FINAL PROJECT REPORT ON STUDY ON PRICING POLICIES OF MEDICINES IN PHARMACEUTICAL COMPANIES

A report submitted to Ishan Institute of Management & Technology, Greater Noida as a partial fulfillment of full time Post Graduate Diploma in Business Management. UNDER GUIDENCE OF DR. RAKESH SHARMA

SUBMITTED TO: Dr. D.K. GARG CHAIRMAN IIMT, Greater Noida.

SUBMITTED BY: Ketan Kumar Agrawal ENR No. 14112 Batch: 14th PGDBM (MARKETING)

ISHAN INSTITUTE OF MANAGEMENT &TECHNOLOGY 1A, KNOWLEDGE PARK - I, Greater Noida, Distt. GB Nagar (U.P) Website: www.ishanfamily.com, E-Mail: student@ishanfamily.com

ACKNOWLEDGEMENT
It is the great pleasure to have this opportunity for the preparation of this project. We have highly obliged by Ishan Institute of management & Technology for giving the opportunity of this dissertation. I take the opportunity to express our gratitude to all of them, who in some or the other way helped us to accomplish this project. A large number of individuals have contributed directly or indirectly in this project. I am thankful to all of them for their help and encouragement. I take an opportunity to acknowledge my indebted to Dr. D. K. Garg (Chairman, IIMT), Dean Sir Prof. M.K. Verma, and all the staff of the PGDM department for making available all facilities in fulfilling the requirement for the reasonable work. I wish to acknowledge my thanks to my guide Dr. Rakesh Sharma for their valuable co-operation and efforts for the preparation of this project. Last but not least, We also very much thankful to our parents, brother and sisters for their continuous encouragement and moral support during this project and other people who helped us in preparing this project knowingly and unknowingly.

Date: Place:-

Ketan Kumar Agrawal Enr No.- 14112 Batch: 14th PGDM (Marketing)

DECLARATION

The final project report on Study on pricing policies of medicines in pharmaceutical companies under guidance of Dr. Rakesh Sharma is the original work done by me. This is the property of the Institute and use of this report without prior permission of the institute will be considered illegal and actionable.

Date:

Signature

Name: Ketan Kumar Agrawal ENR No: 14112

Batch: PGDBM (MARKETING)

TABLE OF CONTENTS CHAPTER-1- INTRODUCTION  Objective of study  Scope for pharmaceutical companies in India  Entry modes in Indian market for pharmaceutical companies CHAPTER-2- MAJOR PHARMACEUTICAL COMPANIES IN INDIA  Domestic player

PAGE No. 6-39

40-68

 International player
CHAPTER-3- CATEGORIES OF MEDICINES  General drugs  Life saving drugs  Generic drugs CHAPTER-4- PRICING POLICIES OF MEDICINES  Pricing strategy  Comparative analysis of pricing in different categories of medicine CHAPTER-5- PRICE VARIATION IN POPULAR PHARMACEUTICAL COMPANIESA COMPARATIVE STUDY CHAPTER-6- ROLE OF GOVERNMENT  Rules and regulation implemented by Government  Prohibited activities defined by the court and Government CHAPTER-7- FACTOR AFFECTING PRICING OF MEDICINES  External factors A) Government B) Competitors 211-241 146-165 166-210 104-145 69-103

C) Contagious disease
CHAPTER-8- ETHICS AND PRICING RELATED TO LIFE SAVING DRUGS 242-297

CHAPTER-9 Limitation  Conclusion  Recommendation (if any) BIBLIOGRAPHY ANNEXURE

298-303

304-305 306-309

CHAPTER-1- INTRODUCTION
 Objective of study:
India's pharmaceutical industry has been growing at record levels in recent years but now has unprecedented opportunities to expand in a number of fields. The domestic industry's longestablished position as a world leader in the production of high-quality generic medicines is set to reap significant new benefits as the patents on a number of blockbuster drugs are scheduled to expire over the next few years. In addition, more and more governments worldwide are seeking to curb their soaring prescription drug costs through greater use of generics. These opportunities are presenting themselves not only in India's traditional wealthy client markets such as the U.S. and European Union nations but also in emerging economies with vast populations such as Africa, South America, Asia, and Eastern and Central Europe. In addition, India's long-established position as a preferred manufacturing location for multinational drug manufacturers is quickly spreading into other areas of outsourcing activities. Soaring costs of R&D and administration are persuading drug manufacturers to move more and more of their discovery research and clinical trials activities to the subcontinent or to establish administrative centers there, capitalizing on India's high levels of scientific expertise as well as low wages. Both multinational and local drug manufacturers could eventually benefit from the market potential of India's population of over one billion. A large market will likely open up as the result of a projected boom in health insurance, an area in which the country is currently woefully underdeveloped. New government initiatives seek to enable the majority of the population to access the life-saving drugs they need, while even greater opportunities may be presented by the rise of the new Indian consumer. This group-urban, middle class and wealthy-live fast-paced, Western-style lives and, as a result, they are beginning to suffer from Western, lifestyle-related illnesses, for which they want, and can afford, innovative drug treatments. This untapped domestic market is also highly attractive to the pharmaceutical MNCs, which recently have returned to India in large numbers (many had left when the regime allowing process patents only was introduced in the early 1970s). Now, MNCs and domestic companies are starting to work together, utilizing each other's strengths for their mutual benefit. For the foreign firms, this includes not only the Indian companies' research and manufacturing

capabilities and their much lower operational cost levels, but also comprehensive marketing and distribution networks operating throughout India's vast territories. There are, however, a number of uncertainties, particularly the effects of India's new product patent system, which was introduced on January 1, 2005. Previously, only process patents were granted, a situation that led to India's current role as a world leader in the production of high quality, affordable generics. The new regime may spell the end for the domestic sector's smaller players, while for others it could represent unprecedented opportunities. Nevertheless, the domestic industry is still spending far too little on R&D, which must change quickly if it is even to begin to address these new opportunities and challenges. On the international front, the industry still has some catching up to do in terms of quality assurance while, on the local market, pricing remains a problem. There is a need for regulatory reform in India to encourage leading global players to continue and accelerate the outsourcing of their R&D activities-beginning with discovery research-to the subcontinent. This is particularly urgent in the face of the strong competition from India, where the government has been particularly proactive in encouraging foreign investments in pharmaceuticals and biotechnology. In India, the industry is now awaiting developments following the January draft publication of the government's National Pharmaceuticals Policy for 2006. The document contains proposals for far-reaching initiatives aimed at boosting the domestic industry's global competitiveness, as well as improving the population's access to medicines. Indian government ministers have also promised MNCs concrete action soon on speeding the patent approval process and other crucial issues, such as the definition of patentability and compulsory licensing. Action is required soon, if India wants to be a significant player in the global pharmaceutical arena. Characteristics of the pharmaceutical market The single most important characteristic of the pharmaceutical sector is that it is perhaps the only class of products in which the consumer i.e. the patient has virtually no choice that he/she can meaningfully exercise. The decision on what medicine must be taken is made by the doctor or, in some circumstances, the druggist/pharmacist. Thus, the normal dimensions of consumer choice product, price and quality simply do not exist. The only available choice is whether to take the prescribed medicine or not.

The choice maker in this case, whether the doctor or the pharmacist, has no incentive to be price-sensitive, and indeed may have perverse incentive structures. The doctors decision at the most ethical level would be based on the best treatment of his/her patient, and he/she should neither be expected to know or even care about the cost of treatment, except in cases where the patients economic condition patently rules out a specific course of treatment. Even in such situations, the choice is not likely to be between alternative brands of the same active pharmaceutical ingredient (API), but between alternative APIs within the therapeutic category. It is not reasonable to expect that the doctor will, or even should, be aware of the various brands of the same API available in the market, let alone keep himself/herself updated on the market prices of the huge range of formulations across the various therapeutic categories. In this situation of limited information, it is rational to expect prescriptions to be driven by the promotional efforts of the drug companies, whether ethical or not. Since the intensity of such promotions is resource-driven, they are likely to be positively correlated to the price of the drug or to the resource base of the company.

However, there is evidence that in India there is distinct market segmentation between different brands of the same API, usually on a vocational basis, with prescription behavior in terms of brand selection being driven by the economic status of the patients in the catchment area. Although there is no rigorous research which conclusively proves a positive correlation between average incomes and the price of the most commonly prescribed brand, there is sufficient anecdotal evidence. This makes perfect economic sense since new companies coming into a particular API are likely to position themselves to address a target population which has been excluded by the incumbents. Indeed, there is also evidence that the same company may market more than one brand of the same API at very different price points. This kind of behavior, whether by incumbents or by new players, in essence transfers the bulk of the consumers surplus to the producers or marketers.

This, in itself, is not necessarily a bad thing, since first of all it provides space for new entrants. Second, it ensures that a drug is available to a much wider range of patients than would have been the case if only a single price point were to be used in all markets across the country. The available data suggests that the range of prices within which different brands of the same API are 8

currently marketed can be anywhere between 2:1 and 10:1. However, the downside is that such segmentation can never be perfect, and consequently it may well be the case that a large number of poor patients may be prescribed a drug which is either beyond their economic capacity or therapeutically inferior. It is, therefore, of the highest importance that doctors are provided with information support systems which will enable them to prescribe in the most case-sensitive manner possible. Whether they do or not would of course depend upon their ethical standards, but lack of information should not be the cause. As far as the pharmacist is concerned, who is expected to know the prices of different brands, the incentive structure is actually perverse since it is rational to push brands which have higher margins. Even in the case where retail margins are fixed as percentage of the price, a higher price will be associated with a higher absolute margin. Thus, controls on retail margins are unlikely to serve the purpose of moderating prices, and may in fact push lower priced products out of the market. This is not a phenomenon peculiar to drugs, and a retail margin-driven marketing strategy has been effectively used in a range of products where quality differentiation is an important factor in consumer choice. However, in most cases where consumer sovereignty exists, such strategies tend to be short-lived since there is other equally, if not more, effective ways of affecting consumer behavior. In the case of drugs, such alternatives are not available and, therefore, there is a tendency for such strategies to be perpetuated for extended periods of time. Secondly, the prevailing system for drug certification is completely opaque as far as the therapeutic quality and effectiveness of different brands are concerned, certainly for the patient and also possibly for doctors. The Indian Pharmacopoeia (IP) certification, or its equivalent in other countries, only attests to the quality of the API in most cases, and not to the quality of the formulation, which is what the patient actually purchases. In fact, the significance of the IP mark is lost to all but the most discerning due to the lack of any active consumer awareness programe. However, since different formulations of the same API are perceived to have different levels of effectiveness, perhaps quite rightly since there are usually differences in the excipients or the drug delivery technology, the lack of adequate information and awareness may lead to adverse selection behavior, whereby a higher price is associated with better quality. Active brand promotion by the drug companies contributes to this process in no small measure, and the government has done practically nothing in this regard. The introduction of good manufacturing 9

practices (GMP) through Schedule M is eminently desirable in itself as it addresses the issue of consistency and assurance of quality. However, the level of regulatory enforcement of GMP through intensive GMP audits as well as the level of competence of GMP inspectors varies considerably in the country. Its main focus is also consistency rather than assurance of therapeutic effectiveness. The reduction in prices of drugs observed over time appears to arise partly from price competition between alternative brands of the same API, but also from two other sources. First, competition between alternative APIs within the same therapeutic category, whereby the emergence of newer, more effective alternatives force drug companies to reposition their older products to cater to a lower income category. Second, growth in incomes can possibly change the price elasticity of demand sufficiently to justify addressing a larger market segment by lowering of prices. It should be noted, however, that the latter effect depends critically upon the distribution of income growth between different income segments. In fact, if growth leads to an increase in income disparities, drug prices may go up rather than down. In the Indian context, for instance, historically there has been a reduction in income inequalities, which may have been a major cause of the observed low drug prices in the country. In recent years, however, there is evidence that the trend has changed, and income distributions are worsening. The rapid growth in the size and incomes of the Indian middle-class in recent years permits significant increase in drug prices without running into affordability and market size issues, which existed in the past. The role of the introduction and diffusion of newer and better drugs as perhaps one of the prime mover in lowering drug prices has implications which need to be considered carefully in the Indian context. Until now, in the absence of product patents, new drugs could be introduced at considerably lower prices, which then had strong knock-on effects on the prices of existing APIs in the same therapeutic class. In the future, this process is likely to be much weaker since the newer patented drugs should be expected to follow market skimming strategies, which has been the trend in the rest of the world. Consequently, the prices of existing drugs may not experience the kind of pressure as earlier unless the entry point price is pitched at an appropriate level. Although drug companies are expected to be sensitive to price-income considerations prevailing in the specific market, the likelihood of an affordable entry price will depend largely upon whether the company concerned already has a significant presence in that particular therapeutic category. In all probability, new APIs will be introduced by relatively large, multi-product firms, 10

which will not be inclined to poach on their existing client base and will, therefore, tend to follow a high price-low volume approach, at least initially. This would be particularly true of MNCs, which would have to be sensitive to their international reference price and third country repercussions. On the other hand, the impetus given to domestic research and development (R&D) by the product patent regime may accelerate the pace of discovery and introduction of new molecules by companies which do not need to worry about the international dimensions of their pricing strategy, but this is likely to take time and cannot entirely be relied upon, since the innovator may perceive the external market as being more important to his interest than the domestic. Nevertheless, in this context, the processes for grant of patents and for drug approvals in the country are of the highest importance, and it is necessary that these be streamlined to minimize time delays. In fact, the immediate danger is that most Indian companies may come under severe pressure and their resource availability for R&D may get eroded until such time as they reconfigure their product portfolios. It is; therefore, important to ensure that the pricing and marketing regime consciously takes into account both R&D needs as well as the transitional arrangements that may be necessary. The diffusion of new drugs, or even new formulations, is as important as their introduction, and requires considerable expenditure in educating the medical fraternity about the product characteristics and points of differentiation from existing alternatives. It is quite natural,

therefore, that the promotional expenditures of drug companies are significantly higher than that of most other products, and which serve a very important function. However, there is a very thin line between legitimate promotion, on the one hand, and market manipulation or anti-competitive behavior, on the other. It should be clear, therefore, that in the market for drugs and pharmaceuticals, consumer sovereignty, which is at the heart of all competition-based policy, simply does not exist and the role of price competition is, therefore, very limited indeed. In this respect, if no other, the pharmaceuticals sector is completely different from practically all other commodities, and thus the strategies and policies normally used to promote industrial activity in other sectors simply do not apply in this context. It is little wonder then that almost all countries, at one time or another, have found overt price controls to be the most attractive, and indeed the most effective, method for ensuring the availability of drugs at affordable prices. There is no doubt that a well designed 11

price control mechanism can not only moderate the prices of critical drugs, but actually increase their supply as well. Nevertheless, price controls appear to have fallen out of favor in recent years due to the increasing complexity of the pharmaceuticals sector and the need to provide drug companies the flexibility to meet emerging market challenges. However, it needs to be recognized that intense competition in the Indian Pharma sector, which is basically multi-source in nature, has in the past responded to the general paying capacity of Indian population, with the consequence that the prices of drugs manufactured and marketed in India have remained among the lowest in the world. Although this may change in the coming years, for reasons that have already been discussed in the preceding chapter, the strategy to moderate drug prices in the country would have to take cognizance of this fact. Comparison with the U.S. The Indian biotech sector parallels that of the U.S. in many ways. Both are filled with small startups while the majority of the market is controlled by a few powerful companies. Both are dependent upon government grants and venture capitalists for funding because neither will be commercially viable for years. Pharmaceutical companies in both countries have recognized the potential effect that biotechnology could have on their pipelines and have responded by either investing in existing start-ups or venturing into the field themselves. In both India and the U.S., as well as in much of the globe, biotech is seen as a hot field with a lot of growth potential. Developing the Domestic Indian Pharmaceutical Market Satish Reddy of Dr Reddy's Laboratories applauds the government's draft National Pharmaceutical Policy for 2006's provisions on increasing access to treatments for life threatening Diseases, but points out those Western lifestyle diseases are currently providing the major growth in the domestic market. India currently spends 4.5 to 5.0 percent of its GDP on health care, but public spending accounts for just 0.9 percent, putting the nation among the 20 lowest-spending countries worldwide. Total health expenditures were $29.3 billion in 2004, with around 83 percent accounted for by private providers. The balance of spending is also iniquitous; while the poorest 20 percent of the population has double the mortality rates, malnutrition and fertility of the richest quintile, the latter group receives about three rupees for every one rupee spent on the former. Two-thirds of 12

what the government spends on health care goes to secondary and tertiary care rather than basic services. Ninety-four percent of all private health spending is out of pocket, mostly at the time of the incident, and more than 40 percent of hospitalized people borrow money or sell assets in order to cover their expenses. The remaining 6 percent of spending is provided by insurance -3.7 percent social, 1.6 percent employer-sponsored and 0.7 percent private insurance. Just 15 percent of the population has some form of insurance; an estimated 800,000,000 people in India have none. The health insurance market was opened up to the private sector in 2000 and, since then, growth has been fast, with nearly 10.3 million policies sold in 2003-04 compared to 7.5 million in 2001-02. A 40 percent compound annual growth rate (CAGR) is forecast for the health insurance sector over the coming years, making it a significant driver of the domestic health care market, which analysts at McKinsey believe could be worth $40 billion by 2012. National health policy goals By Achieve zero growth of HIV/AIDS Eliminate kalar-azar Reduce by 50 percent mortality due to TB, malaria and other vector- and water-borne diseases Reduce prevalence of blindness to 0.5 percent 2010 2010 2007 2010

Source: Sustaining Health with Innovative R&D and Health Infrastructure; presentation for the Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH) in New Delhi, India, November 4, 2004 Rising levels of population and incomes, plus the arrival of new products, will continue to grow the domestic market around 10 percent a year, but there will be no dramatic change unless there is help to improve people's access drugs, Pankaj Patel of Zydus Cadila says. In 2003, medicines accounted for just 15 percent of India's total health care spend and patented drugs currently represent fewer than 5 percent of the national market. The prices of essential drugs in India are among the world's lowest, with market growth coming mainly from volume in urban markets. Turning to the domestic market, Ranjit Shahani of Novartis India says the forthcoming privatization of health insurance and India's fast-growing middle class will certainly boost consumption. India's fastest-growing product segments last year were for lifestyle-related diseases and the MNCs can produce innovative, patented treatments for these conditions, as well as develop treatments for developing-world diseases such as malaria, TB and HIV/AIDS. 13

Novartis's own Institute of Tropical Diseases in Singapore, where such research is being done, should have been sited in India, Shahani says, but the timing was wrong-before the Patent Act was passed. He feels that Novartis is unlikely to bring such research to India soon, although in February 2006 the firm opened a global R&D centre for OTC medicines at Thane, on the outskirts of Mumbai. Ranjit Shahani applauds the National Pharmaceuticals Policy's proposal of public/private partnerships (PPPs) to tackle life-threatening diseases such as cancer and HIV/AIDS, but stresses that, in order for them to work, they should be voluntary, and the government should exempt all life-saving drugs from import duties and other taxes such as excise duty and VAT. He is, however, critical about a proposal for mandatory price negotiation of newly patented drugs. He feels this will erode India's credibility in implementing the Patent Act in a fair and transparent manner. To deal with diabetes, medicines are not the only answer; awareness about the need for lifestyle changes needs to be increased, he adds. While industry leaders have long called for the development of PPPs for the provision of health care in India, particularly in rural areas, such initiatives are currently totally unexplored. However, the government's 2006 draft National Pharmaceuticals Policy proposes the introduction of PPPs with drug manufacturers and hospitals as a way of vastly increasing the availability of medicines to treat life-threatening diseases. It notes, for example, that while an average estimate of the value of drugs to treat the country's cancer patients is $1.11 billion, the market is in fact worth only $33.5 million. The big gap indicates the near non-accessibility of the medicines to a vast majority of the affected population, mainly because of the high cost of these medicines, says the Policy, which also calls for tax and excise exemptions for anti-cancer drugs. Another area for which PPPs are proposed is for drugs to treat HIV/AIDS, India's biggest health problem. Official estimates put the number of Indians living with the disease at 5.1 million in 2003, with up to 40 percent being women and children, but others say the total is closer to 8 million.50 Moreover, of the world's 150 million diabetic population, 33 million are in India. Among the Policy's other proposals are a 2 percent tax that would generate an estimated $1.45 billion a year to provide free medicines under health insurance schemes for the poorest Indians and also establish at least 25 pharma parks over the next five years: a prenegotiation pricing mechanism for patented drugs; reduced prices for bulk public drugs purchases; promoting 14

generics by removing them from the price control regime; ceiling prices for 314 drugs to be fixed based on the weighted average price of the top three brands of each product by value at April 1, 2005; rebranding of prescription drugs with clear evidence of market dominance, defined as a market share over 70 percent; halving excise duty on all medicines from 16 percent to 8 percent; a 15 to 35 percent cap to be introduced on the wholesale and retail trade margins of unbranded drugs that are not price controlled: the annual revision of the list of essential drugs; and moves to strengthen the drug regulatory system and computerize the National Pharmaceutical Pricing Authority. The Ministry of Chemicals and Fertilizers is also reported to be estimating production costs for 374 essential drugs, so that their prices can be fixed, and drawing up a list of life-saving drugs that could be brought under price control. Many of the measures intended by the government contradict the industry's wishes for further deregulation of the Indian pharmaceutical market. The challenge remains to provide access to life-threatening diseases and, at the same time, create price incentives for the R&D investments.

 Scope for pharmaceutical companies in India:

The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. 15

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations. Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally selfreliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market. India currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the world market overall. Also, while the Indian sector represents just 8 percent of the global industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by value, and its drug exports have been growing 30 percent annually. The organized sector of India's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent of products on the market, with the top 10 firms representing 30 percent. However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small. Approximately 75 percent of India's demand for medicines is met by local manufacturing. According to the German Chemicals Association, in 2005, India's top 10 pharmaceutical companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma. Indianowned firms currently account for 70 percent of the domestic market, up from less than 20 percent in 1970. In 2005, nine of the top 10 companies in India were domestically owned, compared with just four in 1994. India's potential to further boost its already-leading role in global generics production, as well as an offshore location of choice for multinational drug 16

manufacturers seeking to curb the increasing costs of their manufacturing, R&D and other support services, presents an opportunity worth an estimated $48 billion in 2007. THE GROWTH SCENARIO India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries. Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn. Statistics In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. Most of the players in the market are small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market. Thanks to the 1970 Patent Act, multinationals represent only 35% of the market, down from 70% thirty years ago. Most pharma companies operating in India, even the multinationals, employ Indians almost exclusively from the lowest ranks to high level management. Mirroring the social structure, firms are very hierarchical. Homegrown pharmaceuticals, like many other businesses in India, are often a mix of public and private enterprise. Although many of these companies are publicly owned, leadership passes from father to son and the founding family holds a majority share. In terms of the global market, India currently holds a modest 1-2% share, but it has been growing at approximately 10% per year. India gained its foothold on the global scene with its innovatively-engineered generic drugs and active pharmaceutical ingredients (API), and it is now seeking to become a major player in outsourced clinical research as well as contract manufacturing and research. There are 74 U.S. FDA-approved manufacturing facilities in India, more than in any other country outside the U.S, and in 2005, almost 20% of all Abbreviated New

17

Drug Applications (ANDA) to the FDA are expected to be filed by Indian companies. Growth in other fields notwithstanding, generics are still a large part of the picture. London research company Global Insight estimates that Indias share of the global generics market will have risen from 4% to 33% by 2007. ADVANTAGE INDIA Competent workforce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. Cost-effective chemical synthesis: Its track record of development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. Legal & Financial Framework: India has a 53 year old democracy and hence has a solid legal framework and strong financial markets. There is already an established international industry and business community. Information & Technology: It has a good network of world-class educational institutions and established strengths in Information Technology. Globalization: The country is committed to a free market economy and globalization. Above all, it has a 70 million middle class market, which is continuously growing. Consolidation: For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. Patents: As it expands its core business, the industry is being forced to adapt its business model to recent changes in the operating environment. The first and most significant change was the January 1, 2005 enactment of an amendment to Indias patent law that reinstated product patents for the first time since 1972. The legislation took effect on the deadline set by the WTOs Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on both products and processes for a period of 20 years. Under this new law, India will be forced to recognize not only new patents but also any patents filed after January 1, 1995. Indian companies achieved their status in the domestic market by breaking these product patents, and it is estimated 18

that within the next few years, they will lose $650 million of the local generics market to rightful patent-holders. In the domestic market, this new patent legislation has resulted in fairly clear segmentation. The multinationals narrowed their focus onto high-end patients who make up only 12% of the market, taking advantage of their newly-bestowed patent protection. Meanwhile, Indian firms have chosen to take their existing product portfolios and target semi-urban and rural populations. Product development: Companies are also starting to adapt their product development processes to the new environment. For years, firms have made their ways into the global market by researching generic competitors to patented drugs and following up with litigation to challenge the patent. This approach remains untouched by the new patent regime and looks to increase in the future. However, those that can afford it have set their sights on an even higher goal: new molecule discovery. Although the initial investment is huge, companies are lured by the promise of hefty profit margins and the recognition as a legitimate competitor in the global industry. Local firms have slowly been investing more money into their R&D programs or have formed alliances to tap into these opportunities. Small and medium enterprises: As promising as the future is for a whole, the outlook for small and medium enterprises (SME) is not as bright. The excise structure changed so that companies now have to pay a 16% tax on the maximum retail price (MRP) of their products, as opposed to on the ex-factory price. Consequently, larger companies are cutting back on outsourcing and what business is left is shifting to companies with facilities in the four tax-free states - Himachal Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand. As SMEs wrestled with the tax structure, they were also scrambling to meet the July 1 deadline for compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this should be beneficial to consumers and the industry at large, SMEs have been finding it difficult to find the funds to upgrade their manufacturing plants, resulting in the closure of many facilities. Others invested the money to bring their facilities to compliance, but these operations 19

were located in non-tax-free states, making it difficult to compete in the wake of the new excise tax. Over-the-Counter Medicines The Indian market for over-the-counter medicines (OTCs) is worth about $940 million and is growing 20 percent a year, or double the rate for prescription medicines. The government is keen to widen the availability of OTCs to outlets other than pharmacies, and the Organization of Pharmaceutical Producers of India (OPPI) has called for them to be sold in post offices. Developing an innovative new drug, from discovery to worldwide marketing, now involves investments of around $1 billion, and the global industry's profitability is under constant attack as costs continue to rise and prices come under pressure. Pharmaceutical production costs are almost 50 percent lower in India than in Western nations, while overall R&D costs are about one-eighth and clinical trial expenses around one-tenth of Western levels. India's longestablished manufacturing base also offers a large, well-educated, and English-speaking Workforce, with 700,000 scientists and engineers graduating every year, including 122,000 chemists and chemical engineers, with 1,500 PhDs. The industry provides the highest intellectual capital per dollar worldwide, says OPPI. Indias top 10 branded drugs 2004: Corex (chlorpheniramine maleate, codeine phosphate) Human Mixtard (insulin) Voveran (diclofenac sodium) Becosules (vitamin B complex, vitamin C) Taxim (cefotaxime) Asthalin (salbutamol) Sporidex (cephalexin) Digene (aluminium hydroxide, magnesium hydroxide) Betnesol (betamethasone) Althrocin (erythromycin) India's largest-selling drug products are antibiotics, but the fastest growing are diabetes, cardiovascular Source: OPPI, 2004 and central nervous system treatments.

20

The industry's exports were worth more than $3.75 billion in 2004-05 and they have been growing at a compound annual rate of 22.7 percent over the last few years, according to the government's draft National Pharmaceuticals Policy for 2006, published in January 2006. The Policy estimates that, by the year 2010, the industry has the potential to achieve $22.40 billion in formulations, with bulk drug production going up from $1.79 billion to $5.60 billion: India's rich human capital is believed to be the strongest asset for this knowledge-led industry. Various studies show that the scientific talent pool of 4 million Indians is the second-largest Englishspeaking group worldwide, after the USA. The Indian Pharmaceutical Industry in 2004 Turnover: $6.02 billion, up 6.4 percent year over year Exports: $3.72 billion Imports: $985.3 million Bulk drug production: $2.10 billion, with over 400 bulk drugs produced. Over 60,000 formulations produced, in 60 therapeutic categories Capital investment: up 14.8 percent to $1.16 billion Employment: 5 million direct, 24 million indirect Source: OPPI, 2004 VAT In April 2005, the government introduced value-added tax for the first time and abolished all other taxes derived from sales of goods. So far, 22 states have implemented VAT, which is set at 4 percent for medicines. This led to pharmaceutical wholesalers and retailers cutting their stocks dramatically, which severely affected drug manufacturers' sales for several months. Corex (chlorpheniramine maleate, codeine phosphate) Human Mixtard (insulin) Voveran (diclofenac sodium) Becosules (vitamin B complex, vitamin C) Taxim (cefotaxime) Asthalin (salbutamol) Sporidex (cephalexin) Digene (aluminium hydroxide, magnesium hydroxide) Betnesol (betamethasone) 21

Althrocin (erythromycin) Opportunities: The main opportunities for the Indian pharmaceutical industry are in the areas of: generics (including biotechnology generics) biotechnology outsourcing (including contract manufacturing and R&D outsourcing). Generics Prescription drugs worth $40 billion in the U.S. and $25 billion in Europe are due to lose patent protection by 2007-08. Indian firms will likely take around 30 percent of the increasing global generics market, the Associated Chambers of Commerce and Industry of India (Assocham) forecast. Currently, the Indian industry is estimated to account for 22 percent of the generics world market. Low production costs give India an edge over other generics-producing nations, especially India and Israel, says Assocham's president Mahendra Sanghi. He suggests that it will be easier for Indian firms to win larger generics market shares overseas than at home, particularly in the U.S. and Europe. Indian drug manufacturers currently export their products to more than 65 countries worldwide. Their largest customer is the U.S., the world's biggest pharmaceutical market. The use of generic drugs is growing quickly in the U.S. due to cost pressure by payers and the introduction on January 1 this year of the Medicare Part D prescription benefit, giving seniors and people with disabilities prescription drug coverage for the first time. With 74 facilities, India has the largest number of U.S. Food and Drug Administration (FDA)- approved drug manufacturing facilities outside the U.S. Indian firms now account for 35 percent of Drug Master File applications and one in four of all U.S. Abbreviated New Drug Application (ANDA) filings submitted to the FDA. Analysts at Credit Lyonnais Securities Asia say they expect the number of generic drug launches by Indian companies in the U.S. to increase from 93 in 2003 to over 250 by 2008. In January 2006, the Indian exporters' representative body, the Pharma Export Promotion Council (Pharmexcil) said it planned to raise a number of concerns with the U.S. government over what it sees as barriers to trade with them. One is a U.S. regulation that disqualifies Indian firms from bidding for government contracts, and another is the requirement Indian drug manufacturers submit separate applications for each U.S. state (there is no U.S.-wide regulatory requirement), even when the firms have FDA-approved products and facilities. 22

Table-1 ANDA Filings for Indian Mid-sized Companies Company Glenmark 12 Zydus Cadila -Orchid 5 Wockhardt 2 Aurobindo Source: Cygnus Consulting & Research. Industry Insights-Pharmaceuticals, November 2004 2006 However, India's traditional lucrative export markets may be becoming a little less secure, for a number of reasons. For example, generic prices have not been rising in the U.S.; the seniors' advocacy group AARP (formerly the American Association of Retired Persons) says that, of the 75 generic drugs widely used by older people that it monitors on a quarterly basis, none had had a change in manufacturer list price during third quarter 2005 and only three had had increases in list price at any time during January to September 2005.18 Also, new competitive threats have arrived, such as authorized generics produced by major drug producers, new mid-sized players, Indian and Eastern Europe manufacturers, and fully integrated generics firms, which are less reliant on Indian back-end businesses. The U.S. continues to be an attractive market for Indian firms, despite the challenges of price erosion and the launch of authorized generics by innovator companies, says Ranjit Shahani, vice chairman and managing director, Novartis India Ltd, and President of the Organization of Pharmaceutical Producers of India. He does not see any increase in nontariff barriers there, and in fact feels that trade between India and the U.S. is set to rev up following President George W. Bush's visit to India on March 1, 2006, with both countries going all out to liberalize market access. The major concern of the U.S. FDA appears to be the entry of counterfeit drugs, he says, but he does not believe this to be an obstacle for reputable Indian manufacturers. Moreover, while the World Trade Organization (WTO) Doha Trade-Related Aspects of Intellectual Property rights (TRIPs) national emergency/compulsory license agreement presents an exporting 22 3 7 12-13 18 18-30 13 6-18 FY04 -FY05 7 FY06Glenmark 14

23

opportunity for Indian firms, Shahani stresses that the firms must have anti-diversion measures in place in order to protect their reputation. The European generics market, he says, pointing to Dr Reddy's recent acquisition of Betapharm of Germany for $570 million, holds more promise. Indian companies have acquired over $1 billion worth of pharmaceutical companies overseas in the past year and a half and should increasingly look more aggressively at countries like Brazil, Russia and the Commonwealth of Independent States, and Japan, where the markets are mature and remunerative, despite some regulatory hurdles, he notes. Also, he says, Indian firms should move up the value chain to produce innovative super generics as the once-a-day Ciprofloxacin product developed by Ranbaxy and licensed to Bayer, move up from producing generic generics to branded generics. Relationship between pharmaceuticals and biotechnology Unlike in other countries, the divide between biotechnology and pharmaceuticals remains fairly defined in India. Biotech there still plays the role of pharmas little sister, but many outsiders have high expectations for the future. India accounted for 2% of the $41 billion global biotech market and in 2003 was ranked 3rd in the Asia-Pacific region and 11th in the world in number of biotechs. In 2004-5, the Indian biotech industry saw its revenues grow 37% to $1.1 billion. The Indian biotech market is dominated by biopharmaceuticals; 75% of 2004-5 revenues came from biopharmaceuticals, which saw 30% growth last year. Of the revenues from biopharmaceuticals, vaccines led the way, comprising 47% of sales. Biologics and large-molecule drugs tend to be more expensive than small-molecule drugs, and India hopes to sweep the market in biogenerics and contract manufacturing as drugs go off patent and Indian companies upgrade their manufacturing capabilities. Biotechnology statistics Most companies in the biotech sector are extremely small, with only two firms breaking 100 million dollars in revenues. At last count there were 265 firms registered in India, over 75% of which were incorporated in the last five years. The newness of the companies explains the industrys high consolidation in both physical and financial terms. Almost 50% of all biotechs are in or around Bangalore, and the top ten companies capture 47% of the market. The top five

24

companies were homegrown; Indian firms account for 62% of the biopharma sector and 52% of the industry as a whole. The Association of Biotechnology-Led Enterprises (ABLE) is aiming to grow the industry to $5 billion in revenues generated by 1 million employees by 2009, and data from the Confederation of Indian Industry (CII) seem to suggest that it is possible. Biotechnology Generics Firms based in India and India could be among the first to bring biogenerics (generic versions of biological products) to the regulated markets and faster than expected. The first biogeneric product was approved by the European Medicines Agency (EMEA) which refers to these products as bio similar, in April 2006. IMS estimates that biotechnology products accounted for 10 percent of global pharmaceutical sales in 2004, or about $55 billion in worldwide sales for the year.19 By 2003, the U.S. accounted for 62 percent of the global biotech drugs market, while in that year Japan's share of the total had fallen to 7 percent from 28 percent in 1994.20 Patents on the first generation of blockbuster biopharmaceuticals are beginning to expire, and the high cost of these products means the generic versions will find large markets among hard-pressed governments and other payers. Sales of biogenerics are flourishing in the unregulated markets. The only regulated-market approvals so far are in Australia, granted in October 2004 for the recombinant DNA growth hormone Omni trope, manufactured by Sandoz, as well as in the EU, granted in April 2006. No U.S. approvals are likely until 2009, says market research company Data monitor. The company has identified six key product classes-insulin, human growth factor, epoetin, colony stimulating factors (CSFs), interferon alpha and interferon beta-as being at risk from biogeneric versions of these products and estimates that global sales of the latter should total over $2 billion by 2010. An early beneficiary when the regulated markets finally establish frameworks for biogenerics is likely to be Wockhardt. This pharmaceutical and biotechnology company was one of the first Indian drug manufacturers to enter the European market, achieving this through a series of acquisitions; it now has three subsidiaries in Europe, acquiring first The Wallis Laboratory in 1997 and CP Pharmaceuticals in 2003, both in the UK, then Esparma of Germany in 2004. Biopharmaceuticals are central to Workhardt's growth strategy, and the firm expects this area of its business to take off in 2006. Reporting at the end of December 2005, it says it has more than 55 registrations for biopharmaceuticals pending, and 26 approvals in 18

25

countries. According to analysts at SSKI India, Wockhardt is one of the few players in India, and even globally, to have the requisite capabilities in biogenerics production. Export Import Bank Chairman T.C. Venkat Subramanian believes the patent expires on 11 major drugs this year could help bring a biotechnology revolution to India. He forecasts that biotechnology could potentially generate revenues of $5 billion and create one million jobs by 2010, through products and services. Biotechnology In 2003-04, biopharmaceuticals accounted for 60 percent of India's total biotechnology market, which was worth an estimated $709 million-up 39 percent over the previous period. Investment in the sector was up 26 percent to $137 million-and exports accounted for 56 percent of industry revenues. The domestic biopharmaceuticals sector grew 38.5 percent and had the largest local market share, at 76 percent, followed by bioagriculture at 8.4 percent, bioservices at 7.7 percent, and industrial products at 5.5 percent and bio-informatics at 2.5 percent. With 200 biotech companies and total revenues of $500 million annually, India's biotechnology sector is still in the relatively early stages of development. However, it is growing fast, with an initial emphasis on vaccines and bioservices. The industry is situated mainly in Karnataka, although there are operations in Andra Pradesh, Hyderabad, Kerala, Maharashtra and West Bengal. The top 10 players in terms of revenues in 2004 were Biocon, Serum Institute of India, Panacea Biotec, Nicholas Piramal, Novo Nordisk, Venkateshwara Hatcheries, Wockhardt, GSK, Bharat Serums & Vaccines, and Eli Lilly & Co, reports Burrill & Co, the U.S.-based life sciences merchant bank. As is generally the case worldwide, most biotech companies in India have developed along the contract or collaborative research models. Discussing the development of the domestic biotechnology market, Ranjit Shahani of Novartis India points out that, globally, most small and medium-sized biotech enterprises are acquired by MNCs as the quickest route into this market, and India is no exception. Government incentives are important, particularly in terms of regulatory reforms, tax incentives for R&D, the development of biotechnology parks and Special Economic Zones, etc. While India's 2005 Biotech Policy should spur investment, U.S.-style industry-academia partnerships and cluster models are worth emulating. To this end, he says, India's February 28, 2006, National Budget

26

was a disappointment for the pharmaceutical industry, as it offers very little in the way of incentives for R&D, which is becoming increasingly important in the post-IPR regime. In a report published last September, the Organization for Economic Cooperation and Development (OECD) pointed to a current lack of focus on biotechnology in India, due in part to a lack of consensus on a definition, and also that the large number of government agencies that deal with biotechnology have led to a duplication of research funding and poor coordination. This needs to be addressed urgently, said the report, which also called for initiatives to attract India's best scientists back to the country, and more support for small and medium-sized enterprises to enable them to face competition from the MNCs. Observers also warn that India's nascent biotechnology sector could face particularly strong competition from India, the only developing country to participate in the international Human Genome Project. Also, massive levels of state investment mean Indian firms are now producing hepatitis vaccines, recombinant insulin, interferon and other generic therapeutic biologics. As is the case throughout the industry, India is regarded as having the edge over India in terms of qualified, English-speaking employees, intellectual property rights, and judicial and quality standards. However, if India does emerge as the dominant biotechnology player, this could have very serious implications for India. Challenges The biotech sector faces some major challenges in its quest for growth. Chief among them is a lack of funding, particularly for firms that are just starting out. The most likely sources of funds are government grants and venture capital, which is a relatively young industry in India. Government grants are difficult to secure, and due to the expensive and uncertain nature of biotech research, venture capitalists are reluctant to invest in firms that have not yet developed a commercially viable product. As previously mentioned, India hopes to solve its funding problem by attracting overseas investors and partners. Before these potential saviors will invest significant sums in the industry, however, there needs to be better scientific and financial accountability. India is slowly working towards these goals, but it will be a while before they are up to the standards of Western investors. Indias biotech firms share another problem with their pharmaceutical cousins: a lack of qualified employees. Biotech has the additional disadvantage of competing against IT for 27

ambitious, science-minded students but not being able to guarantee the same compensation. An aspiring researcher in India needs 710 years of education covering a range of specialties in order to qualify to work in biotech. Even if a student does choose to go on the biotech path, the ineffectual curriculum at many universities makes it doubtful as to whether he will be qualified to work in the field once finished. One estimate shows that 10% of upper-echelon biotech recruits have come from foreign countries. While this is not a problem, per se, it drives up cost in a country whose competitive advantage is based on cheap, high-quality labor. Far from ending with scientists, there is also a shortage of people with a knowledge of biotechnology in related fields: doctors, lawyers, programmers, marketing personnel and others. While little has been done about the latter half of the employee crunch, the government has addressed the problem of educated but unqualified candidates in its Draft National Biotech Development Strategy. This plan included a proposal to create a National Task Force that would work with the biotech industry to revise the curriculum for undergraduate and graduate study in life sciences and biotechnology. The governments strategy also stated intentions to increase the number of PhD Fellowships awarded by the Department of Biotechnology to 200 per year. These human resources will be further leveraged with a Bio-Edu-Grid that will knit together the resources of the academic and scientific industrial communities, much as they are in the U.S. Outsourcing Contract Manufacturing The global pharmaceutical market was estimated to represent a $48 billion opportunity for India by 2007, in terms of: manufacturing outsourcing-supply of active pharmaceutical ingredients (APIs) and intermediates development outsourcing-conducting preclinical and clinical trials customized chemistry services-contract research services for compounds pre-launch. Worldwide revenues for pharmaceutical industry contract manufacturing and research services (CRAMS) totaled $100 billion in 2004 and will grow at an average annual rate of 10.8 percent to reach $168 billion by 2009, say analysts at Frost & Sullivan. Within this total, the global market for contract manufacturing of prescription drugs is estimated to increase from a value of $26.2

28

billion to $43.9 billion, although the over-the-counter medicines and nutritional products sector will show the fastest growth. The Asian region has recently been challenging North America and Europe's traditional domination of the global pharmaceutical contract manufacturing market: India and India could potentially account for 35 percent to 40 percent of the outsourced market share for active pharmaceutical ingredients, finished dosage formulations and intermediates.

