affordable to the public while at the same time moving away from a price control regime to that which promotes innovation and expansion of an indigenous pharma industry.

The first and most important change made by the draft pharma policy is that it states that the DPCO will be reoriented to move from price-control to monitoring of drug prices, their availability and accessibility. The policy plans to clip away the paragraph 19 of the DPCO from the NPPA which accords the regulator, “extraordinary powers” to review the price controls, free from interference from the government.

Here it is important to note that the Bombay High Court has already ruled in favour of para 19 stating that it is well within the scheme of the purpose of price control. Also, it was the same clause which allowed NPPA to recently cap the soaring prices of heart stents and knee caps. In addition to that, the policy plans to institute an “advisory body for pricing, nominated by the government in the NPPA. The body will consist of doctors, pharmacists, other experts, civil society representatives, industry representatives and government representatives. The advice of this body will be re commendatory and the NPPA may accept or modify the advice rendered. While modifying/rejecting its advice, the NPPA will assign reasons in writing for doing so.

1. The more feared possibilities is that the institutional autonomy of the NPPA will be diluted leading to greater government interference in price controls, which in effect, may tilt the price-monitoring regime in favour of the pharma industry.
2. The other and a potentially hidden objective of the government may be to increase their span of control over drug price regulation.The implementation of the draft pharmaceutical policy will lead to delays in the working of the regulator while increasing the cost of production to the manufacturers, in light of the new quality standards.

The quality assurance of indigenously manufactured drugs is another area of concern. While the drugs that get exported have a stringent quality assurance system, put in place and insisted by the importing countries but not followed for domestic consumption.The policy suggests two important solutions for effecting quality assurance.

1. One is making bio-equivalence mandatory as part of quality testing at all levels and
2. Recommending that government procurement is done only from manufacturing units that are compliant with World Health Organisation’s (WHO) good manufacturing practices (GMP) or the good laboratory practices (GLP).

This is a welcome change considering the poor standards of quality control displayed by most of the indigenous manufacturers for domestic consumption.This move will also reduce profit margins for the pharma industry, as they are made to ramp up quality standards.

{3} A conflicting policy change suggested is to reduce the number of drugs which will fall under the regime of price control while at the same time proposing a one brand-one salt regime. Currently, NLEM is prepared by the Ministry of Health and a special committee. NELM is then expanded by NPPA to include any other drugs requiring price regulation. This expanded list, known as Schedule 1 is finally used by NPPA to fix the prices of various drugs.

But the draft policy suggests that it will be the Department of Pharmaceuticals which will prepare the list of drugs for price regulation, and the NPPA will have to adhere to it.

The recent memorandum issued by the ministry for NPPA says,

• Any drug not included in NLEM should not be part of DPCO Schedule 1.
• On the other hand, the policy tries to counter the smart marketing strategies of pharma companies to manufacture the same drug at different prices and brand names by recommending a “one company–one drug–one brand name–one price.
• While growth of pharmaceutical industry and concerns related thereto are important, more important is the overall objective of making quality drugs accessible to the poor patients at affordable prices.

[4} The fourth major policy shift indicated by the draft is to incentivise indigenous manufacturing of drugs and reduce its dependence on imported substitutes.

The policy recognises partially, that the pharmaceutical sector faces a looming crisis and acknowledges that compound annual growth has slowed down from 14.36% in 2010-11 to 8.68% in 2014-15. It is widely accepted that the sector faces rapid de-industrialisation, and an estimated 50-80% of medicines sold in India are manufactured from imported Active Pharmaceutical Ingredients (API) or from imported intermediates (China constitutes the major source of imports . In the long term, this is a major threat to the sustainability of the domestic pharmaceutical sector.

This rightfully addresses the present scenario where over 50 per cent of the drugs in the Indian market are manufactured from imported Active Pharmaceutical Ingredients (API) or Chinese substitutes. The policy highlights the need for giving a push to “Make in India.

Jan Aushadhi stores, which provide for cheap generic drugs and instituting one brand-one salt regime, is a step in the same direction. But what this policy might achieve is signalling a major policy shift from the price control regime to a more democratic monitoring of the drug prices.

Conclusively, the policy seems to be caught in the middle of protecting consumer and industry interests. Only the implementation of the policy will make it clear

1. If the move to increase governmental control over the price regulator is towards making life saving drugs more affordable to the general public or
2. Whether diminished role for the NPPA, the drug policy will shift heavily in favour of the pharma industry.

The government’s proposal to discontinue third-party manufacturing or loan licensing in the pharmaceutical sector

• Such a move would lead to revenue loss for small and medium enterprises (SMEs), disrupt supplies, as well as make installed capacities redundant.
• In a loan licensing contract, a company manufactures its product at other’s premises or plants and then markets it under its own name.

The loan licensing raises many quality maintenance and assurance issues.

There is a proposal of phasing out over three years or be allowed for only up to 10% of the total production of a company.

