Ministry of Chemical and Fertilizers is planning to control the prices of patented drugs. A panel was constituted to study this in 2007. On 25th February 2013, the panel has submitted its report. The panel report is available here. Indian patented domestic drug market is US $ 5 million out of total domestic market turnover of US $ 12 billion. So patented drug market forms just 4% of whole domestic market. I wonder why there is need to control the prices of such a small fraction of market share. Patented drugs are new drugs with high R&D cost. Companies especially in the case biotech based drugs have very high R&D cost. It can be US $ 50 million to US $ 2 billion. Companies need to recover R&D cost by high prices.
Out of 96 percent market of drugs the government is decreasing the list of essential drugs in National List of Essential Medicines (NLEM). Then why there is need to control the prices of only patented drugs.
Pharmaceutical sector is the one where patent protection is must for the growth of R&D intensity in contrast with internet industry, ICT industry. In such sector, it is not advisable to control patented drug prices. The consequences of price control would be that MNCs will not introduce innovator drugs in India and even Indian compnies will also introduce new drugs first outside India.
The panel committee report suggests a novel price control mechanism. It is weighted reference pricing. Since per capita income in India is less in comparison with even many developing countries. So simple reference pricing will not work for India. Therefore, committee report suggest standardizing the price of drug in other countries by dividing with ratio of per-capita income in India and other countries. So in a way it will be effective measure to control price. But there are concerns on the innovation and availability by the control of prices of patented drugs.
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