Indian Company

International Partner

Outsourced Products

Cadila Healthcare

Altana

Two intermediates for Altana's under-patent molecule

Protonix(pantoprazole) Hikal Limited Degussa Hikal has signed an agreement with Degussa for supplying pharmaceutical intermediates and active pharmaceutical ingredients

Nicholas Piramal

AMO

Neutralizing tablets and sterile FFS packs (product names not disclosed)

Nicholas Piramal

Allergan

APIs

for

Levobunolol Brimonidine

(Betagen) and

(Alphagan and Alphagan - D) Nicholas Piramal Pfizer 7-year agreement relating to R&D services under which Nicholas Piramalwill provide process development and scale up services to Pfizer's animal health division from the latter's facilities in India 29

Dishman Pharma

Solvay

6 projects; the main one being for starting material and advanced intermediate for Tevetan (eprosartan maleate)

Dishman Pharma

AstraZeneca

Intermediate for Nexium (esomeprazole)

Dishman Pharma

Merck

Intermediate for Losartan (to be supplied to its contract manufacturer in Japan)

Shasun Chemicals

GlaxoSmithKline

Ranitidine API

Shasun Chemicals

Eli Lilly

Nizatidine, metohexital and cycloserine APIs

Source: Citigroup Analyst Report, October 10, 2005. Indian successes in this area have already created some significant international developments. For example, last year, Jubilant Organosys, which has the largest, CRAMS business in India, acquired Target Research Associates plus 64 percent of Trinity Laboratories and its wholly owned subsidiary Trigen Labs, all U.S.-based firms. Another large Indian firm, Bilcare Ltd, acquired its first manufacturing facility in the U.S. last year, with the purchase of Philadelphia-based preclinical Inc. Contract Research Ajay Piramal, chairman and managing director of Nicholas Piramal, expects to see significant growth in India's custom manufacturing business, as a result of high and rising costs to innovative manufacturers in Europe and the U.S., and also forecasts that there will be a growing number of collaborations between Indian and foreign firms in the domestic market, especially involving the biotechnology sector, in a wide variety of areas such as collaborative R&D (including drug discovery and clinical trials), co-marketing and manufacturing. India and India's 30

drug outsourcing discovery markets combined are currently worth around $7.3 billion and, driven by government initiatives to diversify the drug discovery portfolio and develop infrastructure, are set to reach $19.8 billion in 2011, say analysts at Frost & Sullivan. In September 2004, a global innovation survey by the Economist Intelligence Unit identified India as an R&D hotspot, defined as a place where (1) companies are able to tap into existing scientific and technical expertise networks, (2) there are good links to academic research facilities, (3) the environment supports innovation and (4) it is easy to commercialize. Costs of pharmaceutical innovation in India are estimated as low as one-seventh of their levels in Europe, and the country's clinical research industry is currently worth $100 million and growing around 40 to 50 percent annually. Examples of R&D Inward Investments AstraZeneca is conducting research into tuberculosis (TB) at the AstraZeneca Research Foundation India in Bangalore. India's estimated 8.5 million TB patients mean clinical trials can be conducted easily and economically. Although the revenue potential for anti-TB drugs is limited as the disease mainly affects poorer nations, the reduced research costs of developing the drug in India and the goodwill associated with helping to eradicate a major disease in developing countries still present a good business opportunity for AstraZeneca. GSK and Ranbaxy have set up an early-stage partnership in drug research, under which GSK will provide the Indian firm with leads, Ranbaxy will conduct lead optimization and animal trials, and GSK will take the drug through human trials. GSK will have exclusive rights to sell any resulting product in developed-world markets, and the two firms will co-promote it in India. Pfizer is exploring the establishment of an R&D facility and setting up an Academy for Clinical Research in Mumbai. Costs of clinical trials in India are around one-tenth of their levels in the U.S., and it is estimated that they could be worth $300 million to India by 2010. Major drug producers that are already conducting trials in India include Pfizer, estimated to have some 20 ongoing clinical trials there; GSK, with seven trials; Eli Lilly, with 17 trials; plus AstraZeneca and Novartis. As well as Chiltern, leading contract research organizations (CROs) such as Quintiles, SFBC International and ICON Clinical Research have extensive operations in India. 31

Challenges All of these changes are ultimately good for the Indian pharmaceutical industry, which suffered in the past from inadequate regulation and large quantities of spurious drugs. They force the industry to reach a level necessary for global competitiveness. However, they have also exposed some of the inadequacies in the industry today. Its main weakness is an underdeveloped new molecule discovery program. Even after the increased investment, market leaders such as Ranbaxy and Dr. Reddys Laboratories spent only 5-10% of their revenues on R&D, lagging behind Western pharmaceuticals like Pfizer, whose research budget last year was greater than the combined revenues of the entire Indian pharmaceutical industry. This disparity is too great to be explained by cost differentials, and it comes when advances in genomics have made research equipment more expensive than ever. The drug discovery process is further hindered by a dearth of qualified molecular biologists. Due to the disconnect between curriculum and industry, pharmas in India also lack the academic collaboration that is crucial to drug development in the West. R&D Both the Indian central and state governments have recognized R&D as an important driver in the growth of their pharma businesses and conferred tax deductions for expenses related to research and development. They have granted other concessions as well, such as reduced interest rates for export financing and a cut in the number of drugs under price control. Government support is not the only thing in Indian pharmas favor, though; companies also have access to a highly-developed IT industry that can partner with them in new molecule discovery. Labor force Indias greatest strengths lie in its people. India also boasts a cheap, well-educated, Englishspeaking [only a percentage, see labor force that is the base of its competitive advantage. Although molecular biologists are in short supply, there are a number of talented chemists who are equally as important in the discovery process. In addition, there has been a reverse braindrain effect in which scientists are returning from abroad to accept positions at lower salaries at Indian companies. Once there, these foreign-trained scientists can transfer the benefits of their 32

knowledge and experience to all of those who work with them. Indias wealth of people extends benefits to another part of the drug commercialization process as well. With one of the largest and most genetically diverse populations in any single country, India can recruit for clinical trials more quickly and perform them more cheaply than countries in the West. Indian firms have just recently started to leverage. Government support The Indian government has been very supportive. It established the Department of Biotechnology in 1986 under the Ministry of Science and Technology. Since then, there have been a number of dispensations offered by both the central government and various states to encourage the growth of the industry. Indias science minister launched a program that provides tax incentives and grants for biotech start-ups and firms seeking to expand and establishes the Biotechnology Parks Society of India to support ten biotech parks by 2010. Previously limited to rodents, animal testing was expanded to include large animals as part of the ministers initiative. States have started to vie with one another for biotech business, and they are offering such goodies as exemption from VAT and other fees, financial assistance with patents and subsidies on everything ranging from investment to land to utilities. Foreign investment The government has also taken steps to encourage foreign investment in its biotech sector. An initiative passed earlier this year allowed 100% foreign direct investment without compulsory licensing from the government1. In April, a delegation headed by the Kapil Sibal, the minister of science and technology and ocean development, visited five cities in the U.S. to encourage investment in India, with special emphasis on biotech. Just two months later, Sibal returned to the U.S. to unveil Indias biotech growth strategy at the BIO2005 conference in Philadelphia. Relationship with IT Many analysts have observed that the hype around the biotech sector mirrors that of the IT sector. Biotech colleges have been popping up around the country eager to service the pools of students that want to take advantage of a growing industry. The International Finance Commission, the private investment arm of the World Bank, called India the centerpiece of IFCs global biotech strategy. Of the $110 million invested in 14 biotech projects investment 33

globally, the IFC has given $43 million to 4 projects in India. According to Dr. Manju Sharma, former director of the Department of Biotechnology, the biotech industry could become the single largest sector for employment of skilled human resource in the years to come. British Prime Minister Tony Blair was similarly impressed, citing the success of Indias biotech industry as the reason for his own countrys own biotech opportunities. Malaysia is also looking to India as an example for growing its own biotech industry.

 Entry modes for pharmaceutical companies in Indian market

Among all the major industries in India, textiles and pharmaceuticals are surely the leaders. The Indian government has listed the pharmaceutical industry as an intellectual industry and investment in research and development has been enhanced. In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn. More than 85% of the formulations produced in the country are sold in the domestic market. Over 60% of India's bulk drug production is exported and Import of bulk drugs have slowed down in the recent years. The Indian pharmaceutical industry is also getting increasingly U.S. FDA compliant to harness the growth opportunities in areas of contract manufacturing and research. Indian companies such as Ranbaxy, Sun Pharma, and Dr. Reddy's are increasingly focusing on tapping the U.S. generic market. Recently, Ranbaxy Laboratories Ltd has received a tentative approval from the US Food and Drug Administration to manufacture and market Lamivudine tablets (150 mg), a medicine used in treating HIV infection. This tentative approval has been granted under the US President's Emergency Plan for AIDS Relief Initiative (PEPFAR). The pharmaceutical products account for 8 percent of the global pharmaceutical sales and India is the fifth largest producer of bulk medicines in the world. In 2001, the value of India's exports of medicines approached US$1.7 billion. Indian Pharmaceutical Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

The Industry possesses quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and 34

spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. There are 20,000 laboratories in India's pharmaceutical industry and the scale of the pharmaceutical market amounts to Euro 5.3 billion. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. Around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injections is met by home production. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units).

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally selfreliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market. Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). The Indian government had recently passed Patents (Amendment) Bill on Tuesday, March 22, 2005 amid many protests from the Left parties. The passing of the bill means that India has kept its commitment to the WTO to have a product patent regime in place. The fear that the new bill would lead to an increase in the cost of life saving drugs, is taken care of by the compulsory licensing under the bill. This will enable Indian companies to manufacture medicines for a fixed tenure in case of any epidemic, thus controlling the price factor. The government has made crucial changes to the original draft to ensure big pharma MNCs can't dictate medicine prices arbitrarily. The most important change in the Act is a tighter definition of

35

what can be patented. Now only a product, including drugs, which makes a technical advance or has economic significance, can get a patent. Some of the changes that bill proposes include giving manufacturing rights to Indian companies, which currently produce drugs patented abroad, after paying a 'reasonable' royalty for them. The bill also restricts a pharmaceutical company from renewing its patent every time it expires, citing a new use for the same drug. It gives companies more grounds and time to challenge a patent claim even before it's granted. The government will also have the right to issue a compulsory license to an Indian company to produce a patented product if the patent holder is charging abnormally high rates or in case of a national emergency. Expenditure on R & D by the Indian pharmaceutical companies is around 1.9% of the industry's turnover. This is very low when compared to the investment on R & D by foreign research-based pharma companies. They spend 10 - 16% of the turnover on R & D. However, now that India has entered into the Patent protection area, many companies are spending relatively more on R & D. The Pharmaceutical and Biotechnology Industry is eligible for weight deduction for R&D expense up to 150%. There are three main entry modes available for a firm to choose 1. exporting, 2. contractual (e.g. licensing) 3. investment (e.g. establishing an overseas operation) These decision processes for international pharmaceutical firms' (IPFs) ventures located in India in the period from 1980 to 1998. By the end of 1998, there were over 1,500 foreign invested pharmaceutical companies (FIPCs) distributed in almost every part of India. IPFs who entered into India during the period from 1980 to 1998 basically chose either a joint venture (JV) or a sole venture (SV) entry mode, and over 84% of IPFs chose a JV rather than a SV, even though foreign investors have been allowed to set up 100% foreign owned SV operations since the passage of Law of the People's Republic of India is the legal regime of the People's Republic of India, with the separate legal traditions and systems of Mainland India. On Enterprises Operated Exclusively with Foreign Capital" by the Indian central government in April 1986. "For most manufacturers that want to invest abroad,

36

the first-best entry strategy remains the SV, and JV would be a second best One that is next to the best. SV is viewed superior because it allows investing firms to maximize the returns on Ownershipspecific advantages Property rights or intangible assets, including patents, trademarks, organizational and marketing expertise, production technology, and management and general organizational abilities, that form the basis for a company's advantage over other firms and firms have full control over the Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets. This study attempts to answer why the majority of IPFs selected a JV rather than SV as their entry mode for entering into the Indian market. The research focused on the comparison between SV and JV as alternative modes of entry and examined the determinant factors that affected IPFs' choice between the two entry modes. Since India opened its door to foreign investors in 1978, the year of 1992 was another turning point in India's political and economic reforms. The dramatic changes in Indian policies and economic development activities may result significant impacts on the investment environment, in turn impacting on international firms' entry mode decisions into India. The findings of the study are both timely, useful, and contribute to a better understanding of foreign direct investment entry mode theories and practices in general.

JV entry mode would be preferred when cultural distance is large between the host and the home countries. The probability of forming JVs is positively related with the level of host country welfare a classic, serious western film about a pioneer family protected by a mysterious stranger. the level of host government restrictions and level of competition in the host country. Firms would be more likely to establish JVs when the firm enters into a research and development intensive industry. Bell's (1996) study suggested that firms with host country experience have a positive effect on the likelihood of JVs. The level of competition and the size of the foreign subsidiary turned out to have a negative effect on the likelihood of JVs. A host country policy did not have an effect on the choice between a JV and a SV in the case of Dutch firms' direct investment in over 40 countries or regions worldwide. Firms' entry mode decisions may be heavily influenced by a host

37

country's investment policies. Joint ventures, for instance, are popular in India because there are direct or indirect government rules requiring them in some circumstances. American sculptor best remembered for his vigorous portrait busts of Woodrow Wilson, Franklin D. Roosevelt, and Albert Einstein, among others. , 1987; Eiteman, 1990). Tse, Pan and Au (1997) suggested that longer diplomatic ties between India and investing firm's home country assume more equity-based operations including JV and SV rather than non-equity-based entry modes like exporting or licensing agreements and firms choosing equity-based entry modes are more likely to work with Indian municipal governments. Root (1994), and Mockler and Dologite (1997) have elaborated on the factors affecting the decision choice of entry mode. They suggested that an initial concept of an entry mode can be determined by studying host country environmental, market, production, parent firm's home country, parent firm's product and resource commitment factors. Entry mode choice between either the JV or SV mode option only. The main reason for this is because JV and SV were the only two entry modes adopted by IPFs in the population from which the sample was drawn. Theories based upon the findings of previous studies are inappropriate for this study for several reasons. The most important of which are: (1) most previous studies on entry mode choice decision cover a wide range of mode options including exporting, licensing, equity-based investment (e.g. joint venture and sole venture), etc., whereas the present study focuses on SV and JV entry modes only. (2) As stated earlier, most studies were based on US and European. India is a complex society, by virtue of its deeply Inserted into multi-layered cultural heritage, its long history, its diverse social and political development, and its vast geographical scale which encompasses both national common characteristics and strong local identities, traditions and distinctive dialects, and so on. This complexity is one of the critical challenges for most foreign investors when they choose an entry mode for entering into the market. To give an explanation that serves to clarify all the factors that affect the choice of entry mode decision. In this study, the relevance of Kumar and Subramaniam's (1997) contingency approach is acknowledged. As a result, this approach will be incorporated into Root (1994) and Mockler & Dologite's (1997) conventional framework, which serves as a basis for the conceptual framework of this study. Root's (1994) foreign market entry mode framework combined with Mockler & Dologite's (1997) model of decision making on the selection of international market entry mode 38

does not narrow itself into any specific entry mode approach, but emphasizes both a firm's internal and external factors, which include host country (India) environmental, market and production factors, parent firm's home country/region, and parent firm's product and resource factors. It recognizes the complexity of the international business environment with multinational cross-cultural management considerations. As a consequence, a more complete framework that incorporates India environmental factors, India market factors, India production factors, a firm's product factors, a firm's resource and commitment factors, and a firm's decision task related factors will be used as the conceptual framework for this study on international pharmaceutical firms' FDI entry strategies into India. Most independent variables were identified and selected based on Root's (1994), Mockler & Dologite's (1997), Kumar & Subramaniam's (1997) frameworks, and other previous empirical studies and the researcher's observations based on his extensive experience and knowledge in the industry in India. India's environmental factors would have significant impacts on a firm's FDI entry mode decision. India's environmental factors were measured by a number of sub-groups of factors including political and economic conditions, social-cultural differences, technology conditions, geographic distance between parent firms' home country/region and India, and business operation location in India. To deal with, the status of political relationships between India and parent firm's home country/region, and length of diplomatic ties between India and parent firm's home country/region. Economic condition variables include role of the Indian government in the economy, size of the economy, size of population, growth rate of population, growth rate of gross national product, growth rate of per capita income - the total national income divided by the number of people in the nation income - the financial gain (earned or unearned) accruing over a given period of time , distribution of personal income, changes in employment, relative importance of the pharmaceutical industry in the economy, and the status of economic cooperation between India and parent firm's country/region. Social-cultural variables consist of employees' loyalty to company, hardworking characteristics of employees, social society structure, Indian people's way of life, and way of doing business in India. Technology condition variables concern about availability of infrastructure, quality of infrastructure, availability of qualified scientific and technical personnel, and research and development intensity.

39

CHAPTER-2 Major pharmaceutical companies in India

 Domestic player AARTI DRUGS LTD.
Part of the USD 265 million Aarti Group of Industries, Aarti Drugs Ltd (ADL) was established way back in in 1984. Since its inception, the Company has established a strong presence in the Anti-diarrhea, Antiinflammatory therapeutic groups. With its manufacturing facilities at Tarapur and Sarigam, the Company manufactures Vitamins, Anti-arthritis, Anti-fungal, Antibiotics, ACE inhibitors, besides its range in , anti-diabetic, anti-cholinergic, sedatives and anti-depressant drugs. Over the years, the Company has been able to carve a niche for itself and is looking forward to expand the volumes. With the government initiative to encourage private health insurance schemes, consumer spending on medicines is expected to increase, which will spur growth in the generic sector in the domestic market. The manufacturing-units of ADL are GMP certified. The Company is also in the process of acquiring an ISO 9002 compliance for all its units and one of the units has already been approved. The Company aims at becoming the first choice of this expanding market through better products, ensuring quality and timely delivery CONTACT US: Registered Office Plot No. N - 198, M.I.D.C., Tarapur, Village - Pamtembhi, Taluka - Palghar, Dist. Thane - 401 506. Maharashtra. (INDIA)

40

ADVIK LABORATORIES LTD.

Advik Laboratories Limited is the brainchild of Mr. V. K. Jain. Mr. Jain is a qualified production chemist with over 20 years experience in pharmaceutical products. Advik Laboratories Limited was promoted in the 1994 by Mr. Jain along with a group of dedicated professionals & commenced commercial production in 1997. In his leadership, the company has witnessed a fast growth rate, without compromise to quality. Advik Laboratories, a WHO GMP certified company has been set up from the ground level with the avowed objective of achieving USFDA standards of quality. The company has a technical collaboration with PFC Pharma Focus Ltd. Switzerland. Advik Laboratories is enjoying leadership status at various fronts such as high product quality, a growing range of products, state of the art manufacturing process, competitive pricing and customer service. In addition the company exports its wide range of drugs to a number of countries worldwide. The product range includes ethical, generic drugs and over the counter drugs (OTC) in various formulations. With over 60,000 sq. ft. of built up area, ample developed open space around it, a state of the art manufacturing facility, Advik Laboratories is all geared up for meeting the challenges of tomorrow Corporate Office Address : 203 & 106-07, Allied House, 1, LSC, Madangir

New Delhi-110 062, India Telephone E-mail : +91 11 41649171, 41649173, 41649174 : mail@advikindia.com

41

EMCURE
Established in 1983, Emcure was born out of the vision to create a healthcare company that would address the vast healthcare needs. Our commitment and drive have propelled our growth from a single manufacturing facility during the genesis, to a range of world class manufacturing facilities spread across API, formulations and biotechnology. What began with a single manufacturing facility at Pune, has today rapidly grown into a set of world class manufacturing facilities and one of the top Indian pharmaceutical corporate in the domestic industry. Headquartered in Pune, India, Emcure is today a vertically integrated pharmaceutical company with infrastructure, skills and resources that are at par with the best in the world. Our strengths span research to the manufacturing of APIs, Formulations and Biotechnology. The Company has carved a niche for itself as a preferred outsourcing partner for some of the largest MNCs both in India and global markets. Emcure also researches, manufactures and markets formulations under its own brands in the domestic market and exports its own formulations to Asia, Africa, CIS, Europe, Latin America and the Middle East. In 2006, it received US FDA approval for its solid dosages facility at Hinjwadi, Pune. The plant manufactures solid oral formulations for the international regulated markets. With this approval, the facility has accreditation from US FDA, UK MHRA, WHO Geneva and MCC South Africa. Today, the Emcure brand stands for quality, competitiveness and transparency. These values have stood us in good stead to carve our image in the industry and build long-term sustainable relationships with our partners. Emcure is also very active in dealing with HIV/AIDS concern through its "Let's fight AIDS together" initiative and supplies Antiretroviral drugs to Africa, Asia Pacific and CIS. We took another significant step towards fulfilling our corporate social responsibility by starting Taal, a pharmacy for HIV/AIDS. REGISTERED OFFICE Emcure House, T 184, M.I.D.C., Bhosari, Pune 411 026. Tele: 020-30610000 42

BAL PHARMA
To improve the quality of life for patients by providing them with products which are Safe, Effective, High Quality and Affordable price. Bal Pharma is a fully integrated and leading Indian Pharmaceutical Company specializing in Prescription drugs, Generic, OTC products, Intravenous Infusion and Bulk Actives with almost 19 years of experience behind it. Bal Pharmas APIs and Formulations are produced at world class manufacturing facilities. APIs are exported to Europe, Latin America, Africa, Middle East and Asian markets. Formulation products are exported to Semi-Regulated and Non Regulated markets and s strong contender for Tender business in various markets especially Asian markets. With the new facility being set up in Uttaranchal, as per ICH and PIC guidelines to meet the requirements of USFDA and various European MOH, the company plans to enter in to Regulated Markets by 2010 and already in talks for Contract Manufacturing for clients in Regulated Markets. Successful Operations in Domestic and International markets, backed by its strength in Research and strong Infrastructure frame work have accelerated Bal Pharmas growth from oblivience to reach a turn over of USD 25 million today. Buoyed by the past, the group has put in motion a fast track growth target and has set its sigh on sales in excess of USD 150 million by 2012. Corporate Address: Bal Pharma Limited 5th Floor, Laxmi Narayan Complex, 10/1, Palace Road, Bangalore - 560 052. Bangalore -India. Website- http://www.balpharma.com/

TORRENT GUJRAT BIOTECH LTD.

Incorporated in 1991, Torrent Gujarat Biotech Limited (TGBL) has become the largest newgeneration producer of Penicillin-G, meeting about 18% of the country's Penicillin needs. It is one of the few companies in the world with an integrated technology to manufacture PenicillinG. TGBL offers the entire range of -lactum products viz. Amoxycillin Trihydrate, Ampicillin 43

Trihydrate and Cloxacillin Sodium to a large number of customers in India, Europe, Latin America and Asia. Over the years TGBL has been accorded WHO GMP certificates and Certificate of Suitability from European directorate for Quality of Medicines (EDQM) for Amoxycillin Trihydrate. TGBL is also a recognized Export House. TGBL looks forward to adding more products over the coming years and consolidating its position in India. Torrent Gujarat Biotech Limited is the largest new-generation producer of Penicillin-G, meeting about 18% of the country's Penicillin needs Corporate Office: Torrent House, Off Ashram Road, Ahmedabad 380 009 Gujarat, India Email: ho@biotech-torrent.com Works: Village Masar, Vadodara Jambusar Highway No. 6, Taluka - Padra, District- Vadodara 391 421 Gujarat, India Telephones - +91-(0)2662-237321 - 6, 237301 3 Email: works@biotech-torrent.com

SUN PHARMA
Sun Pharma began in 1983 with just 5 products to treat psychiatry ailments. Sales were initially limited to 2 states - West Bengal and Bihar. Sales were rolled out nationally in 1985. Products that are used in cardiology were introduced in 1987, and Monotrate, one of the first products launched at that time has since become one of our largest selling products. Important products in Cardiology were then added; several of these were introduced for the first time in India. Realizing the fact that research is a critical growth driver, we established our research center SPARC in 1993 and this created a base of strong product and process development skills. Sun Pharma was listed on the main stock exchanges in India in 1994; and the Rs. 55 crore issue of a Rs. 10 face value equity share at a premium of Rs. 140/- was oversubscribed 55 times. The minimum 25% that was required under the regulations then for listing was offered to the public, 44

the owner family continues to hold a majority stake in Sun Pharma. We used this money to build a greenfield site for API manufacture, as well as for acquisitions. For the acquisitions, typically companies or assets that could be turned around and brought on track were identified. Our first API manufacturing plant was built in Panoli in 1995, for access to high quality actives ahead of competition, and to tap the vast international opportunity for specialty APIs. Another API plant, our Ahmednagar plant, was acquired from the multinational Knoll Pharmaceuticals in 1996, and upgraded for approvals from regulated markets, with substantial capacity addition over the years. This was the first of several sensibly priced acquisitions, each of which would bring important parts to the long-term strategy. By 1997, our headquarters were shifted to Mumbai, the commercial capital of the country. We began on the first of our international acquisitions with an initial $7.5 million investment in Caraco Pharm Labs, Detroit. By 2000, we had completed 8 acquisitions, each such move adding new therapy areas or offering an entry to important international markets. A new research center was set up in Mumbai for generic product development for the US market. In India, as new therapy areas were entered into post acquisition; customer attention, product selection and focused marketing helped us gain a foothold in areas like orthopedics, gynecology, oncology, etc. From a ranking at 38th in 1994, by 2000 we were ranked 5th with a leadership in 8 of the 11 therapy areas that we are present in. The year 2000 was the year of turnaround at the US subsidiary, Caraco, as it began to receive approvals after successful inspection by the USFDA. In December 2004, a research center spread over 16 acres was inaugurated by the President of India, with special lab space for drug discovery and innovation. The post 2005 years have witnessed important acquisitions to strengthen our US business- the purchase of manufacturing assets for controlled substances in Cranbury,NJ; that of a site to make creams and lotions in Bryan, that of Alkaloid, a Hungary based API and dosage form manufacturer , and recently, Chattem Ltd., a Tennessee-based controlled substance API manufacturer. The tally at the end of 2008:  17 manufacturing plants in 3 continents  8000 employees  2 World class research centers 45

 Brand selling in markets worldwide  A growing presence in the US generic market  Increasing research investments  60% of sales from international markets CONTACT US: Corporate Office Sun Pharma Acme Plaza, Andheri - Kurla Rd, Andheri (E), Mumbai - 400 059 Sun Pharma Advanced Research Centre (SPARC) Akota Road, Akota, Baroda - 390 020

SURYA PHARMACEUTICAL LTD

Surya Pharmaceutical Limited was established in 1992, with a vision towards Empowering Life and well being, and has rapidly emerged as the premier integrated pharmaceuticals company in India. Its business focuses on the manufacture and marketing of pharmaceuticals products and services to clients across the globe, and its product portfolio includes a range of Active Pharmaceutical Ingredients (API's), Finished Drug Formulations (FDF's), Fine Intermediates, Herbal Products, and Mint/Menthol Derivatives. The company is one of the largest exporters of Mint/Menthol derivatives and manages state of the art research & development centers that offer the highest quality of Contract Research and Development (CRAMS) services. Over the years Surya Pharmaceutical has established a global footprint in fulfilling the requirements of clients across 90 countries across the globe. At Surya Pharmaceutical, we believe that if we take care of the present, we inspire a better future. It is this vision towards a disease free world, a sustainable natural environment and a healthy global population, that supports our commitment to ensure the highest quality of products and services towards offering unparallel care to our own clients, and to the larger community.

46

Surya Pharmaceutical is the flagship company of Surya which has business interests in Education, Healthcare, Communications, and Infrastructure. The company is an ISO 9001-2000 WHO GMP certified organization with nine state of the art manufacturing units positioned in multiple locations across the northern region in India. With a focus on innovation and quality, the company has demonstrated unparallel growth to a current turnover of more than Rs. 7 billion and is listed on both the Bombay Stock Exchange and the National Stock Exchange. The company currently supports a personnel base of more than 2000 employees in locations across India and has imminent plans to expand its network of offices to Shanghai, Singapore, Europe and the United States of America (USA) in the near future to further strengthen its position as one of the leading exporters of pharmaceutical products.

PFIZER INDIA
The pursuit of innovation is basic to Pfizer's culture. It shapes our strategy, defines our purpose, and governs every facet of our operations -- from research and development (R&D) that leads to pharmaceutical inventions, to the transfer of knowledge to patients and providers, to the way we respond to the changing marketplace. Pfizer scientists have produced innovative breakthroughs in a wide range of research areas, including depression, erectile dysfunction, high cholesterol, HIV infection, hypertension, bacterial infections and systemic fungal infections. And today we're taking on some of the world's most difficult diseases, including cancer, arthritis, and osteoporosis. Pfizer in India Pfizer Limited (India) has a turnover of US$ 159.52 million (November 2009) One of the highest spenders in pharmaceutical R&D globally, Pfizer has made clinical research investments of US$ 6.05 million (November 2009) in India The company was awarded the FICCI SEDF (Socio Economic Development Foundation) Certificate of Commendation for its social responsibility efforts Pfizer has won several awards including that for the multinational pharmaceutical company of the year and the most respected MNC About our products Six Pfizer brands feature among the Top 100 pharmaceutical brands in India

47

Two of Pfizer India's brands -- Corex (Cough Formulation) and Becosules (Multivitamin) -continue to rank among the Top 10 pharmaceutical drug brands Pfizer has won the Golden Peacock Innovative Product for Magnex (Sulperazon) Becosules has won the Most Trusted Brand Award

Going beyond medicines In India, Pfizer instituted the first ever Disease Management Programme -- Healthy Heart in Cardio Vascular Disease (Hypertension, Chronic Stable Angina and Dyslipidemia), in partnership with Apollo Hospital, Hyderabad and Apollo Hospital, Chennai We offer Patient Assistance Programmes for Glaucoma, Breast Cancer and Neuropathic Pain We partner with physician associations to develop recommendations / guidelines of managing specific diseases Location & People Headquartered in Mumbai Over 2,300 colleagues State-of-the-art manufacturing facility at Thane, Maharashtra Academic Contribution Formed the Academy of Clinical Excellence (ACE) in collaboration with Bombay College of Pharmacy to provide professional training to investigators and other clinical research personnel We have also partnered with other pharmaceutical companies, contract research organizations and investigators to establish the Indian Society for Clinical Research (ISCR), a professional society aimed at raising the standards of clinical research Pfizer Education and Research League (PEARL) is a new initiative in which Pfizer seeks to partner with institutes to improve existing clinical research and continuing medical educational capabilities Head Office Pfizer Limited Pfizer Centre, Patel Estate, S V Road, Jogeshwari (West), Mumbai - 400 102, India. 48

Tel : +91 - 22 - 6693 2000 Fax : +91 - 22 - 6693 2444 Thane Plant Pfizer Limited Thane Belapur Road, K.U. Bazar Post, Turbhe, Navi Mumbai - 400 075, India. Tel : +91 - 22 - 67916161 / 27681036 / 27681421 Fax : +91 - 22 67916160 Delhi Pfizer Limited Pfizer Centre, DLF Building 9B, 4th Floor, Tower B, DLF Cybercity, Phase III, Gurgaon - 122 002, Haryana. Tel : 0124 - 302 3900 Fax : 0124 - 302 3901

UNICHEM LABORTRIES
Promoted by a pioneer of the Indian pharmaceuticals business, Mr. Amrut Mody, Unichem Laboratories has grown to become one of Indias most respected pharmaceutical companies. It is committed to delivering better health through superior products. By combining strategic research and in-depth industry knowledge, Unichem aims to transform itself into a global pharmaceutical drug company with an increasing focus on cutting-edge research and developed markets. With formulations forming the core of Unichems business, the company also manufactures active pharmaceutical ingredients (APIs or bulk actives). In addition, it has several pharma products that address relevant and growing therapeutic areas like gastroenterology, cardiology, diabetology, psychiatry, neurology, anti-bacterial, anti-infective and pain management among others. 49

Backed by a highly capable and motivated team of nearly 3000 people, Unichem is headquartered in Mumbai, India, and has six drug manufacturing locations across the country. In keeping with its commitment to benchmark quality standards, several of the companys facilities have been accredited by reputed international organizations such as the US FDA, ISO, UK MHRA (earlier MCA), MCC (South Africa), WHO (Geneva) and TGA (Australia). The company has taken several important strides in the critical area of pharmaceuticals Research & Development (R&D). It has expanded its R&D facility in Mumbai to spearhead research in Novel Drug Delivery Systems (NDDS) and chemically synthesize non-infringing routes for the manufacture of medical products directed at regulated markets. In its effort to drive innovation, Unichem has established a proprietary Pharma Technology Development Centre in Goa to focus on the development of generic formulations comprising Immediate Release as well as NDDS and ANDAs exclusively for the US market. The facility has also been equipped to handle the development of formulation for New Chemical Entities (NCEs). Further, the company has also established Biotech facility at Goa to invent, design, develop and commercialize biotech and dissimilar products. With a robust business model, seamless processes and innovative research, Unichem is positioned to take on challenges of the future while remaining firmly rooted in a solid foundation of values. Registered Office & Corporate Office Unichem Laboratories Ltd. Unichem Bhavan Prabhat Estate, Off S.V.Road, Jogeshwari (West), Mumbai - 400 102 Tel: + 91 022 66 888 333 Fax: + 91 022 2678 4391 / 2678 8665 Plant Locations Unichem Laboratories Ltd. 99, MIDC Area, Roha, Dist Raigad, Maharashtra - 402 116 50

 International player
AVENTIS PHARMA LIMITED In May 1956, Aventis Pharma Limited was established as Hoechst Fedco Pharma Private Ltd. With 50.1% holding of paid-up share capital, Sanofi-aventis is the major shareholder of Aventis Pharma Ltd.

Aventis is currently present in over 100 countries with its global headquarters in Paris, France. The total employee strength worldwide is about 100,000, including 11000 scientists. Product portfolio of Aventis includes medicines in the area of cardiovascular disease, thrombosis, diabetes, bone disease, epilepsy and cancer. It has 20 research centers in three continents, with R&D budget of about 4 billion euros. Aventis Pharma Ltd. India has 2 state-of-art manufacturing facilities at Ankleshwar (Gujarat) and at Verna (Goa). These sites have been identified as the global sourcing units.

The company is working to bring innovative products so as to make the necessary treatments more widely available. In India it has employee strength of about 1840.

Corporate Address: Aventis House 54/A, Sir Mathuradas Vasanji Road, Andheri (E), Mumbai - 400 093 India. Ph: 91-22-28278000 Fax: 91-22-28370939

51

Annual Results of Aventis : Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 8,581.00 295 8,876.00 6,340.00 2,536.00 0 2,536.00 172 913 1,451.00 (12 Months) 7,864.00 218 8,082.00 5,719.00 2,363.00 1 2,362.00 168 777 1,485.00 % Changes 9.12 35.32 9.82 10.86 7.32 -100 7.37 2.38 17.5 -2.29

Source: economictimes.indiatimes.com

BIOCON
The company was founded on 29th November 1978. It has emerged from an enzyme manufacturing company to a fully integrated biopharmaceutical enterprise, which is focused on healthcare. It possesses a rare combination of proprietary fermentation technology and research skills. In 1979 it became the first company to manufacture and export enzymes to USA and Europe. In 1996, the company's proprietary fermentation plant had commercial success that led to 3-fold expansion. In 1998, the company became an independent entity when Unilever agreed to sell its shareholding in Biocon to the promoter. In the year 2000, Clinigene, which is a subsidiary of Biocon, was set up to pursue clinical researches and developments. And in the year 2003, Biocon became the first company to develop human insulin on a Pichia expression system. 52

In 2004 it introduced new generation bio-insulin-INSUGEN. In 2006, Biocon launched India's first cancer drug- BIOMAb EGFR. Biocon together with Syngene and Clinigene has employee strength of about 2000, consisting of chemists, computer scientists, medical practitioners, engineers, chemists, market analysts and biologists.

Contact Us: Biocon: Biopharmaceuticals & Enzyme Headquarters: Bangalore 20th KM Hosur Road Electronics City Bangalore 560 100 India. Ph: 91 80 2808 2808 e-mail: contact.us@biocon.com

Annual Results of Biocon: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 6,463.62 157.99 6,621.61 4,535.67 2,085.94 19.93 2,066.01 180.92 141.22 1,743.88 (12 Months) 5,018.82 15.64 5,034.46 3,405.45 1,629.01 15.68 1,613.33 138.53 228.08 1,246.73 % Changes 28.79 910.28 31.53 33.19 28.05 27.14 28.06 30.6 -38.08 39.88

Source: economictimes.indiatimes.com 53

CADILA
Cadila is a well known research-oriented, technology-driven pharmaceutical company focused on the research areas of biotechnology, formulations and Active Pharmaceutical Ingredients (APIs), etc. It has marketing offices in more than 4 countries and has significant presence in over 45 countries. It is into the operations of soft gel, telecommunications, hospital disposables, instrumentations and diagnostics, etc. Cadila is among the leading pharma companies with over 400 multidimensional formulations of major therapeutics groups in human and over 15 in animal health. Cadila has a strong formulation development base and is the first manufacturer of Immuvac, a unique immune modulator. In Asia, it is the unrivaled manufacturer of 'SULFOLANE' (Tetramethylene Sulfone). Its Bulk Actives (APIs) manufacturing facility is approved under ISO 9002 and it offers facilities for contract research. It has achieved leadership in Indian Generic market as well as in Distribution management.

The R&D facility of Cadila is spread in an area of 45,000 Sq.ft. and has human resources of 150 scientists. It has collaboration with more than 30 leading R&D centers in the country. It has introduced RABEPRAZOLE and FOSINOPRIL formulations in India. Its strong marketing & sales team consists of 2, 37318 pharmacies 1900 wholesalers, 25 C&S agents, and 1,300 field employees

Cadila has the following brands: Envas Aciloc Lmx, Symbiotik, Clax Rabeloc, RD, Zaso, Mixulin, Montelast and Nodon Corporate & Registered Office: CADILA CORPORATE CAMPUS Sarkhej-Dholka Road, Bhat, Ahmedabad-382 210, INDIA.

54

Phone: +91-2718-225001 (15 Lines) Fax: +91-2718-225039 e-mail: website@cadilapharma.co.in Annual Results of Cadila: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 11,253.00 785 12,038.00 9,643.00 2,395.00 202 2,193.00 565 190 1,314.00 (12 Months) 11,160.00 925 12,085.00 9,598.00 2,487.00 232 2,255.00 531 222 1,411.00 % Changes 0.83 -15.14 -0.39 0.47 -3.7 -12.93 -2.75 6.4 -14.41 -6.87

Source: economictimes.indiatimes.com

CIPLA LIMITED
In 1935, Cipla was founded by Dr.Khwaja Abdul Hamied as a small Indian enterprise that was committed to nation's quest for self-sufficiency. During the Second World War Cipla proved itself by meeting the challenge of alarming shortage of essential medicines. Cipla pioneered the bulk drug manufacturing market by the 1960s. Cipla has committed production plants for Oncology products, Hormones, Inhalers, Carbapenems, and cephlosporins, among other products. Its API manufacturing plants have the capability of complex multi-stage syntheses and can manufacture over 120 APIs from high potency actives in grams to those made in several tonnes. Cipla has a wide range of products and dosages forms, everything from nasal sprays, metered-

55

dose inhalers, medical devices, trans-dermal spray patches, thermo labile foams, pre-filled syringes, and lyophilized injections. Cipla has 7000 employees, who are known for their continuous quest for quality. For them quality is obsession. Cipla had opened the door of hope to several AIDS patients by becoming the first company in the world to offer the Triple-drug AIDS Cocktail at a very low price. According to an estimate, one out of three HIV-AIDS patients in Africa takes Cipla drug for the treatment.

In partnership with the medical fraternity, Cipla has spread awareness and empowered asthma patients to lead a normal life. It has the widest range of asthma medication and better delivery systems. Cipla is also dedicated to clinical and allied research in the field of Chronic Respiratory Diseases.

Recently, the company has entered into agreement with a global non-profit organization for developing and manufacturing Drugs for Neglected diseases Initiative (DNDi) for a new antimalarial combination drug.

Corporate Address: Cipla Ltd. Mumbai Central Mumbai 400 008 India. Ph: 022-23082891,022-23095521 Annual Results of Cipla: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure 31,142.00 1,216.30 32,358.30 24,343.90 (12 Months) 24,008.70 819.8 24,828.50 19,055.60 % Changes 29.71 48.37 30.33 27.75

56

Operating Profit Interest Gross Profit Depreciation Tax Reported PAT

8,014.40 114.2 7,900.20 801.8 1,022.00 6,076.40

5,772.90 76.3 5,696.60 550.5 1,050.00 4,096.10

38.83 49.67 38.68 45.65 -2.67 48.35

Source: economictimes.indiatimes.com

DR. REDDY'S LABORATORIES

Dr. Reddy's Laboratories was established in 1984 by Dr. Anji Reddy. It is one of the top pharmaceutical companies in the country. It got listed on the New York Stock Exchange on 11th April 2001; it is the first Asia-Pacific company (outside Japan) to be listed there. The company has developed from a bulk drug (API) manufacture to a vertically integrated global pharmaceutical company. The company manufactures and markets its products like finished dosages, API (Bulk Actives), and biologics in more than 100 countries. The company has quality, innovation, continuous learning, teamwork, and social responsibility embedded in its core values. Recently the company has received Global HR Excellence Award for Innovative HR Practices at the Asia-Pacific HRM Congress 2007. It has also received Best Recruitment and Staffing in class Award for the Best Overall Recruitment and Staffing Organization and Employer Branding Award 2007 for excellence in Human Resources for talent management.

Dr. Reddy's Lab is into various social initiatives for the prosperity of the society. The various organizations that the company supports are Dr. Reddy's Foundation, NAANDI Foundation and Centre for Social Initiative & Management (CSIM). Corporate Address: Discovery Research Dr. Reddy's Laboratories Ltd. Bollaram Road, Miyapur

57

Hyderabad 500 049, India Tel +91 40 2304 5439 Fax +91 40 2304 5438

Annual Result of Dr. Reddy's lab: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 16,250.80 713.4 16,964.20 15,496.40 1,467.80 99.6 1,368.20 924.6 -211 654.6 (12 Months) 17,402.00 757.4 18,159.40 14,394.00 3,765.40 14.8 3,750.60 717.2 201.5 2,831.90 % Changes -6.62 -5.81 -6.58 7.66 -61.02 572.97 -63.52 28.92 -204.71 -76.88

Source: economictimes.indiatimes.com

GLAXO SMITHKLINE
Glaxo SmithKline is the world's leading research based pharmaceuticals company. It was formed on December 27, 2000 as a result of merger of two leading international organizations viz., GlaxoWellcome and Smithkline Beecham. The company is working hard to improve the quality of the human life by enabling people to do more, feel better and live longer. It believes that there is no achievement without integrity. The company has its headquarters in UK with operations based in USA, and has 85 manufacturing sites in over 37 countries. The company has combined sales of over 20 billion

58

pounds, market share of about 7%, and intellectual property of more than 100,000 employees worldwide. Out of these 100,000 employees, approximately 35% are in manufacturing units, 16% are in R&D, and 40% are in sales and marketing. The manufacturing plants of the company in India are located in Nabha, Rajahmundry and Sonepat, and have employee strength of about 2700. GSK Consumer healthcare Ltd. and GSK Pharmaceuticals Ltd. are the two businesses of GSK in India with headquarters at Gurgaon, Haryana. Its products include: 1. GI & Analgesics: Crocin, and Eno 2. Rubefacients: Iodex 3. Nutritional: Boost, Horlicks, Viva, and Maltova Contact Address: GlaxoSmithKline Consumer Healthcare, DLF Phase I, Gurgaon 122002 Haryana, India. Ph: 0124-2540700/ 5057700 e-mail: contact.4.qsk@qsk.com Annual Results of Glaxo: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation 16,775.70 958.4 17,734.10 12,016.10 5,718.00 0 5,718.00 158.5 (12 Months) 15,758.90 656.4 16,415.30 11,478.90 4,936.40 0 4,936.40 157.3 15.83 0.76 % Changes 6.45 46.01 8.03 4.68 15.83

59

Tax Reported PAT

1,942.30 5,455.10

1,716.30 5,020.80

13.17 8.65

Source: economictimes.indiatimes.com

J B CHEMICALS &PHARMACEUTICAL Ltd.

J B Chemicals & Pharmaceuticals Ltd. (JBCPL) is a global pharmaceutical manufacturing company that supplies wide range of innovative specialty medicines to national as well as international market. It's committed to develop quality products at affordable prices.

Its product range comprises of pharmaceutical specialty in various herbal remedies, dosage forms, generic drugs, diagnostics, active pharmaceutical ingredients (API). Recently, it has entered therapeutic segment, such as respiratory, CNS, and anti-diabetics. The company receives around 52% of its revenue from its exports to USA, Europe, Latin America, Africa, and SE Asia. The top brands of the company are: a) Doktor Mom (Brand in cough and cold segment) b) Metrogyl ( Brand in Metronidazole molecule) c) Rantac (Brand in gastro segment) d) Nicardia ( Brand in cardiovascular therapeutic segment) e) OF ( Brand in Ofloxacin molecule) The company has taken various assignments as a part of its corporate responsibility. In a rehabilitation construction project for the earthquake-affected victims, it had built 185 dwelling units at the cost of Rs.1.25 crores. Mrs. Jayaben Mody hospital and Sanskar Bharati Trust School in Bharuch are examples of corporate social responsibility of the company.

Corporate Address: Neelam Centre B Wing, 4th floor, Hind Cycle Road Worli Mumbai 400030, India

60

Annual Results of JBCPL: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 3,716.38 130.27 3,846.65 3,036.61 810.04 34.81 775.23 104.89 78.5 591.84 (12 Months) 3,145.54 120.11 3,265.65 2,497.29 768.36 21.94 746.42 94.49 141.52 510.4 % Changes 18.15 8.46 17.79 21.6 5.43 58.7 3.86 11 -44.53 15.96

Source: economictimes.indiatimes.com

NICHOLAS PIRAMAL INDIA Ltd.