As per National President of IDMA , loan licensing has been a great help to pharma SMEs who are good in manufacturing but unable to market their products. Such units are in large numbers and curtailing loan licensees will be disastrous.More than 40% of drug production is generated through loan licensing. The manufacturing plant offering loan licences is also subject to approval from regulatory authorities on quality adherence and hence quality should not be any concern for the government.

The Secretary General of IPA in a written submission to the government mentioned that phasing out of the system of loan licensing and contract manufacturing will make installed capacities redundant and lead to unemployment.If loan licensing is phased out, pharma companies will have to manufacture more drugs in-house and for that capacities will have to be increased.The investment for creating new capacities for in-house production will further increase product cost.

• Loan licensing is an opportunity for both the manufacturing and marketing company.
• This restriction (proposal to discontinue loan licensing) suddenly creates an impact on the balancing equilibrium.
• The advantage of leveraging existing manufacturing capabilities for more products and vice versa will be affected.
• Overall, the cost advantage of getting a low-priced product for patients will become increasingly difficult.
• For MNC operating in India, such a measure would be negative as the percentage of drugs manufactured through loan licensing or third parties out of their total production ranges from 50-90%.
• Loan licensing has served as an important instrument to forward the government’s ‘Make in India’ programme and helped in the growth of MSME manufacturers.
• The proposal for abolishing loan licensing is unlikely to be implemented in the current form as it could impact livelihood at SMEs.Even if it is implemented, enough time is expected to be given to the industry to make the transition.

As per IDMA, outsourcing of drugs or companies getting products manufactured through third parties is a global practice and the government should allow it to continue in India as well.

How is the draft pharma policy revamping drug price regulation?

Its concerns are spread across at least three ministries – DOP, health and commerce, the last for issues related to patents. The range of issues it aims to cover including the quality of Indian drugs, time taken for drug approval and reducing dependence on CHINA for raw materials.

Why Is the Draft Pharmaceutical Policy Shaking up India’s Drug Price Regulator?

The policy proposes an overhaul of the NPPA's role which will weaken the autonomy of the body

The draft policy spends a lot of bytes on India’s drug price regulator, the National Pharmaceutical Pricing Authority (NPPA). The changes suggest that the price regulator has been under performing, when, in fact, it has been sticking close to its government-given mandate.

Drug price regulation

The new draft policy says DOP will take control over the NLEM, which is used as the basis for determining which drugs the government can control the prices of. DOP will prepare the list of medicines for price regulation and transmit them to the NPPA for fixing the price ceilings.

The previous policy was that all NLEM drugs will automatically be under the DPCO. The NLEM is incidentally prepared under Ministry of Health. And the DPCO is under the Ministry of Chemicals and Fertilisers, along with the DOP.

Henceforth, the health ministry will merely suggest the NLEM, and it is the DOP that will apply its mind as to what NLEM drugs to put under price control. Essentially, this means that the DOP can cut the list of drugs to even less than the current 376, say to a 100, because it thinks fit or because a set of drugs are not promoting ease of business. Is the essentiality of a drug for health of the people more important or the convenience of the pharma industry?

NPPA’s autonomy being curbed

The regulator and the government would be two distinct agencies. The government shall not be the regulator and the regulator shall not be the government. As with the previous section attempting to take hold of the NLEM, here too the suggestion is that the NPPA, which is the regulator, is somehow OUT of the government ?

This policy’s suggestions will then save the tedium of issuing memorandums, that the DOP have been shooting off recently to the NPPA, spelling out dos and don’ts. This will legitimise the curbing of NPPA’s autonomy – hereafter no straying off into curtailing prices of stents and knee implants by NPPA on their own initiative or no using of para 19 powers suo moto – despite the Bombay high court saying para 19 is within the scheme of the purpose of price control and that the previous exercise of para 19 powers in the year 2014 was legitimate beyond doubt.

Strengthening NPPA:

NPPA will be strengthened. Structural changes in NPPA is likely --- It will be assisted by an advisory body for pricing, nominated by the government in the NPPA. The body will consist of doctors, pharmacists, other experts, civil society representatives, industry representatives and government representatives. The advice of this body will be re commendatory and the NPPA may accept or modify the advice rendered. While modifying/rejecting its advice, the NPPA will assign reasons in writing for doing so.

• The policy also suggests certain measures presumably intended at transparency. It says the strengthened NPPA should be a multi-member body with decisions only to be taken by consensus and members should have a three-year tenure.
• Fixing three-year periods means everybody who comes in will take substantial time to learn the new job and this will mean pricing decisions will be even slower than they already are.
• Can the DOP substantiate if the NPPA has been engaging in corrupt practices, and that is why the DOP is altering the regulator?

DPCO will be reoriented to move from price-control to monitoring of drug prices, their availability and accessibility.

The draft policy concludes with to two current mantras –

1. Ease of business and
2. Make in India.

The policy does not seem to address to make drug prices more affordable – for that the market under price control needs to increase from the current, which is approximately a measly 11% to at least 50%. It will need to cover all essential, lifesaving and rational drugs and rational FDCs and eliminate the rest from the market.

