India's National Pharmaceutical Pricing Authority has imposed a 15-day deadline on 11 drug manufacturers to rein in costs of certain drugs, citing the "public interest" of lower prices for consumers.

NPPA sent notices July 30 to several drug manufacturers - Cadila Pharmaceuticals, Deepti Care Health, Dr. Reddy's Laboratories, GlaxoSmithKline, Lupin Labs, Mepro Pharmaceuticals, Ranbaxy, UCB India, Wallace Laboratories, and Yash Pharma - highlighting price hikes of more than 20 percent for 11 non-scheduled drugs during selected one-year periods in 2004-2005.

The 11 drugs - spanning a variety of indications including blood pressure, allergy, skin reactions, and erectile dysfunction - are not on the list of scheduled or controlled bulk drugs subject to direct government price control.

Established in 1997, NPPA comprises independent experts charged with setting prices for controlled drugs, as well as monitoring or fixing prices of decontrolled drugs. Provisions under the Drugs Prices Control Order of 1995 empower NPPA to regulate drug prices for a list of 74 commonly used bulk drugs. In addition, under paragraph 10(b) of the DPCO, NPPA may "fix" prices of drugs not on the list, so-called non-scheduled drugs, if it is necessary for the public interest.

This is not the first time the Indian government has cited "public interest" to justify policies regulating the pharmaceutical industry. A recent court battle over the patentability of a beta crystalline formulation of Novartis' oncologic Gleevec (imatinib mesylate) centered in part on whether India's national interests are served by granting patents on derivative forms of known substances (Also see "Indian Court Hands Novartis Setback In Gleevec Patent Case" - Pink Sheet, 6 August, 2007.).

Will the Companies Comply?

"The manufacturer of non-scheduled drugs (drugs not under direct price control) is not required to take price approvals from NPPA for such drugs. However, NPPA is required to monitor the prices of such drugs and take corrective measures where warranted and there includes the power to fix and regulate such prices," NPPA says on its Web site.

In its notification letters, NPPA provided the companies 15 days to reduce drug prices to a "maximum retail price" stipulated by the agency. "Failure of the ... company to implement the Maximum Retail Price fixed ... within the stipulated aforesaid time shall attract action ... for recovery of overcharged amount along with any and all other appropriate action" under the DPCO, NPPA warns in its letter.

When contacted by PharmAsia News, many of the companies refused to comment or did not return requests for interviews.

Dr. Reddy's told PharmAsia News that it "understands that NPPA identified a few essential drugs/medicines and fixed the prices of these nonscheduled drugs." However, "on the 15-day deadline imposed - we at Dr Reddy's [have] yet to take a view on this."

According to Dr. Reddy's, during the period of NPPA monitoring, the price of its anti-allergy drug Relent was 32.49 Rupee ($0.80) in July 2004 and increased to 35.73 Rupee ($0.88) in July 2005. The price of the drug most recently was at 38.85 Rupee ($0.96). The NPPA is requesting the company reduce its maximum retail price to 35.78 Rupee ($0.88).

For scheduled bulk drugs, the Indian government caps prices at 16 percent below the actual retail price, but no such ceiling exists for non-scheduled drugs, and manufacturers of such products can determine their own price margins. "However, it is reported by the industry that the prevailing normal trade margin in respect of some decontrolled formulations is 20 percent for retailers and 10 percent for wholesalers," NPPA states.

According to NPPA, the agency initially contacted the affected companies to request "data or justification" for the price hikes. Although most of the companies responded, NPPA received no response from Dr. Reddy's, Mepro (for Ramistar-A ) or UCB India (for Vozet ). Ramistar-A and Vozet are marketed in India by Lupin Labs and GSK, respectively.

Ultimately, the agency determined that for the 11 non-scheduled drugs "the price increase by more than 20 percent during the relevant year ... was unjustified and against public interest in as much as it puts an unreasonable burden on the consumers without sufficient justification."

Although most of the manufacturers have remained quiet regarding plans to reduce the price of their products, under Indian law it appears they have little choice but to obey NPPA's edict.

NPPA's authority to control prices of non-scheduled drugs in the public interest is stipulated under the DPCO, so "unless this provision ... is challenged on constitutionality grounds, the NPPA is free to continue imposing price controls," George Washington University Law School Visiting Professor Shamnad Basheer told PharmAsia News.