Nicholas Piramal India Ltd. (NPIL) is among the largest pharmaceuticals companies with an inimitable mix of inorganic and organic growth. It has supreme record of managing JV's/ Alliances/ partnership. NPIL had a net sales turnover of US $313 million in 2005-06.

NPIL was established in 1988, when Piramal group acquired a small formulation company named Nicholas Laboratories from Sara Lee. It has joint ventures and alliances with some of the finest global names in the industry, including Allergan Inc., USA; UK; F. Hoffmann-La Roche Ltd., Switzerland; Gilead Sciences, USA; Cheissi, Italy; and IVAX Corp; UK. The company products have a wide range and include nine key therapeutic areas such as Neuropsychiatry, Cardio-vascular, Diabetes Management, Respiratory, Anti-infective, Oncology,

61

Gastro-intestinal, NSAIDS and Dermatology. Nicholas is the leader in the cardio-vascular segment and has a strong market share in AntiDiabetics Segment, Antibiotics & Respiratory Segments, Neuro-psychiatry and Pain Management. Phensedyl, Ismo, Supradyn, Gardenal, Stemetil, Haemaccel and Rejoint are the biggest brands of the company and they bring about 67% of the Revenue. Other secondary brands such as Paraxin, Flagyl and Omnatax contribute to around 24% of the Revenues. In India it has around 2700 robust field personnel. NPIL has recently acquired Pfizer's Morepeth's manufacturing unit in UK and become one of the leading custom manufacturing organizations across the world. Corporate Address: Nicholas Piramal India Limited Nicholas Piramal Tower Ganpatrao Kadam Marg Lower Parel, Mumbai 400 013 Tel: 91-22-30466666

Annual results of Nicholas Piramal: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit 12,582.70 178 12,760.70 10,844.80 1,915.90 175 1,740.90 (12 Months) 14,545.40 44.5 14,589.90 11,984.40 2,605.50 164.2 2,441.30 62 % Changes -13.49 300 -12.54 -9.51 -26.47 6.58 -28.69

Depreciation Tax Reported PAT

474.2 367.2 1,695.70

396.1 -51.8 1,880.10

19.72 -808.88 -9.81

*Source: economictimes.indiatimes.com

RANBAXY LABORTORIES Ltd.

Ranbaxy Laboratories Ltd. is a research based International pharmaceutical company with its headquarters in India. It manufactures a range of high quality, affordable generic drugs. The company has manufacturing facilities in around 9 countries. It has strong presence in around 49 countries, products available in around 125 countries globally. It has dedicated workforce of about 10,500 employees representing 51 different countries. Ranbaxy was established in 1961 and went public in the year 1973. It has global sales of US $1340 million for the year ended on 31st December, 2006. It has the largest market in USA (sales appx. US $380 million); then come Europe and BRICS (Brazil, Russia, India, China, South Africa). Ranbaxy has a strong R&D competence that provides a sustainable competitive advantage to the company. It has scholarly pool of about 1100 scientists, engaged in out-of-box researches. Ranbaxy spends over 7% of its sales on R&D. Licensing of once-a-day Ciprofloxacin formulation, using NDDS (Novel Drug Delivery System) on a worldwide basis, was the first international success for the company. Ranbaxy is focused on Discovery and development of drugs on anti-infective, urology, respiratory/ inflammatory and metabolic diseases. Top ten molecules of the company are: 1. Co-amoxiclav 2. Amoxicillin 3. Ciprofloxacin 4. Cephalexin 5. Simvastatin 6. Isotretinoin 7. Cefaclor 63

8. Clarithromycin 9. Cefpodoxime Proxetil 10. Ketorolac Tromethamine

Corporate office: Plot 90, Sector 32, Gurgaon -122001 (Haryana), INDIA Ph: +91-124-4135000 Fax: +91-124-4135001 Web site: www.ranbaxy.com Annual Results of Ranbaxy Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 39,735.60 795.7 40,531.30 34,141.10 6,390.20 581 5,809.20 1,117.60 601.1 3,864.50 (12 Months) 34,901.30 2,096.60 36,997.90 34,243.70 2,754.20 264.1 2,490.10 1,013.30 -223.4 2,237.00 % Changes 13.85 -62.05 9.55 -0.3 132.02 119.99 133.29 10.29 -369.07 72.75

Source: economictimes.indiatimes.com

64

SERUM INSTITUTE OF INDIA LTD.

Serum Institute of India Ltd. was established in 1966 with the objective of producing lifesaving immuno-biologicals, which were imported at higher prices as they were in shortage those days. It's an organization that concentrates on vaccines and other biological. Serum Institute of India, producer of measles and DTP group of vaccines, meets 100% requirement for measles vaccine of Govt. of India. It is the leading exporter of vaccines and immuno-biologicals. It has gained global recognition by exporting its products to more than 145 countries. Its products have been supplied to various global vaccination programmes conducted by International Health Agencies like WHO, UNICEF & PAHO. The company has received several acknowledgements and awards from International as well as local agencies for high quality products. It has 64 FDA approved Production experts and 45 FDA approved Testing experts. The experts are regularly sent for training to various countries like USA, UK, France, and Netherlands so as to integrate latest advances in production and quality testing standards. In 1977, Serum Institute of India Research Foundation was founded with the objective of research in the fields of medical sciences and in natural and applied sciences. In July 1993, Serum International Ltd. was created to fulfill the need of the pharmaceuticals like Calcium Supplements, Haematinics, Anti-diarrhoeals, Hormones, Digestives, etc. And recently Serum Institute of India has set up a sector specific SEZ, Serum Bio Pharma Park, for biotechnology and pharmaceuticals products. With the high quality vaccine production facilities, the company is working to bring down the prices of newer vaccines such as Rabies vaccine, Combination vaccine, Hepatitis-B vaccine, etc.

65

Category of the product

Contact Details Serum Institute of India Ltd., 212/2, Hadapsar, Off Soli Poonawala Road, Pune-411028, India. Ph: +91-20-26993900+91-20-26993921 E-mail: contact@seruminstitute.com

66

WOCKHARDT LIMITED
Wockhardt is one of the top global pharmaceutical and biotechnology companies. It has market capitalization of about US $1 billion and annual turnover of about US $400 million. Europe and US pharma markets account for about 50% of Wockhardt's revenue.

Wockhardt has six dedicated manufacturing plants built in accordance with international standards. It has a competent, multi-disciplinary research team of over 450 skilled scientists. It owns 6 breakthrough biotechnology products and more than 250 patent filings. It has a strong presence in international pharmaceutical market. Its product portfolio comprises of biopharmaceuticals, formulations, vaccines, nutrition products, and active pharmaceuticals ingredients (API). Its products include: Biopharmaceuticals Topical (Creams and Ointments) Sterile (Injectables) Orals (Tablets and Liquids) Wockhardt has headquarters in India and three subsidiaries in UK, US and Ireland. It possesses 11 manufacturing plants in 3 countries viz. India, Ireland and UK. The four successful acquisitions done by Wockhardt in the European market have strengthened the global position of the company. Corporate Address: Wockhardt Limited Wockhardt towers, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051, Maharashtra, India. Tel.: + 91 - 22 - 26534444 Fax: + 91 - 22 - 26534242 Email: contactus@wockhardt.com

67

Annual Results of Wockhardt: Annual Unaudited Results (Rs. in Millions) (12 Months) Sales Turnover Other Income Total Income Total Expenditure Operating Profit Interest Gross Profit Depreciation Tax Reported PAT 11,345.00 219 11,564.00 8,397.00 3,167.00 -311 3,478.00 348 391 2,135.00 (12 Months) 9,631.00 210 9,841.00 6,925.00 2,916.00 20 2,896.00 242 269 2,385.00 % Changes 17.8 4.29 17.51 21.26 8.61 -1655 20.1 43.8 45.35 -10.48

Source: economictimes.indiatimes.com

68

CHAPTER-3-CATEGORIES OF MEDICINES
 General drugs A drug, broadly speaking, is any substance that, when absorbed into the body of a living organism, alters normal bodily function. There is no single, precise definition, as there are different meanings in drug control law, government regulations, medicine, and colloquial usage In pharmacology, a drug is "a chemical substance used in the treatment, cure, prevention, or diagnosis of disease or used to otherwise enhance physical or mental well-being." Drugs may be prescribed for a limited duration, or on a regular basis for chronic disorders. Drugs can be classified in various ways, such as by chemical properties, mode or route of administration, biological system affected, or therapeutic effects. An elaborate and widely used classification system is the Anatomical Therapeutic Chemical Classification System (ATC system). The World Health Organization keeps a list of essential medicines. A sampling of classes of drugs includes: 1. Antipyretics: reducing fever (pyrexia/pyresis) 2. Analgesics: reducing pain (painkillers) 3. Ant malarial drugs: treating malaria 4. Antibiotics: inhibiting germ growth 5. Antiseptics: prevention of germ growth near burns, cuts and wounds Types of drugs For the gastrointestinal tract (digestive system)
y

Upper digestive tract: antacids, reflux suppressants, antiflatulents, antidopaminergics, proton pump inhibitors (PPIs), H2-receptor antagonistss, cytoprotectants, prostaglandin analogues

Lower digestive tract: laxatives, antispasmodics, antidiarrhoeals, bile acid sequestrants, opioid 69

For the cardiovascular system

y

General:

-receptor blockers ("beta blockers"), calcium channel blockers, diuretics,

cardiac glycosides, antiarrhythmics, nitrate, antianginals, vasoconstrictors, vasodilators, peripheral activators

y

Affecting blood pressure (antihypertensive drugs): ACE inhibitors, angiotensin receptor blockers, blockers, calcium channel blockers

Coagulation: anticoagulants, heparin, antiplatelet drugs, fibrinolytics, anti-hemophilic factors, haemostatic drugs

Atherosclerosis/cholesterol inhibitors: hypolipidaemic agents, statins.

For the central nervous system Drugs affecting the central nervous system include: hypnotics, anaesthetics, antipsychotics, antidepressants (including tricyclic antidepressants, monoamine oxidase inhibitors, lithium salts, and selective serotonin reuptake inhibitors (SSRIs)), antiemetics, anticonvulsants/antiepileptics, anxiolytics, barbiturates, movement disorder (e.g., Parkinson's disease) drugs, stimulants (including amphetamines), benzodiazepines, cyclopyrrolones, dopamine antagonists,

antihistamines, cholinergics, anticholinergics, emetics, cannabinoids, and 5-HT (serotonin) antagonists. For pain & consciousness (analgesic drugs) The main classes of painkillers are NSAIDs, opioids and various orphans such as paracetamol, tricyclic antidepressants and anticonvulsants. For musculo-skeletal disorders The main categories of drugs for musculoskeletal disorders are: NSAIDs (including COX-2 selective inhibitors), muscle relaxants, neuromuscular drugs, and anticholinesterases. For the eye
y

General: adrenergic neurone blocker, astringent, ocular lubricant 70

Diagnostic: topical anesthetics, sympathomimetics, parasympatholytics, mydriatics, cycloplegics

Anti-bacterial: fluoroquinolones

antibiotics,

topical

antibiotics,

sulfa

drugs,

aminoglycosides,

y y y y

Anti-fungal: imidazoles, polyenes Anti-inflammatory: NSAIDs, corticosteroids Anti-allergy: mast cell inhibitors Anti-glaucoma: adrenergic agonists, beta-blockers, carbonic anhydrase

inhibitors/hyperosmotics, cholinergics, miotics, parasympathomimetics, prostaglandin agonists/prostaglandin inhibitors. nitroglycerin For the ear, nose and oropharynx sympathomimetics, antihistamines, anticholinergics, NSAIDs, steroids, antiseptics, local anesthetics, antifungals, cerumenolyti For the respiratory system bronchodilators, NSAIDs, anti-allergics, antitussives, mucolytics, decongestants corticosteroids, Beta2-adrenergic agonists, anticholinergics, steroids For endocrine problems androgens, antiandrogens, gonadotropin, corticosteroids, human growth hormone, insulin, antidiabetics (sulfonylureas, biguanides/metformin, thiazolidinediones, insulin), thyroid

hormones, antithyroid drugs, calcitonin, diphosponate, vasopressin analogues For the reproductive system or urinary system antifungal, alkalising agents, quinolones, antibiotics, cholinergics, anticholinergics,

anticholinesterases, antispasmodics, 5-alpha reductase inhibitor, selective alpha-1 blockers, sildenafils, fertility medications

71

For contraception
y y y

Hormonal contraception Ormeloxifene Spermicide

For obstetrics and gynecology NSAIDs, anticholinergics, haemostatic drugs, antifibrinolytics, Hormone Replacement Therapy (HRT), bone regulators, beta-receptor agonists, follicle stimulating hormone, luteinising hormone, LHRH

gamolenic acid, gonadotropin release inhibitor, progestogen, dopamine agonists, oestrogen, prostaglandins, gonadorelin, clomiphene, tamoxifen, Diethylstilbestrol For the skin emollients, anti-pruritics, antifungals, disinfectants, scabicides, pediculicides, tar products, vitamin A derivatives, vitamin D analogues, keratolytics, abrasives, systemic antibiotics, topical antibiotics, hormones, desloughing agents, exudate absorbents, fibrinolytics, proteolytics, sunscreens, antiperspirants, corticosteroids For infections and infestations antibiotics, antifungals, antileprotics, antituberculous drugs, antimalarials, anthelmintics, amoebicides, antivirals, antiprotozoals For the immune system vaccines, immunoglobulins, immunosuppressants, interferons, monoclonal antibodies For allergic disorders anti-allergics, antihistamines, NSAIDs

72

For nutrition tonics, iron preparations, electrolytes, parenteral nutritional supplements, vitamins, anti-obesity drugs, anabolic drugs, haematopoietic drugs, food product drugs For neoplastic disorders cytotoxic drugs, therapeutic antibodies, sex hormones, aromatase inhibitors, somatostatin inhibitors, recombinant interleukins, G-CSF, erythropoietin For euthanasia An euthanaticum is used for euthanasia and physician-assisted suicide. Euthanasia is not permitted by law in many countries, and consequently medicines will not be licensed for this use in those countries. Legal considerations Drugs may be divided into over-the-counter drugs (OTC) which may be available without special restrictions, and prescription only medicine (POM), which must be prescribed by a licensed medical practitioner. The precise distinction between OTC and prescription depends on the legal jurisdiction. A third category, behind-the-counter medications (BTMs), is implemented in some jurisdictions. BTMs do not require a prescription, but must be kept in the dispensary, not visible to the public, and only be sold by a pharmacist or pharmacy technician. The International Narcotics Control Board of the United Nations imposes a world law of prohibition of certain medications. They publish a lengthy list of chemicals and plants whose trade and consumption (where applicable) is forbidden. OTC medications are sold without restriction as they are considered safe enough that most people will not hurt themselves accidentally by taking it as instructed. Many countries, such as the United Kingdom have a third category of pharmacy medicines which can only be sold in registered pharmacies, by or under the supervision of a pharmacist.

73

For patented medications, countries may have certain mandatory licensing programs which compel, in certain situations, a medication's owner to contract with other agents to manufacture the drug. Such programs may deal with the contingency of a lack of medication in the event of a serious epidemic of disease, or may be part of efforts to ensure that disease treating drugs, such as AIDS drugs, are available to countries which cannot afford the drug owner's price. In some countries, government-regulated cannabis is available by prescription. Blockbuster drug A blockbuster drug is a drug generating more than $1 billion of revenue for its owner each year. A recent report from Urch Publishing estimated that about one third of the pharma market by value is accounted for by blockbusters. About 100 products are blockbusters. The top seller was Lipitor, a cholesterol-lowering medication marketed by Pfizer with sales of $12.2 billion. Beyond this purely arbitrary financial consideration, "In the pharmaceutical industry, a blockbuster drug is one that achieves acceptance by prescribing physicians as a therapeutic standard for, most commonly, a highly prevalent chronic (rather than acute) condition. Patients often take the medicines for long periods." Leading blockbuster drugs

Drug Atorvastatin Clopidogrel Enoxaparin Celecoxib Omeprazole

Trade name Lipitor Plavix

Company Pfizer Bristol-Myers and sanofi-aventis Squibb

Sales (billion $), year 12 (2007) < 5.9 (2005)

Lovenox or Clexane Sanofi-Aventis Celebrex Losec/Prilosec Pfizer AstraZeneca AstraZeneca 74 2.3 (2007) 2.6 (2004) 3.3 (2003)

Esomeprazole Nexium

Fexofenadine Telfast/Allegra Quetiapine Metoprolol Budesonide Seroquel Seloken/Toprol

Aventis AstraZeneca AstraZeneca

1.87 (2004) 1.5 (2003) 1.3 (2003) 1.3 (2003) (plus some fraction of the $0.6bn sales of Symbicort)

Pulmicort/Rhinocort AstraZeneca

Environmental impact Since the 1990s water contamination by pharmaceuticals has been an environmental issue of concern. Most pharmaceuticals are deposited in the environment through human consumption and excretion, and are often filtered ineffectively by wastewater treatment plants which are not designed to manage them. Once in the water they can have diverse, subtle effects on organisms, although research is limited. Pharmaceuticals may also be deposited in the environment through improper disposal, runoff from sludge fertilizer and reclaimed wastewater irrigation, and leaky sewage. In 2009 an investigative report by Associated Press concluded that U.S. manufacturers had legally released 271 million pounds of drugs into the environment, 92% of which was the antiseptics phenol and hydrogen peroxide. It could not distinguish between drugs released by manufacturers as opposed to the pharmaceutical industry. It also found that an estimated 250 million pounds of pharmaceuticals and contaminated packaging were discarded by hospitals and long-term care facilities. Pharmacoenvironmentology is a branch of pharmacology and a form of pharmacovigilance which deals entry of chemicals or drugs into the environment after elimination from humans and animals post-therapy. It deals specifically with those pharmacological agents that have impact on the environment via elimination through living organisms subsequent to pharmacotherapy, while Ecopharmacology is concerned with the entry of chemicals or drugs into the environment through any route and at any concentration disturbing the balance of ecology (ecosystem), as a consequence. Ecopharmacology is a broad term that includes studies of PPCPs irrespective of doses and route of entry into environment.

75

Drugs banned in India List of drugs prohibited for manufacturing and sale through Gazette notification under section 26A of drugs and cosmetic act 1940 by the ministry of health and family welfare. DRUGS PROHIBITED FROM THE DATE OF NOTIFICATION 1. Amidopyrine. 2. Fixed dose combinations of vitamins with anti-inflammatory agents and tranquilizers. 3. Fixed dose combinations of Atropine in Analgesics and Antipyretics. 4. Fixed dose combinations of Strychnine and Caffeine in tonics. 5.Fixed dose combinations of Yohimbine and Strychnine with Testosterone and Vitamins. 6. Fixed dose combinations of Iron with Strychnine, Arsenic and Yohimbine. 7. Fixed dose combinations of Sodium Bromide/chloral hydrate with other drugs. 8. Phenacetin. 9. Fixed dose combinations of antihistaminic with anti-diarrhoeals. 10. Fixed dose combinations of Penicillin with Sulphonamides. 11. Fixed dose combinations of Vitamins with Analgesics. 12.Fixed dose combinations of any other Tetracycline with Vitamin C. 13.Fixed dose combinations of Hydroxyquinoline group of drugs with any other drug except for preparations meant for external use. 14. Fixed dose combinations of Corticosteroids with any other drug for internal use. 15. Fixed dose combinations of Chloramphenicol with any other drug for internal use.

76

16.Fixed dose combinations of crude Ergot preparations except those containing Ergotamine, Caffeine, analgesics, antihistamines for the treatment of migraine, headaches. 17.Fixed dose combinations of Vitamins with Anti TB drugs except combination of Isoniazid with Pyridoxine Hydrochloride (Vitamin B6). 18. Penicillin skin/eye Ointment. 19. Tetracycline Liquid Oral preparations. 20. Nialamide. 21. Practolol. 22. Methapyrilene, its salts. 23. Methaqualone. 24. Oxytetracycline Liquid Oral preparations. 25. Demeclocycline Liquid Oral preparations. 26. Combination of anabolic Steroids with other drugs. 27.Fixed dose combination of Oestrogen and Progestin (other than oral contraceptive) containing per tablet estrogen content of more than 50 mcg (equivalent to Ethinyl Estradiol) and progestin content of more than 3 mg (equivalent to Norethisterone Acetate) and all fixed dose combination injectable preparations containing synthetic Oestrogen and Progesterone. (Subs. By Noti. No. 743 (E) dt 10-08-1989) 28.Fixed dose combination of Sedatives/ hypnotics/anxiolytics with analgesics-antipyretics. 29.Fixed dose combination of Rifampicin, isoniazid and Pyrazinamide, except those which provide daily adult dose given below:

77

Drugs Rifampicin Isoniazid Pyrazinamide

Minimum 450 mg 300 mg 1000mg

Maximum 600 mg 400 mg 1500 mg

30. Fixed dose combination of Histamine H-2 receptor antagonists with antacids except for those combinations approved by Drugs Controller, India. 31.The patent and proprietary medicines of fixed dose combinations of essential oils with alcohol having percentage higher than 20% proof except preparations given in the Indian Pharmacopoeia. 32. All Pharmaceutical preparations containing Chloroform exceeding 0.5% w/w or v/v whichever is appropriate. 33.Fixed dose combination of Ethambutol with INH other than the following: INH Ethambutol 200 mg. 600 mg. 300 mg. 800 mg. 34. Fixed dose combination containing more than one antihistamine. 35.Fixed dose combination of any anthelmintic with cathartic/purgative except for piperazine/Santonim. 36. Fixed dose combination of Salbutamol or any other drug having primarily bronchodilatory activity with centrally acting anti-tussive and/or antihistamine. 37.Fixed dose combination of laxatives and/or anti-spasmodic drugs in enzyme preparations. 38.Fixed dose combination of Metoclopramide with systemically absorbed drugs except fixed dose combination of metoclopramide with aspirin/paracetamol

78

39.Fixed dose combination of centrally acting, antitussive with antihistamine, having high atropine like activity in expectorants. 40.Preparations claiming to combat cough associated with asthma containing centrally acting antitussive and/ or an antihistamine. 41.Liquid oral tonic preparations containing glycerophosphates and/or other phosphates and / or central nervous system stimulant and such preparations containing alcohol more than 20% proof. 42.Fixed dose combination containing Pectin and/or Kaolin with any drug which is systemically absorbed from GI tract except for combinations of Pectin and/or Kaolin with drugs not systemically absorbed. 43. Chloral Hydrate as a drug. 44. Dovers Powder I.P. 45. Dovers Powder Tablets I.P. 46.Antidiarrhoeal formulations containing Kaolin or Pectin or Attapulgite or Activated Charcoal. 47.Antidiarrhoeal formulations containing Phthalyl Sulphathiazole or Sulphaguanidine or Succinyl Sulphathiazole. 48.Antidiarrhoeal formulations containing Neomycin or Streptomycin or Dihydrostreptomycin including their respective salts or esters. 49.Liquid Oral antidiarrhoeals or any other dosage form for pediatric use containing Diphenoxylate Lorloperamide or Atropine or Belladona including their salts or esters or metabolites Hyoscyamine or their extracts or their alkaloids. 79

50.Liquid Oral antidiarrhoeals or any other dosage form for pediatric use containing halogenated hydroxyquinolines. 51. Fixed dose combination of antidiarrhoeals with electrolytes. 52. Patent and Proprietary Oral Rehydration Salts other than those conforming to the 53. Fixed dose combination of Oxyphenbutazone or Phenylbutazone with any other drug. 54. Fixed dose combination of Analgin with any other drug. 55. Fixed dose combination of dextropropoxyphene with any other drug other than antispasmodics and/or non-steriodal anti-inflammatory drugs (NSAIDS). 56. Fixed dose combination of a drug, standards of which are prescribed in the Second Schedule to the said Act with an Ayurvedic, Siddha or Unani drug. 57. Mepacrine Hydrochloride (Quinacrine and its salts) in any dosage form for use for female sterilization or contraception. 58. Fenfluramine and Dexfenfluramine. 59. Fixed dose combination of Diazepam and Diphenhydramine Hydrochloride . 60. Rimonabant. LIST OF GAZETTE NOTIFICATION PUBLISHED The Principal Notification GSR 578 (E) dt.23.7.83. Added b GSR 4(E) dated 31.01.1984 Added b GSR 322(E) dated 03.05.1984\ Amended by GSR 863(E) dated 22.11.1985

80

Amended by GSR 743(E) dated 10.08.1989 Amended by GSR 1057(E) dated 03.11.1988 Added by GSR 999(E) dated 26.12.1990 Added by GSR 69(E) dated 11.02.1991 Added by GSR 304(E) dated 7.06.1990 Added by GSR 444(E) dated 7.06.1992 Added by GSR 111(E) dated 22.02.1994 Added by GSR 731(E) dated 30.09.1994 Added by GSR 848(E) dated 7.12.1994 Added by GSR 57(E) dated 7.02.1995 Added by GSR 633(E) dated 13.09.1995 Added by GSR 793(E) dated 13.03.1995 Added by GSR 93(E) dated 25.05.1997 Added by GSR 499(E) dated 14.08.1998 Added by GSR 394(E) dated 19.05.1999 Added by GSR 405(E) dated 3.06.1999 Added by GSR 169(E) dated 12.03.2001 Added by GSR 290(E) dated 16.04.2008 Added by GSR 885(E) dated 11.12.2009 81

LIST OF DRUGS PROHIBITED FOR IMPORT 1. Nialamide 2. Practolol 3. Amidopyrine 4. Phenacetin 5. Methapyrilene and its salts 6. Methaqualone 7. Chloral Hydrate as a drug 8. Mepacrine Hydrochloride ( Quinacrine and its Salts) in any dosage form for use for female sterilization or contraception. 9. Fenfluramine and Dexfenfluramine 10. Rimonabant LIST OF GAZETTE NOTIFICATION PUBLISHED Added by GSR 48(E) dated 31.1.1984 Added by GSR 303(E) dated 7.6.1991 Added by GSR 498(E) dated 14.8.1998 Added by GSR 884(E) dated 11.12.2009

82

DRUGS PROHIBITED FOR MANUFACTURE , SALE AND DISTRIBUTION FROM SUBSEQUENT DATE Drugs Formulation 1.Cosmetics Licensed as toothpaste/tooth powder containing tobacco. 2.Parenteal Preparations fixed dose combination of streptomycin with Penicillin 3.Fixed dose combination of Vitamin B1, Vitamin B6 and Vitamin B12 for human use 4.Fixed dose combination of hemoglobin in any form (natural or synthetic). 5.Fixed dose combination of Pancreatin or Pancrelipase containing amylase, protease and lipase with any other enzyme. 6. Fixed dose combination of Nitrofurantoin and trimethoprim. 7.Fixed dose combination of Phenobarbitone Jan 1,2002 GRS 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01 Sept. 1,2000 GSR 814(E) dt.16.12.99 Sep 1,2000 GSR 814(E) dt.16.12.99 Jan 1,2001 GSR 702(E) dt.14.10.99 Jan 1,1998 GSR 93(E) dt.25.2.97 Effective date With immediate effect Notification GSR 444(E) dt.30.4.92

83

with any anti-asthmatic drugs. 8.Fixed dose combination of Phenobarbitone with Hyoscin and/or Hyoscyamine 9.Fixed dose combination of Phenobarbitone with Ergotamine and/or Belladona 10.Fixed dose combination of Haloperidol with any anti-cholinergic agent including Propantheline Bromide. 11.Fixed dose combination of Nalidixic Acid with any anti-amoebic including Metronidazole. 12.Fixed dose combination of Loperamide Hydrochloride with Furazolidone 13.Fixed dose combination of Cyproheptadine with Lysine or Peptone. 14.Astemizole 15.Terfinadine 16.Fenformin 17.Rafecoxib 18.Valdecoxib and it's formulation 84 Apr.1,2003 Apr.1,2003 Oct.1,2003 Dec 13,2004 July 25,2005 GSR 191(E) dt.5.3.03 GSR 191(E) dt.5.3.03 GSR 780(E) dt.1.10.03 GSR 810(E) dt. 13.12.04 GSR510(E) dt. 25.07.05 Jan 1,2003 GSR 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01 Jan 1,2002 GSR 170(E) dt.12.3.01

19.Diclofenac and its formulations for animal use

July 4, 2008

GSR 499(E) dt.4.07.08

These drugs are prohibited for manufacturing and sale through Gazette notification under section 26A of drugs and cosmetic act 1940 by the ministry of health and family welfare.

 Generic drug A Generic Drug is a copy that is the same as a brand name drug in dosage, safety, strength, how it is taken, quality, performance and intended use. Generic simply means that the drug is not sold as the brand name, but it has the identical strength, dosage and route of administration and the same active ingredients as the brand-name drug. The use of generic drugs is now widely accepted and they are commonly prescribed by physicians and dispensed at hospitals. While manufacturing generic drugs, the drug companies use the same active ingredients and are shown to work the same way in the body, they have the same risks and benefits as their brand name counterparts. Also, generic drugs have the same quality, strength, purity and stability as brand name drugs. It is seen that Generic Drugs work in the same way and in the same amount of time as branded drugs. The generic drugs are less expensive as compared to branded drugs as generic manufacturers do not have the investment costs of the developer of a new drug. New drugs are generally developed under patent protection. The patent protects the investment and the associated expense, viz. research, development, marketing and promotion. When patents are nearing expiration, manufacturers usually approach the Government/Drug Control Department to sell generic versions. In the process, the consumers get genetic drugs at substantially lower costs. Both branded and generic drugs are manufactured by conforming to International standards. Brand name drugs are usually given patent protection for 20 years from the date of submission of the patent. This provides protection for the innovator of such drugs to make good the initial costs incurred by him, viz., research development and marketing expenses, to develop the new drug. Many drug companies start manufacturing generic drugs once the patent license expires for a branded drug. The physician plays a vital role to determine whether his patient needs a branded drug or generic drug. This is because a generic substitution may not be appropriate in certain circumstances where only a branded drug would be suitable for the patient. There are only rare circumstances where substituting a generic drug for a brand name product (or vice versa) may 85

not be appropriate for a particular patient. For some patients, generic substitution may be inappropriate due to reactions to inactive ingredients or problems with the pill shape, colour or related characteristics. Patients should become assertive and insist upon the doctors to prescribe generic drugs if available, so that the patient would get the product at the best possible price. Pharmacists also play a vital role in educating the doctors about the availability of generic drugs. Thus the right medication could be given to the patients at the best possible price. Generics are as good as branded drugs and in view of third party administrators having entered in the Indian health care scenario, the patients are sanctioned only the minimum amount when hospitals send authorizations for approval of treatment. Thus if generic drugs are bought by the patient, the patient may not lose money by going in for branded drugs, which are too costly. Health care costs continue to rise. Therefore, consumers, providers and policymakers need to assess the best way to keep health care affordable without adversely affecting access to quality care. With prescription drug (branded drug) costs serving as a major contributor to cost escalations, generic drugs offer an important tool for reducing the rate of growth in overall health expenditure. Generic drugs play an important role in health care and the availability of generic drugs reduces the monopoly and oligopoly powers of the patent holder. The Government may also impose compulsory licensing so as to make available the much needed generic drugs. It is seen that many countries do not have the technological capability for manufacturing and supplying generic drugs even if the laws of those countries permit them to do so. Brand name and generic pharmaceutical industries are global in nature. Consequently, no serious attempt has been made to integrate them. Many countries obtain their ingredients like fine chemicals from other countries. Smaller countries that have a few generic industries are not able to operate due to limited opportunities. Such countries export their generic produce to other countries to survive in the industry. It has also been found that prices fall substantially once the drugs are off the patent, if there are generic producers. When more generic producers enter the market, more is the fall in the prices. In this context, it may be of interest to note that in Brazil, right combination of policies in the health sector and intellectual property rights enabled the country to tackle the AIDS crisis effectively. Thus development of generic industries would not only help one country but other countries too. This would facilitate meeting the internal demands and exporting the surplus. 86

Generic manufacturers should be permitted to supply drugs to the people at cheaper rates, which will reduce the health care cost drastically. Differences between a brand name drug and a generic drug:  The innovator of a branded drug does research to discover the new biochemical substances that eventually become new drugs.  This research is essential for finding new and better treatments for various diseases.  This process is expensive  he expense incurred by a pharmaceutical industry for coming out with a branded drug is passed on to the consumer, but most of the money is ploughed back into research and development of new products.  In America, FDA grants the innovator company a patent of exclusivity making it the only company able to produce and sell the drug.  The patent expires 20 years from the commencement of drug development to drug marketing. When it does, generic companies are then allowed to manufacture and sell the drug.  Generic drugs offer significant savings to consumers. The cost of generic drugs averages 40 to 60 per cent below the cost of the innovator or brand name drug.  It may be noted that the generic companys version of the drug has the same active ingredient with the same chemical purity as the brand name drug. Obviously this results in cost savings for the generic as it does not involve doing research as was done by the original inventor. Also, it would cost less for the generic company to market its drugs and thus the savings passed on to the patient.  Generic drugs are regulated like band name drugs. Consequently, both are safe and effective when properly used.  Generic drugs today are manufactured by branded drug manufacturers also employing the same technology and processes. The only differences are the labeling, tablet or capsule design and the price.  Generic drugs are not inferior to brand name versions.  A generic drug is pharmaceutically and therapeutically equivalent to brand name drug.

87

Advantages of Generic Drugs:  The generic drugs often cost the consumer considerably less than brand name drugs. The use of generic drugs can add up to marked savings for everyone in general but particularly for the elderly who generally take more medications than the young and have less available income for such items.  Generic drugs do not have unfavorable effect on an individual. The pharmaceutical life cycle has four phases: research, development, patentee commercialization and generic commercialization. When the product is in the research mode, a research institution invents a new drug. Then a patent application is filed to preserve rights. When the institution starts pre-clinical and clinical testing of the drugs, the development phase begins. In the patentee commercialization phase, the innovator (patent holder) begins selling in at least one country. In this process, doctors, patients, hospitals, public health agencies and insurers get involved. Thus generic commercialization commences when the patent expires in any given country and genetic companies start to sell at lower prices. In a country where a new product is not patented, generic competition will begin immediately, e.g., AIDS drugs. Intellectual property is a vital factor involving research and patients. Without patents, research and development would be reduced. Without generics or other price constraints, access to medicine would be impaired. INDIAN PHARMACEUTICAL INDUSTRY Today the Indian Pharmaceutical sector has become a prominent provider of healthcare products. It meets 95% of the countrys medical needs. The total Indian production constitutes about 1.3% of the world market in value terms and 8% in volume terms. The Indian pharmaceutical industry is mounting up the value chain. From being a pure reverse engineering industry focused on the domestic market, the industry is becoming research driven, export oriented and globally becoming competitive. The industry is dependent on its therapeutic presence and new categories, viz. cardiovascular, central nervous system and anti diabetic are expanding at double digit growth rates. The Indian companies are pooling their resources so as to tap the generic drug markets of the developed countries. Outsourcing in the fields of R&D and manufacturing will be the next best opportunity for the industry. India has the best chemistry skills and low cost advantages in research and 88

manufacturing and skilled manpower, which will attract MNCs to set up shops here. The generic drug industry is poised to enter a dramatic growth phase fueled by stronger generic drug companies that have broad technological and diversified market capabilities. As more and more patents expire, the generic portion of the pharmaceutical market is expected to continue to have increased sales. A generic drug (generic drugs, short: generics) is a drug which is produced and distributed without patent protection. (The generic drug may still have a patent on the formulation but not on the active ingredient. Generics account for around 14 per cent of the healthcare market worldwide (Figure-1) and they are growing at a phenomenal rate. The recent growth in the generics market has been largely fuelled by the patent expiry of several blockbusters, and with around $12bn of innovative drugs coming off patent in 2008.

Figure 1: Size of the generics market worldwide

Source: Drug Discovery and Development,

According to research by London-based researcher Global Insight, Indian drug makers having a 33 per cent share of the global generics market in 2007, compared with 4 per cent in 2005. There are four main factors that helped Indian pharmaceutical manufacturers to emerge as important generics manufacturers. First, is the Indian Patents Act of 1970 This Act has been in force since 1972 until December 31, 2004. As per this Act, the Indian parliament granted patent rights only to manufacturing 89

processes, rather than to the end products themselves. Indian pharmaceutical firms were able to take new drugs developed abroad, reverse-engineer the manufacturing process and begin churning out generics. Consequent to these local firms went from controlling 30 percent of the Indian drug market in 1972 to 77 percent in late 2004. Developing-world consumers, and even some in Western markets, enjoyed the benefits of low prices and the quick introduction of the latest wonder drugs. At present the country exports generic drugs to nearly 200 countries. Chaudhuri (2005) has provided us with detailed analysis of the contribution of the pre 2005 Indian patent regime towards the building up of a generics industry in the country. Second, research in India costs 40 per cent less than in the U.S. The cost of developing a drug from scratch in India could be as low as $100 million while it is up to $1 billion in the West. In other words the industry has a significant and sustainable cost advantage over international peers; Third, is the availability of skilled work force with strong chemistry skills; Fourth, India has the largest number of US FDA approved manufacturing plants outside the USA. It has the largest number of Drug Master Filings (DMF) outside the US.2 Indian companies are also the leading companies participating in Para IV challenges.
A generic must contain the same active ingredients as the original formulation. According to the U.S. Food and Drug Administration (FDA), generic drugs are identical or within an acceptable bioequivalent range to the brand name counterpart with respect to pharmacokinetic and pharmacodynamics properties. By extension, therefore, generics are considered (by the FDA) identical in dose, strength, route of administration, safety, efficacy, and intended use. The FDA's use of the word identical is very much a legal interpretation, and is not literal. In most cases, generic products are available once the patent protections afforded to the original developer have expired. When generic products become available, the market competition often leads to substantially lower prices for both the original brand name product and the generic forms. The time it takes a generic drug to appear on the market varies. Generic drugs can save patients and insurance companies substantial costs. The principal reason for the relatively low price of generic medicines is that competition increases among producers when drugs no longer are protected by patents. Companies incur fewer costs in creating the generic drug, and are therefore able to maintain profitability at a lower cost to consumers. The costs of these generic drugs are so low that many developing countries can easily afford them. For example Thailand is going to import

90

millions of doses of the generic version of Plavix, a blood-thinning treatment to prevent heart attacks, at a cost of 3 US cents per dose from India, the leading manufacturer of generic drugs. Generic manufacturers do not incur the cost of drug discovery, and instead are able to reverse-engineer known drug compounds to allow them to manufacture bioequivalent versions. Generic manufacturers also do not bear the burden of proving the safety and efficacy of the drugs through clinical trials, since these trials have already been conducted by the brand name company. It has been estimated that the average cost to brand-name drug companies of discovering and testing a new innovative drug (with a new chemical entity) may be as much as $800 million. Generic drug companies may also receive the benefit of the previous marketing efforts of the brand-name drug company, including media advertising, presentations by drug representatives, and distribution of free samples. Many of the drugs introduced by generic manufacturers have already been on the market for a decade or more, and may already be well-known to patients and providers (although often under their branded name). For as long as a drug patent lasts, a brand name company enjoys a period of market exclusivity or monopoly, in which the company is able to set the price of the drug at a level which maximizes profitability. This price often greatly exceeds the production costs of the drug, which can enable the drug company to make a significant profit on their investment in research and development, thus enabling them to fund the research and development of new medicines which most generic companies cannot afford to do. The advantage of generic drugs to consumers comes in the introduction of competition, which prevents any single company from dictating the overall market price of the drug. Competition is also seen between generic and name-brand drugs with similar therapeutic uses when physicians or health plans adopt policies of preferentially prescribing generic drugs as in step therapy. With multiple firms producing the generic version of a drug the profit-maximizing price generally falls to the ongoing cost of producing the drug, which is usually much lower than the monopoly price.

Legal concepts
Whether or not a mark is popularly identified as generalized, the owner of the mark may still be able to enforce the proprietary rights which attach to the use or registration of the mark, so long as the mark continues to exclusively identify the owner as the commercial origin of the applicable products or services. If the mark does not perform this essential function and it is no longer possible to legally enforce rights in relation to the mark, the mark may have become generic. In many legal systems (e.g., in the

91

United States but not in Germany) a generic mark forms part of the public domain and can be commercially exploited by anyone. Nevertheless, there exists the possibility of a trademark to become a revocable generic term in German (and European) trademark law. The process by which trademark rights are diminished or lost as a result of common use in the marketplace is sometimes known as generic ide. This process typically occurs over a period of time where a mark is not used as a trademark (i.e., where it is not used to exclusively identify the products or services of a particular business), where a mark falls into disuse entirely, or where the trademark owner does not enforce its rights through actions for passing off or trademark infringement. One risk factor which may lead to generic ide is the use of a trademark as a verb, noun, plural or possessive, unless the mark itself is possessive or plural (e.g., "Friendly's" restaurants).

Patent issues When can a generic drug be produced?

When a pharmaceutical company first markets a drug, it is usually under a patent that allows only the pharmaceutical company that developed the drug to sell it. Generic drugs can be legally produced for drugs where: 1) the patent has expired, 2) the generic company certifies the brand company's patents are either invalid, unenforceable or will not be infringed, 3) for drugs which have never held patents, 4) in countries where a patent(s) is/are not in force. The expiration of a patent removes the monopoly of the patent holder on drug sales licensing. Patent lifetime differs from country to country, and typically there is no way to renew a patent after it expires. A new version of the drug with significant changes to the compound could be patented, but this requires new clinical trials. In addition, a patent on a changed compound does not prevent sales of the generic versions of the original drug unless regulators take the original drug off the market.

92

This allows the company to recoup the cost of developing that particular drug. After the patent on a drug expires, any pharmaceutical company can manufacture and sell that drug. Since the drug has already been tested and approved, the cost of simply manufacturing the drug will be a fraction of the original cost of testing and developing that particular drug. Large pharmaceutical companies often spend millions of dollars protecting their patents from generic competition. Apart from litigation, companies use other methods such as reformulation or licensing a subsidiary (or another company) to sell generics under the original patent. Generics sold under license from the patent holder are known as authorized generics; they are not affected by the 180 day exclusivity period as they fall under the patent holder's original drug application. A prime example of how this works is simvastatin (Zocor), a popular drug created and manufactured by U.S. based pharmaceutical Merck & Co., which lost its US patent protection on June 23, 2006. Indiabased Ranbaxy Laboratories (at the 80 mg strength) and Israel-based Teva Pharmaceutical Industries (at all other strengths) received 180 day exclusivity periods for simvastatin; due to Zocor's popularity, both companies began marketing their products immediately after the patent expired. However, Dr. Reddy's Laboratories also markets an authorized generic version of simvastatin under license from Zocor's manufacturer, Merck & Co.; some packages of Dr. Reddy's simvastatin even show Merck as the actual manufacturer and have Merck's logo on the bottom.

Approval and regulation Ensuring bioequivalence:

Most nations require generic drug manufacturers to prove that their formulation exhibits bioequivalence to the innovator product. In the U.S., the FDA must approve generic drugs just as innovator drugs must be approved. The FDA requires the bioequivalence of the generic product to be between 80% and 125% of that of the innovator product. This value range is part of a statistical calculation and does not mean that FDA lets generic drugs differ from the brand name counterpart by up to 45 percent. FDA recently evaluated 2,070 human studies conducted between 1996 and 2007. These studies compared the absorption of brand name and generic drugs into a persons body. These studies were submitted to FDA to support approval of generics. The average difference in absorption into the body between the generic and the brand name was 3.5 percent and is comparable to differences between two different batches of a brand drug.

93

Bioequivalence, however, does not mean that generic drugs must be exactly the same (pharmaceutical equivalent) as their innovator product counterparts, as chemical differences may exist (different salt or ester a pharmaceutical alternative). A physician survey in the US found that only 17% of prescribing physicians correctly identified the USFDA's standards for bioequivalency of generic drugs. A latest development to address this issue enables interested doctors and consumers to check generic drug interactions and outcomes detail to the specific drug and drug company. The generic equivalent of name-brand warfarin has only been available under the trade name Coumadin in North America until recently. Warfarin (either under the trade name or the generic equivalent) has a narrow therapeutic window and requires frequent blood tests to make sure patients do not have a subtherapeutic or a toxic level. A study performed in the Canadian province of Ontario showed that replacing Coumadin with generic warfarin was considered safe. In spite of the study, many physicians are not comfortable in allowing their patients to take the branded generic equivalent agents. As such, in countries such as Australia where warfarin is prescribed under more than one brand name (Marevan in 1 mg, 3 mg, 5 mg respectively and Coumadin in 1 mg, 2 mg, 5 mg respectively), the pharmacist may not substitute brand names.