New Draft Pharma Policy Stands To Benefit Only The Bigger Players

The draft pharmaceutical policy, recently released by the government, which aims to revamp the sector’s practices and ensure drug security for India will benefit only larger companies.

The proposals favour large pharmaceuticals and are a negative for smaller players. The draft policy's provisions increase barriers to entry and strengthen the position of existing established companies.

High Manufacturing Standards

The draft pharmaceutical policy, aims to encourage the domestic manufacturing of active pharmaceutical ingredients amidst other things. Currently, more than 60 percent of such APIs are sourced from other countries, with the figure going up to 90 percent in some cases.

Generic Drug Push

The government will also pursue the sale of drugs by their generic name through the policy as it aims to implement the principle of one company-one drug-one brand name. Giving brand names to generic drugs hampers real innovation, and shall be discouraged.Pharmaceutical companies may have multiple brands of the same generic drug, to promote it to different doctors.

Trade Margin Cap

There is also a provision for the control of unreasonable trade margins by distributors and retailers. The trade margin cap will be effectively put in place for 95 percent of the industry.Getting rid of branded medicines in the near future is going to be a significant challenge.

The Department of Pharmaceuticals had announced that it will initiate working on a holistic policy for the sector.

Digitization Drive

1. To aid registered medical practitioners in prescribing medicines in their generic names, the policy states e-prescription will be implemented whereby prescriptions will be computerized and the medicine name will be chosen from a drop-down menu of salt names.
2. Further, there will be detailed guidelines for encouraging e-pharmacy with adequate safeguards. The union health ministry is examining technical feasibility and modalities involved in effectively regulating online pharmacy in the country.
3. This is in line with GoI’s much-awaited plan to launch a centralized portal to use information technology to make medicines available transparently across the country.
4. As there are no authentic database on the pharmaceutical sector, one will be created featuring manufacturers, brands, and products. Convergence of multiple data sets generated at different levels into one database could be put to multiple uses at both the domestic and international levels.

Regulating Marketing Practices

1. Unethical marketing practices lead to an unfair advantage. It is widely known that doctors are lured to recommend a particular brand with referral incentives, often disguising and terming them as educational conventions and other incentives.
2. There is a voluntary Uniform Code for Pharma Marketing Practices (UCPMP), which was issued by the DoP in 2011 and amended in 2015.
3. As per the UCPMP, no gifts, pecuniary advantages, or benefits in kind may be supplied, offered, or promised to persons qualified to prescribe or supply drugs by a pharmaceutical company or any of its agents (i.e., distributors, wholesalers, retailers).
4. However, the UCPMP has no legal backing and lacks penal provisions to deter wrongdoers. While The Drugs & Magic Act prohibits any advertisement of a drug, “educational” conferences are used to circumvent this. These add to the overhead cost of the drugs.
5. The policy states the UCPMP would become mandatory to level the playing field, and penalty for violations and an agency for implementation would be assigned. The DoP now plans to introduce the UCPMP under Essential Commodities (EC) Act with the aim of deterring and regulating unethical promotional practices in the industry.
6. However, this has evoked a sharp response from the pharmaceutical industry, which feels separate legislation should be introduced making the UCPMP mandatory and ensuring its effective implementation instead of bringing it under the EC Act.

Conclusion

The pharma policy is expected to significantly contribute to Ease of doing business and Make-in-India.

There will be challenges in effective implementation and providing enabling infrastructure. It will also have to work in unison with the recently launched National Health Policy, 2017 from GoI, which has a mandate of providing affordable healthcare services.

The policy aims to bring sweeping changes to the industry including curbing unethical marketing practices, contract manufacturing, and loan licensing.

DoP efforts are certainly laudable, though many of the proposed radical changes may be diluted due to stakeholder pressures.

For both policies to meet their objectives, the GoI will have to strike a balance between economic and industry imperatives and ensuring affordable, quality medicines accessible to the poorer members of society.

Draft Pharmaceuticals Policy initiatives in a nutshell :

1. Push for locally manufactured API:

2. Compulsory Bio-availability/Bio-equivalence test (BA/BE):

3. Adoption of World Health Organization (WHO) practices:

4. Shorter approval process:

5. Push for generics:

6. e-prescription:

7.Cap on trade margins:

8.Ban on loan licensing:

9.Ban on product-to-product manufacturing:

10.Ending unfair marketing practices:

11. E- Pharmacy

12. Creating Database:

13. Bar Coding :

14.Skill programme:

15.FDI in brownfield pharma companies:

16.Expansion of National Institute of Pharmaceuticals Education and Research

17.Encouraging R&D:

18.Price Regulation:

The draft policy is sure to go through many revisions, and one hopes that middle ground will be found. These are all worthy intentions, in relation to previous policies, intent is one thing, implementation quite another story. Let us hope that the final Pharma Policy 2017 will be more realistic .

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Note: Compiled through Secondary Research