Basheer cited the Madras High Court's recent decision to throw out Novartis' case challenging the patentability of imatinib mesylate to illustrate the strength of the "public interest" plea in Indian courts.

"The recent Novartis judgment upheld the constitutional validity of section 3(d) [of the Indian Patent Act] that seeks to prevent ever-greening by limiting the patentability of pharmaceutical substances," Basheer said. "A key reason that propelled the judges to find in favor of constitutionality was the fact that section 3(d) was introduced with a view toward furthering 'public health' goals by ensuring an affordable source of generics to the public."

"In much the same way, the DPCO advances public health aims and is therefore likely to be seen as furthering the aims of the Constitution of India and not contravening it," Basheer said.

Foreign Firms Unhappy

Western companies expanding into emerging markets like India and China have emphasized the need for freer markets, less government meddling and more patent protections.

In a recent report on foreign trade barriers, the Pharmaceutical Research and Manufacturers of America said that India's "pricing regime, combined with the lack of an effective patent or other intellectual property protection, makes the commercial environment in India unfavorable for research-based companies."

In the report, PhRMA takes issue with provisions in India's draft National Pharmaceutical Policy 2006 that would require companies to engage in price negotiations prior to receiving marketing approval for patented drugs launched in India after Jan. 1, 2005. The draft policy also aims to add 354 drugs to the list of 74 price-controlled drugs.

As a result of India's price controls, and "despite the lowest prices in the world, 70% of the population still has no access to modern medicines," PhRMA states. "Our industry would urge Government of India to liberalize DPCO's to allow market forces to come into play. The DPCO is neither in the interest of the Indian economy nor of the Indian pharmaceutical industry, nor, and most importantly, in the interests of the Indian healthcare consumer."

Although PhRMA maintains that India's draft pharmaceutical policy is discriminatory against foreign companies, the low cost of outsourcing certain business functions to India may be too tempting for multinational firms to resist.

In Basheer's view, the impact of price controls on foreign investment remains unclear.

"Europe has extensive price controls. Has this impacted pharmaceutical investment in Europe? Some would say, 'Yes' because a number of European companies have shifted their R&D base to the U.S.," Basheer posited. However, he noted that while this shift may be attributed to price controls, one can also argue that it may be due to the U.S. having better scientists, universities, and research infrastructure. Another example is China, where multinational corporations continue to invest "despite its not-so-glitzy intellectual property regime," Basheer said (Also see "GSK Jumps Into Growing China R&D Space" - Pink Sheet, 24 May, 2007.).

"Are we missing something here? Or is it reflective of the simple truth that intellectual property is not the sole or even a substantial determinant of foreign direct investment inflow?" Basheer said. "Rather, R&D will be outsourced to countries like India and China, when such countries offer key advantages, such as low costs, highly skilled personnel, infrastructure, [and] a good science/technology base."

Despite these advantages, big pharma has been known to put its foot down against government intervention in regulating prices in emerging markets. After Thailand's Ministry of Public Health issued compulsory licenses for three drugs - Bristol-Myers Squibb's HIV drug Sustiva , Abbott's HIV drug Kaletra and Sanofi-Aventis' antiplatelet drug Plavix - Abbott announced it would no longer launch new products in Thailand (Also see "Abbott To File In Thailand For Kaletra Pediatric AIDS Indication" - Pink Sheet, 30 July, 2007.).

Asking Novartis to stand down its bid to win patent protection for Gleevec in India, Health Minister Anbumani Ramadoss has similarly threatened that the government could override existing patents for vitally necessary drugs by issuing licenses that allow Indian generic manufacturers to produce cheaper versions in the interest of public health (Also see "Indian Health Minister Asks Novartis to Stand Down On Gleevec Patent Fight" - Pink Sheet, 27 April, 2007.).

But given Thailand's experience, "we also have to be sensitive to the fact that extensive price controls may boomerang, in that the drug manufacturer may opt to not sell in the Indian market at all," Basheer warned. "This hurts the consumer more."

-Turna Ray (pharmasia@elsevier.com)

India Highlights "Public Interest" To Reign In Prices For Non-Scheduled Drugs

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