Generic drug exclusivity

The U.S. Food and Drug Administration offers a 180 day exclusivity period to generic drug manufacturers in specific cases. During this period only one (or sometimes a few) generic manufacturers can produce the generic version of a drug. This exclusivity period is only used when a generic manufacturer argues that a patent is invalid or is not violated in the generic production of a drug, and the period acts as a reward for the generic manufacturer who is willing to risk liability in court and the cost of patent court litigation. There is often contention around these 180 day exclusivity periods because a generic producer does not have to produce the drug during this period and can file an application first to prevent other generic producers from selling the drug.

Recently, the purpose of the exclusivity "bonus" provided for by the Hatch-Waxman Amendments was turned on its head when the original patent holder, Cephalon, instituted patent infringement suit against all companies holding generic exclusivity rights to manufacture modafinil, the generic name for Cephalon's still-profitable stimulant drug, Provigil. "Settlement" of this suit with Cephalon was hardly a risky endeavor for the generic manufacturers, as it was 94

Cephalon which agreed to pay Provigil's alleged infringers in excess of a billion dollars if they agreed not to market generics for Provigil during their period of exclusivity. In effect, Cephalon was able to extend its exclusive right to manufacture Provigil even though Cephalon's patent for Provigil had already run out. Examples A few examples of trademarks which have lost their legal protection are:
y y y y y

aspirin, originally a trademark of Bayer AG escalator originally a trademark of Otis Elevator Company thermos - originally a trademark of Thermos GmbH yo-yo - originally a trademark of Duncan Yo-Yo Company zipper - originally a trademark of B.F. Goodrich

While linoleum, coined by its inventor and patent holder Frederick Walton, is the first product ruled by a court as generic, it was never trademarked. Avoiding generic ide:
Trademark owners will naturally seek to maximize the popularity of their marks. However, generic use of a trademark presents an inherent risk to the effective enforcement of trademark rights and may ultimately lead to generic ide. Trademark owners may take various steps to reduce the risk of generic ide, including educating businesses and consumers on appropriate trademark use, avoiding use of their marks in a generic manner, and systematically and effectively enforcing their trademark rights. If a trademark is associated with a new invention, the trademark owner may also consider developing a generic term for the product to be used in descriptive contexts, to avoid inappropriate use of the "house" mark. Such a term is called a generic descriptor, and is frequently used immediately after the trademark to provide a description of the product or service. For example, "Kleenex tissues" ("facial tissues" being the generic descriptor) or "Velcro fasteners" for brand name hook-and-loop fasteners. Where a trademark is used generically, a trademark owner may need to take special proactive measures to retain exclusive rights to the trademark. Xerox corporation was able to generally prevent the generic ide

95

of its core trademark through an extensive public relations campaign advising consumers to "photocopy" instead of "xerox" documents. Another example is LEGO Company, with a library of 61 trademarks filed since the original LEGO trademark in 1974. The Company printed in manuals in the 1970s and 1980s a request that customers call the company's interlocking plastic building blocks "'LEGO blocks' or 'toys' and not 'LEGOs'." While largely unheeded, use of the deprecated term remained largely confined to the company's own products and generalization failed to occur.

 Life Saving Drugs Emergency Drugs/Life Saving Drugs: Drugs which require immediate administration within minutes post or during a medical emergency. Medicines which have the potential to sustain life and/ or prevent further complications. The pharma sector seeks removal of excise duty on bulk drugs and formulation of anti-AIDS, anti-cancer, anti-TB and other life-saving drugs. Indian Pharma sector has made rapid strides in both global and domestic market. But the growth pangs were severe for domestic players eyeing greater share of global pie. The slowdown in generic approvals by USFDA, the payment problems witnessed in a few developing markets since the last quarter and accelerated generalization and intense competition together meant slower growth in global revenues for the domestic players. But despite challenging environment, the domestic players continued their consolidation mode and are getting ready for increased CRAMS business from the global majors. Attracted by enticing business model of the domestic pharma companies, some global players have acquired Indian pharma companies including Ranbaxy Laboratories, Matrix Laboratories etc. Simultaneously, we also witnessed global majors like Pfizer entering deal with domestic players like Aurobindo Pharma and Claris Life sciences (unlisted) for marketing their generics in the advanced markets. Likewise, we are also witnessing increase in buy back / open offer for share holders of associates / subsidiaries of the MNC pharma companies. So, the pharma sector is in thick of action. With

96

availability of skilled labor at low cost, India has become favorable destination for most of Multinational companies to manufacture their products and to develop new molecules. Industry expectations: Indian Drugs Manufacturers' Association Excise Duty
y The rate of Central Excise Duty on Pharmaceuticals Formulations of 4% should be

continued.
y The Bulk Drugs & Formulations thereof falling under categories of Anti-AIDS, Anti-

Cancer, Anti-TB, immune suppressants and other life-saving drugs should be totally exempted from the excise duty.
y Since most of anti-TB drugs are exempted from the Excise duty, Rifampicin should be

included in the list of exempted drugs.

y Central Excise duty on Active Pharmaceutical Ingredient (API) covered under Chapter 29

of CE Tariff should be on par with duty on Formulations covered under Chapter 30 of CE Tariff.
y Central Excise duty exemption should be granted for all cases for life saving combo pack

formulations.
y All excisable goods used for R & D purposes should be exempted from central excise

duty.
y Physician's samples should be exempted from Central Excise duty.

Custom duty Custom duty & related duties for import of all capital goods, raw materials, consumables & reference standards for R & D purposes should be fully exempted. Import of Reference standards should be totally exempted from customs Duty, CVD etc. Organization of Pharmaceutical Producers of India
y Corporate Tax: Reduce from 33.99% to 30%.

97

y Tax deducted at Source (TDS) should only be there where there is loan-license and not in

respect to goods purchased under contract manufacturing arrangements. Currently, this leads to TDS being computed on the purchase of goods.
y Reduce Dividend Distribution Tax (DDT) to 10% from 16.95% currently. y Section 32 should be amended to specifically provide for depreciation on goodwill. y FBT on ESOPs should be withdrawn effective from assessment year 2008-09. y FBT on Superannuation, medical reimbursement and group insurance premium should be

removed going forward. Since the provisions for FBT have been introduced with effect from assessment year 2006-07, the exemption limit of Rs 1 lakh, as introduced by the amendment vide the Finance Act, 2006 should be made applicable w.e.f A.Y. 2006-07.
y Rule 115 may be modified to include the specified date to be considered for conversation

of amounts from foreign currency to INR on items on which FBT is levied.

y Seeks introduction of Threshold limit for filing of Accountant's Report under section

92E. Suggests that taxpayers having value of international transaction of less than certain threshold limit (e.g. Rs 1 Crore) can be exempted from determination of Most Appropriate Method ('MAM') and ALP and thus from filing of Accountants report in Form 3CEB.
y Rationalization of Penalty Provisions- To avoid undue hardship to the tax players, the

Bombay chamber suggests that the following amendments be made to section 271 AA and Section 271G of the IT ACT: (i)In the event penalty has been levied under section 271 AA, no further penalty should be levied under section 271G. (ii) A cap on penalties may be prescribed, which could be used/ invoked at the discretion of the AO instead of fixed penalty of 2%. (iii) The provisions of Section 273B should be given regard to in case of technical failures and the powers should be utilized more liberally by the authorities. (iv)There should be an upper ceiling (taking into account all penalty provisions on the amount of penalty, i.e. Rs 1 crore).
y Purchase of Raw Materials: Appropriate guidelines for the convergence of transfer

pricing and customs need to be put in place to find a common ground under transfer pricing and customs as contrary positions are being taken by the respective authorities in arriving at the arm's length price. Further, it is suggested that appropriate adjustments be

98

allowed for the material differences in quality, volume, terms of sale, geographical differences etc. between the controlled and uncontrolled transactions.
y Under Section 24 (b) deduction towards interest on borrowed capital for acquiring a self

occupied house property should be increased to Rs 250000 from Rs 150000.

y The maximum exemption available in respect of gratuity paid under section 10 (10) is Rs

350000 and requested to increase it to Rs 500000.

y SEZs- Provide deduction of 100% of profits from export activities instead of deduction

available for profits of companies in proportion of export turnover to total turnover.

y Excise duty of 4% on Drugs and Pharmaceuticals should be maintained in the Union

Budget 2010-11.
y R & D: Custom duty and services tax should be exemption on the capital investment on R

& D centers. The benefited should be restricted to Rs 50 lakhs per year for a unit.
y Cenvat credit on capital goods should be allowed 100% in the year of purchase. y Rule 9[1][f] of the Cenvat credit rules should be amended to allow Receipts issued by the

insurance companies / Port Authorities indicating amount debited towards service tax for the services rendered by them.
y Custom Duty on all life saving medicines like Antibiotics, Anticancer, and Anti-HIV etc

should be exempted.
y Requested either totally exempt importers from payment of 4% additional duty or reduce

the administrative burden associated with processing of such refund claims. Analysts' expectations We expect excise duty and custom duty on bulk drugs and formulations of Anti-AIDS, AntiCancer, Anti-TB and other life saving medicine to be exempted. Currently excise duty on formulation is at 4% and bulk drugs at 8%, which is not likely to be tinkered, except for life saving drugs. Exemption in custom duty & Excise duty for life saving drugs would benefits MNC subsidiaries like GlaxoSmithKline Pharma, Pfizer, Novartis, Aventis Pharma etc and domestic companies Dr Reddy's Laboratories, Aurobindo, Cadila Healthcare, Ranbaxy and Sun Pharmaceuticals.

99

In particular, if excise duty on Rifampicin, a bulk drug for producing anti TB drug, is reduced / removed, it will benefit Lupin, which is a leading producer of this bulk drug. The Indian pharmaceuticals industry has received major relief in the stimulus packages announced between December 2008 and February 2009. As a result of these stimulus packages, excise duty on formulation was cut from 8% to 4% and on bulk drugs from 14% to 8%. We don't expect any big changes in on excise duty and custom duty rates, except in life saving drugs. By and large such changes will be more beneficial to MNC associates and to some extent to some of the frontline domestic players. List of Commonly Used Emergency Medicines/Life Saving Drugs:
Adenosine Injection Adrenaline Bitartrate Injection Aminophylline Injection Amiodarone Injection Antisnake venon inj polyvalent Injection Antitetnus Human Immunoglobulin Injection Atropine sulphate 0.6mg/ml Injection Calcium chloride Injection Chloroquine phosphate 64.5 mg/ml (5ml amp) Injection Dextran-70 Injection Diazepam 5mg/ml Injection Dicyclomine hydrochloride 10mg/ml Injection Diphenhydramine Injection Diltizem Injection Diptheria Antitoxin Injection Dobutamine 50mg/ml (5 ml amp) Injection Dopamine hydrochloride 40mg/ml (5ml amp) Injection Epinephrine hydrochloride 1mg/ml Injection Flumazenil Injection Fresh Frozen Plasma Injection Frusemide 10mg/ml Injection Glucose with sodium chloride Injection Glyceryl trinitrate 5mg/ml Injection

100

D50% Injection Haloperidol Injection Heparin sodium 5000IU/ml Injection Hydrocortisone sodium succinate 100mg/ml Injection Insulin soluble (bovine + porcine or porcine) 40IU/ml Injection Lignocaine IV 2% Injection Lidocaine 2% Injection Magnesium sulphate Injection Mannitol 10%, 20% Injection Metoclopramide 5mg/ml Metoprolol 1mg/ml Injection Morphine sulphate Injection N/2 saline Injection N/5 saline Injection Naloxone 0.4mg/ml Injection Neostigmine 0.5, 2.5mg/ml Injection Oxygen Inhalation Oxytocin Injection Pancuronium 2mg/ml Injection Phenobarbitone 200mg/ml Injection Phenytoin 50mg/ml Injection Potassium Chloride Injection Pralidoxime chloride (2-PAM) 25mg/ml Injection Protamine sulphate Injection Rabies vaccine Injection Ringer lactate Injection Salbutamol sulphate Inhalation Sodium bicarbonate Injection Succinyl choline 50mg/ml Injection Streptokinase Injection Tetanus Toxoid Injection Vitamin K 10mg/ml Injection A) Drugs used in Anaplylactic shock :-

101

(1) Inj. Epinephrine Hydrochloride (Adrenaline) (2) Inj. Sodabicarb, (3) Inj. Dexamethazone Sodium phosphate. (B) Drugs used in Myocardial infarction and cardiogenic shock:(4) Inj. Isoprenaline. (5) Inj. Amino Caproic Acid. (6) Inj. Streptokinase. (7) Inj. Morphine sulphate. (8) Inj. Meperidine Hydrocloride (Pethidine) (9) Inj. Calcium Chloride (10) Inj. Dopamine Hydrochloride (11) Inj. Heparin (12) Inj. Nitroglycerine (13) Inj. Propranolol. (14) Inj. Digoxin. (15) Inj. Protamine Sulphate. (16) Inj. Lignocaine Hydrochloride 2 percent (17) Cap. Nifedipine. (C) Drugs used in peripheral circulatory collapse: (18) Inj. Dopamine Hydrochloride.

102

(19) Inj. Glucose 25 percent. (20) Oxygen gas I.P/B.P. (21) I.V. Ringer Lactate (22) I.V. Normal Saline (D) Drugs used in status eplipticus: (23) Inj. Phenytoin Sodium (24) Inj. Diazepam. (25) Inj. Phenobarbitone. (E) Drugs used in acute respiratory failure:(26) Inj. Nikenamide. (27) Oxygen gas I.P./B.P

103

CHAPTER-4- PRICING POLICIES OF MEDICINES

 Pricing strategy 1. Reference Pricing: With off-patent drugs priced competitively, significant variation in cost (and therefore costeffectiveness) can arise within therapeutic submarkets. Newer, patented drugs may be priced at levels that make them comparatively unattractive, given the value inherent in the low-cost alternatives within class. Under such circumstances, reference pricing is used to engender price competition between patented and non-patented alternatives while allowing for choice within therapeutic submarkets. Reference pricing sets the public subsidy for drugs within a therapeutic subgroup at a level determined by low-cost alternatives within that subgroup. Patients are fully covered for products priced competitively with the low-cost alternatives, but are required to pay the excess cost if they wish to use drugs priced above the reference-based subsidy. There are three market outcomes that can occur under such reference pricing policies: (1) firms choose to price at a level that is competitive with the reference price, (2) patients choose to switch to those products that are priced at or below the reference price or (3) patients choose to pay the difference for products that remain above the reference price. In established therapeutic markets where there are multiple off-patent (and therefore tendered) products, the threat of patients switching to fully covered products is sufficient to force new, patented products to price competitively. Where patients may be required to switch away from high-cost options in a therapeutic subgroup, there may be controversy surrounding the similarity of drugs. PHARMAC has responded to this situation by developing an extensive system of exemptions for patients needing drugs other than those covered by the reference pricing policy ( PHARMAC 2006). 2. Suo-motu pricing The NPPA fixes/revises prices of both bulk drugs and formulations on suo-motu basis, where it is felt that manufacturers are not filing their applications as per the provisions of the DPCO, 1995 after the decrease in bulk drug prices and statutory duties, etc. Hence, with a view to passing on the benefits of such decreases to the consumers, suo-motu price is fixed. For example, 104

as per para 8(2) of DPCO, 1995, the manufacturers are to apply for price revision of formulations within a period of thirty days of price fixation/revision of bulk drug(s). If they fail to comply with this during the prescribed time, suo- motu action is taken as per para 9(2) of DPCO, 1995 for ceiling prices, and as per para 8(2) and para 11 of DPCO, 1995 for non-ceiling packs. 3. Pro-rata Pricing NPPA has issued notification on pro -rata pricing on 27.01.98. According to this notification, the manufacturers of all the scheduled formulation pack sizes different from the notified pack sizes under sub- paragraphs (1) and (2) of the paragraph 9 of the DPCO, 1995, shall have to work out the price for such pack sizes, in respect of tablets and capsules of the same strength or composition packed in different strips or blisters, on pro-rata basis of the latest ceiling price fixed for such formulations under sub-paragraphs (1) and (2) of para 9 of the DPCO, 1995. This was done to ensure that :-

i. ii.

manufacturers are not forced to approach frequently for price approvals for different pack sizes and the manufacturers do not change the pack sizes in a bid to remain out of price control.

Every formulation of a bulk drug included under schedule 1 of DPCO, irrespective of pack size, strength, dosage form must be marketed only at price fixed by Government, with adjustment for pro-rata price wherever required. However, the manufacturers in the Small Scale Industry (SSI) category may avail exemption from seeking price fixation from NPPA in respect of Scheduled Formulations not covered under ceiling prices provided they have submitted a declaration to NPPA as per S.O.No.134(E) dated 2nd March, 1995 and obtained approval for the same from NPPA. Pricing of drugs in India S.O.18 (E) in exercise of the powers conferred by section 3 of the Essential Commodities Act, 1955 (10 of 1955), the Central Government hereby makes the following Order, namely: 1. Short title and commencement This Order may be called the Drugs (Prices Control) Order, 1995 105

It shall come into force on the date of its publication in the Official Gazette 2. Definitions -In this Order, unless the context otherwise requires: a. "bulk drug" means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to pharmacopoeial or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 (23 of 1940), and which is used as such or as an ingredient in any formulation b. "capital employed" means net fixed assets plus working capital of a manufacturer in

relation to manufacture of bulk drug c. "ceiling price" means a price fixed by the Government for Scheduled formulations in accordance with the provisions of paragraph d. "dealer" means a person carrying on the business of purchase or sale of drugs, whether as a wholesaler or retailer and whether or not in conjunction with any other business, and includes his agent e. "distributor" means a distributor of drugs or his agent or a stockiest appointed by a manufacturer or an importer for stocking his drugs for sale to a dealer f. "drug" includes: (i) all medicines for internal or external use of human beings or animals and all substances intended to be used for, or in the diagnosis treatment, mitigation, or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes (ii) such substances, intended to affect the structure or any function of the human or animal body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Government by notification in the Official Gazette (iii) bulk drugs and formulations g. "Form" means a form specified in the Second Schedule h. "formulation" means a medicine processed out of, or containing one or more bulk drug or drugs with or without the use of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include:

106

(i) any medicine included in any bonafide Ayurvedic (including Sidha) or Unani (Tibb) systems of medicines (ii) any medicine included in the Homeopathic system of medicine (iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 (23 of 1940) do not apply i. "free reserve" means a reserve created by appropriation of profits, but does not include reserves provided for contingent liability, disputed claims, goodwill, revaluation and other similar reserves j. "Government" means the Central Government k. "import" with its grammatical variations and cognate expressions means bringing into India from a place outside India, and "importer", in relation to any goods at any time between their importation and consumption, includes any owner or any person holding himself out to be the importer "local taxes" means any tax or levy (except excise duty included in retail price) paid and/or payable to the Central Government or State Government or any Local authority under any law by the manufacturer or his agent or dealer;"*(1) l. "manufacture" in relation to any drug, includes any process or part of a process for making, altering, finishing, packing, labeling, breaking or otherwise treating or adapting any drug with a view its sale and distribution, but does not include the compounding or dispensing of any drug or the packing of any drug in the ordinary course of retail business, and "to manufacture" shall be construed accordingly m. "manufacturer" means any person who manufactures a drug n. "net-worth" means the paid-up share capital of a company plus free reserve, if any, and surpluses excluding outside investments which are not readily available for operational activity o. "non-Scheduled bulk drug" means a bulk drug not specified in the First Schedule p. "non-Scheduled formulation" means a formulation not containing any bulk drug specified in the First Schedule q. "pre-tax return" means profits before payment of income-tax and surtax and includes such other expenses as do not form part of the cost of formulation r. "price list" means a price list referred to in paragraphs 14 and 15 and includes a supplementary price list 107

s. "retail price" means the retail price of a drug arrived at or fixed in accordance with the provisions of this Order and includes a ceiling price t. "retailer" means a dealer carrying on the retail business of sale of drugs to customer u. "Scheduled bulk drugs" means a bulk drug specified in the First Schedule v. "Scheduled formulation" means a formulation containing any bulk drug specified in the First Schedule either individually or in combination with other drugs, including one or more than one drug or drugs not specified in the First Schedule except single ingredient formulation based on bulk drugs specified in the First Schedule and sold under the generic name

w. "sale turn-over" means the product of units of formulations sold by a manufacturer or an importer, as the case may be, in an accounting year multiplied by retail price inclusive of sales tax, if any, paid on direct sales by the manufacturer or importer but does not include excise duty and local taxes, if any x. "Schedule" means a Schedule annexed to this Order y. "Wholesaler" means a dealer or his agent or a stockiest appointed by a manufacturer or an importer for the sale of his drugs to a retailer, hospital, dispensary, medical, educational or research institution purchasing bulk quantities of drugs Power to fix the maximum sale prices of bulk drugs specified in the First schedule [1] The Government may, with a view to regulate the equitable distribution and increasing supplies of a bulk drug specified in the First Schedule and making it available at a fair price, from different manufacturers, after making such inquiry as it deems fit, fix from time to time, by notification in the Official Gazette, a maximum sale price at which such bulk drug shall be sold Provided that for the purpose of enquiry, in addition to the information required to be furnished by the manufacturers under this Order, the manufacturers shall provide any such additional information as may be required by the Government, and shall allow for inspection of their manufacturing premises for verification through on the spot study of manufacturing processes and facilities and records thereof, by the Government. (2) While fixing the maximum sale price of a bulk drug under sub-paragraph (1), the Government shall take into consideration a post-tax return of fourteen per cent on net worth or a return of twenty two per cent on capital employed or in respect of a new plant an internal rate of return of twelve per cent based on long term marginal costing depending upon the option for any of the specified rates of return that may be exercised by the manufacturer of a bulk drug 108

Provided that where the production is from basic stage, the Government shall taken into consideration a post-tax return of eighteen per cent on net worth or a return of twenty six per cent on capital employed Provided further that the option with regard to the rate of return once exercised by a manufacturer shall be final and no change of rates shall be made without the prior approval of the Government [3] No person shall sell a bulk drug at a price exceeding the maximum sale price fixed under subparagraph (1) plus local taxes, if any Provided that until the price of a bulk drug is fixed by the Government under sub-paragraph (1), the price of such bulk drug shall be the price which prevailed immediately before the commencement of this Order and the manufacturer of such bulk drug shall not sell the bulk drug at a price exceeding the price prevailing immediately before the commencement of this Order [4] Where, after the commencement of this Order, any manufacturer commences production of any bulk drug specified in the First Schedule, he shall within fifteen days of the commencement of production of such bulk drug, furnish the details to the Government in Form I, and any such additional information as may be required by the Government and the Government may after receipt of the information and after making such inquiry as it may deem fit, may fix the maximum sale price of bulk drug by notification in the Official Gazette [5] Any manufacturer, who desires revision of the maximum sale price of a bulk drug fixed under sub-paragraph (1) or (4) or as permissible under sub-paragraph (3), as the case may be, shall make an application to the Government in Form I and the Government shall after making such enquiry, as it deems fit within a period of four months from the date of receipt of the complete information, fix a revised price for such bulk drug or reject the application for revision for reasons to be recorded in writing Information to be furnished by the manufacturer in relation to the Scheduled bulk drugs:Every manufacturer, producing a Scheduled bulk drug shall furnish to the Government: (a) a list of all Scheduled bulk drugs produced by him within thirty days of the commencement of this Order and indicate the details of the cost of each of such bulk drug in Form I (b) the details of the cost of each Scheduled bulk drug produced by him, including such bulk drug which has been produced after the commencement of this Order, in Form I by the 30th September, every year 109

Information to be furnished by the manufacturer in relation to the non-Scheduled bulk drugs: - Every manufacturer, producing a non-Scheduled bulk drug shall furnish to the Government: (a) a list of all such bulk drugs produced by him within thirty days of the commencement of this Order and indicate the details of the cost of each of such bulk drugs in From II (b) the details of the cost of each non-scheduled bulk drug produced by him, including such bulk drug which has been produced after the commencement of this Order, in Form II Provided that, for the purpose of this paragraph, the Government, may after making such inquiry as it may deem necessary in public interest, fix or revise the price of any non-Scheduled bulk drug and the manufacturer or importer of such bulk drug shall "give effect to the price so fixed or revised within fifteen days of receipt of the order and not sell such non-scheduled bulk drug at a price exceeding the price so fixed or revised thereafter" Power to direct manufacturers of bulk drugs to sell bulk drugs to other manufacturers of formulations: [1] With a view to achieving adequate production and regulating the equitable distribution, the Government may, from time to time, by general or special order, direct any manufacturer of any bulk drug to sell such bulk drug to such other manufacturers of formulations as may be specified in such order Provided that while making any such order, the Government shall have regard to all or any of the following factors, namely: (i) the requirement for captive consumption of such manufacturer, and

(ii) the requirement of other manufacturers. [2] For the purpose of making any order under sub-paragraph (1), the Government may call for such information from manufacturer, importer or distributor, of bulk drugs, as it may consider necessary and such manufacturer, importer or distributor shall be bound to furnish such information within such time as may be specified by the Government Calculation of retail price of formulation: - The retail price of a formulation shall be calculated by the Government in accordance with the following formula, namely: R. P. = (M.C.+C.C.+P.M.+P.C) x (1+MAPE/100) + ED. where "R.P." means retail price

110

"M.C."

means

material

cost

and

includes

the

cost

of

drugs

and

other

pharmaceutical aids used including overages, if any, plus process loss thereon specified as a norm from time to time by notification in the Official Gazette in this behalf "C.C." means conversion cost worked out in accordance with established procedures of costing and shall be fixed as a norm every year by notification in the Official Gazette in this behalf "P.M." means cost of the packing material used in the packing of concerned formulation, including process loss, and shall be fixed as a norm every year by notification in the Official Gazette in this behalf "P.C." means packing charges worked out in accordance with established procedures of costing and shall be fixed as a norm every year by notification in the Official Gazette in this behalf "MAPE" (Maximum Allowable Post-manufacturing Expenses) means all costs incurred by a manufacturer from the stage of ex-factory cost to retailing and includes trade margin and margin for the manufacturer and it shall not exceed One hundred per cent for indigenously manufactured Scheduled formulations "E.D." means excise duty; Provided that in the case of an imported formulation, the landed cost shall form the basis for fixing it's price alongwith such margin to cover selling and distribution expenses including interest and importer's profit which shall not exceed fifty per cent of the landed cost Explanation - For the purpose of this proviso, "landed cost" means the cost of import of formulation inclusive of customs duty and clearing charges.

Power to fix retail price of Scheduled Formulations: [1] The Government may, from time to time, by order, fix the retail price of a Scheduled formulation in accordance with the formula laid down in paragraph 7. [2] Where the Government fixes or revises the price of any bulk drug under the provisions of this Order and a manufacturer utilizes such bulk drug in his Scheduled formulations he shall, within thirty days of such fixation or revision, make an application to the Government, in Form-III for price revision of all such formulations and the Government may, if it considers necessary, fix or revise the price of such formulation. [3] The retail price of a formulation once fixed by the Government under sub-paragraphs (1) and (2) shall not be increased by any manufacturer except with the prior approval of the Government. 111

[4] Any manufacturer, who desires revision of the retail price of a formulation fixed under subparagraph (1), shall make an application to the Government in Form III or Form IV, as the case may be, and the Government shall after making such enquiry, as it deems fit within a period of two months from the date of receipt of the complete information, fix a revised price for such formulation or reject the application for revision for reasons to be recorded in writing. [5] Notwithstanding anything contained in the foregoing sub-paragraphs, the retail price of a Scheduled formulation, of a manufacturer shall, until the retail price thereof is fixed under the provisions of this Order, be the price which prevailed immediately before the commencement of this Order, and the manufacture of such formulation shall not sell the formulation at a price exceeding the price prevailing immediately before the commencement of this Order. [6] No manufacturer or importer shall market a new pack, if not covered under sub-paragraph 3 of Para 9, or a new formulation or a new dosage form of his existing Scheduled formulation without obtaining the prior approval of its price from the Government. [7] No person shall sell or dispose of any imported Scheduled formulation without obtaining the prior approval of its price from the Government.

Power to fix ceiling price of Scheduled formulations:[1] Notwithstanding anything contained in this Order, the Government may, from time to time, by notification in the Official Gazette fix the ceiling price of a Scheduled formulation in accordance with the formula laid down in paragraph 7, keeping in view the cost or efficiency, or both, of major manufacturers of such formulations and such price shall operate as the ceiling sale price for all such packs including those sold under generic name and for every manufacturer of such formulations. [2] The Government may, either on its own motion or on application made to it in this behalf by a manufacture in Form III or Form IV, as the case may be, after calling for such information as it may consider necessary, by notification in the Official Gazette, fix a revised ceiling price for a Scheduled formulation. [3] With a view to enabling the manufacturers of similar formulations to sell those formulations in pack size different to the pack size for which ceiling price has been notified under the subparagraphs (1) and (2), manufacturers shall work out the price for their respective formulation packs in accordance with such norms, as may be notified by the Government, from time to time, 112

and he, shall intimate the price of formulation pack, so worked out, to the Government and such formulation packs shall be released for sale only after the expiry of sixty days after such intimation. Provided that the Government may, if it considers necessary, by order revise the price so intimated by the manufacturer and upon, such revision, the manufacturer shall not sell such formulation at a price exceeding the price so revised. Explanation- For the purpose of this paragraph the "Scheduled formulation" includes single ingredient formulation based on bulk drugs specified in the First Schedule and sold under the generic name . Power to revise price of bulk drugs and formulation:- Notwithstanding anything contained in this order :(a) The Government may, after obtaining such information as may be considered necessary from a manufacture or importer, fix or revise the retail price of one or more formulations marketed by such manufacturer or importer, including a non-Scheduled formulation, in such manner as the pre-tax return on the sales turnover of such manufacturer or importer does not exceed the maximum pre-tax return specified in the Third Schedule; (b) The Government may, if it considers necessary so to do in public interest, after calling for such information by order fix or revise the retail price of any formulation including a nonScheduled formulation; (c) The Government may, if it considers necessary so to do in public interest, by order include any bulk drug in the First Schedule and fix or revise the prices of such a bulk drug and formulations containing such a bulk drug in accordance with the provisions of paragraphs 3, 7, 8 and 9, as the case may be. Fixation of price under certain circumstances:Where any manufacturer, importer of a bulk drug or formulation fails to submit the application for price fixation or revision, as the case may be, or to furnish information as required under this Order, within the time specified therein, the Government may, on the basis of such information as may be available with it, by order fix a price in respect of such bulk drug or formulation as the case may be. Power to recover dues accrued under the Drugs (Prices Control) Order, 1979 and to deposit the same into the Drug Prices Equalization Account:113

[1] Notwithstanding anything contained in this Order, the Government may by notice, require the manufacturer, importer or distributor, as the case may be, to deposit the amount which has accrued under the provisions of the drugs (Price Control) Order, 1979 on or before the commencement of this Order, into the Drugs Prices Equalization Account and the manufacturer, importer or distributor, as the case may be, shall deposit the said amount into the said Account within such time as the Government may specify in the said notice. [2] The existing amount, if any, in the Drugs Prices Equalization Account on or before the date of commencement of this Order, and the amount deposited under sub-paragraph (1) shall be utilized for,[a] Paying to the manufacturer, importer or distributor, as the case may be, the short-fall between his retention price and the common selling price or, as the case may be, the pooled price for the purpose of increasing the production, or securing the equitable distribution and availability at fair prices, of drugs; [b] Meeting the expenses incurred by the Government in discharging the functions under this paragraph; and [c] Promoting higher education and research in Pharmaceutical Sciences and Technology and for the purposes incidental thereto. Power to recover overcharged amount:Notwithstanding anything contained in this order, the Government shall by notice, require the manufacturers, importers or distributors, as the case may be, to deposit the amount accrued due to charging of prices higher than those fixed or notified by the Government under the provisions of Drugs (Prices Control) Order, 1987 and under the provisions of this Order. Carrying into effect the price fixed or revised by the Government, its display and proof thereof:[1] Every manufacturer or importer shall carry into effect the price of a bulk drug or formulation, as the case may be, as fixed by the Government from time to time, within fifteen days from the date of notification in the Official Gazette or receipt of the order of the Government in this behalf by such manufacturer or importer. [2] Every manufacturer, importer or distributor of a formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered for retail sale, the retail price of that formulation, notified in the Official Gazette or 114

ordered by the Government in this behalf, with the words "retail price not to exceed" preceding it, and "local taxes extra" succeeding it, in the case of Scheduled formulations : Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not be more than the prorate retail price of the main pack rounded off to the nearest paisa. [3] Every manufacturer or importer shall issue a price list and supplementary price list, if required, in Form V to the dealers, State Drugs Controllers and the Government indicating reference to such price fixation or revision as covered by the order or Gazette notification issued by the Government, from time to time. [4] Every retailer and dealer shall display the price list and the supplementary price list, if any, as furnished by the manufacturer or importer, on a conspicuous part of the premises where he carries on business in a manner so as to be easily accessible to any person wishing to consult the same. Display of prices of non-Scheduled formulations and price list thereof:[1] Every manufacturer, importer or distributor of a non-Scheduled formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered for retail sale the retail price of that formulation with the words "retail price not to exceed" preceding it and the words "local taxes extra" succeeding it. *(1) Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not to be more than the prorate retail price of the main pack rounded off to the nearest paisa. [2] Every manufacturer or importer shall issue a price list and supplementary price list, if required, of the non-Scheduled formulations in Form V to the dealers, State Drugs Controllers and the Government indicating changes, from time to time. [3] Every retailer and dealer shall display the price list and the supplementary price list, if any, as furnished by the manufacturer or importer, on a conspicuous part of the premises where he carries on business in a manner so as to be easily accessible to any person wishing to consult the same.

115

Control of sale prices of bulk drugs and formulations:No person shall sell any bulk drug or formulation to any consumer at a price exceeding the price specified in the current price list or price indicated on the label of the container or pack thereof, whichever is less, plus all local taxes, if any, payable.*(1) Sale of split quantities of formulations:No dealer shall sell loose quantity of any formulation at a price which exceeds the pro-rata price of the formulation plus 5 per cent thereof. Manufacturer, distributor or dealer not to refuse sale of drug:Subject to the provisions of the Drug and Cosmetics Act, 1940 (23 of 1940) and the Rules framed there under:[a] No manufacturer or distributor shall withhold from sale or refuse to sell to a dealer any drug without good and sufficient reasons; [b] No dealer shall withhold from sale or refuse to sell any drug available with him to a customer intending to purchase such drug. Price of formulations sold to the dealer:[1] A manufacturer, distributor or wholesaler shall sell a formulation to a retailer, unless otherwise permitted under the provisions of this Order or any order made there under, at a price equal to the retail price, as specified by an order or notified by the Government (excluding excise duty, if any) minus sixteen per cent thereof in the case of Scheduled drugs. [2] Notwithstanding anything contained in sub-paragraph (1), the Government may be a general or special order fix, in public interest, the price of formulation sold to the wholesaler or retailer in respect of any formulation the price of which has been fixed or revised under this Order. Maintenance of records and production thereof for inspection:[1] Every manufacturer and importer shall maintain in such form as may be specified by the government, records relating to the sales turnover of individual bulk drugs manufactured or imported by him, as the case may be, and the sales turnover of formulations pack-wise and also such other records as may be directed from time to time by the Government and the Government shall have the power to call for such records or to inspect such records at the premises of the manufacturer or importer.

116

[2] Every manufacturer or importer shall, within six month of the close of the accounting Year, submit to the Government information in respect of turnover and allocation of sales and expenses for that year in Form-VI. [3] Every dealer, manufacturer or importer shall maintain the cash memo or credit memo, books of account and records of purchase and sale of drugs and shall make available such records for inspection by the Government or any officer authorized in this behalf by the Government. Power of entry, search and seizure:[1] Any Gazetted Officer of the Central Government or of a State Government authorized by a general or special order by the Central Government or, as the case may be, by the State Government in this behalf may, with a view to securing compliance with this Order or to satisfy himself that the provisions of this Order have been compiled with [a] Enter and search any place; [b] Seize any drug, along with the containers, packages or covering in which the drug is found, in respect of which he suspects that any provision of this Order has been, is being, or is about to be contravened, and thereafter take all measures necessary for securing production of the drug, containers, packages or covering, so seized, in a court of law and for their safe custody pending such production : [c] Seize any document, such as, cash memo or credit memo books, books of account and records of purchase and sale of the drugs in respect of which he suspects that any provision of this Order has been, is being, or is about to be contravened. [2] The provision of section 100 of the Code of Criminal Procedure, 19/3 (2 of 1974), relating to search and seizure shall, so far as may be, apply to searches and seizures under this Order . Power to review:Any person aggrieved by any notification issued or order made under paragraphs 3, 5, 8,9 or 10 may apply to the Government for a review of the notification or order within fifteen days of the date of publication of the notification in the Official Gazette or the receipt of the order by him, as the case may be, and the Government may make such order on the application as it may deem proper : Provided that pending a decision by the Government on the application submitted under the above paragraph, no manufacturer, importer or distributor, as the case may be, shall sell a bulk

117

drug or formulation, as the case may be, at a price exceeding the price fixed by the Government of which a review has been applied for. Power to issue guidelines and directions:[1] The Government, may for the purpose of implementing the provisions of this Order, authorize any Officer, by a general or special order, to inspect the premises of any manufacturer, importer, distributor or dealer and such manufacturer, importer, distributor or dealer shall allow such authorized officer and make available all relevant information required for the purpose. [2] The Government may, from time to time, issue such guidelines and directions, consistent with the provisions of this order to any manufacturer or importer as may be necessary to carry out the provisions of this Order and such manufacturer or importer shall comply with such guidelines and directions. Penalties:Any contravention of any of the provisions of this Order shall be punished in a accordance with the provision of the Essential Commodities Act, 1955 ( 10 of 1955). Power to exempt:[1] Government may, having regard to the factors mentioned in sub-paragraph (2) and subject to such conditions as it may specify, by an order in the Official Gazette, exempt any manufacturer from the operation of all or any of the provisions of this Order. [2] While granting exemption under sub-paragraph (1), the Government shall have regard to all or any of the following factors: Number of workers employed Amount of capital invested Range/group and type of products manufactured Sales turnover Production of bulk drugs from basic stage by a process developed through indigenous research and development, and which is significantly different from known processes and results in cost reduction Production of a new drug which has not been produced elsewhere, if developed through indigenous research and development Delegation of powers:-

118

The Government may, be notification in the Official Gazette, direct that all or any of the powers conferred upon it by this order, other than those contained in paragraphs 22, 23, and 25 shall, subject to such restrictions, exceptions and conditions, as may be specified in the direction, be exercisable also by such Officer or authority as may be specified in the notification. Repeal and saving:[1] The Drugs (Prices Control) Order, 1987 is hereby repealed. [2] Notwithstanding such repeal, anything done or any action taken, including any notification order made, direction given, notice issue or exemption granted under the Drugs ( Prices Control) Order 1987, shall, in so far as it is not inconsistent with the provisions of this Order, be deemed to have been done, taken made, given, issued or granted, as the case may be, under the corresponding provisions of this Order. Specified maximum pre-tax return on sales turnover of manufacturers or importers of formulations:CATEGORY A: Large units with turnover exceeding Rs.6 Crores per annum: having no basic drug manufacturing activity nor any research activity - eight per cent having basic drug manufacturing activity at five per cent or more of the turnover but no research activity - nine per cent having basic drug manufacturing activity at five per cent or more of the turnover and engaged in approved research and development work related to new drugs - ten per cent CATEGORY B: Medium sized units with turnover between Rs.1 Crore to Rs. 6 Crores per annum: having no basic drug manufacturing activity nor any research activity - nine per cent having basic drug manufacturing activity at five per cent or more of the turnover but no research activity - eleven per cent having basic drug manufacturing activity at five per cent or more of the turnover and engaged in approved research and development work related to new drugs - thirteen per cent CATEGORY C: Other units with turnover of less than Rs. 1 crore per anum: having only formulation activity - twelve per cent having basic drug manufacturing activity at five per cent or more of the turnover thirteen per cent 119

SINGLE LIST OF PRICE CONTROLLED DRUGS & "MAPE" The system of price control may be operated through a Single list of price controlled drugs and formulations based thereon with a MAPE of 100 per cent. SPAN OF CONTROL (i) The criterion of including drugs under price control will be the minimum annual turnover of Rs.400 lakhs. (ii) Drugs of popular use, in which there is a monopoly situation will be kept under price control. For this purpose if for any bulk drug, having an annual turnover of Rs. 100 lakhs or more there is a single formulator having 90% or more market share in the Retail Trade (as per ORG) a monopoly situation would be considered as existing. (iii) Drugs in which there is sufficient market competition viz. at least 5 bulk drug producers and at least 10 formulators and none having more than the 40% market share in the Retail Trade (as per ORG) may be kept outside the price control. However, a strict watch would be kept on the movement of prices as it is expected that their prices would be kept in check by the forces of market competition. The Government may determine the ceiling levels beyond which increase in prices would not be permissible. (iv) Government will keep a close watch on the price of medicines which are taken out of price control. In case, the prices of these medicines raise unreasonably, the Government would take appropriate measures, including reclamping of price control. (v) For applying the above criteria, to start with, the basis would be the data up to 31st March, 1990 collected for the exercise of the Review of the Drug Policy. The updating of the data will be done by the National Pharmaceutical Pricing Authority as detailed in Para 22.7.4 (i). (vi) Genetically engineered drugs produced by recombinant DNA technology and specific cell/tissue targeted drug formulations will not be under price control for 5 years from the date of manufacture in India.

120

Pharmaceutical Pricing Policies in a Global Market Pharmaceutical policies affect prices and use of medicines, industry profits and incentives for innovation: Pharmaceutical expenditure, the volume and mix of medicines consumed, and the prices paid, are all influenced by the policies that affect the pharmaceutical industry. By affecting their profits, these policies also help to steer pharmaceutical R&D investment decisions. For instance, insurance subsidies the amount individuals spend on pharmaceuticals. This reduces financial barriers to access and increases the volume of medicines used. At the same time, patent protections provide sellers of innovative pharmaceuticals with a monopoly on the market and opportunities to maintain relatively high prices in cases where there are no therapeutic alternatives. All OECD countries have introduced some degree of price regulation for pharmaceuticals. While two countries, Canada and Mexico, have chosen to cap the price of all patented drugs on the market, whether or not they are covered by publicly financed coverage schemes, most OECD countries regulate the prices of medicines whose use is subsidized through such schemes, whether or not the medicines are on-patent. The most common pricing policy is known as external benchmarking, in which a price limit is set according to a formula based on what other countries pay. This practice has several drawbacks. First, the pharmaceutical industry launches its products first in countries where it can set a price freely at market entry (e.g., Germany, the U.S.) or negotiate relatively high prices (e.g., Switzerland). Second, there is a risk of benchmarking to artificially high list prices because payers negotiate confidential rebates, reducing the real price paid. Together with the threat to industry profits posed by parallel and cross-border trade in pharmaceuticals, this practice contributes to convergence of list prices and affordability problems in lower-income countries. Another common way to set drug prices is to compare them with prices for therapeutic alternatives that are already on the market. Usually, a price premium is awarded only for products that are assessed as having extra therapeutic advantages. In Germany and a growing 121

number of other countries, the amount patients are reimbursed is capped by the price of products considered similar, so if patients buy more expensive products they pay the difference out of their own pocket. Pharmacoeconomic assessment - evaluating the costs and benefits expected from a product - can be used to decide whether a medicine is worth what its maker proposes to charge. About onethird of OECD countries use this tool to decide pricing and reimbursement, but few have formal programmes for original assessment and valuation. Pharmacoeconomic assessment can help obtain good value for money while furnishing important market signals as to what sorts of investment are most useful. It remains, however, a technically challenging and value-laden exercise. Prices and Availability Public Sector y The procurement price at all sites was very reasonable (less than international reference price), lowest was for Chennai. y Median availability of medicines in public sector was very poor, median availability of surveyed medicine in West Bengal was 0%. y Local purchase prices for medicines were higher compared to price at retail pharmacies (observed in Rajasthan Survey). Private Sector y y Not much price variation was observed in different states for all the three forms of medicines. Not much price variation between innovator brand (IB) and most sold generic (MSG) equivalents. y No difference in the price of MSG and lowest priced generic (LPG) equivalents at any of the sites except Maharashtra (4 regions) where the MSG was slightly more (3.8%) than the LPG. This indicated lower priced generics manufactured in the country are not usually stocked by the retailers. In Rajasthan survey LPG were found to be 33% lower than MSG. y Medicines are available at Maximum Retail Price (MRP) printed on the strips. 122

Ciprofloxacin is a schedule (price controlled) medicine but it showed lot of variation in price of IB, MSG and LPG. Price of MSG was more than IB.

Price of ranitidine, another controlled/scheduled drug surveyed, was found to be very consistent in all the regions surveyed, and the price of IB, MSG and LPG was the same.

y y

LPG price of diazepam in private sector was 33 times the procurement price. LPG price of ranitidine in private sector was 1.7 times the procurement price.

Affordability Affordability was measured in terms of number of days worked by the lowest paid unskilled government worker to purchase a standard treatment regimen. The range of daily wage of the lowest paid unskilled government worker in six survey states was INR 120-144 ($3). Table A below shows the availability of a particular medicine in public sector and the number of days a lowest pain government worker have to work to purchase a treatment from private sector. Medicines chosen are commonly used essential medicines that are procured by all state government public sectors. This table shows that if a patient visit public sector and in case of non availability of the medicine how much money it will cost to purchase the medicine in terms of number of days wages of lowest government worker. Only a small proportion of the population is employed in the government sector, and wages are very low in the unorganized sector. Thus the affordability of medicines for the poor and unemployed is severely challenged. According to a World Bank report, 34.7%, or 35 million Indians live on less than U.S. $1 per day.5 As a result, affordability of medicines is often beyond the reach of a majority of the population. However, these costs only accounts for the price of medicine, consultation fees of the doctor and diagnostic tests may lead to a considerably higher total cost for the patient in private sector. Price components Price components are a concern for all those involved in public health and access to medicines, whether the government, nongovernmental organizations (NGO), a social insurance plan, the prescribers or the patients. Price components come from a variety of sources, including:

government-collected tariffs; markups collected by middlemen to meet their overheads and distribution expenses; and inefficient procedures in procurement. Price component is a very 123

important aspect to be studied in-detail

and the data can be used to develop national

pharmaceutical policies, such as creating tax and tariff exemptions, controlling mark-ups and establishing government-recommended selling prices, which aim to increase access to essential medicines. The price paid for a medicine includes a number of price components. As medicines move along the supply chain, from manufacturer to the patient, additional costs are added on the way to the manufacturers selling price (MSP). These price components are in variety of forms, such as government-collected tariffs, freight costs, taxes and mark-ups collected by middlemen, and procurement procedures. For each country these mark-ups are different in forms and amount. Governments may not always have a complete picture of medicine price components because different ministries are many-a-times involved in purchasing, regulation and distribution of essential medicines. However, accurate information on the various components involved in the supply chain is must to take correct measures to reduce the prices paid for medicines in any sector. Before the WHO/HAI project on Medicine Prices and Availability, there was no methodology to systematically collect, analyze and compare information on medicine price components. A price components survey was conducted in February & March 2007 on eight medicines in the public and private sectors of the National Capital Territory (NCT) of Delhi. The price component in NCT Delhi aimed to investigate the discrepancies discovered during the Medicine Prices surveys and also the following objectives: y At the central government level: to examine the relationship between medicine price components and pricing structures. Specifically of interest is the difference between medicines whose prices are set by the National Pharmaceutical Pricing Authority and those medicines whose prices are not regulated. y At the Delhi state level: to examine how price components relate to pricing differences between the public and the private sector. y y To investigate what price components occur in the public sector supply chain. To study the efficiency of public sector procurement departments.

124

 Comparative analysis of pricing in different categories of medicine Pricing of general drugs The fact that manufacturers can offer trade schemes for an entire year indicates that the Price to Stockist (PTS) provides the manufacturer with a large profit margin. A trade scheme of 4+1 means that there is enough profit in the standard manufacturer margin on four packs of the medicine to cover the manufacturers costs and profit for 5 packages. The largest trade margin found is on injectable ceftriaxone, with a scheme of 2+1. The presence of trade schemes suggests that some medicine prices could be lowered. Manufacturers set the price of their products and submit the proposed price to the DCGI when the product is registered. For scheduled medicines, the NPPA pricing formula is used to confirm the price however trade schemes were also found on ciprofloxacin. Detailed discussion with 2 medium-sized manufacturers and an analysis of their production costs revealed a weak correlation between manufacturing costs and MRP of branded medicines. One way to see this is to compare the PTR and the MRP for branded and branded-generic medicines. Several examples from the private sector data are given in Table for each medicine, two branded and two branded-generic examples are given. Table-1 Comparison of branded and branded-generic prices (prices in rupees) amoxicillin Ex 1 Branded PTR Ex 2 atorvastatin Ex 1 Ex 2 ciprofloxacin Omeprazole Ex 1 Ex 2 Ex 1 Ex 2

57.28 53.70 65.00 61.94 65.94 56.36 55.45 54.50

MRP 76.00 65.25 85.00 80.52 85.73 65.87 72.09 72.00

Branded-generic

PTR

9.50

9.50

22.00 37.88 11.50 NA

16.00 NA

MRP 37.50 35.40 28.00 45.00 60.10 44.25 35.00 64.80 Source: OPPI 2008 The Rs 60.10 and RS 44.25 ciprofloxacins and the Rs 64.80 and Rs 35.00 omeprazoles are branded-generics, but were found in peri-urban retail shops that did not stock branded medicines. The difference between the PTR and the MRP of the branded-generics can be explained in terms of trade terms and the marketing that the retailer must do to promote and sell the medicine.

125

However the PTR also suggests a large profit margin for the manufacturer of branded medicines. High levels of competition for non-scheduled medicines does not guarantee lower prices The NPPA does not set the price of non-scheduled medicines; in theory, market competition will bring medicine prices to their lowest possible value. In the survey, 5 versions of amoxicillin, 12 versions of atorvastatin and 7 versions of omeprazole were found. As Table7 shows, the price of the branded versions of amoxicillin, atorvastatin and omeprazole remains much higher than that of the branded-generic versions of these medicines. Pricing of life saving drugs The government today reduced basic customs duty on influenza vaccine and nine other specified life saving drugs used for treating breast cancer, hepatitis-B, rheumatic arthritis, etc. The government has also reduced basic customs duty for two bulk drugs used in manufacturing these medicines from 10 per cent to five per cent. Bulk drugs are processed raw materials used in manufacturing the final doses of medicines. "They (influenza vaccines, nine medicines and two bulk drugs) will also be totally exempt from excise duty and countervailing duty," Finance Minister Pranab Mukherjee said while presenting the Budget in the Lok Sabha today. Besides this, customs duty will also be reduced from 7.5 per cent to five per cent on two specified life-saving devices used in treating heart ailments. The government is actively considering bringing 355 life saving drugs under price control and take a few additional measures to help the poor and below poverty line (BPL) families, once the Union Cabinet approves National Pharmaceutical Policy. "The government is committed to ensure the availability of life saving drugs at reasonable prices. The National Pharmaceutical Pricing authority (NPPA) has taken a number of measures to this effect," said union minister of chemicals, fertilizers and minister of Steel Ram Vilas Paswan said on Friday in the Rajya Sabha. He said that the Pharmaceutical Policy is under consideration of the Cabinet after it has been vetted by a Group of Ministers (GoM) headed by Union Agriculture Minister Sharad Pawar. Responding to the demand of members to enumerate the suggestions of the GoM, Paswan said, "I cannot divulge the details of the GoM till Cabinet clears it."

126

The minister informed the House that 74 bulk drugs specified in the First Schedule of the Drugs (Price) control Order (DPCO) 1995 and the formulations based thereon are under price control and their prices are fixed/revised NPPA in accordance with the provisions of DPCO. "It is under active consideration to bring 355 additional life saving drugs under price control," said Paswan. He also informed that the government has recently approved a Health Insurance Scheme 'The Rashtriya Swasthya Bima Yojana', which is expected to cover all the BPL families in the unorganized sector in the next five years. The total sum insured would be Rs 30,000 per family per annum to cover hospitalization expenses, he said. Pricing of generic drugs The generic drugs are less expensive as compared to branded drugs as generic manufacturers do not have the investment costs of the developer of a new drug. New drugs are generally developed under patent protection. The patent protects the investment and the associated expense, viz. research, development, marketing and promotion. When patents are nearing expiration, manufacturers usually approach the Government/Drug Control Department to sell generic versions. In the process, the consumers get genetic drugs at substantially lower costs. Both branded and generic drugs are manufactured by conforming to International standards. Brand name drugs are usually given patent protection for 20 years from the date of submission of the patent. This provides protection for the innovator of such drugs to make good the initial costs incurred by him, viz., research development and marketing expenses, to develop the new drug. Many drug companies start manufacturing generic drugs once the patent license expires for a branded drug. The physician plays a vital role to determine whether his patient needs a branded drug or generic drug. This is because a generic substitution may not be appropriate in certain circumstances where only a branded drug would be suitable for the patient. There are only rare circumstances where substituting a generic drug for a brand name product (or vice versa) may not be appropriate for a particular patient. For some patients, generic substitution may be inappropriate due to reactions to inactive ingredients or problems with the pill shape, colour or related characteristics. Patients should become assertive and insist upon the doctors to prescribe generic drugs if available, so that the patient would get the product at the best possible price. Pharmacists also 127

play a vital role in educating the doctors about the availability of generic drugs. Thus the right medication could be given to the patients at the best possible price. Generics are as good as branded drugs and in view of third party administrators having entered in the Indian health care scenario, the patients are sanctioned only the minimum amount when hospitals send authorizations for approval of treatment. Thus if generic drugs are bought by the patient, the patient may not lose money by going in for branded drugs, which are too costly.

Table-2 List of Generic Items for which Price Agreement available on Private Firms as on 29-05-2008 (excluding the de-registered items as on 28.01.09) validity 01.04.2007-31.03.2010

SlNO

VMS_C ODE

VMS_NAME

SPECI FICA TION

PACK ING

SHELF _LIFE

ACC_ UNIT

Rate Appro ved

manf_name

1.

G26002

DEXTROSE 5% INJECTION 500ML BOTT

IP

500ML POLY PACK

36 MONTH S 36 MONTH S

11.3 ALBERT DAVID LTD.

2.

G26004

SODIUM CHLORIDE 0.9% AND DEXTROSE 5% INJECTION 500ML BOTT

IP

500ML POLY PACK

11.3 ALBERT DAVID LTD.

3.

G26005

SODIUM CHLORIDE 0.9% INJECTION 500ML BOTT

IP

500ML POLY PACK

36 MONTH S

11.2 ALBERT DAVID LTD.

4.

G26009

RINGER LACTATE (COMPOUND SODIUM LACTATE

IP

500ML POLY PACK

36 MONTH S

11.75 ALBERT DAVID LTD.

128

INJECTION)500M L 5. G21002 CHLORAMPHEN ICOL 1% OINTMENT EYE APPLICAPS IP BOTT OF 100'S 24 MONTH S 100 24 ANOD PHARMAC EUTICALS PRIVATE LTD 6. G21024 ATROPINE SULPHATE 1% EYE OINTMENT 5GM IP 5G TUBE 24 MONTH S 10 79.44 ANOD PHARMAC EUTICALS PRIVATE LTD 7. G27012 VITAMIN A 50,000 IU CAPSULES USP STRIP OF 10 24 MONTH S 100 56.88 ANOD PHARMAC EUTICALS PRIVATE LTD 8. G03002 CHLORPHENIRA MINE MALEATE 4 MG TABLETS IP STRIP OF 10 36 MONTH S 10 0.56 ARBRO PHARMAC EUTICALS LTD 9. G10005 FOLIC ACID 5 MG TABLETS IP STRIP OF 10 24 MONTH S 10 0.63 ARBRO PHARMAC EUTICALS LTD 10. G12038 ATENOLOL 100 MG TABLETS IP STRIP OF 10 36 MONTH S 10 2.11 ARBRO PHARMAC EUTICALS LTD 11. G17012 METOCLOPRAM IDE IP 30ML BOTT 129 24 MONTH 1 4.55 ARBRO PHARMAC

HYDROCHLORI DE 5 MG / ML SYRUP 30ML 12. G17014 PROCHLORPER AZINE MALEATE 5 MG TABLETS 13. G17025 BISACODYL 5 MG TABLETS. IP STRIP OF 10 IP STRIP OF 10

EUTICALS LTD

36 MONTH S

10

0.83 ARBRO PHARMAC EUTICALS LTD

24 MONTH S

10

1.4 ARBRO PHARMAC EUTICALS LTD

14. G18004

PREDNISOLONE 5 MG TABLETS

IP

STRIP OF 10

36 MONTH S

10

1.94 ARBRO PHARMAC EUTICALS LTD

15. G18017

GLIBENCLAMID E 5 MG TABLETS

IP

STRIP OF 10

36 MONTH S

10

0.71 ARBRO PHARMAC EUTICALS LTD

16. G25008

SALBUTAMOL SULPHATE 4 MG TABLET

IP

STRIP OF 10

36 MONTH S

10

0.76 ARBRO PHARMAC EUTICALS LTD

17. G03004

DEXAMETHASO NE 0.5 MG TABLETS

IP

10X10

36 MONTH S

100

9.46 ARVIND REMEDIES

18. G05001

CARBAMAZEPI NE 100 MG TABLETS

IP

10X10

36 MONTH S

100

33 ARVIND REMEDIES

19. G08001

AZATHIOPRINE 50 MG TABLETS

BP

10X10

24 MONTH

100

169 ARVIND REMEDIES

130

S 20. G12007 METOPROLOL TARTRATE 50 MG TABLETS 21. G18016 GLIBENCLAMID E 2.5 MG TABLETS 22. G24003 CHLORPROMAZ INE HYDROCHLORI DE 100 MG TABLETS 23. G27008 RIBOFLAVIN 5 MG TABLETS NOT MENT IONE D 24. G11009 FACTOR VIII CONCENTRATE DRIED INJECTION 25. G12068 STREPTOKINAS E 15,00,000 IU INJECTION NOT MENT IONE D CPT 10 ML VIAL 2 YEARS 1 650 BHARAT BIOTECH INTERNATI ONAL LTD. 26. G19010 HEPATITIS B VIRUS VACCINE INJECTION 10 DOSES 27. G05012 SODIUM VALPROATE 200 MG TABLETS BP 10 X 10 STRIP 131 2 YEARS 100 CPT 10 ML VIAL 3 YEARS 1 99 BHARAT BIOTECH INTERNATI ONAL LTD. 72 BHARAT PARENTER ALS LTD. 250IU/ PER VIAL 24 MONTH S 1 2750 BAXTER (I) PVT LTD. 10 X10 18 MONTH S 100 19 ARVIND REMEDIES IP 10 X10 IP TUBE IP 10 X10 24 MONTH S 36 MONTH S 36 MONTH S 100 42 ARVIND REMEDIES 100 15 ARVIND REMEDIES 100 40 ARVIND REMEDIES

28. G06099

AMPHOTERICIN -B 50 MG FOR INJECTION

BP

50 MG VIAL

2 YEARS

117 BHARAT PARENTER ALS LTD.

29. G12049

METHYLDOPA 250 MG TABLETS

IP

10 X 10

4 YEARS

100

135 BHARAT PARENTER ALS LTD.

30. G25004

HYDROCORTISO IP NE SODIUM SUCCINATE 100 MG INJECTION

100 MG VIAL

2 YEARS

6.66 BHARAT PARENTER ALS LTD.

31. G20001

ATRACURIUM BESYLATE 10 MG / ML INJECTION2.5M L

USP

2.5 AMP

2 YEARS

51 BHARAT SERUMS AND VACCINES LTD.

32. G04002

ANTISNAKE VENOM INJECTION POLYVALENT SOLUTION/ LYOPHILYZED POLYVALENT SERUM SNAKE VENOM ANTISERUM

IP

10 ML VIAL

2 YEARS

250 BIOLOGIC AL E. LIMITED

33. G25002

BECLOMETHAS ONE DIPROPIONATE 50 MG DOSE INHALER 200MD

NOT MENT IONE D

CONT OF

36 MONTH

78.9 CIPLA LIMITED.,

200MD S

34. G25010

SALBUTAMOL

NOT

CONT 132

36

51.9 CIPLA

100 MCG / DOSE

MENT

OF 200MT D 10 ML VIAL

MONTH S

LIMITED.,

INHALER-200MD IONE D 35. G01005 KETAMINE HYDROCHLORI DE 50 MG / ML INJECTION 2ML 36. G01011 BUPIVACAINE HYDROCHLORI DE 0.5% INJECTION 20ML 37. G04010 PRALIDOXIME CHLORIDE (2PAM) INJECTION 1G 38. G06115 ACICLOVIR 250 MG INJECTION INTRAVENOUS INFUSION 39. G10011 HEPARIN SODIUM 1000 IU / ML INJECTION 5ML 40. G10012 HEPARIN SODIUM 5000 IU / ML INJECTION 2ML 41. G10014 PROTAMINE SULPHATE 10 MG / ML IP IP IP CPT IP IP IP

2 YEARS

11.5 CIRON DRUGS

20 ML VIAL

24 MONTH

14 CIRON DRUGS

20 ML VIAL

2 YEARS

68 CIRON DRUGS

10 ML AMP

24 MONTH

48.75 CIRON DRUGS

5 ML AMP

24 MONTH

10.75 CIRON DRUGS

5 ML AMP

24 MONTH

28 CIRON DRUGS

5 ML AMP

NOT MENTI ON

16.8 CIRON DRUGS

133

INJECTION 10ML 42. G12061 DIGOXIN 0.25 MG / ML INJECTION 2ML 43. G12063 DOBUTAMINE 50MG/ML INJECTION 5ML 44. G14003 TROPICAMIDE 1% EYE DROPS 45. G21014 XYLOMETAZOL INE HYDROCHLORI DE 0.1% NASAL DROPS 10ML 46. G21023 TIMOLOL MALEATE 0.5% EYE DROPS 5ML 47. G24009 HALOPERIDOL 5 MG / ML INJECTION 1ML 48. G01020 DIAZEPAM 5 MG IP / ML INJECTION 2ML 2 ML AMP IP 1 ML VIAL NOT MENTI ON 2 YEARS 1 0.89 ENDOVEN PHARMAC EUTICALS PVT. LTD. 49. G06145 CHLOROQUINE PHOSPHATE (EQUIVALENT TO 40MG OF CHLOROQUINE/ ML) INJECTION 134 IP 5ML AMP 2 YEAR 1 1.45 ENDOVEN PHARMAC EUTICALS PVT. LTD. 1 3.8 CIRON DRUGS IP 5 ML BOTT 2 YEARS 1 9 CIRON DRUGS IP IP 5 ML BOTT 10 ML BOTT 2 YEARS 2 YEARS 1 1 18 CIRON DRUGS 7 CIRON DRUGS USP 5 ML AMP 2 YEARS 1 24 CIRON DRUGS IP 2 ML VIAL 2 YEARS 1 4.25 CIRON DRUGS

50. G21004

GENTAMICIN SULPHATE 0.3% DROPS 5ML

BP

5ML VIAL

2 YEAR

2.71 ENDOVEN PHARMAC EUTICALS PVT. LTD.

51. G22002

METHYL ERGOMETRINE MALEATE 0.2 MG / ML INJECTION 1ML

IP

1ML AMP

18 MONTH

1.09 ENDOVEN PHARMAC EUTICALS PVT. LTD.

52. G18023

CLOMIPHENE CITRATE50 MG TABLETS

CPT

10 X 10

NOT MENTI ONED

100

79.95 IND-SWIFT LIMITED.,

53. G12020

DILTIAZEM HYDROCHLORI DE 60 MG TABLETS

CPT

STRIP OF 10

36 MONTH S

10

2.9 JB CHEMICAL S& PHARMAC EUTIALS LTD.

54. G05002

CARBAMAZEPI NE 200 MG TABLETS

IP

10X10

3 YEAR

100

39.99 LEGEND DRUGS & FORMULA TINOS PVT. LTD

55. G17021

DICYCLOMINE HYDROCHLORI DE 10 MG TABLETS

IP

10 X10

3 YEAR

100

7.89 LEGEND DRUGS & FORMULA TINOS PVT. LTD

56. G12036

AMLODIPINE 10 MG TABLETS

BP

10 X 10

3 YEARS

100

22.4 LINCOLN PHARMAC EUTIALS

135

LTD. 57. G12054 NIFEDIPINE 10 MG SUSTAINED RELEASE CAPSULES OR TABLETS 58. G17024 HYOSCINE BUTYL BROMIDE 20 MG / ML INJECTION 1ML 59. G12045 ENALAPRIL MALEATE 10 MG TABLETS IP STRIP OF 10 24 MONTH S 10 2.1 MEDLEY PHARMAC EUTICALS LTD. 60. G17023 HYOSCINE BUTYL BROMIDE 10 MG TABLETS 61. G02007 PARACETAMOL 150 MG / ML INJECTION 2ML AMP 62. G03001 ADRENALINE BITARTRATE 1 MG / ML INJECTION 1ML AMP 63. G06003 MEBENDAZOLE 100 MG TABLETS 136 IP 10 X 10 18 MONTH S 100 12 MODERN LABORAT ORIES IP 1ML AMP 12 MONTH S 1 1.4 MODERN LABORAT ORIES IP 2ML AMP 18 MONTH S 1 1.18 MODERN LABORAT ORIES CPT STRIP OF 10 NOT MENTI ONED 100 63.82 MERCURY LABS PVT LTD. BP 1 ML AMP 2 YEARS 1 3.96 LINCOLN PHARMAC EUTIALS LTD. IP 10 X 10 3 YEARS 100 17.9 LINCOLN PHARMAC EUTIALS LTD.

64. G06031

CLOXACILLIN SODIUM 250 MG CAPSULES

IP

10X10

18 MONTH S

0.73 MODERN LABORAT ORIES

65. G06034

CLOXACILLIN SODIUM 125 MG / 5 ML SYRUP 40ML BOTT

IP

60ML BOTT

18 MONTH S

8.4 MODERN LABORAT ORIES

66. G06042

CEPHALEXIN 125 MG / 5 ML ORAL SUSPENSION 30ML

IP

30ML BOTT

18 MONTH S

6.75 MODERN LABORAT ORIES

67. G06048

CHLORAMPHEN ICOL 250 MG CAPSULES

IP

10X10

24 MONTH S

0.72 MODERN LABORAT ORIES

68. G06049

CHLORAMPHEN ICOL 500 MG CAPSULES

IP

10X10

24 MONTH S

1.34 MODERN LABORAT ORIES

69. G06057

ERYTHROMYCI N ESTOLATE 125 MG / 5 ML ORAL SUSPENSION 60ML BOTT

IP

60ML BOTT

18 MONTH S

15.6 MODERN LABORAT ORIES

70. G06063

NALIDIXIC ACID 250 MG TABLETS

IP

10 X 10

18 MONTH S

100

114 MODERN LABORAT ORIES

71. G06143

ARTESUNATE 60 NOT MG INJECTION PER VIAL MENT IONE D

VAIL

18 MONTH S

34 MODERN LABORAT ORIES

72. G06146

CHLOROQUINE

CPT

60ML 137

24

5.75 MODERN

PHOSPHATE 50 MG / 5 ML SYRUP 60ML 73. G06152 PYRIMETHAMIN IP E AND SULFADOXINE (25MG+500MG) TABLETS 74. G15009 POVIDONE IODINE 5% SOLUTION 500ML 75. G17013 METOCLOPRAM IDE HYDROCHLORI DE 5 MG / ML INJECTION 2ML AMP 76. G21001 CHLORAMPHEN ICOL 0.5% DROPS EYE 5ML 77. G25007 SALBUTAMOL SULPHATE 2 MG TABLETS 78. G01004 KETAMINE HYDROCHLORI DE 10 MG / ML INJECTION 10ML 79. G03006 PHENIRAMINE MALEATE 22.75 IP IP IP IP IP IP

BOTT

MONTH S

LABORAT ORIES

10 X 10

24 MONTH S

100

119 MODERN LABORAT ORIES

500ML BOTT

24 MONTH S

34.9 MODERN LABORAT ORIES

2ML AMP

18 MONTH S

1.14 MODERN LABORAT ORIES

5ML VIAL

18 MONTH S

3 MODERN LABORAT ORIES

10 X 10

24 MONTH S

100

13 MODERN LABORAT ORIES

10ML VIAL

18 MONTH S

8.14 NANDANI MEDICAL LABORAT ORIES PVT LTD

2ML AMP 138

18 MONTH

1.05 NANDANI MEDICAL

MG / ML INJECTION 2ML

LABORAT ORIES PVT LTD

80. G06029

CEFUROXIME SODIUM 250 MG, INJECTION

USP

250MG 18 VIAL MONTH S

11.05 NANDANI MEDICAL LABORAT ORIES PVT LTD

81. G06033

CLOXACILLIN SODIUM 250 MG INJECTION

IP

250MG 18 VIAL MONTH S

2.79 NANDANI MEDICAL LABORAT ORIES PVT LTD

82. G06046

CHLORAMPHEN ICOL SODIUM SUCCINATE 1 G INJECTION

IP

1G VIAL

18 MONTH S

9.6 NANDANI MEDICAL LABORAT ORIES PVT LTD

83. G06151

QUININE DIHYDROCHLO RIDE 300 MG / ML INJECTION 2ML

IP

2ML AMP

18 MONTH S

5.89 NANDANI MEDICAL LABORAT ORIES PVT LTD

84. G17019

PROMETHAZINE IP HYDROCHLORI DE 25 MG / ML INJECTION 2ML

2ML AMP

18 MONTH S

1.11 NANDANI MEDICAL LABORAT ORIES PVT LTD

85. G17022

DICYCLOMINE HYDROCHLORI DE 10 MG / ML

IP

2ML AMP

18 MONTH S

1.11 NANDANI MEDICAL LABORAT

139

INJECTION 2ML

ORIES PVT LTD

86. G22004

OXYTOCIN 5 IU / IP ML INJECTION 1ML

1ML AMP

18 MONTH S

1.74 NANDANI MEDICAL LABORAT ORIES PVT LTD

87. G24005

CHLORPROMAZ INE HYDROCHLORI DE 25 MG / ML INJECTION 2ML

IP

2ML AMP

18 MONTH S

1.28 NANDANI MEDICAL LABORAT ORIES PVT LTD

88. G01021

MIDAZOLAM 1 MG / ML INJECTION 5ML

BP

5 ML VIAL

NOT MENTI ONED

15.05 NEON LAB .LTD

89. G01022

MIDAZOLAM 5 MG / ML INJECTION5ML

BP

1 ML AMP

NOT MENTI ONED

17.25 NEON LAB .LTD

90. G05007

PHENOBARBITO NE 200 MG / ML INJECTION 1ML

IP

1 ML VIAL

18 MONTH S

11.45 NICHOLAS PIRAMAL INDIA LIMITED.

91. G12032

VERAPAMIL HYDROCHLORI DE 80 MG TABLETS

CPT

STRIP OF 10

36 MONTH S

10

9.96 NICHOLAS PIRAMAL INDIA LIMITED.

92. G12047

LOSARTAN POTASSIUM 25 MG TABLETS

CPT

STRIP OF 10

2 YEARS

10

2.86 PARENTER AL DRUGS (I) LTD.

93. G12048

LOSARTAN POTASSIUM 50

CPT

STRIP OF 10 140

2 YEARS

10

4.68 PARENTER AL DRUGS

MG TABLETS 94. G26012 WATER FOR INJECTION 5 ML AMP 95. G26013 WATER FOR INJECTION 10 ML 96. G08003 CYCLOSPORINE 25 MG CAPSULES 97. G08004 CYCLOSPORINE 50 MG CAPSULES 98. G08005 CYCLOSPORINE 100 MG CAPSULES 99. G08006 CYCLOSPORINE 100 MG / ML CONCENTRATE FOR INJECTION 50ML 100. G19009 D.P.T VACCINE INJECTION-10 DOSES CPT VIAL NOT MENTI ONED 1 USP 50 ML BOTT 24 MONTH S 1 USP STRIP OF 5 3 YEARS 5 USP STRIP OF 5 3 YEARS 5 USP STRIP OF 5 3 YEARS 5 CPT 10ML AMP IP 5 ML AMP 36 MONTH S 3 YEARS 1 1

(I) LTD. 0.96 PARENTER AL DRUGS (I) LTD. 1.5 PARENTER AL DRUGS (I) LTD. 55 R.P.G LIFE SCIENCES LIMITED 90 R.P.G LIFE SCIENCES LIMITED 160 R.P.G LIFE SCIENCES LIMITED 1500 R.P.G LIFE SCIENCES LIMITED

15.75 SHANTA BIOTECHN ICS PVT. LTD.

101. G12034

AMLODIPINE 2.5 MG TABLETS

CPT

STRIP OF 10

2 YEARS 2 YEARS 3 YEARS

10

1.22 STADMED PVT. LTD.

102. G12035

AMLODIPINE 5 MG TABLETS

CPT

STRIP OF 10

10

1.41 STADMED PVT. LTD.

103. G12052

NIFEDIPINE 10 MG TABLETS

IP

STRIP OF 10 141

10

0.76 STADMED PVT. LTD.

104. G12058

TERAZOSIN 2 MG TABLETS

CPT

STRIP OF 10

3 YEARS 3 YEARS

10

4.52 STADMED PVT. LTD.

105. G24002

CHLORPROMAZ INE HYDROCHLORI DE 50 MG TABLETS

IP

STRIP OF 10

10

2.92 STADMED PVT. LTD.

106. G24007

HALOPERIDOL 5 MG TABLET

IP

STRIP OF 10

3 YEARS 3 YEARS

10

0.94 STADMED PVT. LTD.

107. G24010

TRIFLUOPERAZI NE HYDROCHLORI DE 5 MG TABLET

IP

STRIP OF 10

10

1.35 STADMED PVT. LTD.

108. G24023

NITRAZEPAM 10 MG TABLETS

IP

STRIP OF 10 5X1 ML AMP

3 YEARS 2 YEARS

10

1.47 STADMED PVT. LTD.

109. G04008

NALOXONE HCL USP 0.4 MG / ML INJECTION

321.9 TROIKAA PHARMAC EUTICALS LTD.

110. G12012

ADENOSINE 3MG / ML INJECTION

USP

2ML AMP

3 YEARS

138.19 TROIKAA PHARMAC EUTICALS LTD.

111. G12013

AMIODARONE 100 MG TABLETS

IP

10 X 10

3 YEARS

100

130 TROIKAA PHARMAC EUTICALS LTD.

112. G12014

AMIODARONE 200 MG TABLETS

IP

10 X 10

3 YEARS

100

243.9 TROIKAA PHARMAC EUTICALS

142

LTD. 113. G12015 AMIODARONE 150 MG INJECTION BP 5X 3ML AMP 3 YEARS 5 117.62 TROIKAA PHARMAC EUTICALS LTD. 114. G20004 PANCURONIUM BROMIDE 2 MG/ML INJECTION 2ML 115. G09002 BROMOCRIPTIN E MESYLATE2.5 MG TABLETS 116. G18022 CLOMIPHENE CITRATE25 MG TABLETS 117. G18024 CLOMIPHENE CITRATE 100 MG TABLETS 118. G18026 MEDROXY PROGESTERONE ACETATE 10 MG TABLETS 119. G02015 ALLOPURINOL 100 MG TABLETS 120. G05005 PHENOBARBITO NE 30 MG TABLETS 121. G05006 PHENOBARBITO NE 60 MG TABLETS 143 CPT 10 X 10 3 YEARS 100 CPT 10 X 10 3 YEARS 100 CPT 10 X 10 3 YEARS 100 65 UNICURE (I)PVT. LTD. 13.96 UNICURE (I)PVT. LTD. 24.43 UNICURE (I)PVT. LTD. USP STRIP OF 10 BP STRIP OF 5 BP STRIP OF 10 IP STRIP OF 10 30 MONTH S 54 MONTH S 54 MONTH S 36 MONTH S 10 5 10 10 BP 5X 2ML AMP 2 YEARS 5 50.76 TROIKAA PHARMAC EUTICALS LTD. 18.9 UNI SANKYO LTD 16 UNI SANKYO LTD 25 UNI SANKYO LTD 21 UNI SANKYO LTD

122. G06004

MEBENDAZOLE 100 MG / 5 ML SUSPENSION 30ML

CPT

30 ML BOTT

18 MONTH S

5.82 UNICURE (I)PVT. LTD.

123. G06008

DIETHYLCARBA CPT MAZINE CITRATE 50 MG TABLETS

10 X 10

36 MONTH S

100

9 UNICURE (I)PVT. LTD.

124. G06065

NITROFURANTO CPT IN 100 MG TABLETS

10 X 10

36 MONTH S

100

44 UNICURE (I)PVT. LTD.

125. G08020

DANAZOL 50 MG CAPSULES

CPT

10 X 10

24 MONTH S

100

378.27 UNICURE (I)PVT. LTD.

126. G08021

DANAZOL 100 MG CAPSULES

CPT

10 X 10

24 MONTH S

100

687.76 UNICURE (I)PVT. LTD.

127. G08046

TAMOXIFEN CITRATE 10 MG TABLETS

CPT

10 X 10

36 MONTH S

100

33.73 UNICURE (I)PVT. LTD.

128. G08047

TAMOXIFEN CITRATE 20 MG TABLETS

CPT

10 X 10

36 MONTH S

100

63.98 UNICURE (I)PVT. LTD.

129. G12010

PROPRANOLOL HYDROCHLORI DE 40 MG TABLETS

CPT

10 X 10

36 MONTH S

100

13.96 UNICURE (I)PVT. LTD.

130. G18005

PREDNISOLONE 10 MG TABLET

CPT

10 X 10

36 MONTH S

100

40.7 UNICURE (I)PVT. LTD.

131. G18014

ETHINYLESTRA

CPT

10 X 144

36

100

98.87 UNICURE

DIOL 0.01 MG TABLETS 132. G18015 ETHINYLESTRA DIOL 0.05 MG TABLETS 133. G18027 NORETHISTERO NE 5 MG TABLETS 134. G24013 FLUOXETINE HYDROCHLORI DE 20 MG CAPSULES 135. G24022 NITRAZEPAM 5 MG TABLETS CPT CPT CPT CPT

10

MONTH S

(I)PVT. LTD. 100 139.58 UNICURE (I)PVT. LTD. 100 75.61 UNICURE (I)PVT. LTD. 100 25.59 UNICURE (I)PVT. LTD.

10 X 10

36 MONTH S

10 X 10

36 MONTH S

10 X 10

24 MONTH S

10 X 10

36 MONTH S

100

18.61 UNICURE (I)PVT. LTD.

136. G15002

COMPOUND BENZOIN TINCTURE 500ML

IP

500 ML BOTT

5 YEARS

63.45 UNIJULES LIFE SCIENCES LTD

137. G18018

INSULIN (SOLUBLE) 40 IU / ML INJECTION 10ML

USP

10ML VIAL

NOT MENTI ONED

63.9 WOCKHAR DT LIMITED.,

138. G18019

ISOPHANE INSULIN 40IU/ML INJECTION 10ML

USP

10ML VIAL

NOT MENTI ONED

63.9 WOCKHAR DT LIMITED.,

Source: OPPI 2008

145

CHAPTER-5- PRICE VARIATION IN POPULAR PHARMACEUTICAL COMPANIES- A COMPARATIVE STUDY

Though the pharmaceutical Industry in India has grown with tremendous pace since independence, not more than 40% of the population of our country can enjoy the benefit of modern medicine. Cost of health care is rising rapidly the world over. Experts in our country apprehend that the price of drugs in India too will be high as a consequence of recent changes in global policy, and then it may not be possible to make medicines reach a broad fraction of the population. This may be due to complex socioeconomic reasons, including a number of factors e.g. not following the Essential Drug List, an imperfect drug distribution system, irrational use of medicines, misuse of drugs, multiple prescribing to name a few. Though several investigators worked in this field in different other countries as well as in India there is still a lot of scope for a systematic and well-designed scientific study to identify the reasons and to suggest probable measures to solve the problem. Health administrators and policy makers need to urgently redesign the existing health infrastructure to extend health care to a greater section of people at an affordable cost. For this purpose it is essential to collect data to assess the Drug Utilization Pattern of different countries and to make necessary interventions and policy changes to eliminate the shortcomings present, if any. Indian markets are flooded with a huge number of branded formulations, available for every drug molecule, with simultaneous pricing difference between the different brands of the same formulation. This apart from creating confusion among innocent consumers, often, allows them to be misled by unfair traders. The current study aims to project a representative view of the existing situation, by collecting data about brand availability, and difference in pricing between various brands of 20 drugs, under six therapeutic categories. National availability of different brands (as per CIMS), the number of brands available in the town, city and rural segments in general, in West Bengal are less. It may be due to the fact that all the manufacturers are not marketing each of their products uniformly at all corners throughout the country. Some of them target a specific state or district. Sometimes they may prefer marketing in cities or towns or rural areas. Brands not available are manufactured by less reputed companies. In all sectors, town, city and rural areas, almost equal number of brands are found

146

available, with a slightly higher availability in the cities. This may be due to the higher demand in cities because of more practicing specialist physicians as compared to rural areas, more affordability, and easy access for the city-based population to different brands, due to higher no. of wholesale and retail sale outlets. In case of prednisolone, ibuprofen and

ibuprofen+paracetamol reverse trend was observed. The reason may be that all the products of all manufacturers are not listed in the CIMS. Extra brands available are not popular brands and manufactured by mediocre companies. However, prices of those products were comparable to that of the products of standard companies. Price difference between different brands of products (single drug or drug combinations) were found to vary up to the extent of 881% (in case of amlodipine) on the higher side, 7% (in case of doxycycline) on the lower side. Out of all the brands studied, it was observed that the highest priced brand was the most sold in case of 5 products (single drug/combinations), and the lowest priced brand was the most sold in case of 2 products. This may be due to brand loyalty of the prescribers. If the consumers were the decision makers the picture could have been different, since the price factor would play a major role then. In the National Essential Drugs List and 14 were found in CIMS-1996. Out of these 14 products that were listed in CIMS, 11 products were included in the National EDL. Among these 11 products, prices have increased (over a span of 1996-2004) for 8 products, and decreased for 2 products, and has remained unchanged for one product only. The maximum rise in price has been 131%. Out of the 3 drugs not included in the EDL, price of 2 molecules have increased, over the years but price decrease was noted for one drug. Analysis showed that prices of drugs in general, including those within the scope of EDL, have increased. It was noted that % increment of price of 8 products was less than those of drugs that were not under the purview of DPCO. Prices were reduced for only 2 drugs within DPCO. Large number of brands available for a drug is a matter of concern, since patients get confused, as well as random brand substitution takes place, with disregard to bioequivalence, therapeutic equivalence and cost of treatment. The difference in price between various brands of the same drug is too wide, leading to unfair burden on the consumer. Due consideration must be placed on pricing of drugs in the EDL, to increase their accessibility to common people. The widely divergent prices within developing countries show the lack of transparency and put into question current pricing practices. The existence of market monopolies is the most important 147

determinant of these differences; when multinational drug companies have exclusive marketing rights, they tend to demand the highest possible prices, leaving out of reach for the vast majority of the population leaving in developing countries. Table 1: Compared prices of branded drugs from different countries, in US$. Spain is considered to be the one which has the lowest prices. INDIA UK SPAIN price differential: India vs. Spain price differential: India vs. Spain in % zidovudine 100mg, tab zidovudine mg, tab zidovudine mg, tab ZDV/3TC, 300-150 mg, tab lamivudine mg,tab saquinavir 200mg, tab zalcitabine mg, tab nelfinavir 250 mg, tab itraconazole mg tab ketoconazole mg tab acyclovir 200 mg 0.6 0.41 1.6 x3.9 74 200 0.74 0.27 0.65 x2,4 58 100 2.01 0.88 3.67 x4.2 76 1.51 0.81 2.26 x2.79 64 0.75 2.13 1.12 1.99 x1.77 43.7 0.78 0.75 0.8 x1.06 6.25 150 3.83 1.96 2.25 x1.15 13 8.03 3.59 3.8 x1.06 5.5 300 5.03 1.41 0.69 250 4.2 1.18 0.56 1.68 0.47 2.3 x4.89 79

148

ciprofloxacine 250 mg tab ceftriaxone 250 mg injec.

1.05

0.37

0.96

x2.6

61.5

3.85

2.14

6.3

x13,5

66

Sources: October 2008. Joint UNICEF-UNAIDS-WHO/EDM-MSF Project Table 2: Institutional prices of HIV/AIDS drugs, antibiotics and others in US$ in several countries.
DRUG (INN) zidovudine 100mg tablet lamivudine 150mg tablet AZT+3T C 300+150 mg tab Argentina Brazil Colombia Guatemala India South Africa Thailand Uganda Nigeria 0.2 0.7 1.19 2.5 1.6 2.52 2.3 3.7 6.9 0.3g 1.3 4.09 1.7g 4.4 17.23 0.06g 0.14g 0.96 0.2g 0.1g 0.7g 0.4g 0.2g 0.4 0.4g 0.3g 1.7g 2.4 0.4g 1.1 0.8g 0.7g N/A 3.9 0.9g 1.5 fluconazole tab 200mg (50mg for Nigeria) N/A N/A 0.4g 0.6g 0.6g 4.1 N/A N/A 7.2 1.8g 1.8g 10.9 N/A N/A 0.05g 0.05g N/A 0.4 ceftriaxone 1 g vial ciprofloxac ine 250 mg tab

Price differential: India vs. best price Price differential India vs. best price (%)

12

6.3

9.8

10

10

19

92

88

89.8

90

90

95

149

Source: May 2009 Joint UNICEF-UNAIDS Secretariat-WHO/HTP-MSF Project Table 3: Recent offers by pharmaceutical companies: prices per unit in US$

Cipla(India) (generic company) Hetero(India) (generic company) Aurobindo(India) (generic Cie) Glaxo(Nigeria)

0.15(or 0.26)

0.14

0.66

0.13

0.68

0.45

0.04

0.12

0.89

0.75

0.08

0.37

0.3

0.24 x3

0.94 x 2.5

Price differential: x 2.5 India price Price differential: 60% India vs. best vs. best

66%

61%

price in %

Source: MSF Lagos survey Differences of prices in different countries for the same branded drug: Among the range of prices of the medicines studied, the lowest price in the European Community (Spain) is up to 79% decreased compared to India. (table1) The drugs that have been studied in India come from the companies themselves, and they are usually imported by importers, from the USA and UK mainly. Also for many treatments, companies sell the same drug at very different prices in different countries. For example, Roches rocephine (branded version of ceftriaxone), is 58% less expensive in Colombia than in india. Glaxos Combivir (association of AZT+lamivudine for HIV) is 43% less expensive in Guatemala than in India. Impact of generic competition on prices: 150

The presence or the absence of generic competition is a key determinant of pricing levels. For example in Thailand, after three companies introduced generic versions of fluconazole in 1998, Pfizer dropped its price for fluconazole. A comparison of prices in different countries, where generics clearly show how the generic competition can influence and lower the prices: prices are, on average, 91% more expensive than in other developing countries where there is generic competition. as an example, in Thailand, ceftriaxone inj., an antibiotic is sold at 1.7 US$, 10 times cheaper than in India (17,23 US$ per vial). The offer done by a multinational company in India is still higher than what some generic companies can offer in other countries. For instance, prices in Nigeria are still on average 62% higher than those from generic companies. (table 3) This comparison shows how generic competition can decrease prices and therefore improve access to medicines to the poorest population. Impact of market monopoly: The monopoly and the non-availability of generic medicines have direct repercussions on the prices: table 2 shows an increase of prices in India compared to other countries where there is generic competition in the market up to 91%. Impact of political will: Countries like Brazil (who settled a national protocol on HIV treatment), Senegal (negotiating the AAI) prove that prices can be brought at affordable level for the population. On the other side, countries which import drugs (South Africa, India) have much higher prices. This illustrates that the political will has a direct impact on the pharmaceutical market, and that the government can take national measures which are in favor of the nation. India is facing now a huge problem that is making accessible life-saving drugs. Currently, the drugs (mainly ARVs, OI drugs like antibiotics, antifungal,) are not easily available and not affordable, because of the non-existence of a proper national drug policy, is importing drugs from different countries, without settling an international tender which would bring down the prices. Nevertheless, quality generic combination treatment is available in the world. If large quantities are demanded, generic producers will in a few years be able to bring down the price of most of the medicines.

151

Also, governments are able to make medicines available at lower cost by using the key legal mechanisms. It is the responsibility of the Indian government to make use of these safeguards. There is an ethical imperative to provide treatment to the population. These health exceptions are: Compulsory license: it is one of the element in TRIPs that is designed to mitigate the negative consequences of patent monopoly. According to this article, WTO members states may allow the use of compulsory license to a third party without the owners consent, in specific cases: national emergency, extreme urgency, public non commercial use. Parallel imports: it is based on the principle of exhaustion of rights. When written into national law, this allows cross border trade in a patent product without the permission of the patents owner. Parallel imports allow countries to import brand name products from countries where they are sold at lower prices. for instance, India should be able to import drugs from Spain, the cheapest source of drugs in Europe, instead of other countries like UK. Bolar exception (or early working exception): it allows generic manufacturers to begin preparing generic production and completing regulatory registration before patents expire so that upon expiration they can immediately begin selling their drugs. This provision that promptly after the expiration of the patent, generic cheaper drugs are introduced in the market. All these exceptions are TRIPs compliant and internationally recognized. Therefore, it is a legal tool that governments should use to improve access to essential medicines. DRUG PRICE DIFFERENTIALS ACROSS DIFFERENT RETAIL MARKET

SETTINGS Drugs are a major item of private health spending Drugs, a decisive technology, constitute 20- 60% of total health care expenditure in developing countries (Abel-Smith 1994, WHO/WTO 2001), About 85% of Indias total health expenditure is financed by household out-of-pocket expenditure (Government of India 2002). A major portion of the private health care spending goes to drugs and per capita private drug spending in India is estimated as US $ 16 (Abel-Smith 1994). In other words, expenditure on drugs imposes a major financial burden on households, especially when it is met from out-of-pocket expenditure due to total lack of health insurance and risk protection. This is further compounded by the fact that majority of government health care institutions including those in rural areas lack critical inputs such as drugs (Government of India 2002a). As a result, drug prices act as a strong barrier to 152

seeking effective health care in India, as they are high and people lack purchasing power. There are instances when people go without drugs (by extension without treatment) or buy a small proportion of the required doses of drugs due to high prices. The situation gets increasingly worse as time progresses, as drug prices grow faster than the national or per capita income in India. Modulation, although not clearly estimated, could be 3-5 times higher in India compared to general inflation (about 5-6%). Given 6-7% growth of GDP and 4-5% growth of per capita GDP, modulation cuts into the household budget heavily. The cycle of hyperflation of drug prices heavy financial burden partial/no purchase of drugs goes on and on. Fast paced drug prices also mean that drug buyers get less and less value for money. High drug prices could mean two things; first, cost price of drugs is high due to high research and production cost and second, high mark-up of the retail prices due to lack of competition or cartel behavior. In other words, drug prices can be kept under check through fast and less expensive research and creation of settings that charge less mark-up. High mark-up is an important phenomenon in India particularly after the partial withdrawal of drug price control in recent times. Given this context, this paper analyses the price differentials across various market/ownership settings. Retail prices of 12 commonly used drugs are considered for this purpose. Increasing drug prices and decreasing role for government While the share of drugs in private spending is as high as 60-70% depending on the type of illness, their share in government spending is less than 10% (Varatharajan et al 2002). The effective reach of this 10% itself gets reduced if the drug prices rise faster than the government budget on drugs. In other words, the proportion of drug demand met by the government(s) gets reduced as a result of hike in drug prices. This forces the people to rely heavily on drug retailers. Once they are pushed towards the market, their drug purchase obeys the law of demand. A study in USA reveals that when the overall out-of-pocket expenditure on drugs doubled consumption of drugs went down by 22% (RAND 2004). Studies have also brought out the fact households sought low-cost alternatives following the price rise. The ill-effect of the drug price hike does not spare the insured, as they would have to pay higher premium on account of increased drug prices if the insurance agency agrees to cover the drug cost.

153

In addition to additional financial burden, there could be health ill-effects too. If left untreated or partially treated, the disease in question will get aggravated resulting in death or disability. On the other hand, self-medication, which is another possibility, results in incorrect self-diagnosis and inappropriate dosage thereby, inducing the side effects (Chang and Trivedi 2003). Since there is a negative relationship between self-medication and household economic status, the poor resort more to self-medication and drug forms a very important component of it, Hence rising prices may affect the poor the most. Drug-an unusual commodity Why drug industry, or medical industry, prices shoot up much faster than other prices in an economy? Drugs also display interestingly distinct characteristics compared to general commodities in terms of the usual demand-supply-market relationship. While expansion of production/supply and increased competition reduce the price of other commodities, expansion is associated with an increase in price in case of the medical technology that includes drugs. As mentioned earlier, there are two reasons for this. First, cost of inventing a drug is high because the inventor has to meet a series of ethical standards before the drugs are brought to the market. It means that only a small proportion of the drugs that are developed actually qualify to enter the market. It leaves the inventor with the only option of making up the cost of the wasted drug by including it in the successful drugs. Higher indivisibilities in the production of drugs etc make the industry significant for special attention from researchers, health professionals and policy makers. Monopolistic tendencies prevailing in the drug industry by means of patents and higher capital requirements for a good amount of drugs prevent the industry form getting competitive on its own intrinsically. A brief analysis shows that free market through price competition does not reduce the prices of drugs facing the consumer due to the kind of market structure within which drug industry is placed. The imperfections in the market is predominantly attributed to the incentive structure both the physicians and pharmacists are facing and the nature of the supply side by way of various forms of patent protection, risk involved, indivisibilities in supply etc. Production cost will also be high if the producers strictly adhere to the quality standards. Since drug companies decision to invest in R&D is also determined by the potential profitability of such a venture, it is true that they may invest very little resources on the diseases affecting the economically weaker ones whose purchasing power is very thin. In such case, the profit maximizing companies mostly concentrate on the market of diseases of the rich. For example, of 154

the 1700 odd drugs developed between 1975 and 1998 in the world, only 13 drugs were developed for the poor mans tropical diseases (Mishra et el 2003). Due to the interaction between income and prices elasticity, price margins tend to be higher for drugs demanded by the rich and vice versa. That is the reason why the producers tend to produce the rich persons drugs first. Second, the market for drugs is imperfect in the sense that there exits entry cost. Since the drug sellers enjoy some form of protection from other entries into the market, they have the liberty to fix a higher mark-up when they decide their retail price. Drug companies to compete with each other to offer higher margin to the drug retailers. The prices of the same drug vary this much across different sellers. Principal-agent relationship between the health care provider, especially physician and to some extent pharmacist and the patients also plays a role in drug price hike. Pharmaceutical companies try to woe physicians and pharmacists through aggressive marketing tactics. Drug is one market in which there exists no direct relationship between the consumers and producers in which the agent

physician/pharmacist takes decision on behalf of the consumers. It is well known that if the former are motivated by additional profits in taking a decision, it may compromise the interests of patients, helping the producers/retailers of drugs. It results in prescribing more than what is considered optimal and prescriptions without any scientific justification lead to what is called flat-of the- curve medicine (consuming drugs without improvement in health outcomes) as well as increased financial burden on patients. A study in Satara district of Maharashtra found that irrational prescriptions were more in the private sector than in the government health services (Phadke et al 1995) and the additional burden due to it was more than double when treatment was sought from the former. Unless physician has access to reliable information from non-commercial sources, he/she tends to be primarily influenced by advertisements and drug representatives. Such practices would make the demand curve inelastic thereby facilitating higher mark-up. Indian Context India is one of the very few developing countries which has been fortunate enough to have a well developed and self-reliant drug production basically achieved by the support the domestic industry received from the government as well as the existence of a patent regime favorable to the country. The government helped the domestic private drug companies with bulk drugs at 155

very low costs and also provided a good amount of other incentives like grants for research and development as well as various tax exceptions. However, the government wanted in return that the prices charged for drugs by companies should be accessible to the vast majority of Indians. By means of various regulatory instruments like cost plus mark-up pricing etc, the government has been keeping the prices under check for quite some time. The process based patenting system also helped the domestic companies to adopt what is called reverse engineering and thus able to produce a drug at a fraction of the cost in most of the developed countries. However, India has already made commitments to dismantling these two policies. For example, the amount of drugs whose prices were regulated earlier has come down drastically and the process based patenting is going to a halt within few months. It is often argued that the cost plus mark-up pricing has a built in disincentive to produce drugs efficiently because higher the cost, higher will be the mark-up. However, studies point out that prices of drugs smart moving up when once prices are decontrolled. The existence of large-scale product differentiation through brand names without having significant variation in the chemical contents, advertising, aggressive sales promotion etc reduce the relevance of price competition in the drug market. A brief look at the Indian drug price scenario since 1990s will prove that the decontrolled drugs are having the highest rise in prices. Since 1961, pharmaceuticals have fallen under price regulation in India; a total of 343 drugs accounting for 85% of the drug market were under price control in 1979. Profitability allowed on price-controlled drugs ranged from 40% to 75% (Gupta 2002). The number of drugs under price control was reduced on 74 in 1995 covering only 35% of the drugs. Allowed profitability too went up to 150%. By 2002, the share of drugs under price control went further down to 25% or just 32 drugs. Prior to 1995 when the number of drugs under price control was revised downward, the annual price rise of drugs was estimated at 10-50% (Rare 1999). It would be higher now under price decontrol. Price decontrol seems to have facilitated the growth of Indian Pharmaceutical industry; it registered a growth of 10% between 1996-97 and 2002-03 (CMIE 2004). Sales have gone up by 88,8% from Rs. 161.50 billion in 1996-97 to Rs. 304.80 billion in 2002-03. Selling (advertising) costs represent 15% of the total revenue indicating that pharmaceutical companies indulge in aggressive marketing to sell their products. Obviously, the burden is passed on to the drug buyers. 156

Another feature of the Indian drug market since the mid-1990s has been the increasing concentration of drugs producers. Statistics provided by the Director General of Commercial Intelligence and Statistics (DGCI&S) indicate that the number of drug companies have come down from 252 in 1996-97 to 205 in 2002-03. The Herfindahl Index of Concentration doubled from 0.008 in 1996-97 to 0.016 in 2002-03 (CMIE 2004) implying that the competition is slowing down. Further, the market share of the first 30 companies has gone up from 30.8% of the domestic drug market in 1996-97 to 55.2% in 2002-03. Nevertheless, whether decreased concentration had any unfavorable impact on the drug prices is not known yet. Retail price differentials In addition to the branded drugs that generally comply with quality standards, drug retailers come into contact with local manufacturers of different variants of the same drug. Even branded drugs are sold at different prices. All these contribute to the variability of drug prices when they reach the end users. The price mark-up of different drugs and of different variants of the same drug vary greatly. While it would be difficult to establish the mark-up for local produces, one can try to capture the mark-up for branded ones, as they are likely to have uniform mark-up. In this paper, we attempt to estimate the retail mark-up of 12 commonly used branded drugs in Thiruvananthapuram district. We try to capture the variability in mark-up across five different settings (1) government-owned drug stores, (2) society-owned drug stores, (3) private drug stores in competitive setting, (4) private drug stores in spatial monopoly setting, and (5) private drug stores within hospitals. These are the most prevalent forms for drug stores in Kerala. By society, we mean the medicine shops attached to some public hospitals and run autonomously in which the government do not have a stake in its day-to-day management. Competitive market setting is defined here as a specific place having large number of public as well as private retail medicine shops. Spatial monopoly implies that there is only one private retail medicine shop in a given geographical area.

157

A priori, government-owned drug stores are likely to have the least prices, as they are nonprofit ventures, Society-run stores attempt to make a nominal profit and so, can be termed as not-for profit stores. Prices set by the society will, therefore, be a bit higher than that of the government stores and the mark-up could be up to 5% to cover at least their operational cost. Price stores in a competitive setting, although profit seekers, are likely to compete with each other to set a lower price, unless they form cartels. Cartels are difficult to sustain in practice, especially at the local level. Their prices are likely to be higher than the government and society owned stores. These stores may have a profit margin of about 10-15%. The last two are monopoly settings first is a spatial monopoly and the other is the controlled monopoly. The store existing within a hospital setting may sometimes sell at a lower price, if the hospital decides to use the drug store as its door opener. Prescription medicines play a leading role in health care, but a public debate rages over what these drugs should cost. Todays innovative medicines have turned many diseases that were once virtual death sentences into treatable conditions, including diabetes, congestive heart failure, and some forms of cancer. Prescription drugs can also ease the symptoms of arthritis and other chronic ailments, and they can help prevent degenerative disabilities, such as osteoporosis, that were once considered a normal consequence of aging. Humankindparticularly the citizens of developed nations like the United Stateshas clearly benefited from the efforts of the pharmaceutical industry, yet those efforts can hardly be characterized as altruistic. Producing wonder drugs is one of the most lucrative enterprises in the United States; its average profit margin of 15% has given investors an annual return of 25% during the past decade. Little wonder, then, that Big Pharma is constantly increasing its commitment to R&D. In 2000, companies invested more than $26 billion to discover and develop new medicines. No one disputes the dramatic changes in our quality of life that are attributable to prescription drug advances. But many Americans want to know why the United States has the highest drug prices in the world. During the 2000 presidential campaign, Al Gore criticized the manufacturer

158

of the arthritis drug Lodine for selling it for $108 a month when prescribed for humans and $38 when prescribed for dogs. And why was it necessary for Congress to enact legislation last year that allows pharmacists to import prescription drugs from countries such as Canada, where, due to government price controls, they sell for substantially less than in the United States? Former President Bill Clinton posed that question in October 1999, when he ordered a comprehensive study of why drug prices are so much higher in the United States than elsewhere. Some say the study was Clintons way of getting even with the pharmaceutical industry for its role in killing Clintons plan to add prescription drug coverage to Medicare for the elderly. Pharmaceutical companies use the United States as their safety valve, claims Alan Sager, head of the Access and Affordability Project at Boston Universitys School of Public Health. If other countries negotiate or regulate to win lower prices, drug makers raise their prices on the hapless American consumer. But before you conclude that Big Pharma is ripping us off, keep in mind that finding the correct pricing strategy for prescription drugs is a complex, high-stakes puzzle for drug companies. Covering all the costs of bringing a single new drug to market and achieving commercial successeven after patent protection, cash incentives, tax credits, orphan drug protection, and managed care reimbursements have kicked inrequires complex pricing strategies. Indeed, according to research conducted by Duke University economists Henry Grabowski and John Vernon, from a historical standpoint, only 3 out of 10 drugs have recouped or exceeded their R&D costs. That means those three drugs must be priced so they will earn enough to recover the R&D costs of the seven drugs that were not commercial successes. The pharmaceutical industry correctly points out that the cost of a medicine is not simply the cost of its ingredients. Big Pharma contends that discovering, developing, testing, and gaining regulatory approval for new medicines do not come cheap: As an example, for every 5000 medicines initially evaluated, on average, only five are tested in clinical trials, and only one of those is approved for patient use. Accordingly, the industry strongly believes that revenues from successful medicines must cover the costs of the vast majority of losers. 159

Big Pharmas case Other data cited by the pharmaceutical industry in support of how it prices drugs include the following:
y y

The average cost of bringing one new medicine to market is $500 million. It takes an average of 12 to 15 years to discover and develop a new medicine. Most of that time is spent testing the drug to make sure it is safe.

Although the cost of developing drugs is soaring, the time that companies have to recoup their investment is shrinking because of stepped-up competition from generic drugs.

Companies fund research on future medicines and improvements to existing medicines with revenues from medicines on the market. One out of every five dollars in revenues is poured back into R&D. Pharmaceutical companies now are working on more than 1000 new medicinesfor Alzheimers disease, stroke, cystic fibrosis, and arthritis, to name a few. More than 350 medicines are in the pipeline for cancer alone.

The cost of medicines reflects their enormous valueto patients, society, and the health care system. The industry warns that if drug prices are regulated, pharmaceutical companies may have less incentive to create new medicines because the costs will not be recoverable.

The data just cited suggest that although the pharmaceutical industry as a whole has been enormously successful, only a few large companies with deep pockets can afford to compete in that market because developing drugs is time-consuming, expensive, and risky. For pharmaceutical corporations, investment involves four areas of concern: the development of the drug, which includes all expenses incurred in conducting primary research; testing, which involves the expense of conducting clinical trials required by the FDA to ensure safety and effectiveness; manufacturing, which covers the costs associated with producing the drug (e.g., raw materials, production machinery, and labor); and marketing, which includes expenses incurred to inform physicians, pharmacists, and insurance executives about the drug. Therefore, even under conditions of extensive competition, pharmaceutical prices would be high. The question is, do they need to be as high as they are?

160

Economic theory and price fairness One way to determine what the cost of a drug should be is to apply classical economic concepts. In classical economic theory, the price a corporation charges its customers for a product is the total cost of investment plus a normal profit. Critics of the pharmaceutical industry argue that prices charged by pharmaceutical corporations are unfair to consumers because they are excessive, that is, the profit margin is not normal. Proponents of free market theory argue that as long as free market forces determine the selling price of pharmaceutical products, the price charged is, by definition, fair. In a free market, there are two pricing models: opportunity-based pricing and risk-based pricing. Opportunity-based pricing sets the price at the highest possible level that buyers are willing to pay, without increasing production volume to the point where it diminishes total profit. Under this model, some patients are inevitably priced out of the market, but this is considered a problem outside the purview of economics. Risk-based pricing accounts for the financial and market risks that a company takes by pursuing an economic opportunity in a given market. The greater the risk taken by the company, the higher the expectation for profit. Conversely, the lower the risk, the lower the profit expectation. Under a risk-based pricing policy, an unfair price is one that is set higher than the risk exposure can justify. Both pricing models are indifferent to the actual distribution of a product among consumers, making it impossiblein theoryfor pharmaceutical companies to exercise any social obligations toward price-sensitive patients by adjusting prices. Obviously, pure economic theory will not help us determine how drugs should be priced. Those who believe that there should be some degree of price regulation argue that you cannot evaluate the fairness of a drug-pricing policy unless you examine how it affects both sellers and buyers. They contend that drug prices that result from either opportunity-based or risk-based pricing and that therefore end up depriving some buyers of necessary, lifesaving drug treatment are unfair. Of the two pricing models, this group prefers the cost-based pricing model because it takes into account a companys total investment in product development, testing, manufacture, and 161

marketing and then sets profit margins at a certain reasonable percentage. The immediate question raised by this preference is, how do you define reasonable? Some take the view that a reasonable price is one in which the selling price does not greatly exceed the full cost of researching, developing, manufacturing, marketing, and distributing the drug, where costs include a return on the investment sufficient to cover the investors risks of failure and the opportunity costs of capital. In other words, a fair price is one that allows an investorin this case a pharmaceutical companyto earn a profit that is comparable to profits (investment returns) that are available in other enterprises. Although economists canand doput forward different pricing concepts, models, and theories, the general public will never view the pricing of pharmaceuticals in this context. A drug can save someones lifehow can you put a price on that? Certainly not by discussing such esoterica as opportunity-based and risk-based pricing. Price controls Price controls have been tried numerous times but have not worked. Instead, they tend to produce shortages and black markets. Price controls on oil and natural gas in the 1970s led to widespread artificial shortages and long lines at the gasoline pump. There is no question that price controls on pharmaceuticals would discourage investment in drug research. If we accept what the industry tells usthat it takes $500 million and 1215 years to bring a drug to marketthen investors will probably put their money elsewhere unless there is a possibility of a return on that investment commensurate with its high risk. Even the threat of price controls can push down research spending just when we need new treatments most. In fact, every year since 1980, pharmaceutical companies have increased research spending by double digitsexcept in 1994 and 1995, just after price controls were proposed as part of the Clinton health care reform plan. The United States is the world leader in pharmaceutical innovationat least in part because of its relatively free market for pharmaceuticals. Nearly half of the major prescription drugs developed during the past two decades originated in the United States. It is no accident that the

162

United Stateswhere free market competition is allowed to determine pricesproduces the most innovation, and that countries with price controls on pharmaceuticals produce the least. The bottom line The argument made by the pharmaceutical industry in support of its pricing structure is compelling. It can indeed cost millions of dollars and take many years to research, develop, test, and market a new drug. But there are other industriesthe defense industry for onewith similar attributes. There is nothing unique about the drug pricing process. Pharmaceutical companies strive to recover all their costs and make a profit that will satisfy shareholders. In formulating a pricing strategy to recover all the costs associated with developing and marketing a prescription drug, pharmaceutical companies tend to charge what they think the market will bear. The natural tendency is to set different prices for different markets, which is called differential pricing. Drugs sold for humans generally sell for more than drugs sold for animals. Drugs sold in rich countries are priced higher than drugs sold in poor countries. Thats why a daily dose of the AIDS drug PLC sells for $18 in the United States and $9 in Uganda. In many developing nations, prescription drugslike most other commoditiesare often priced lower than in developed countries. In these countries, per capita incomes are much lower than in the United States. If U.S. prices were charged, there would be few buyers. In some cases, prescription drugs are available at a price that enables a pharmaceutical company to cover the extra costs of selling its product in that market and to make some contribution to funding ongoing and future R&D costs. Price variation is an entirely normal phenomenon. This is even true for prescription drugs that are sold at the retail level. Shop around and see for yourself. Its true in many countries for all manner of products, which is not surprising, given the fact that local supply and demand conditions differ from country to country. Differences exist not only in the prices of basic consumer items such as food and groceries, but also in the prices of items that depend on creative ability, such as college tuition and professional services. In many international comparisons, drug prices are highest in the United States, but for other commodities, prices are higher elsewhere. A McDonalds Big Mac costs more than three times as much in Switzerland as in

163

Hungary, while the price in the United States is in the middle of the range. The price of a cappuccino at Starbucks is about twice as high in Tokyo as in New Zealand. Another factor to consider is the extent and nature of the generic drug industry. The United States has a vital generic drug industry, thanks in large part to the 1984 passage of the Waxman Hatch Act. Under this law, the entry of generic products into the marketplace is greatly facilitated when the patent of an innovative product expires. Generics significantly affect the prices that American consumers pay for drugs. In this country, generics compete fiercely with each other, with the innovators brand, and with other patented products. When a patent expires, generic products enter the marketplacedriving down the sales of the non-patent-protected innovators products as well as the prices of the generic counterparts through market competition. The entry of generic therapies is, and promises to be, increasingly important in this country as a means of cost containment. In 2000, 39 innovative drugs, with 1998 worldwide sales exceeding $13 billion, lost patent protection, and this year, an additional 34 drugs with more than $15 billion in 1998 revenues will be subject to generic competition. A global mix Many other complexities confound cross-country comparisons of pharmaceutical prices. Indeed, to assess the overall impact on consumers, it is essential to look at an entire market basket of products. Patricia M. Danzon has created an extensive body of research. Danzon is the Celia Z. Moh Professor of Health Care Systems, Insurance, and Risk Management at the Wharton School of the University of Pennsylvania. In an article in Regulation, a publication of the Cato Institute, Danzon says, Cross-national and domestic price differences are smaller than has been alleged. Most countries other than the United States regulate drug prices, either directly through controls on prices (e.g., France and Italy), indirectly through limits on reimbursement under social insurance schemes (e.g., Germany and Japan), or indirectly through profit controls (like the U.K.). Danzon contends that because the U.S. health care system is not regulated, drug prices here are often higher. Individual U.S. health care providers cannot come close to matching the bargaining power of, say, the Canadian government in negotiating drug prices. We pay more (at

164

times) for drugs, which is precisely why the United States is a fertile environment for pharmaceutical R&D. No matter how you slice it, there is no escaping the fact that U.S. consumers are paying more for drugs because they are, on average, richer than their counterparts in the rest of the world and can afford to spend more of their wealth on health care. Another factor that influences the price of drugs in the United States is the kind of drugs that the U.S. pharmaceutical industry produces. Because the rich countries have most of the money, pharmaceuticals research focuses on health problems of interest to those markets, such as obesity, heart disease, and cancer, and not on malaria and other predominantly third-world maladies. So why shouldnt the pharmaceutical industry attempt to recoup its investment by charging more for its drugs in the rich countries? Finally, sometimes the absence of competition drives up U.S. drug prices. A pharmaceutical company that is the first to bring to market a new drug that it has patented operates as a monopoly until other companies can offer competing products. Until then, the first company can charge any price it believes it can get in the marketplace. But would you begrudge that company its patent, which was granted after many years of research, testing, and capital investment? Without such patent protection, what pharmaceutical company would be foolish enough to look for a cure for cancer or AIDS? And if you were the CEO of a company that temporarily enjoyed a monopolistic position in the marketplace, would you concentrate on maximizing profits for the benefit of shareholders, or would social goals (the benefit of consumers) be your driving force? The reality of the marketplace is that a CEO who chooses the latter course will be quickly replaced by someone who is profit-oriented. Little wonder that U.S. drug prices are high.

165

CHAPTER-6 ROLE OF GOVERNMENT

 Rules and regulation implemented by Government In the beginning of the current century Drug Industry was practically non-existent in India and pharmaceuticals were being important from abroad. The first world war changed the situation and not only were finished and cheap drugs imported in increasing volume, the demand for indigenous products also was voiced from all sides. With the clamour for swadeshi goods manufacturing concerns, both Indian and Foreign, sprang up to produce pharmaceuticals at cheaper rates to compete with imported products. Naturally some of these were of inferior quality and harmful for public health. The Government was, therefore, called upon to take notice of the situation and consider the matter of introducing legislation to control the manufacture, distribution and sale of drugs and medicines. Two of the laws, The Poisons Act and the Dangerous Drugs Act were passed in 1919 and 1930 respectively. The Opium Act was quite old having being adopted as early as 1878. But to have a comprehensive legislation, which the rapid expansion of the pharmaceutical production and drug market required by the end of the second decade for its control, the Indian Government appointed, in 1931, a Drugs Enquiry Committee under the Chairmanship Lt. Col. R. N. Chopra which was asked to make sifting enquiries into the whole matter of drug production, distribution and sale by inviting opinions and meeting concerned people. The Committee was asked to make recommendations about the ways and means of controlling the production and sale of drugs and pharmaceuticals in the interest of public health. The Chopra Committee toured all over the country and after carefully examining the data placed before it, submitted a voluminous report to government suggesting creation of drug control machinery at the centre with branches in all provinces. For an efficient and speedy working of the controlling department the committee also recommended the establishment of a well-equipped Central Drugs Laboratory with competent staff and experts in various branches for data standardization work. Under the guidance of the Central Laboratory, it was suggested, small laboratories would work, in the provinces. For the training of young men and women, the Committee recommended the permission of Central Pharmacy Council, and the Provincial Pharmacy Councils, with registrars who would maintain the lists containing names and addresses of the licensed pharmacists.

166

The outbreak of the second world war in 1939 delayed the introduction of legislation on the lines suggested by the Chopra Committee which the Indian government contemplated and considered as urgent. However, the Drugs Act was passed in 1940 partly implementing the Chopra recommendations. With the achievement of independence in 1947 the rest of the required laws were put on the Statute Book. In 1985, the Narcotic Drugs and Psychotropic Substances Act was enacted repealing the Dangerous Drugs Act 1930 and the Opium Act of 1878. At present the following Acts and Rules made there under that govern the manufacture, sale, import, export and clinical research of drugs and cosmetics in India. The Drugs and Cosmetics Act, 1940 The Pharmacy Act, 1948 The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 The Narcotic Drugs and Psychotropic Substances Act, 1985 The Medicinal and Toilet Preparations (Excise Duties) Act, 1956 The Drugs (Prices Control) Order 1995 (under the Essential Commodities Act) There are some other laws which have a bearing on pharmaceutical manufacture, distribution and sale in India. The important ones being: The Industries (Development and Regulation) Act, 1951 The Trade and Merchandise Marks Act, 1958 The Indian Patent and Design Act, 1970 Factories Act

1. The Drugs and Cosmetics Act 1940 The object of the Act is to regulate the import, manufacture, distribution and sale of drugs. Under the provisions of this Act, the Central Government appoints the Drugs Technical Advisory Board to advise the Central Government and the State Governments on technical matters arising out of the administration of this Act. The board can constitute subcommittees for the consideration of a particular matter. 2. The Pharmacy Act 1948

The Pharmacy Act was passed in 1948 and was amended in 1959, 1976 and 1984. The aim of this law is to regulate the profession of Pharmacy in India. Under the provisions of 167

this act the Central Government constitutes a Central Pharmacy Council of India consisting of following members: a) Six members from the Teachers of pharmacy. b) Six members from practicing pharmacists or Pharmaceutical Chemists holding degree of diploma. c) One member elected by the Medical Council of India. d) The Director-General of Health Services. e) The Director of the Central Drugs Laboratory. f) The Chief Chemist, Central Revenues. g) One member to represent each state elected by members of State Councils who shall be a registered pharmacist. h) One member to represent each State Government who shall be either registered medical practitioner or a registered pharmacist. The President and Vice-President of the Central Council of Pharmacy are elected by the members of the Council among themselves, hold office for five years and are eligible for reelection. The conducting of courses of study for pharmacists, and the examinations in Pharmacy in the states are subject to the approval of the Central Council. Besides the Council has the responsibility to supervise the Education of Pharmacy in the States. Where it is found that the course of study is not in conformity with the Education Regulations, the Council may withdraw approval accorded to the course or the examination. The Central Council can approve qualifications granted by an outside authority for qualifying for registration under this Act. State Pharmacy Councils The Act makes it incumbent upon the State Governments to constitute State Pharmacy Councils with the following members: a) Six members elected from amongst themselves by registered Pharmacists of the state. b) Five members of whom at least two shall be persons possessing a prescribed degree or diploma in Pharmacy or Pharmaceutical Chemistry or members of the Pharmaceutical profession nominated by the State Government. c) One member elected by the State Medical Council. d) The Chief Medical Officer of the State. 168

e) The State Drug Controller. f) The Government Analyst. Registration of Pharmacist The State Government has under the provisions of the Pharmacy Act to get a register of the State Pharmacists prepared and it is the State Pharmacy Council which has to maintain the register. The register shall contain the name and residential address of Pharmacist, the date of his first admission to the register, qualifications for registration, his professional address, the name of his employer and prescribed particulars. 2. The Drugs and Magic Remedies (Objectionable Advertisements) Act 1954 This Act is meant to control the Advertisements regarding drugs; it prohibits the advertising of remedies alleged to possess magic qualities and to provide for matters connected therewith. The Drugs and Magic Remedies Act prohibits a person from taking part in publication of any advertisement referring to any drug which suggests use of the drug for: a) the procurement of miscarriage in women or prevention of conception in women; and b) the maintenance or improvement of the capacity of the human being for sexual pleasure; c)the correction of menstrual disorders in women; d) the diagnosis, cure, mitigation, treatment or prevention of any venereal disease. It is prohibited to directly or indirectly give a false impression regarding the true character of a drug or make false claim for it or to convey any false or misleading information in any material particular about it. No person shall import into or export from India any document containing advertisement of this nature. Whoever contravenes the provisions of this Act shall, on conviction, be punishable with imprisonment which may extend to six months, with or without fine. In case of subsequent convictions the imprisonment can be extended to one year. The document, article or thing which contains the offending advertisement can be seized and confiscated. If the person contravening any of the provisions of the Act is a company, every person who at the time the offence was committed was in charge of the business of the company shall be deemed guilty. The prohibition under this Act does not apply to: a) any signboard or notice displayed by a registered medical practitioner including the treatment for any of the disease, b) any treaties or book dealing with any of the matters from a bonafide scientific standpoint, c) any advertisement 169

related to any drug sent confidentially to any registered medical practitioners or to chemists for distribution among registered medical practitioners or to a hospital or laboratory, and d) Government advertisements. 3. The Narcotic Drugs and Psychotropic Substances Act, 1985 This is an Act to consolidate and amend the law relating to Narcotic Drugs, to make stringent provisions for the control and regulation of operations relating to Narcotic Drugs and Psychotropic Substances and for matters connected therewith. Disclosure of the name of the manufacturer Every person, not being the manufacturer of a drug or cosmetic or his agent for the distribution thereof, shall, if so required, disclose to the Inspector the name, address and other particulars of the person from whom he acquired the drug or cosmetic. Maintenance of records and furnishing of information. Every person holding a license under clause (c) of section 18 shall keep and maintain such records, registers and other documents as may be prescribed and shall furnish to any officer or authority exercising any power or discharging any function under this Act such information as is required by such officer or authority for carrying out the purposes of this Act. Pleas (1) Save as hereinafter provided in this section, it shall be no defense in a prosecution under this Chapter to prove merely that the accused was ignorant of the nature, substance or quality of the drug [(Note: Ins. by Act 21 of 1962, sec.15 (w.e.f. 27-7-1964)) or cosmetic] in respect of which the offence has been committed or of the circumstances of its manufacture or import, or that a purchaser, having bought only for the purpose of test or analysis, has not been prejudiced by the sale. (2) For the purposes of section 18 a drug shall not be deemed to be misbranded or [(Note: Subs. by Act 68 of 1982, sec.16, for "adulterated" (w.e.f. 1-2-1983) adulterated or spurious] or to be below standard quality nor shall a cosmetic be deemed to be misbranded or to be below standard quality] only by reason of the fact that

170

(a) There has been added thereto some innocuous substance or ingredient because the same is required for the manufacture or preparation of the drug [(Note: Ins. by Act 21 of 1962, sec.15 (w.e.f. 27-7-1964)) or cosmetic] as an article of commerce in a state fit for carriage or consumption, and not to increase the bulk, weight or measure of the drug [(Note: Ins. by Act 21 of 1962, sec.15 (w.e.f. 27-7-1964)) or cosmetic] or to conceal its inferior quality or other defects ; or(Clauses inserted by Act 11 of 1955, sec.10, omitted by Act 13 of 1964, sec. 15 (w.e.f. 15-91964)) (b) In the process of manufacture, preparation or conveyance some extraneous substance has unavoidably become intermixed with it; provided that this clause shall not apply in relation to any sale or distribution of the drug [(Note: Ins. by Act 21 of 1962, sec.15 (w.e.f. 27-7-1964)) or cosmetic] occurring after the vendor or distributor became aware of such intermixture. (3) (Note: Subs. by Act 13 of 1964, sec.15, for sub-section (3) (w.e.f. 15-9-1964)) A person, not being the manufacturer of a drug or cosmetic or his agent for the distribution thereof, shall not be liable for a contravention of section 18 if he proves (a) That he acquired the drug or cosmetic from a duly licensed manufacturer, distributor or dealer thereof ; (b) That he did not know and could not, with reasonable diligence, have ascertained that the drug or cosmetic in any way contravened and remained in the same state as when he acquired it. COMMENTS All that the prosecution is required to prove in order to establish the contravention of section 18 is the fact that the accused had sold or exhibited for sale the drug which was not of standard quality or which was a misbranded drug. If the accused want to get rid of the effect of the effect of the prosecution evidence then it is for them to establish the defenses which are available to them under sub-section (3) of section 19 of the Act; Public Prosecutor v. Hatambhai, AIR 1969 AP 99.

171

Government Analysts. (1) The State Government may, by notification in the Official Gazette, appoint such persons as it thinks fit, having the prescribed qualifications, to be Government Analysts for such areas in the State and in respect of such drugs or [(Note: Subs. by Act 21 of 1962, sec.16, for "class of drugs" (w.e.f. 27-7-1964)) classes of drugs or such cosmetics or classes of cosmetics] as may be specified in the notification. (2) The Central Government may also, by notification in the Official Gazette, appoint such persons as it thinks fit, having the prescribed qualifications, to be Government Analysts in respect of such drugs or [(Note: Subs. by Act 21 of 1962, sec.16, for "class of drugs" (w.e.f. 277-1964)) classes of drugs or such cosmetics or classes of cosmetics] as may be specified in the notification. (3) Notwithstanding anything contained in sub-section (1) or sub-section (2), neither the Central Government nor a State Government shall appoint as a Government Analyst any official not serving under it without the previous consent of the Government under which he is serving. (4) No person who has any financial interest in the import, manufacture or sale of drugs or cosmetics shall be appointed to be a Government Analyst under sub-section (1) or sub-section (2) of this section. THE DRUGS AND COSMETICS (AMENDMENT) BILL, 2008 1. (1) This Act may be called the Drugs and Cosmetics (Amendment) Act, 2008. (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint: Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be constructed as a reference to the commencement of that provision. 2. After section 17D of the Drugs and Cosmetics Act, 1940 (herdeinafter referred to as the principal Act), the following section shall be inserted, namely, "17E. For the purposes of this Chapter, a costmetic shall be deemed to be adulterated, 172

(a) If it consists in whole or in part, of any filthy, putrid or decomposed substance; or (b) if it has been prepared, packed or stored under insanitary conditions whereby it may have been contaminated with filth or whereby it may have been rendered injurious to health; or (c) if its container is composed, in whole or in part, of any poisonous or deleterious substance which may render the contents injurious to health; or (d) if it bears or contains, for purposes of coloring only, a colour other than one which is prescribed; or (e) if it contains any harmful or toxic substance which may render it injurious to health; or (f) if any substance has been mixed therewith so as to reduce its quality or strength.". 3. In section 18 of the principal Act, in clause (a) , for sub-clause (ii), the following sub clause shall be substituted, namely, "(ii) any cosmetic which is not a standard quality, or is misbranded, adulterated or spurious;". 4. In section 26A of the principal Act, for the word "prohibit", the words "regulate, restrict or prohibit" shall be substituted. 5. After section 26A of the principal Act, the following section shall be inserted, namely, "26B. Without prejudice to any other provision contained in this Chapter, if the Central Government is satisfied that a drug is essential to meet the requirements of an emergency arising due to epidemic or natural calamities and that in the public interest, it is necessary or expedient so to do, then, that Government may, be notification in the Official Gazette, regulate or restrict the manufacture, sale or distribution of such drug.". 6. In section 27 of the principal Act, (A) for the figures, alphabet and the letter "17B or which" the figures, alphabet and the letter "17B and which". (i) in clause (a), (B) for the words "punishable with imprisonment for a term which shall not less than five years but which may extend to a term of life and with fine which shall not be less than ten thousand rupees;", the words "punishable with imprisonment for a term which shall not be less than ten years but which may extend to imprisonment for life and shall also be liable to fine which shall not be less than ten lakh rupees or three times value of the drugs confiscated, which-ever is more:" shall be substituted; (C) the following provisos shall be inserted, namely: 173

"Provided that the fine imposed on and released from the person convicted under this clause shall be paid, by way of compensation, to the person who had used the adulterated or spurious drugs referred to in this clause: Provided further that where the use of the adulterated or spurious drugs referred to in this clause has caused the death of a person who used such drugs, the fine imposed on and realized from the person convicted under this clause, shall be paid to the relative of the person who had died due to the use of the adulterated or spurious drugs referred to in this clause. Explanation.For the purposes of the second proviso, the expression "relative" means (i) spouse of the deceased person; or (ii) a minor legitimate son, and unmarried legitimate daughter and a widowed mother; or (iii) parent of the minor victim; or (iv) if wholly dependent on the earnings of the deceased person at the time of his death, a son or a daughter who has attained the age of eighteen years; or (v) any person, if wholly or in part, dependent on the earnings of the deceased person at the time of his death, (a) the parent; or (b) a minor brother or an unmarried sister; or (c) a widowed daughter-in-law; or (d) a widowed sister; or (e) a minor child of a pre-deceased son; or (f) a minor child of a pre-deceased daughter where no parent of the child is alive; or (g) the paternal grandparent if no parent of the member is alive;"; (ii) in clause (b), (A) for the words "not be less than one year but which may extend to three years and with fine which shall not be less than five thousand rupees", the words "not be less than three years but which may extend to five years and with fine which shall not be less than one lakh rupees or three times the value of the drugs confiscated, whichever is more" shall be substituted;

174

(B) in the proviso, for the words "less than one year and of fine of less than five thousand rupees", the words "less than three years and of fine of less than one lakh rupees" shall be substituted; (iii) in clause (c), (A) for the words "not be less than three years but which may extend to five years and with fine which shall not less than five thousand rupees", the words "not less than seven years but which may extend to imprisonment for life and with fine which shall not be three lakh rupees or three times the value of the drugs confiscated, whichever is more" shall be submitted; (B) in the proviso, for the words "less than three years but not less than one year", the words "less than seven years but not less than three years and of fine of less than one lakh rupees" shall be submitted; (iv) in clause (d), for the words "and with fine", the words "and with fine which shall not be less than twenty thousand rupees" shall be submitted. 7. In section 27A of the principal Act, for clauses (i) and (ii), the following clauses shall be substituted, namely, (i) any cosmetic deemed to be spurious under section 17D or adulterated under section 17E shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than fifty thousand rupees or three times the value of the cosmetics confiscated, whichever is more. (ii) any cosmetic other than a cosmetic referred to in clause (i) in contravention of any provisions of this Chapter or any rule made there under shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to twenty thousand rupees, or with both.". 8. In section 28 of the principal Act, for the words "with fine which may extend to one thousand rupees or with both", the words "with fine which shall not be less than twenty thousand rupees or with both" shall be substituted. 9. In section 28A of the principal Act, for the words "with fine which may extend to one thousand rupees or with both", the words "with fine which shall not be less than twenty thousand rupees or with both" shall be substituted. 10. In section 29 of the principal Act, for the words, "five hundred rupees", the words "five thousand rupees" shall be substituted.". 175

11. In section 30 of the principal Act, (a) in sub-section (1), (i) in clause (a), (A) for the words "not be less than two years but which may extend to six years and with fine which shall not be less than ten thousand rupees", the words "not be less than seven years but which may extend to ten years and with fine-which shall not be less than two lakh rupees" shall be substituted; (B) in the proviso, for the words "less than two years and of fine of less than ten thousand rupees", the words "less than seven years and of fine of less than one lakh rupees" shall be substituted. (ii) in clause (b), for the words "shall not be less than six years but which may extend to ten years and with fine which shall not be less than ten thousand rupees", the words "shall not be less than ten years but which may extend to imprisonment for life and with fine which shall not be less than three lakh rupees" shall be substituted; (iii) in clause (c), for the words "five thousand rupees", the words "fifty thousand rupees" shall be substituted. (b) in sub-section (2), for the words "ten years, or with fine, or with both", the words "two years, or with fine which shall not be less than ten thousand rupees or with both" shall be substituted. 12. In section 32 of the principal Act, for sub-sections (1) and (2), the following subsections shall be substituted, namely: (1) No prosecution under this Chapter shall be instituted except by (a) an Inspector; or (b) any gazetted officer of the Central Government or a State Government authorized in writing in this behalf by the Central Government or a State Government by a general or special order made in this behalf by that Government; or (c) the person aggrieved; or 13. After section 32A of the principal Act, the following section shall be inserted, namely: "32B. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under clause (b) of sub-section (1) of section 13, section 28 and section 28A of this Act (whether committed by a company or any officer thereof), not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may, either before 176

or after the institution of any prosecution, be compounded by the Central Government or by any State Government or any officer authorized in this behalf by the Central Government or a State Government, on payment for credit to that Government of such sum as that Government may, by rules made in this behalf, specify: Provided that such sum shall not, in any case, exceed the maximum amount of the fine which may be imposed under this Act for the offence so compounded: Provided further that in cases of subsequent offences, the same shall not be compoundable. (2) When the accused has been committed for trial or when he has been convicted and an appeal is pending, no composition for the offence shall be allowed without the leave of the court to which he is committed or as the case may be, before which the appeal is to be heard. (3) Where an offence is compounded under sub-section (1), no proceeding or further proceeding, as the case may be, shall be taken against the offender in respect of the offence so compounded and the offender, if in custody, shall be released forthwith.". 14. In section 33 of the principal Act, in sub-section (2), (i) after clause (dd), the following clause shall be inserted, namely, "(dda) prescribe under clause (d) of section 17E the colour or colours which a cosmetic may bear or contain for the purposes of coloring;; (ii) in clause (p), the word "and" occurring at the end shall be omitted; (iii) in clause (q), the word "and'' shall be inserted at the end; (iv) after clause (q), the following clause shall be inserted, namely, "(r) sum which may be specified by the Central Government under section 32B.". 15. In section 33-I of the principal Act, (a) in sub-section (1), (i) for clause (a), the following clause shall be substituted, namely: "(a) any Ayurvedic, Siddha or Unani drug (i) deemed to be misbranded under section 33E, (ii) deemed to be adulterated under section 33EE, or (iii) without a valid license or in violation of any of the conditions thereof, as required under section 33 EEC, or shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than twenty thousand rupees or three times the value of the drugs confiscated, whichever is more;"; 177

(ii) in clause (b), for the words "five thousand rupees", occurring at both the places, the words "fifty thousand rupees or three times the value of the drugs confiscated, whichever is more" shall be substituted; (iii) after clause (b), the following clause shall be inserted, namely: "(c) any Ayurvedic, Siddha or Unani drug in contravention of the provisions of any notification issued under section 33EED shall be punishable with imprisonment for a term which may extend to three years and with fine which may extend to fifty thousand rupees or three times the value of the drugs confiscated, whichever is more."; (b) in sub-section (2) for the words "three months and with fine which shall not be less than five hundred rupees", the words "six months and with fine which shall not be less than ten thousand rupees" shall be substituted. 16. In section 33J of the principal Act, (a) in clause (a), for the words "two thousand rupees", the words "fifty thousand rupees or three times the value of the drugs confiscated, whichever is more" shall be substituted; (b) in clause (b), for the words "five thousand rupees" occurring at both the places, the words "one lakh rupees or three times the value of the drugs confiscated, whichever is more" shall be substituted; (c) in clause (c), for the words "six months and with fine which shall not be less than one thousand rupees", the words "one year and with fine which shall not be less than twenty thousand rupees or three times the value of the drugs confiscated, whichever is more" shall be substituted. 17. After section 33K of the principal Act, the following sections shall be inserted, namely, "33KA. Every person, not being the manufacturer of any Ayurvedic, Siddha or Unani drug or his agent for the distribution thereof, shall if so required, disclose to the Inspector the name, address and other particulars of the person from whom he acquire the Ayurvedic, Siddha or Unani drug. 33KB. Every person, holding a license under clause (c) of section 33EEC shall keep and maintain such records, registers and other documents as many be prescribed and shall furnish to any officer or authority exercising any power or discharging any function under this Act such information as is required by such officer or authority for carrying out the purposes of this Act." 18. In section 33N of the principal Act, in sub-section (2), (i) in clause (gga), the word "and" occurring at the end shall be committed; 178

(ii) after clause (gga), the following clause shall be inserted, namely, (ggb) prescribe the records, registers or other documents to be kept and maintained under section 33KB; and. 19. In section 36A of the principal Act, for the words "all offences under this Act", the words, brackets, figures and letters "all offences (except the offences triable by the Special Court under section 36AB or Court of Session) under this Act" shall be substituted. 20. After section 36A of the principal Act, the following sections shall be inserted, namely: "36AB. (l) The Central Government, or the State Government, in consultation with the Chief Justice of the High Court, shall, for trial of offences relating to adulterated drugs or spurious drugs and punishable under clauses (a) and (b) of section 13, subsection (3) of section 22, clauses (a) and (c) of section 27, section 28, section 28A, section 28B and clause (b) of subsection (I) of section 30 and other offences relating to adulterated drugs or spurious drugs, by notification, designate one or more Courts of Session as a Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification. Explanation.In this sub-section, "High Court" means the High Court of the State in which a Court of Session designated as Special Court was functioning immediately before such designation. (2) While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the Code of Criminal Procedure, 1973, be charged at the same trial. 36AC. (I) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (a) every offence, relating to adulterated or spurious drug and punishable under clauses (a) and (c) of sub-section (1) of section 13, clause (a) of subsection (2) of section 13, sub-section (3) of section 22, clause (a) and (c) of section 27, section 28, section 28A, section 28B and sub-sections (1) and (2) of section 30 and other offences relating to adulterated drugs or spurious drugs, shall be cognizable. (b) no person accused, of an offence punishable under clauses (a) and (c) of sub-section (1) of section 13, clause (a) of sub-section (2) of section 13, subsection

179

(3) of section 22, clauses (a) and (c) of section 27, section 28, section 28A, section 28B and subsections (1) and (2) of section 30 and other offences relating to adulterated drugs or spurious drugs, shall be released on bail or on his own bond unless (i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail: Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs. (2) The limitation on granting of bail specified in clause (b) of sub-section (1) is in addition to the limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in force on granting of bail. (3) Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal procedure, 1973 and the High Court may exercise such powers including the power under clause (b) of sub-section (1) of that section as if the reference to "Magistrate" in that section includes also a reference to a "Special Court" designated under section 36AB. 36AD. (1) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (including the provisions as to bails or bonds), shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting the prosecution before the Special Court, shall be deemed to be a Public Prosecutor: Provided that the Central Government or the State Government may also appoint, for any case or class or group of cases, a Special Public Prosecutor. (2) A person shall not be qualified to be appointed as a Public Prosecutor or a Special Public Prosecutor under this section unless he has been in practice as an advocate for not less than seven years, under the Union or a State, requiring special knowledge of law. (3) Every person appointed as a Public Prosecutor or a Special Public Prosecutor under this section shall be deemed to be a Public Prosecutor within the meaning of clause (a) of section 2 of

180

the Code of Criminal Procedure, 1973 and the provisions of that Code shall have effect accordingly. 36AE. The High Court may exercise, so far as may be applicable, all the powers conferred by Chapter XXIX or Chapter XXX of the Code of Criminal Procedure, 1973, on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court.'.

THE NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES ACT, 1985 Short title, extent and commencement.(1) This Act may be called the Narcotic Drugs and Psychotropic Substances Act, 1985. (2) It extends to the whole of India [and it applies also-(a) to all citizens of India outside India; (b) to all persons on ships and aircrafts registered in India. Wherever they may be.] (3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and for different States and any reference in any such provision to the commencement of this Act shall be construed in relation to any State as a reference to the coming into force of that provision in that State. This is a special Act, while adopting the liberal construction of the Act, it is found that the Act has been enacted with a view to make stringent provisions for the control and regulation of operations relating to the narcotic drugs and psychotropic substances; Gulam Mohiuddin v. State ofJammu and Kashmir, (1994) 1 Crimes 204 (J & K). Definitions.In this Act, unless the context otherwise requires,-[(i) "addict" means a person who has dependence on any narcotic drug or psychotropic substances;] (ii) "Board" means the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963); (iii) "cannabis (hemp)" means-

181

(a) charas, that is, the separated resin, in whatever form, whether crude or purified, obtained from the cannabis plant and also includes concentrated preparation and resin known as hashish oil or liquid hashish. (b) ganja, that is, the flowering or fruiting tops of the cannabis plant (excluding the seeds and leaves when not accompanied by the tops), by whatever name they may be known or designated; and (c) any mixture, with or without any neutral material, of any of the above forms of cannabis or any drink prepared there from. (iv) "cannabis plant" means any plant of the genus cannabis (v) "coca derivative' means (a) crude cocaine, that is, any extract of coca leaf which can be used, directly or indirectly, for the manufacture of cocaine (b) ecgonine and all the derivatives of ecgonine from which it can be recovered (c) cocaine, that is, methyl ester of benzoyl-ecgonine and its salts and (d) all preparations containing more than 0.1 percent of cocaine (vi) "coca leaf" means (a) the leaf of the coca plant except of a leaf from which all ecgonine, cocaine and any other ecgonine alkaloids have been removed (b) any mixture thereof with or without any neutral material; but does not include any preparation containing not more than 0.1 per cent. of cocaine; (vii) "coca plant" means the plant of any species of the genus Erythroxylon; [(viia) "commercial quantity", in relation to narcotic drugs and psychotropic substances, means any quantity greater than the quantity specified by the Central Government by notification in the Official Gazette; (viib) "controlled delivery" means the technique of allowing illicit or suspect consignments of narcotic drugs, psychotropic substances, controlled substances or substances substituted for them to pass out of, or through or into the territory of India with the knowledge and under the supervision of an officer empowered in this behalf or duly authorized under section 50A with a view to identifying the persons involved in the commission of an offence under this Act (viic) "corresponding law" means any law corresponding to the provisions of this Act;

182

[(viid) "controlled substance" means any substance which the Central Government may, having regard to the available information as to its possible use in the production or manufacture of narcotic drugs or psychotropic substances or to the provisions of any International Convention, by notification in the Official Gazette, declare to be a controlled substance;] (viii) "conveyance" means a conveyance of any description whatsoever and includes any aircraft, vehicle or vessel; [(viiia) "illicit traffic", in relation to narcotic drugs and psychotropic substances, means (i) cultivating any coca plant or gathering any portion of coca plant; (ii) cultivating the opium poppy or any cannabis plant; (iii) engaging in the production, manufacture, possession, sale, purchase, transportation, warehousing, concealment, use or consumption, import inter-State, export inter-State, import into India, export from India or transhipment, of narcotic drugs or psychotropic substances; (iv) dealing in any activities in narcotic drugs or psychotropic substances other than those referred to in sub-clauses (i) to (iii); or (v) handling or letting out any premises for the carrying on of any of the activities referred to in sub-clauses (i) to (iv); other than those permitted under this Act, or any rule or order made, or any condition of any license, term or authorization issued, there under, and includes (1) financing, directly or indirectly, any of the aforementioned activities (2) abetting or conspiring in the furtherance of or in support of doing any of the aforementioned activities and (3) harbouring persons engaged in any of the aforementioned activities (ix)"International Convention" means (a) the Single Convention on Narcotic Drugs, 1961 adopted by the United Nations Conference at New York in March, 1961 (b) the protocol, amending the Convention mentioned in sub-clause (a),adopted by the United Nations Conference at Geneva in March, 1972 (c) the Convention on Psychotropic Substances, 1971 adopted by the United Nations Conference at Vienna in February, 1971 and (d) any other international convention, or protocol or other instrument amending an international convention, relating to narcotic drugs or psychotropic substances which may be ratified or acceded to by India after the commencement of this Act 183

(x) "manufacture", in relation to narcotic drugs or psychotropic substances, includes (1) all processes other than production by which such drugs or substances may be obtained (2) refining of such drugs or substances (3) transformation of such drugs or substances and (4) making of preparation (otherwise than in a pharmacy on prescription) with or containing such drugs or substances (xi) "manufactured drug" means (a) all coca derivatives, medicinal cannabis, opium derivatives and poppy straw concentrate; (b) any other narcotic substance or preparation which the Central Government may, having regard to the available information as to its nature or to a decision, if any, under any International Convention, by notification in the Official Gazette, declare to be a manufactured drug; but does not include any narcotic substance or preparation which the Central Government may, having regard to the available information as to its nature or to a decision, if any, under any International Convention, by notification in the Official Gazette, declare not to be a manufactured drug; (xii) "medicinal cannabis", that is, medicinal hemp, means any extract or tincture of cannabis (hemp); (xiii) "Narcotic Commissioner" means the Narcotics Commissioner appointed under section (xiv) "narcotic drug" means coca leaf, cannabis (hemp), opium, poppy straw and includes all manufactured goods; (xv) "opium" means (a) the coagulated juice of the opium poppy; and (b) any mixture, with or without any neutral material, of the coagulated juice of the opium poppy, but does not include any preparation containing not more than 0.2 per cent of morphine: (xvi) "opium derivative" means (a) medicinal opium, that is, opium which has undergone the processes necessary to adapt it for medicinal use in accordance with the requirements of the Indian Pharmacopoeia or any other pharmacopoeia notified in this behalf by the Central Government, whether in powder form or granulated or otherwise or mixed with neutral materials; (b) prepared opium, that is, any product of opium by any series of operations designed to transform opium into an extract suitable for smoking and the dross or other residue remaining after opium is smoked; 184

(c) phenanthrene alkaloids, namely, morphine, codeine, thebaine and their salts; (d) diacetylmorphine, that is, the alkaloid also known as dia morphine or heroin and its salts; and (e) all preparations containing more than 0.2 per cent. of morphine or containing any diacetylmorphine; (xvii) "opium poppy" means (a) the plant of the species Papaver somniferum L.; and (b) the plant of any other species of Papaver from which opium or any phenanthrene alkaloid can be extracted and which the Central Government may, by notification in the Official Gazette, declare to be opium poppy for the purposes of this Act; (xviii) "poppy straw" means all parts (except the seeds) of the opium poppy after (xix) harvesting whether in their original form or cut, crushed or powdered and whether or not juice has been extracted there from; (xix) "poppy straw concentrate" means the material arising when poppy straw has entered into a process for the concentration of its alkaloids; (xx) "preparation", in relation to a narcotic drug or psychotropic substance, means anyone or more such drugs or substances in dosage form or any solution or mixture, in whatever physical state, containing one or more such drugs or substances; (xx) "prescribed" means prescribed by rules made under this Act; (xxi) "production" means the separation of opium, poppy straw, coca leaves or cannabis from the plants from which they are obtained: (xxiii) "psychotropic substance" means any substance, natural or synthetic, or any natural material or any salt or preparation of such substance or material included in the list of psychotropic substances specified in the Schedule; [(xxiiia) "small quantity", in relation to narcotic drugs and psychotropic substances, means any quantity lesser than the quantity specified by the Central Government by notification in the Official Gazette.] (xxiv) 'to import inter-State" means to bring into a State or Union territory in India from another State or Union territory in India; (xxv) "to import into India", with its grammatical variations and cognate expressions, means to bring into India from a place outside India and includes the bringing into any port or airport or place in India of a narcotic drug or a psychotropic substance intended to be taken out of India 185

without being removed from the vessel, aircraft, vehicle or any other conveyance in which it is being carried. (xxvi) "to export from India", with its grammatical variations and cognate expressions, means to take out of India to a place outside India; (xxvii) "to export inter-State" means to take out of a State or Union territory in India to another State or Union territory in India; (xxviii) "to transport" means to take from one place to another within the same State or Union territory; [(xxviiia) "use", in relation to narcotic drugs and psychotropic substances, means any kind of use except personal consumption;] (xxix) words and expressions used herein and not defined but defined in the Code of Criminal Procedure, 1973 (2 of 1974) have the meanings respectively assigned to them in that Code. Explanation.-For the purposes of clauses (v), (vi), (xv) and (xvi) the percentages in the case of liquid preparations shall be calculated on the basis that a preparation containing one per cent of a substance means a preparation in which one gram of substance, if solid, or one milliliter of substance, if liquid, is contained in everyone hundred milliliter of the preparation and so on in proportion for any greater or less percentage: Provided that the Central Government may, having regard to the developments in the field of methods of calculating percentages in liquid preparations prescribed, by rules, any other basis, which it may deem appropriate for such calculation. COMMENTS (i) A person, who assists a narcotics trafficker in concealing the narcotics in his apartment so that the trafficker may avoid detection, is involved in illicit traffic; R. v. Jackson, (1977) 35 CCC (2d) 331. (ii) It may be noted that clause (iv) of section 2 (viiia) is independent of other clauses and is in the nature of a residuary provision. It would include an activity of distribution; R. Parkash v. State of Karnataka, (1980) Cr LJ 165. (iii) The definition of the term 'manufacture' as contained in section. 2(x) is .an inclusive one. where the definition is an inclusive definition, the word not only bears its ordinary, popular and natural sense whenever that would be applicable but it also bears its extended statutory meaning; S.K. Gupta v. K.P. Jain, AIR 1979 SC 734. 186

(iv) Heroin being an opium is manufactured drug; I.Paul Kuki v. State of West Bengal,(1993) 3 Crimes 660 (Cal) (DB). (v) It is true that opium is substance, which once seen and smelt can never be forgotten because opium possesses a characteristic appearance and a very strong and characteristic scent. It is possible for people to identify opium without having to subject the product to a chemical analysis. It is only when opium is in a mixture so diluted that its essential characteristics are not easily visible or capable of being apprehended by the senses that a chemical analysis may be necessary; Baidyanath Mishra v. State of Orissa,(1967) SCD 1165: 34 Cut LT 1. 3. Power to add to or omit from the list of psychotropic substances.- The Central Government may, if satisfied that it is necessary or expedient so to do on the basis of (a) the information and evidence which has become available to it with respect to the nature and effects of, and the abuse or the scope for abuse of, any substance (natural or synthetic) or natural material or any salt or preparation of such substance or material; and (b) the modifications or provisions (if any) which have been made to, or in any International Convention with respect to such substance, natural material or salt or preparation of such substance or material. By notification in the Official Gazette, add to, or, as the case may be, omit from, the list of psychotropic substances specified in the Schedule such substance or natural material or salt or preparation of such substance or material. AUTHORITIES AND OFFICERS Central Government to take measures for preventing and combating abuse of and illicit traffic in narcotic drugs,etc.(l) Subject to the provisions of the Act, the Central Government shall take all such measures as it deems necessary or expedient for the purpose of preventing and combating abuse of narcotic drugs and psychotropic substances and the illicit traffic therein. (2) In particular and without prejudice to the generality of the provisions of sub-section (I), the measures which the Central Government may take under the sub-section include measures with respect to all or any of the following matters, namely: (a) coordination of actions by various officers, State Governments and other authorities (i) under this Act, or

187

(ii) under any other law for the time being in force in connection with the enforcement of the provisions of this Act; (b) obligations under the International Conventions; (c) assistance to the concerned authorities in foreign countries and concerned international organizations with a view to facilitating coordination and universal action for prevention and suppression of illicit traffic in narcotic drugs and psychotropic substances; (d) identification, treatment, education, after care, rehabilitation and social re-integration of addicts; (e) such other matters as, the Central Government deems necessary or expedient for the purpose of securing the effective implementation of the provisions of this Act and preventing and combating the abuse of narcotic drugs and psychotropic substances and illicit traffic therein. (3) The Central Government may, if it considers it necessary or expedient so to do for the purposes of this Act, by order, published in the Official Gazette, constitute an authority or a hierarchy of authorities by such name or names as may be specified in the order for the purpose of exercising such of the powers and functions of the Central Government under this Act and for taking measures with respect to such of the matters referred to in sub-section (2) as may be mentioned in the order, and subject to the supervision and control of the Central Government and the provisions of such order, such authority or authorities may exercise the powers and take the measures so mentioned in. the order as if such authority or authorities had been empowered by this Act to exercise those powers and take such measures. COMMENTS Section 4(1) of the Act does not create the Narcotics Control Bureau. It only authorizes the Central Government to take all such measures as it deems necessary or expedient for the purpose of preventing and combating abuse of narcotic drugs and psychotropic substances and the illicit traffic therein; State v. Kulwant Singh, AIR 2003 SC 1599. Officers of Central Government.(l) Without prejudice to the provisions of sub-section (3) of section 4, the Central Government shall appoint a Narcotics Commissioner and may also appoint such other officers with such designations as it thinks fit for the purposes of this Act. (2) The Narcotics Commissioner shall, either by himself or through officers subordinate to him, exercise all powers and perform all functions relating to the superintendence of the cultivation of 188

the opium poppy and production of opium and shall also exercise and perform such other powers and functions as may be entrusted to him by the Central Government. (3) The officers appointed under sub-section (1) shall be subject to the general control and direction of the Central Government, or, if so directed by that Government, also of the Board or any other authority or officer. The Narcotic Drugs and Psychotropic Substances Consultative Committee.(l) The Central Government may constitute, by notification in the Official Gazette, an advisory committee to be called "The Narcotic Drugs and Psychotropic Substances Consultative Committee" (hereafter in this section referred to as the Committee) to advise the Central Government on such matters relating to the administration of this Act as are referred to it by that Government from time to time. (2) The Committee shall consist of a Chairman and such other members, not exceeding twenty, as may be appointed by the Central Government. (3) The Committee shall meet when required to do so by the Central Government and shall have power to regulate its own procedure. (4) The Committee may, if it deems it necessary so to do for the efficient discharge of any of its functions constitute one or more sub-committees and may appoint to any such sub-committee, whether generally or for the consideration of any particular matter any person (including a nonofficial) who is not a member of the Committee. (5) The term of office of, the manner of filling casual vacancies in the offices of and the allowances, if any, payable to, the Chairman and other members of the Committee, and the conditions and restrictions subject to which the Committee may appoint a person who is not a member of the Committee as a member of any of its sub-committees, shall be such as may be prescribed by rules made by the Central Government. Officers of State Government.(l) The State Government may appoint such officers with such designations as it thinks fit for the purposes of this Act. (2) The officers appointed under sub-section (1) shall be subject to the general control and direction of the State Government, or, if so directed by that Government also of any other authority or officer.

189

NATIONAL FUND FOR CONTROL OF DRUG ABUSE National Fund for Control of Drug Abuse. (l) The Central Government may, by notification in the Official Gazette, constitute a Fund to be called the National Fund for Control of Drug Abuse (hereafter in this Chapter referred to as the Fund) and there shall be credited thereto(a) an amount which the Central Government may, after due appropriation made by Parliament by law in this behalf, provide; (b) the sale proceeds of any property forfeited under Chapter V A; (c) any grants that may be made by any person or institution; (d) any income from investment of the amounts credited to the Fund under the aforesaid provisions. (2) The Fund shall be applied by the Central Government to meet the expenditure incurred in connection with the measures taken for (a) Combating illicit traffic in narcotic drugs, psychotropic substances or controlled substances; (b) Controlling the abuse of narcotic drugs and psychotropic substances; (c) identifying, treating, rehabilitating addicts; (d) Preventing drug abuse; (e) Educating public against drug abuse; (f) supplying drugs to addicts where such supply is a medical necessity. (3) The Central Government may constitute a Governing Body as it thinks fit to advise that Government and to sanction money out of the said Fund subject to the limit notified by the Central Government in the Official Gazette.] (4) The Governing Body shall consist of a Chairman (not below the rank of an Additional Secretary to the Central Government) and such other members not exceeding six as the Central Government may appoint. (5) The Governing Body shall have the power to regulate its own procedure.

190

 Prohibited activities defined by the court and Government Offences by companies (1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:  Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation. For the purposes of this section  (a) "company" means a body corporate, and includes a firm or other association of individuals ; and  (b) "director" in relation to a firm means a partner in the firm. Offences by Government Departments Where an offence under Chapter IV or Chapter IVA has been committed by any department of Government, such authority as is specified by the Central Government to be in charge of manufacture, sale or distribution of drugs or where no authority is specified, the head of the department, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly :

191

 Provided that nothing contained in this section shall render any such authority or person liable to any punishment provided in Chapter IV or Chapter IVA, as the case may be, if such authority or person proves that the offence was committed without its or his knowledge or that such authority or person exercised all due diligence to prevent the commission of such offence. Penalty for vexatious search or seizure Any Inspector exercising powers under this Act or the rules made there under, who,(a) Without reasonable ground of suspicion searches any place, vehicle, vessel or other conveyance, or (b) Vexatiously and unnecessarily searches any person, or (c) Vexatiously and unnecessarily seizes any drug or cosmetic, or any substance or article, or any record, register, document or other material object, or (d) Commits, as such Inspector, any other act, to the injury of any person without having reason to believe that such act is required for the execution of his duty shall be punishable with fine which may extend to one thousand rupees. Magistrates power to impose enhanced penalties Notwithstanding anything contained in (Note: The words and figures "section 32 of" omitted by Act 13 of 1964, sec.29 (w.e.f. 15-91964)) [(Note: Subs. by Act 68 of 1982, sec.38, for "the Code of Criminal Procedure, 1898" (w.e.f. 1-2-1983)) the Code of Criminal Procedure, 1973], it shall be lawful for [(Note: Subs. by Act 68 of 1982, sec.38, for "any Presidency Magistrate of any Magistrate of the first class" (w.e.f. 1-2-1983)) any Metropolitan Magistrate or any Judicial Magistrate of the first class] to pass any sentence authorized by this Act excess of his powers under (Note: The words and figures "section 32 of" omitted by Act 13 of 1964, sec.29 (w.e.f. 15-9-1964)) the said Code. Certain offences to be tried summarily Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, punishable with imprisonment for a term not exceeding three years, other than an offence under clause (b) of sub-section (1) of section 192

33I, shall be tried in a summary way by a Judicial Magistrate of the first class specially empowered in this behalf by the State Government or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trial :  Provided that, in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year :  Provided further that when at the commencement of, or in the course of, a summary trial under this section it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall, after hearing the parties, record an order to that effect and thereafter recall any witness who has been examined and proceed to hear or rehear the case in the manner provided by the said Code. Prohibition of import of certain drugs or cosmetics From such date (Note: 1st April, 1947, for clauses (a), (b), (c), (e) and (f) and 1st April, for clause (d), see Notification No. 18-12-46-DI, dated 11th February, 1947, Gazette of India, 1947, Gazette of India, 1947 Pt. I.p.189 as amended by Notification No. F-1-2/48-D(1), dated 29th September, 1948. 1st April, 1953, for the States of Himachal Pradesh, Bilaspur, Kutch, Bhopal, Tripura, Vindhya Pradesh and Manipur vide Notification No. S.R.O. 666, dated 30th March, 1953, Gazette of India, 1953, Pt. II. Sec.3, p.451) as may be fixed by the Central Government by notification in the Official Gazette in this behalf, no person shall import  (a) Any drug [(Note: Ins. by Act 21 of 1962, sec.8 (w.e.f. 27-7-1964)) or cosmetic] which is not of standard quality ;  (b) (Note: Subs. by Act 21 of 1962, sec.8, for clause (b) (w.e.f. 27-7-1964)) Any misbranded drug [(Note: Subs. by Act 68 of 1982, sec.7, for "or misbranded cosmetic" (w.e.f. 1-2-1983)) or misbranded or spurious cosmetics];]

193

 (c) Any drug [(Note: Ins. by Act 21 of 1962, sec.8 (w.e.f. 27-7-1964)) or cosmetic] for the import of which a license is prescribed, otherwise than under, and in accordance with, such license ;  (d) (Note: Subs. by act 11 of 1955, sec.5, for clause (d)) Any patent or proprietary medicine, unless there is displayed in the prescribed manner on the label or container thereof [(Note: Subs. by Act 68 of 1982, sec.7, for certain words (w.e.f. 1-2-1983)) the true formula or list of active ingredients contained in it together with the quantities thereof];  (e) Any drug which by means of Power of Central Government to prohibit import of drugs and cosmetics in public interest Without prejudice to any other provision contained in this Chapter, if the Central Government is satisfied that the use of any drug or cosmetic is likely to involve any risk to human beings or animals or that any drug does not have the therapeutic value claimed for it or contains ingredients and in such quantity for which there is no therapeutic justification and that in the public interest it is necessary or expedient so to do then, that Government may, by notification in the Official Gazette, prohibit the import of such drug or cosmetic. COMMENTS  The Central Government on the basis of the expert advice can indeed adopt an approved national policy and prescribe an adequate number of formulations which would on the whole meet the requirement of the people at large. While laying the guidelines on this score, injurious drugs should be totally eliminated from the market. Application of law relating to sea customs and powers of Customs Officers (1) The Law for the time being in force relating to sea customs and to goods, the import of which is prohibited by section 18 of the Sea Customs Act, 1878 (Note: Now see the Customs Act, 1962.) shall, subject to the provisions of section 13 of this Act, apply in respect of drugs [(Note: Ins. by Act 21 of1962, sec.9 (w.e.f. 27-7-1964)) and cosmetics] the import of which is prohibited under this Chapter, and officers of Customs and officers empowered under that Act to perform the duties imposed thereby on a Customs Collector and other officers of Customs, shall have the 194

same powers in respect of such drugs [(Note: Ins. by Act 21 of 1962, sec.9 (w.e.f. 27-7-1964)) and cosmetics] as they have for the time being in respect of such goods as aforesaid. (2) (Note: Subs. by Act 11 of 1955, sec.6, for sub-section (2)) Without prejudice to the provisions of sub-section (1), the Customs Collector or any officer of the Government authorized by the Central Government in this behalf, may detain any imported package which he suspects to contain any drug [(Note: Ins. by Act 21 of 1962, sec.9 (w.e.f. 27-7-1964)) or cosmetic] the import of which is prohibited under this Chapter and shall forthwith report such detention to the Drugs Controller, India, and if necessary, forward the package or sample of any suspected drug [ (Note: Ins. by Act 21 of 1962, sec.9 (w.e.f. 27-7-1964)) or cosmetic] found therein to the Central Drugs Laboratory.] COMMENTS  (i) The tainted goods may be confiscated without proceeding personally against any person and without coming to a finding as to who was the smuggler; Shermal Jain v. Collector of Central Excise, AIR 1956 Cal 621.  (ii) Mere unlawful possession of prohibited goods does not lead to conclusion that the goods had been imported unlawfully. Onus is on the custom authorities to prove the breach of prohibition order; Kanungo & Co. v. Collector of Customs, AIR 1965 Cal 248: (1965) 1 Cri LJ 547. Power of Central Government to make rules (1) The Central Government may, [(Note: Subs. by Act 68 of 1982, sec.9, for "after consultation with the Board" (w.e.f. 1-2-1983)) after consultation with or on the recommendation of the Board] and after previous publication by notification in the Official Gazette, make rules for the purpose of giving effect to the provisions of this Chapter :  Provided that consultation with the Board may be dispensed with if the Central Government is of opinion that circumstances have arisen which render it necessary to make rules without such consultation, but in such a case the Board shall be consulted within six months of the making of the rules and the Central Government shall take into 195

consideration any suggestions which the Board may make in relation to the amendment of the said rules.] (2) Without prejudice to the generality of the foregoing power, such rules may  (a) Specify the drugs or classes of drugs [(Note: Ins. by Act 21 of 1962, sec.10 (w.e.f. 277-1964)) or cosmetics or classes of cosmetics] for the import of which a license is required, [(Note: Subs. by Act 68 of 1982, sec.9, for certain words (w.e.f. 1-2-1983)) and prescribe the form and conditions of such licences, the authority empowered to issue the same, the fees payable therefore and provide for the cancellation, or suspension of such license in any case where any provision of this Chapter or the rules made there under is contravened or any of the conditions subject to which the license is issued is not complied with;  (b) Prescribe the methods of test of test or analysis to be employed in determining whether a drug [(Note: Ins. by Act 21 of 1962, sec.10 (w.e.f. 27-7-1964)) or cosmetic] is of standard quality ;  (c) Prescribe, in respect of biological and organ metallic compounds, the units or methods of standardization ; Offences. (1) Whoever himself or by any other person on his behalf imports,  (a) Any drug deemed to be adulterated under section 9A or deemed to be a spurious drug under section 9B or any spurious cosmetic referred to in section 9D or any cosmetic of the nature referred to in clause (ee) of section 10 shall be punishable with imprisonment for a term which may extend to three years and a fine which may extend to five thousand rupees ;  (b) Any drug or cosmetic other than a drug or cosmetic referred to in clause (a), the import of which is prohibited under section 10, or any rule made under this Chapter, shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five hundred rupees, or with both ;

196

 (c) Any drug or cosmetic in contravention of the provisions of any notification issued under section 10A, shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both. (2) Whoever having been convicted of an offence  (a) Under clause (a) or clause (c) of sub-section (1), is again convicted of an offence under that clause, shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to ten thousand rupees, or with both ;  (b) Under clause (b) of sub-section (1), is again convicted of an offence under that clause, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to one thousand rupees, or with both.  (3) The punishment provided by this section shall be in addition to any penalty to which the offender may be liable under the provisions of section 11. COMMENTS  Oral evidence can be led to prove previous conviction only if the original judgement of previous conviction has been lost; City Board Saharampur v. Abdul Waheed, AIR 1959 All 695. Confiscation. Where any offence punishable under section 13 has been committed, the consignment of the drugs [(Note: Ins. by Act 21 of 1962, sec.11 (w.e.f. 27-7-1964)) or cosmetics] in respect of which the offence has been committed shall be liable to confiscation. Jurisdiction. No Court inferior to that [(Note: Subs. by Act 68 of 1982, sec.11, for certain words (w.e.f. 1-2-1983)) of a Metropolitan Magistrate or of a Judicial Magistrate of the first class] shall try an offence punishable under section 13. Prohibition of manufacture and sale or certain drugs From such date as may be fixed by the State Government by notification in the Official Gazette in this behalf, no person shall himself or by any other person on his behalf-

197

(a) [(Note: manufacture for sale or for distribution, or sell, or stock or exhibit or offer for sale, ] or distribute (i) Any drug which is not of a standard quality, or is misbranded, adulterated or spurious ; (ii) Any cosmetic which is not of a standard quality or is misbranded or spurious ; (iii) Any patent or proprietary medicine, unless there is displayed in the prescribed manner on the label or container thereof the true formula or list of active ingredients contained in it together with the quantities, thereof (iv) Any drug which by means of any statement design or device accompanying it or by any other means, purports or claims [(Note: Subs. by Act 11 of 1955, sec.9, for "to cure or mitigate") to prevent, cure or mitigate] any such disease or ailment, or to have any such other effect as may be prescribed ; (v) Any cosmetic containing any ingredient, which may render it unsafe or harmful for use under the directions, indicated or recommended ; (vi) Any drug or cosmetic in contravention of any of the provisions of this Chapter or any rule made there under ; (b) Sell or stock or exhibit or offer for sale,] or distribute any drug [(Note: Ins. by Act 11 of 1955, sec.14 (w.e.f. 27-7-1964)) or cosmetic] which has been imported or manufactured in contravention of any of the provisions of this Act or any rule made there under, (c) [(Note: Subs. by Act 68 of 1982, sec.14, for certain words (w.e.f. 1-2-1983)) manufacture for sale or for distribution, or sell, or stock or exhibit or offer for sale,] or distribute any drug [(Note: Ins. by Act 21 of 1962, sec.14 (w.e.f. 27-7-1964)) or cosmetic], except under, and in accordance with the conditions of, a license issued for such purpose under this Chapter. Provided that nothing in this section shall apply to the manufacture, subject to prescribed conditions, of small quantities of any drug for the purpose of examination, test or analysis ;

198

Provided further that the [(Note: Subs. by Act 11 of 1955, sec.9, for "State Government") Central Government] may, after consultation with the Board by notification in the Official Gazette, permit, subject to any conditions specified in the notification, the [(Note: Subs. by Act 68 of 1982, sec.14 (w.e.f. 1-2-1983)) manufacture for sale or for distribution, sale, stocking or exhibiting or offering for sale] or distribution of any drug or class of drugs not being of standard quality. COMMENTS On a reading of section 18A and sub-section (4) of section 23 together, it is clear that out of the four portions into which the sample has been divided one portion should be sent to the person, if any, whose name and address and other particulars have been disclosed under section 18A; In re: R.Dayalan, 1978 Cri Lj 1852. (1979) 1 FAC 29. PROHIBITION, CONTROL AND REGULATION OF NARCOTIC DRUGS Prohibition of certain operations. -No person shall (a) cultivate any coca plant or gather any portion of coca plant; or (b) cultivate the opium poppy or any cannabis plant; or 1. Ins. by Act 2 of 1989, sec. 4 (w.e.f. 29-5-1989). 2. Subs. by Act 9 of 2001, sec. 4, for sub-sections (2) and (3) (w.e.f. 2-10-2001). (c) produce, manufacture, possess, sell, purchase, transport, warehouse, use, consume, import inter- State, export inter-State, import into India, export from India or tranship any narcotic drug or psychotropic substance, except for medical or scientific purposes and in the manner and to the extent provided by the provisions of this Act or the rules or orders made there under and in a case where any such provision, imposes any requirement by way of license, permit or authorization also in accordance with the terms and conditions of such license, permit or authorization: Provided that, and subject to the other provisions of this Act and the rules made there under, the prohibition against the cultivation of the cannabis plant for the production of ganja or the production, possession, use, consumption, purchase, sale, transport, warehousing, import inter- State and export inter-State of ganja for any purpose other than medical and scientific purpose shall take effect only from the date which the Central Government may, by

199

notification in the Official Gazette, specify in this behalf [Provided further that nothing in this section shall apply to the export of poppy straw for decorative purposes.] COMMENTS (i) There need be no physical connection between the goods and the person charged. A man may be miles and miles away from the goods and yet if proof is available that he had an interest in or was concerned in illegal importation of goods he would be guilty of the offence; Addl. Collector of Customs v. Sitaram Agarwalla, AIR 1962 Cal 242 approved in Radha Kishan v. Union of India, AIR 1965 SC 1072. (ii) If the person possessing the drugs or substances does not carry himself but entrusts the same to some other person for carriage in a car, then that person (driver of the car) would be the person who transports the said drugs and the person who directs him to do so would be the abettor of the offence of transporting; Narvir Chand v. State, (1952) Cr LJ 246. (iii) All manufactured drugs are also narcotic drugs, possession of which is prohibited under this section; T. Paul Kuki v. State of West Bengal, (1993) 3 Crimes 660 (Cal) (DB). [8A. Prohibition of certain activities relating to property derived from offence.-No person shall (a) convert or transfer any property knowing that such property is derived from an offence committed under this Act or under any other corresponding law of any other country or from an act of participation in such offence, for the purpose of concealing or disguising the illicit origin of the property or to assist any person in the commission of an offence or to evade the legal consequences; or (b) conceal or disguise the true nature, source, location, disposition of any property knowing that such property is derived from an offence committed under this Act or under any other corresponding law of any other country; or (c) knowingly acquire, possess or use any property which was derived from an offence committed under this Act or under any other corresponding law of any other country.] 9 Power of Central Government to permit, control and regulate (1) Subject to the provisions of section 8, the Central Government may, by rules(a) permit and regulate-

200

(i) the cultivation, or gathering of any portion (such cultivation or gathering being only on account of the Central Government) of coca plant, or the production, possession, sale, purchase, transport, import inter-State, export inter-State, use or consumption of coca leaves; (ii) the cultivation (such cultivation being only on account of Central Government) of the opium poppy; (iii) the production and manufacture of opium and production of poppy straw; (iv) the sale of opium and opium derivatives from the Central Government factories for export from India or sale to State Government or to manufacturing chemists; (v) the manufacture of manufactured drugs (other, than prepared opium) but not including manufacture of medicinal opium or any preparation containing any manufactured drug from materials which the maker is lawfully entitled to possess; (vi) the manufacture, possession, transport import inter-State, export inter-State, sale, purchase, consumption or use of psychotropic substances; (vii) the import into India and export from India and transhipment of narcotic drugs and psychotropic substances; (b) prescribe any other matter requisite to render effective the control of the Central Government over any of the matters specified in clause (a). (2) In particular and without prejudice to the generality of the foregoing power , such rules may (a) empower the Central Government to fix from time to time the limits within which licences may be given for the cultivation of the opium poppy; (b) require that all opium, the produce of land cultivated with the opium poppy, shall be delivered by the cultivators to the officers authorized in this behalf by the Central Government; (c) prescribe the forms and conditions of licences for cultivation of the opium poppy and for production and manufacture of opium; the fees that may be charged therefore; the authorities by which such licences may be granted, withheld, refused or cancelled and the authorities before which appeals against the orders of withholding, refusal or cancellation of licences shall lie; (d) prescribe that opium shall be weighed, examined and classified according to its quality and consistence by the officers authorized in this behalf by the Central Government in the presence of the cultivator at the time of delivery by the cultivator; (e) empower the Central Government to fix from time to time the price to be paid to the cultivators for the opium delivered; 201

(f) provide for the weighment, examination and classification, according to the quality and consistence, of the opium received at the factory and the deductions from or additions (if any) to the standard price to be made in accordance with the result of such examination; and the authorities by which the decisions with regard to the weighment, examination, classification, deductions or additions shall be made and the authorities before which appeals against such decisions shall lie; (g) require that opium delivered by a cultivator, if found as a result of examination in the Central Government factory to be adulterated, may be confiscated by the officers authorized in this behalf; (h) prescribe the forms and conditions of licences for the manufacture of manufactured drugs, the authorities by which such licences may be granted and the fees may be charged therefore; (i) prescribe the forms and conditions of licences or permits for the manufacture, possession, transport, import inter-State, export inter-State, sale, purchase, consumption or use of psychotropic substances, the authorities by which such licences or permits may be granted and the fees that may be charged therefore; (j) prescribe the ports and other places at which any kind of narcotic drugs or psychotropic substances may be imported into India or exported from India or transshipped ; the forms and conditions of certificates, authorizations or permits, as the case may be, for such import, export or transhipment; the authorities by which such certificates, authorizations or permits may be granted and the fees that may be charged therefore. [9A. Power to control and regulate controlled substances.(1) If the Central Government is of the opinion that, having regard to the use of any controlled substance in the production or manufacture of any narcotic drug or psychotropic substance, it is necessary or expedient so to do in the public interest, it may, by order, provide for regulating or prohibiting the production, manufacture, supply and distribution thereof and trade and commerce therein. (2) Without prejudice to the generality of the power conferred by sub-section (I), an order made there under may provide for regulating by licences, permits or otherwise, the production, manufacture, possession, transport, import inter-State, export inter-State, sale, purchase, consumption, use, storage, distribution, disposal or acquisition of any controlled substance.]

202

10. Power of State Government to permit, control and regulate.(l) Subject to the provisions of section 8, the State Government may, by rules (a) permit and regulate(i) the possession, transport, import inter-State, export inter-State, warehousing, sale, purchase, consumption and use of poppy straw; (ii) the possession, transport, import inter-State, export inter-State, sale, purchase, consumption and use of opium; (iii) the cultivation of any cannabis plant, production, manufacture, possession, transport, import inter-State, export inter-State, sale, purchase consumption or use of cannabis (excluding charas); (iv) the manufacture of medicinal opium or any preparation containing any manufactured drug from materials which the maker is lawfully entitled to possess; (v) the possession, transport, purchase, sale, import inter-State, export inter-State, use or consumption of manufactured drugs other than prepared opium and of coca leaf and any preparation containing any manufactured drug; (vi) the manufacture and possession of prepared opium from opium lawfully possessed by an addict registered with the State Government on medical advice for his personal consumption: Provided that save in so far as may be expressly provided in the rules made under sub-clauses (iv) and (v), nothing in section 8 shall apply to the import inter-State, export inter-State, transport, possession, purchase, sale, use or consumption of manufactured drugs which are the property and in the possession of the Government: Provided further that such drugs as are referred to in the preceding proviso shall not be sold or otherwise delivered to any person who, under the rules made by the State Government under the aforesaid sub-clauses, is not entitled to their possession; (b) prescribe any other matter requisite to render effective the control of the State Government over any of the matters specified in clause (a). (2) In particular and without prejudice to the generality of the foregoing power, such rules may(a) empower the State Government to declare any place to be warehouse wherein it shall be the duty of the owners to deposit all such poppy straw as is legally imported inter-State and is intended for export inter-State or export from India; to regulate the safe custody of such poppy straw warehoused and the removal of such poppy straw for sale or export inter-State or export from India; to levy fees for such warehousing and to prescribe the manner in which and the 203

period after which the poppy straw warehoused shall be disposed of in default of payment of fees; (b) provide that the limits within which licences may be given for the cultivation of any cannabis plant shall be fixed from time to time by or under the orders of the State Government; (c) provide that only the cultivators licensed by the prescribed authority of testate Government shall be authorized to engage in cultivation of any cannabis plant; (d) require that all cannabis, the produce of land cultivated with cannabis plant, shall be delivered by the cultivators to the officers of the State Government authorized in this behalf; (e) empower the State Government to fix from time to time, the price to be paid to the cultivators for the cannabis delivered; (f) prescribe the forms and conditions of licences or permits for the purposes specified in sub clauses (i) to (vi) of clause (a) of subsection (1) and the authorities by which such licences or permits may be granted and the fees that may be charged therefore. 11. Narcotic drugs and psychotropic substances, etc., not liable to distress or attachment.Notwithstanding anything to the contrary contained in any law or contract, no narcotic drug, psychotropic substance, coca plant, the opium poppy or cannabis plant shall be liable to be distained or attached by any person for the recovery of any money under any order or decree of any court or authority or otherwise. 12. Restrictions over external dealings in narcotic drugs and psychotropic substances.No person shall engage in or control any trade whereby a narcotic drug or psychotropic substance is obtained outside India and supplied to any person outside India save with the previous authorization of the Central Government and subject to such conditions as may be imposed by that Government in this behalf. 13. Special provisions relating to coca plant and coca leaves for use in the preparation of flavoring agent.-Notwithstanding anything contained in section 8, the Central Government may permit, with or without conditions, and on behalf of Government, the cultivation of any coca plant or gathering of any portion thereof or the production, possession, sale, purchase, transport, import inter-State, export inter-State or import into India of coca leaves for use in the preparation of any flavoring agent which shall not contain any alkaloid and to the extent necessary for such use. 204

14. Special provision relating to cannabis.-Notwithstanding anything contained in section 8, Government may, by general or special order and subject to such conditions as may be specified in such order, allow cultivation of any cannabis plant for industrial purposes only of obtaining fiber or seed or for horticultural purposes. OFFENCES AND PENALTIES 1. Punishment for contravention in relation to poppy straw -Whoever, in contravention of any provisions of this Act or any rule or order made or condition of a license granted there under, produces, possesses, transports, imports inter-State, exports inter-State, sells, purchases, uses or omits to warehouse poppy straw or removes or does any act in respect of warehoused poppy straw shall be punishable, (a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both; (b) where the contravention involves quantity lesser than commercial quantity but greater than small quantity, with rigorous imprisonment for a term which may extend to ten years and with fine which may extend to one lakh rupees; (c) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees but which may extend to two lakh rupees. Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees. 2. Punishment for contravention in relation to coca plant and coca leaves-Whoever, in contravention of any provision of this Act or any rule or order made or condition of license granted there under, cultivates any coca plant or gathers any portion of a coca plant or produces, possesses, sells, purchases, transports, imports inter-State, exports inter-State or uses coca leaves shall be punishable with rigorous imprisonment for a term which may extend to ten years or with fine which may extend to one lakh rupees. 3. Punishment for contravention in relation to prepared opium- Whoever, in contravention of any provision of this Act or any rule or order made or condition of license granted there under, manufactures, possesses, sells, purchases, transports, imports inter-State, exports inter-State or uses prepared opium shall be punishable, 205

(a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both; or (b) where the contravention involves quantity lesser than commercial quantity but greater than small quantity, with rigorous imprisonment for a term which may extend to ten years and with fine which may extend to one lakh rupees; or (c) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees. 4.Punishment for contravention in relation to opium poppy and opium -Whoever, in contravention of any provision of this Act or any rule or order made or condition of license granted there under, cultivates the opium poppy or produces, manufactures, possesses, sells, purchases, transports, imports inter-State, exports inter-State or uses opium shall be punishable, (a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both; (b) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees; (c) in any other case, with rigorous imprisonment which may extend to ten years and with fine which may extend to one lakh rupees.] 5. Punishment for embezzlement of opium by cultivator -Any cultivator licensed to cultivate the opium poppy on account of the Central Government who embezzles or otherwise illegally disposes of the opium produced or any part thereof, shall be punishable with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty

206

years and shall also be liable to fine which shall not be less than one lakh but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees. 6. Punishment for contravention in relation to cannabis plant and cannabis-Whoever, in contravention of any provisions of this Act or any rule or order made or condition of license granted there under, (a) cultivates any cannabis plant; or (b) produces, manufactures, possesses, sells, purchases, transports, imports inter- State, exports inter- State or uses cannabis, shall be punishable [(i) where such contravention relates to clause (a) with rigorous imprisonment for a term which may extend to ten years and shall also be liable to fine which may extend to one lakh rupees; and (ii) where such contravention relates to sub-clause (b), (A) and involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine, which may extend to ten thousand rupees, or with both; (B) and involves quantity lesser than commercial quantity but greater than small quantity, with rigorous imprisonment for a term which may extend to ten years and with fine which may extend to one lakh rupees; (C) and involves commercial quantity, with rigorous imprisonment for term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees.] 7. Punishment for contravention in relation to manufactured drugs and preparationsWhoever, in contravention of any provision of this Act or any rule or order made or condition of license granted there under, manufactures, possesses, sells, purchases, transports, imports interState, exports inter-State or uses any manufactured drug or any preparation containing any manufactured drug shall be punishable, (a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine which may extend totem thousand rupees, or with both;

207

(b) where the contravention involves quantity, lesser than commercial quantity but greater than small quantity, with rigorous imprisonment for a term which may extend to two years and with fine which may extend to one lakh rupees; (c) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not belles than one lakh rupees but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a Fine exceeding two lakh rupees. 8. Punishment for contravention in relation to psychotropic substances- Whoever, in contravention of any provision of this Act or any rule or order made or condition of license granted there under, manufactures, possesses, sells, purchases, transports, import sinter-State, exports inter-State or uses any psychotropic substance shall be punishable, (a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both; (b) where the contravention involves quantity lesser than commercial quantity but greater than small quantity, with rigorous imprisonment for a term which may extend to ten years and with fine which may extend to one lakh rupees; (c) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable 1. Subs. by Act 9 of 2001, sec. 8, for sections 21 to 23 (w.e.f. 2-10-2001). to fine which shall not be less than one lakh rupees but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees. 9. Punishment for illegal import in to India, export from India or transhipment of narcotic drugs and psychotropic substances-Whoever, in contravention of any provision of this Act or any rule or order made or condition of license or permit granted or certificate or authorization issued there under, imports into India or exports from India or transships any narcotic drug or psychotropic substance shall be punishable,208

(a) where the contravention involves small quantity, with rigorous imprisonment for a term which may extend to six months, or with fine, which may extend to ten thousand rupees or with both; (b) where the contravention involves quantity lesser than commercial quantity but greater than small quantity, with rigorous imprisonment- for a term which may extend to ten years, and with fine; which may extend to one lakh rupees; (c) where the contravention involves commercial quantity, with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees but which may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees.] 10. Punishment for external dealings in narcotic drugs and psychotropic substances in contravention of section 12-Whoever engages in or controls any trade whereby a narcotic drug or a psychotropic substance is obtained outside India and supplied to any person outside India without the previous authorization of the Central Government or otherwise than in accordance with the conditions (if any) of such authorization granted under section 12, shall be punishable with rigorous imprisonment for a term which shall not be less than ten years but which may extend to twenty years and shall also be liable to fine which shall not be less than one lakh rupees but may extend to two lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding two lakh rupees. 11. Punishment for allowing premises, etc., to be used for commission of an offenceWhoever, being the owner or occupier or having the control or use of any house, room, enclosure, space, place, animal or conveyance, knowingly permits it to be used for the commission by any other person of an offence punishable under any provision of this Act, shall be punishable with the punishment provided for that offence.] [11A. Punishment for contravention of orders made under section 9A. If any person contravenes an order made under section 9A, he shall be punishable 1. Subs. by Act 9 of 2001, sec. 9, for section 25 (w.e.f. 2-10-2001). 2. Ins. by Act 2 of 1989, sec. 7 (w.e.f. 29-5-1989). 209

with rigorous imprisonment for a term which may extend to ten years and shall also be liable to fine which may extend to one lakh rupees: Provided that the court may, for reasons to be recorded in the judgment, impose a fine exceeding one lakh rupees.] 12. Punishment for certain acts by licensee or his servants-If the holder of any license, permit or authorization granted under this Act or any rule or order made there under or any person in his employ and acting on his behalf (a) omits, without any reasonable cause, to maintain accounts or to submit any return in accordance with the provisions of this Act, or any rule made there under; (b) fails to produce without any reasonable cause such license, permit or authorization on demand of any officer authorized by the Central Government or State Government in this behalf; (c) keeps any accounts or makes any statement which is false or which he knows or has reasons to believe to be incorrect; or (d) willfully and knowingly does any act in breach of any of the conditions of license, permit or authorization for which a penalty is not prescribed elsewhere in this Act, he shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. COMMENTS It is well settled that a licensee is responsible for the act of his employee done within the scope of his authority although contrary to the instructions of the licensee; Allen v.Whitehead, (1930) 1 KB 211.

210

CHAPTER-7- FACTOR AFFECTING PRICING OF MEDICINES

 External factors (A) Government: Drug Policy, 1986 1. The Drug Policy of 1986, which was titled "Measures for Rationalization, Quality Control and Growth of Drugs & Pharmaceuticals industry in India" was evolved under the dynamic guidance and leadership of late Shri Rajiv Gandhi. This was done after a detailed examination of the various issues. The main objectives of the Drug Policy, 1986 are as under: Ensuring abundant availability, at reasonable prices of essential and life saving and prophylactic medicines of good quality; Strengthening the system of quality control over drug production and promoting the rational use of drugs in the country; Creating an environment conducive to channelizing new investment into the pharmaceutical industry to encouraging cost-effective production with economic sizes and to introducing new technologies and new drugs; and Strengthening the indigenous capability for production of drugs. 2. for meeting the requirements of medicines for health needs at reasonable prices and strengthening the indigenous base, the Government has, over the years been guided by the above Policy. Implementation of the main policy provisions has been through the I(D&R) Act on Industrial Licensing aspects and through Drugs(Prices Control) Orders under the Essential Commodities Act in regard to the pricing mechanism. The Drug Policy has also given the policy frame work in regard to Quality Control and Rational Use of Drugs. Enforcement of quality and standards in medicines is done through the provisions contained in the Drugs & Cosmetics Act, which is administered by the Ministry of Health and Family Welfare, Government of India. 3. Over the last several years, policy inputs have been directed towards promoting the growth of the industry and in helping it to achieve a broad base in terms of the range of products and technologies needed to produce them from as basic a stage as possible. The results have been very encouraging. As on date, there are about 250 large units and about 8,000 small scale units in operation, which form the core of the Industry (including 5 Central Public Sector Units). These units produce the complete range of formulations i.e. medicines ready for consumption by 211

patients, and about 350 bulk drugs, i.e. chemicals having therapeutic value used for production of formulations. It is estimated that 70 per cent of the indigenous demand for bulk drugs and almost the entire demand for formulations are being met through domestic production. 4. During the last decade the production of bulk drugs has grown from Rs. 240 crores in 1980-81 to Rs. 1320 crores in 1993-94 and corresponding increase in production of formulations has been from Rs. 1200 crores to Rs. 6900 crores. The export performance of Industry has also been commendable. The trade balance has been positive for the last four consecutive years. During 1992-93 the trade balance was Rs. 560 crores (excluding exports of Medicinal Castor Oil). 5. Since 1986, the Drug Industry has grown significantly, as mentioned earlier, in terms of production of bulk drugs and formulations. In many cases manufacture of bulk drugs has also been established from the desired basic stage. It is estimated that in case of bulk drug production the contribution of small scale sector is approximately 30 per cent of the total production in the country. It may also be mentioned that the pharmaceutical sector has been able to carve a special niche for itself in the international market as a dependable exporter of bulk drugs. 6. Import and Economic policies have undergone major changes like pruning of the Negative List for imports, doing away with the Actual User condition and full convertibility of Rupee on trade account. In this changed scenario, it is felt that there is no need to be more restrictive than before in granting industrial approvals, provided the two main concerns i.e., achieving basic stage manufacture and discouraging undue imports, are adequately taken care of. Under the circumstances, these objectives can be achieved only through the tariff mechanism and the EXIM policy and as such Industrial Licensing and conditions stipulated therein have lost their relevance. It is also felt that, like in the other sectors of the economy, production would get the necessary impetus to meet any future demands as well as of ensuring adequate availability of drugs at reasonable prices if a more liberalized regime is operated in granting industrials approvals. Many of the drugs reserved for the Public Sector Undertakings have lost relevance vis--vis production program of these units. Therefore, there is need to prune the list of items reserved for the Public Sector to only a few select items, where capacity in Public Sector is adequate to meet the country's demand and heavy public investment has been made. Research and Development 7. The Drug Industry is a highly R&D oriented sector in which there is a very high rate of obsolescence. This sector has also been identified as one of the thrust areas for exports. There is, 212

therefore, need to ensure that the technologies used in the country are cost effective and efficient. It is necessary to attract greater investment into this sector in order to update the existing technologies and for bringing into the country technologies which are not currently available. At the same time it has to be noted that the Indian companies have achieved considerable stature in terms of production as well as in marketing ability and indigenous technology has also reached a commendable level in many cases. However, in view of GATT accord and impending changes in Patent Laws, the subject matter of Basic Research in drug sector has assumed greater importance and needs to be attended to on an urgent basis. Investments 8. Keeping in view the need to encourage more investment in this important sector to achieve the future demands likely to be placed on it in order to meet the growing needs of the country as well as to promote exports, it is proposed to treat the entire drugs and pharmaceutical sector as a high priority industry for the purposes of permitting foreign investment in terms of Appendix-III of the New Industrial Policy. It is also proposed to treat companies with foreign equity up to 51 per cent on par with wholly Indian companies. It may also be mentioned that at present companies with foreign equity up to 40 per cent are already enjoying this facility and, in the circumstances mentioned above there is no need to place any fresh curbs on their activities. Similarly, it is felt that automatic approval for foreign technology agreements can be permitted for all items in the Drugs and Pharmaceuticals sector to encourage the introduction of newer and more efficient technologies, subject to their fulfilling the standard conditions laid down in the Industrial Policy. However, keeping in mind the levels of technology already available in the country, it is necessary to consider proposals involving foreign equity participation above 51 per cent on merits of each case. Pricing 9. The aberrations which have come to notice, in the listing of drugs and their categorization for the purpose of price control, need to be eliminated by the use of transparent criteria applied across the board on all the drugs with the minimum use of subjectivity. The high turnover of a drug is an index of its extent of usage and is considered to meet the requirements of objectivity justifiable on economic considerations. However, the monopoly situation in cases of drugs with comparatively lower turnover has also to be kept in view. Also as an experimental measure, drugs having adequate competition may not be kept under price control and if this proves 213

successful it would pave the way for further liberalization. In the event, however, of prices of these drugs not remaining within reasonable limits, the Government would reclaim price control. 10. The categorization of drugs into two lists with different Maximum Allowable Postmanufacturing Expenses (MAPE) allows a lower MAPE of 75 per cent for the drugs required for National Health Programs (Category I drugs) as against 100% for others (Category II drugs). To encourage the production and availability of these drugs, it is considered necessary to allow a uniform MAPE in all cases of drugs under price control. Further, to achieve uniformity in prices of widely used formulations, it is considered that there should be ceiling prices for commonly marketed standard pack sizes of price controlled formulations and it should be obligatory for all, including small scale units, to follow the prices so fixed. Also, to give encouragement to manufacture of drugs from basic stage, it is considered necessary to allow higher return in such cases over the existing rates. 11. In the light of the apprehensions expressed in the Parliament on the likely spurt in the prices of medicines, it has been felt that it would not be desirable to allow automaticity in the pricing mechanism. The Government would set up an independent body of experts, to be called the National Pharmaceutical Pricing Authority, to do the work of price fixation. This expert body would also be entrusted with the task of updating the list of drugs under price control each year on the basis of the established criteria/guideline. Time limits would be provided for deciding the applications of price approvals and, to begin with, it is proposed to set a time limit of two months for formulations and four months for bulk drugs. This body would also monitor the prices of decontrolled drugs and formulations and oversee the implementation of the provisions of the Drugs (Prices Control) Order. The Government would have the power of review. 12. Government will keep a close watch on the prices of medicines which are taken out of price control. In case, the prices of these medicines raise unreasonably, the Government would take appropriate measures, including reclamping of price control Quality Control and Rational use of Drugs

13. Quality Control and Rational use of Drugs are important aspects of Pharmaceutical Industry. Steps have been taken for strengthening Drug Control Organization by sanctioning additional posts at various levels and by establishing sub-zonal offices at Hyderabad, Ahmedabad and Patna. The Bio-Laboratory at Madras has been upgraded to the level of National Laboratory. 214

The Central Drugs Laboratory at Bombay, functioning from 1992 is in the process of being upgraded while Regional Laboratories at Guwahati, Chandigarh and Hyderabad are in the process of being set up. To improve the existing State Drugs Testing Laboratories and to set up new ones, wherever not established, funds have been sanctioned under a Centrally Sponsored Scheme, besides providing funds under this scheme for augmenting Drug Inspectorate Staff. For certain categories of drugs, which had caused adverse effects due to the lack of drug control in one or the other State, the Central Government has taken upon itself the responsibility of granting license. These drugs are; (i) Large Volume Parenterals, (ii) Sera and Vaccines and (iii) whole Human Blood and Blood Products. Moreover, the Good Manufacturing Practices (GMP) have been made mandatory. 14. Screening of irrational or harmful drugs is an ongoing exercise and 44 categories of formulations have been banned so far and the definition of new drugs has been widened and guidelines issued on clinical trials. With a view to ensuring proper dispensing and rational use of drugs, packaging have been standardised. Five leading hospitals at Pondicherry, Chandigarh, New Delhi, Bombay and Lucknow have been identified as Adverse Drug Reaction Monitoring Centers. 15. While Ministry of Health and Family Welfare are taking some action on these matters, the general perception unfortunately is that this area is presently being neglected. In the interest of the consumers, there cannot be any compromise on quality aspects of medicines and the problem has assumed greater dimension in view of the large number of small scale drug manufacturing units which are estimated to be over 8000 in number. National Drug Authority 16. In view of the above it is envisaged that a National Drug Authority may be set up by a separate Act of Parliament to perform the following functions; (1) Develop and define basic appropriate standards relating to the manufacture, import, supply, promotion and use of drugs. (2) To approve and register pharmaceutical products for use in the country only if (a) it meets real medical need, (b) it is therapeutically effective, and (c) it is acceptable safe

215

(3) To enforce effectively appropriate quality standards of medicines and Good Manufacturing Practices, throughout the country, having full regard to the needs of public health and standardize dosage strengths and pack sizes of formulations with a view to check proliferation. (4) To monitor standard practices in drug promotion and use and to clearly identify those which are acceptable and prohibit those which are unethical and against the consumers interest. (5) To monitor the prescribing practices and to evaluate their appropriateness for the purpose of guiding the medical profession and for achieving the aim of rational prescribing. (6) To ensure that appropriate information about registered pharmaceuticals is made available for the guidance of consumers having regard to; (a) he adverse consequences of non-compliance by patients particularly in the case of antibiotics, steroids etc., (b) dangers of self-medication, and (c) the need to involve consumers as full partners in the health care system (7) To prepare and publish a national formulary and formularies relevant to various levels (like district hospital, community centre, primary health centre) for the guidance of consumers as well as doctors. 17. The functions mentioned above involve new responsibilities which will include:Special focus on examining the technology of bulk drugs; capacity validation of machinery; assessing suitability of manpower for bulk drug production; undertaking scientific scrutiny of master formulae for manufacture of formulations; developing testing labs for cosmetics, diagnostics and devices; laying down standards for veterinary drugs; examination of labels and promotional claims and prescribing procedures for public hearing under the Drugs and Cosmetics Act; monitoring of clinical trials for the protection of human rights; quality control of herbal medicines; updating new drug approval process; weeding out of irrational combination formulations; and formation of expert committees for examination of new drugs. 18. In addition, screening promotional literature, monitoring ongoing clinical trials through an Institutional Review Board, unearthing sub-standard and spurious drugs with the help of Legal cum Intelligence Cells, centralizing all manufacturing licensees for inter-State commerce, updating Good Manufacturing Practices and education to achieve judicious use of drugs, setting up of new analytical testing labs, as well as imparting continuous education and skills for inspection and testing and setting up of Dispute Mechanism Cell are envisaged. 216

19. There is an imperative need to undertake up gradation of the drug testing facilities under the Central and State organizations as well as augmentation of the Drug Control and enforcement staff to enable statutory inspections to be undertaken as provided for under the Act. Therefore, there is need for establishing more zonal and sub-zonal offices under the Central Drug Standards Control Organization as well as additional Regional Drug Testing Laboratories.

20. The implementation of the above proposals would require additional funds, which are proposed to be mobilized by levying a cess of 1% on production of drugs and pharmaceuticals, by a special legislation to be piloted by the Ministry of Health and Family Welfare. The funds mobilized through the cess would be utilized also for encouraging Research and Development in the drug sector. Indigenous and Other Systems of Medicines 21. Various aspects relating to development and promotion of Ayurvedic, Unani, Sidha, Homeopathic and traditional systems of medicines would be actively pursued and the machinery for carrying out these tasks would be adequately strengthened. To provide better focus to this important work it is felt that there is need to create a separate Department, to look after all matters relating to development and promotion of these systems of medicines. Decisions in regard to Modification in Drug Policy'86 The Government decided to modify the Drug Policy, 1986 as follows : 22.1.1 Industrial Licensing for all bulk drugs cleared by Drug Controller (India) and all their intermediates will be abolished, except in the cases of (i) 5 identified bulk drugs which are to continue to be exclusively reserved for the Public Sector as mentioned in Para 22.3 below, (ii) bulk drugs produced by the use of recombinant DNA technology, and (iii)bulk drugs requiring in-vivo use of nucleic acids as the active principles. 22.1.2 Conditions stipulating mandatory supply of a percentage of bulk drug production to Nonassociated Formulators will be abolished. 22.1.3 Licensing shall be abolished for formulations except in cases of specific cell/tissue targeted formulations. 22.1.4 Ratio parameters linking bulk drugs and formulations production and limiting the use of imported bulk drugs will stand abolished.

217

22.1.5 Broad-banding, locational restrictions and grant of COB licenses will be in accordance with the Industrial Policy. (The Memorandum of information prescribed by the Department of Industrial Development shall include an Addendum, to meet the additional requirement of the Drugs & Pharmaceuticals industry, as would be devised by the Department of Chemicals and Petrochemicals.) 22.2 BASIC STAGE PRODUCTION For achieving manufacture from the basic stages and arresting the regression towards manufacturing from later stage intermediates/penultimates, the tariff mechanism would be utilized. Imports of critical intermediates/penultimates may also be put in the negative list so as to arrest regression from basic stage manufacturing. 22.4 FOREIGN INVESTMENT 22.4.1 Investment up to 51 per cent will be permitted in the case of all bulk drugs, their intermediates and formulations. 22.4.2 Investment above 51 per cent will be considered on a case by case basis in areas where investment is otherwise not forthcoming, particularly in the manufacture of bulk drugs from basic stages and their intermediates, and bulk drugs produced by the use of recombinant DNA technology as well as the specific cell/tissue targeted formulations. 22.5 FOREIGN TECHNOLOGY AGREEMENTS Automatic approval for foreign technology agreements shall be given in the case of all bulk drugs, their intermediates and formulations except those produced by the use of recombinant DNA technology, for which the existing procedure would continue. 22.6 ENCOURAGEMENT TO RESEARCH & DEVELOPMENT (R&D) EFFORTS 22.6.1 A new drug which has not been produced elsewhere, if developed through indigenous R&D would be put outside price control for a period of 10 years from the date of commercial production in favor of the Company who undertook the R&D. 22.6.2 The Department of Chemicals Petrochemicals would set up an Inter-Ministerial group to decide, within a set time frame, on measures to give further impetus to R&D in the Drug Sector. 22.6.3 The Ministry of Health and Family Welfare would further streamline the required procedures and steps for the quick evaluation and clearance of new drug applications, especially those developed through indigenous R&D.

218

Ceiling Prices Ceiling prices would be fixed for commonly marketed standard pack sizes of price-controlled formulations and it would be obligatory for all, including small scale units, to follow the price so fixed. 22.7.4 SIMPLIFIED PROCEDURE (i) An independent body of experts, to be called the National Pharmaceutical Pricing Authority, will be entrusted with the task of price-fixation/revision and other related matters such as updating the list of drugs under price control by inclusion and exclusion on the basis of the established criteria/guidelines and would be empowered to take final decisions. The Government would have the power of review. It would also monitor the prices of decontrolled drugs and formulations and oversee the implementation of the provisions of the Drugs (Prices Control) Order. (ii) The time-frame for granting price approvals will be 2 months for formulations and 4 months for bulk drugs from the date of receipt of the complete prescribed information. 22.7.5 ENCOURAGEMENT TO PRODUCTION FROM BASIC STAGE The rate of return in case of basic manufacture would be higher by 4 per cent over the existing 14 per cent on net worth or 22 per cent on capital employed. 22.8 SETTING UP OF NATIONAL DRUG AUTHORITY 22.8.1 A National Drug Authority would be set up by an Act of the Parliament, to be steered by the Ministry of Health and Family Welfare, to look after the Quality Control aspects, Rational Use of Drugs and related matters as outlined in Paras 16-19 above. 22.8.2 For strengthening the drug control system including GMP and for encouraging R&D, a cess of 1% would be levied on production of drugs and pharmaceuticals through legislation, details of which would be worked out by the Ministry of Health and Family Welfare. 22.9 COORDINATION BETWEEN MINISTRIES A Coordination Committee consisting of Secretaries of the Ministries/ Departments of Commerce, Revenue, Health, Bio-technology and Industrial Development and Chairman, Bureau of Industrial Costs and Prices will be set up under the chairmanship of Secretary (Chemicals and Petrochemicals) for monitoring the areas of key concern every quarter and for tracking effective and timely action. The Chairman of the proposed National Pharmaceutical Pricing Authority would also be co-opted on this committee, as and when it is constituted. 219

22.10 OTHER MATTERS The various aspects relating to promotion of Ayurvedic, Unani, Sidha, Homeopathic and traditional systems of medicines would be actively pursued and the machinery for carrying out these tasks would be adequately strengthened. To provide better focus to this important work, a separate Department, to look after all matters relating to development and promotion of these systems of medicines, would be created. INDIA ALTERS LAW ON DRUG PATENTS: India, a major source of inexpensive AIDS drugs, passed a new patent law yesterday that groups providing drugs to the world's poorest patients fear will choke off their supply of new treatments. The new law, amending India's 1970 Patent Act, affects everything from electronics to software to medicines, and has been expected for years as a condition for India to join the World Trade Organization. But because millions of poor people in India and elsewhere -- including by some estimates half the AIDS patients in the Third World -- rely on India's generic drug industry, lobbyists for multinational drug companies as well as activists fighting for cheap drugs had descended on New Delhi to try to influence the outcome. The law, which passed by a voice vote in Parliament's upper house yesterday after days of wrangling over amendments in the lower house, was in the end not as restrictive as the drug activists had feared. ''It's very disappointing, but it could have been worse,'' said Daniel Berman, a coordinator of the global access campaign for the medical charity Doctors Without Borders. ''All generics could have been removed from the market.'' Instead, all the generic drugs already approved in India can still be sold, though sellers must now pay licensing fees. There are also provisions allowing companies that make generics to copy drugs in the future. 220

But there are relatively tough criteria for such copying, and activists predicted that prices for newly invented drugs will be much higher, because drug makers will have the same 20-year patent monopolies as they have in the West. As AIDS patients develop resistance to old drugs, new treatments will become less affordable, they said. In addition, it is unclear whether makers of generic drugs in other countries, like Brazil, China and Thailand, will fill any increasing demand for cheaper medicines. But India's governing Congress Party, which sponsored the bill, disputed the contention that prices would soar. ''The government will have enormous powers to deal with any unusual price rise,'' said Commerce Minister Kamal Nath. All Western countries grant ''product patents'' on new inventions. Since 1970, India has granted ''process patents,'' which allow another inventor to patent the same product as long as it was created by a novel process. In pharmaceuticals, that has meant that a tiny tweak in the synthesis of a molecule yields a new patent. Several companies can produce the same drug, creating competition that drives down prices. Before 1970, India's patent laws came from its colonial days, and it had some of the world's highest drug prices. Process patents on drugs, fertilizers and pesticides have extended life expectancy and ended regular famines. In Africa, exports by Indian companies, especially Cipla and Ranbaxy Laboratories, helped drive the annual price of antiretroviral treatment down from $15,000 per patient a decade ago to about $200 now. They also simplified therapy by putting three AIDS drugs in one pill. Dr. Yusuf Hamied, Cipla's chairman, called the new law ''a very sad day for India.'' But some other Indian drug makers, along with multinational companies, praised it. The International Federation of Pharmaceutical Manufacturers and Associations, a Geneva-based lobbying group, called the law ''a significant step'' that would let India ''take a leading role in global pharmaceutical research and development.''

221

S. Ramakrishna, chief lobbyist for Pfizer India, a subsidiary of the world's largest drug maker, said the bill's passage abandoned ''the utopian concept that every invention should be as free as air or water,'' according to The International Herald Tribune. In the United States, Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America, the lobbying organization for the American drug industry, said the new law would be ''good for India and good for Indian patients,'' but cautioned that his group was ''still measuring the impact on the overall bill of several last-minute amendments.' (B) Competitors The pharmaceutical market has become increasingly competitive since the early 1980s, in part because of the dramatic growth of the generic drug industry. In 1996, 43 percent of the prescription drugs sold in the United States (as measured in total countable units, such as tablets and capsules) were generic. Twelve years earlier, the figure was just 19 percent. Generic drugs cost less than their brand-name, or "innovator," counterparts. Thus, they have played an important role in holding down national spending on prescription drugs from what it would otherwise have been. Considering only sales through pharmacies, the Congressional Budget Office (CBO) estimates that by substituting generic for brand-name drugs, purchasers saved roughly $8 billion to $10 billion in 1994 (at retail prices). Three factors are behind the dramatic rise in sales of generic drugs that has made those savings possible. First, the Drug Price Competition and Patent Term Restoration Act of 1984--commonly known as the Hatch-Waxman Act--made it easier and less costly for manufacturers to enter the market for generic, non antibiotic drugs. Second, by 1980, most states had passed drug-product substitution laws that allowed pharmacists to dispense a generic drug even when the prescription called for a brand-name drug. And third, some government health programs, such as Medicaid, and many private health insurance plans have actively promoted such generic substitution. Greater sales of generic drugs reduce the returns that pharmaceutical companies earn from developing brand-name drugs. The Hatch-Waxman Act aimed to limit that effect by extending the length of time that a new drug is under patent--and thus protected from generic competitors. Those extensions compensate for the fact that part of the time a drug is under patent it is being reviewed by the Food and Drug Administration (FDA) rather than being sold. The act tried to 222

balance two competing objectives: encouraging competition from generic drugs while maintaining the incentive to invest in developing innovative drugs. It fell somewhat short of achieving that balance, however, in part because the act shortened the average time between the expiration of a brand-name drug's patent and the arrival of generic copies on the market (socalled generic entry) from more than three years to less than three months. More important, it also greatly increased the number of drugs that experience generic competition and, thus, contributed to an increase in the supply of generic drugs. In the end, the cost to producers of brand-name drugs from faster generic entry has roughly offset the benefit they receive from extended patent terms. Meanwhile, the greater competition from generic drugs has somewhat eroded their expected returns from research and development. CBO estimates that those factors have lowered the average returns from marketing a new drug by roughly 12 percent (or $27 million in 1990 dollars). In this study, "returns from marketing a new drug" refers to the present discounted value of the total stream of future profits expected from an average brand-name drug. Previous studies estimate that those profits had an average present discounted value of $210 million to $230 million (in 1990 dollars) for drugs introduced in the early 1980s. Those returns are valued at the date of market introduction, after subtracting production costs but not the costs of research and development. Also, because the drugs in those studies were not eligible for the patent-term extensions provided by the Hatch-Waxman Act, those estimates do not account for the benefits of the extensions now available under the act. Thus, those figures can be considered a minimum estimate of the returns from marketing. Only part of the estimated decline in returns can be attributed to the Hatch-Waxman Act; the other factors that have boosted sales of generic drugs have played a role as well. This study relies on a variety of data to produce its estimates, including a data set that represents about 70 percent of prescription drug sales through retail pharmacies in the United States. The various sets of data all have strengths and weaknesses, which are discussed along with the estimates they generate. In general, the empirical estimates in this study are rough rather than precise measures. They help characterize the increase in competition in the pharmaceutical market and its effects on the profits of drug manufacturers and the prices paid for prescription drugs.

223

The Effects of Managed Care on the Pharmaceutical Market At the same time that the Hatch-Waxman Act has helped increase the supply of generic drugs, changes in the demand for pharmaceuticals have affected the frequency with which generic and brand-name drugs are prescribed and the prices paid for them. Those changes in demand were brought on by newer forms of health care delivery and financing. In particular, because of competitive pressure in the health insurance market, more private-sector health plans have adopted managed care techniques in an effort to hold down overall health spending. The net effect of those techniques on spending for prescription drugs, however, is unclear. On the one hand, many health plans (including traditional fee-for-service plans) hold down drug costs by "managing" their outpatient prescription drug benefits--either themselves or through organizations called pharmaceutical benefit management companies (PBMs). Those plans and PBMs use computer networks at pharmacies and electronic card systems for enrollees that allow pharmacists, before filling an enrollee's prescription, to consult a list (or formulary) of the plan's suggested drugs. Formularies typically encourage substituting brand-name drugs with generic versions, or sometimes with other, less expensive brand-name drugs. Savings result not only because of that substitution but also because many manufacturers of brand-name drugs offer discounts to health plans or PBMs in exchange for being included on their formulary. In addition, because they represent a large pool of customers, PBMs can negotiate with pharmacies over the retail prices charged for prescriptions. Since the late 1980s, those various techniques have been putting downward pressure on the prices that PBMs and health plans pay for prescription drugs sold through pharmacies. On the other hand, health maintenance organizations (HMOs) and some other managed care plans frequently charge lower copayments for health care services--including physician visits and prescription drugs--than traditional fee-for-service plans do. Those lower copayments may lead to greater use of prescription drugs by beneficiaries. The treatment practices of HMOs may also favor more intensive use of prescription drugs, perhaps as an alternative to costlier forms of treatment. As a result, the increasing prevalence of managed care plans may have helped boost the quantity of prescription drugs sold in the United States. For brand-name drugs still under patent (which do not yet have generic competitors), managed care techniques may have only a small effect on profits, assuming that greater use offsets the downward pressure on prices. For brand-name drugs whose patents have expired, however, 224

profits are probably lower than they would have been without the generic substitution promoted in part by managed care plans and PBMs; that substitution has cut dramatically into the market share of those drugs. Pricing and Competition in the Pharmaceutical Market Competition in the pharmaceutical market takes three forms: among brand-name drugs that are therapeutically similar, between brand-name drugs and generic substitutes, and among generic versions of the same drug. Manufacturers of brand-name drugs compete for market share primarily through advertising and the quality of their products (including efficacy and side effects), as well as through pricing. Manufacturers of generic drugs increase their market share mainly by lowering prices. (In general, companies produce either generic or brand-name drugs, not both, although some generic manufacturers are subsidiaries of brand-name manufacturers.) Competition Among Brand-Name Drugs Patents do not grant complete monopoly power in the pharmaceutical industry. The reason is that companies can frequently discover and patent several different drugs that use the same basic mechanism to treat an illness. The first drug using the new mechanism to treat that illness--the breakthrough drug--usually has between one and six years on the market before a therapeutically similar patented drug (sometimes called a "me-too" drug) is introduced. Economic theory and various studies suggest that the presence of several therapeutically similar drugs limits manufacturers' ability to raise prices as much as would otherwise be the case. In addition, brandname manufacturers are more likely to agree to give purchasers a discount if those purchasers have the option of switching to a generic or me-too competitor. The factors that limit the number of similar but slightly differentiated brand-name drugs on the market are unclear. In some cases, perhaps, only a limited number of slightly different chemicals that target a given enzyme can be developed into drugs. Or, as one economist has suggested, the high cost of developing a drug may limit the number of similar brand-name drugs that are eventually brought to market. Companies will undertake such investment only if they believe the market is not already saturated or their drug has some quality advantage that could enable it to compete effectively and earn an adequate return. For that reason, competition among patented brand-name drugs probably results in companies' earning roughly a normal rate of return on their investment in research and development (R&D), on average.

225

Overall, the pharmaceutical market is not highly concentrated, but when that market is divided into narrowly defined therapeutic classes, it becomes quite concentrated. The top manufacturers of brand-name drugs, ranked by pharmaceutical sales, each account for no more than 7 percent of the entire market for prescription drugs (which totaled $60.7 billion in 1995 at manufacturer prices). Within each therapeutic class, however, higher levels of concentration appear. In 35 of the 66 therapeutic classes that CBO examined in this study, the top three innovator drugs together constituted at least 80 percent of retail pharmacy sales in their class. Studies of the average prices paid by pharmacies and hospitals have shown that manufacturers of brand-name drugs do compete with each other through pricing. The markups they charge over the marginal cost of producing a drug are consistent with economic models of price competition in which entry by manufacturers is limited (such as by patents). Offering discounts to some buyers may also be an important dimension of price competition for brand-name drugs. But its extent is difficult to measure because of lack of data. Discounts on Brand-Name Drugs Different buyers pay different prices for brand-name prescription drugs. In theory, when companies are permitted to charge different types of purchasers different prices, those purchasers least sensitive to price will pay the most. In today's market for outpatient drugs, purchasers that have no insurance coverage for drugs, or third-party payers that do not use a formulary to manage their outpatient drug benefits, pay the highest prices for brand-name drugs. Manufacturers offer discounts on brand-name drugs based not only on the volume purchased but also on the buyer's ability to affect the drug's market share by using a formulary to systematically favor one brand-name drug over another for a large number of patients. Pharmacies themselves do not generally promote substitution between brand-name drugs, so they do not generally receive large discounts or rebates from manufacturers. Rather, it is the PBMs and insurers who manage benefits for drugs sold through pharmacies that promote brand-name substitution and receive discounts. Such price discrimination, or discounting, may be an important mechanism for facilitating price competition in the pharmaceutical market. It rewards institutional purchasers that organize their patient base through formularies so as to encourage the use of less costly drugs. Prohibiting discounts, as some policymakers have called for, could decrease price competition.

226

Drug companies usually do not make their discounts public, but CBO was able to obtain limited information on the prices paid by different types of purchasers for prescription drugs. The prices that pharmacies pay can be seen as a proxy for the final price paid by customers who do not have a managed drug benefit or PBM to negotiate rebates from manufacturers. Based on the average invoice prices for top-selling drugs sold primarily to retail pharmacies, hospitals and clinics pay 9 percent less than retail pharmacies, on average, and HMOs pay 18 percent less. Federal facilities, such as veterans' hospitals, get an even more substantial discount--over 40 percent, on average, compared with the price paid by retail pharmacies. (Those comparisons are based only on invoice prices, so they do not account for rebates and other types of discounts that do not appear on invoices.) Statistical analysis shows that manufacturers' discounts on brand-name drugs tend to be higher when more generic and me-too drugs are available. That analysis is based on the difference between the average price paid by pharmacies and the lowest price paid by any private purchaser in the United States (the best-price discount), as reported under the Medicaid drug rebate program. CBO found that the best-price discount for a brand-name drug was 10 to 14 percentage points greater when a generic version was available from four or more manufacturers. That analysis also showed that as the number of brand-name manufacturers in a therapeutic class increases from one to five, the best-price discount grows by 10 percentage points. Those statistical results imply that discounts are at least partly a response to competitive market conditions and may be a sign of greater price competition in some segments of the pharmaceutical market. Competition Among Generic Drugs By making generic entry easier and less costly, the Hatch-Waxman Act helped increase the number of generic manufacturers producing the same drug. As the number of manufacturers rises, the average prescription price of a generic drug falls. CBO's analysis shows that when one to 10 firms are manufacturing and distributing generic forms of a particular drug, the generic retail price of that drug averages about 60 percent of the brand-name price. When more than 10 manufacturers have entered the market, the average generic prescription price falls to less than half of the brand-name price.

227

Pricing and Competition in the Pharmaceutical Market The federal government has competing policy objectives with respect to the pricing of prescription drugs. On the one hand, it wants to ensure that companies have enough incentive to invest in researching and developing innovative drugs. On the other hand, it wants to discourage them from charging excessively high prices. In general, the government achieves the first goal through a patent system that grants market exclusivity for a limited period of time, allowing companies to recoup their investment in R&D. For the second goal, it relies on competition between similar drugs to hold prices down. This chapter examines price competition among manufacturers in the pharmaceutical market, including the impact of the dramatic growth in the generic drug industry since 1984. Such competition comes in three main forms: between brand-name drugs in the same therapeutic class, between brand-name drugs and their generic counterparts, and between different generic versions of the same drug. The pharmaceutical industry is also affected by other types of competition, such as the substitution that sometimes occurs between prescription drugs and other forms of medical treatment. However, the conditions under which prescription drugs can be substituted for other medical procedures are outside the scope of this study. The patent system provides a period of protection during which manufacturers of innovator drugs can charge relatively high prices, earning profits that enable them to compensate for the costs of a drug's discovery and development. Although patents prevent other manufacturers from producing the same drug, they do not prevent manufacturers with a similar but slightly different drug from also obtaining a patent and entering the market. Limited empirical evidence suggests that the availability of several similar brand-name drugs tends to slow the rate of price growth, even before generic copies become available. The dramatic rise in generic sales since 1984 has held down average prices for drugs that are no longer protected by a patent. However, those lower prices tend not to result from reductions in the price of the original brand-name drug when it begins facing competition from generic drugs. Rather, average prices fall primarily because consumers switch from the higher-priced innovator drug to the lower-priced generics. To be on the receiving end of that switch, generic manufacturers compete with each other intensely in the area of price, partly because they sell identical products.

228

The increased use of generic drugs has kept total spending on prescription drugs below what it might otherwise have been. Considering only drugs sold through retail pharmacies, the Congressional Budget Office (CBO) estimates that the purchase of generic drugs reduced the cost of prescriptions (at retail prices) by roughly $8 billion to $10 billion in 1994. That estimate assumes that all generic prescriptions dispensed would have been filled with a higher-priced brand-name drug if the generic was not available. Much of the analysis in this chapter relies on a set of data that represents 70 percent of prescription drug sales at retail pharmacies in the United States in 1993 and 1994. Roughly half of all prescription drugs are channeled through retail pharmacies (see Figure 2). Thus, the data set represents about 35 percent of all drug sales in the United States in those years. The data include total dollars spent on each dosage form (tablet, capsule, liquid, and so forth) of 454 brand-name drugs, as well as total spending on generic versions of the brand-name drugs whose patents have expired. Figure-1 Channels of Distribution for

Prescription Drugs

The unit used to measure quantity in the retail pharmacy data is the prescription. That unit can lead to measurement errors, however, since different prescriptions for the same drug come in different sizes. (For example, one prescription may be filled with 30 pills and another with 100 pills.) A statistical bias would occur if more pills were dispensed per prescription, on average, for a generic drug than for its brand-name counterpart. That bias would lead to underestimating the price difference between brand-name and generic drugs. But the bias could run in either direction. Without a better measure of quantity, part of the analysis in this chapter relies on the 229

number of prescriptions to estimate sales volume and to calculate average unit prices. Implicitly, those estimates assume that, in general, prescriptions for a brand-name drug and for its generic equivalent have roughly the same average number of dosage units (such as tablets). All estimates that rely on average prescription prices are based only on tablet and capsule formulations, which constitute 87 percent of sales in the retail pharmacy data set. Those dosage forms yield more reliable average prescription prices. Competition Among Brand-Name Drugs In general, the higher prices charged for brand-name drugs allow firms to recoup their investment in a drug's discovery and development. Studies have found that, on average, discovering and developing a drug takes 11 to 12 years and costs about $200 million per successful product (in 1990 dollars).(1) That $200 million figure includes the cost of drugs that never make it to market; it also accounts for the cost of capital--that is, the cost of waiting for a return until the drug is introduced. Actual drug development costs may be higher today if, for example, the cost of conducting clinical trials has increased. Conversely, costs may be lower if the failure rate of drugs that go into clinical trials has declined.(2) The stream of after-tax profits over the life of a typical innovator drug follows an up-and-down pattern. The first 11 to 12 years show a negative cash flow while the drug is being developed, undergoing testing, and awaiting approval. Over the next 20 years, as the drug is marketed, it earns back a return on the investment in its research and development. According to two studies, that profit stream has an average present value of $220 million to $230 million (in 1990 dollars, after deducting manufacturing, advertising, distribution, and other non-R&D-related costs, discounted to the date of market introduction)--which more than compensates for the $200 million in average capitalized costs of drug development. Those studies estimate that for innovator drugs introduced in the early 1980s, after-tax profits exceeded development costs by $22 million to $36 million, on average (in 1990 dollars, where returns are discounted and costs are capitalized to the date of market introduction). Since the returns from selling new drugs are highly skewed--a few drugs earn very large profits, whereas others may only cover the cost of their own development--that average encompasses both a few big winners and some marginally profitable drugs.

230

Empirical Evidence About the Pricing of Innovator Drugs Studies of competition among similar brand-name drugs show that manufacturers compete through prices as well as through advertising and product quality. Most of the empirical studies that look at prices of brand-name drugs are based either on list prices or on average prices paid on invoices to pharmacies and hospitals. Neither of those prices represents an actual transaction price, however. No purchaser pays the list price, although it serves as an important signal since it is a published price observed by all buyers. The average invoice price is much closer to an actual transaction price, but it does not include rebates or discounts that do not appear on the invoice. Since neither price captures the full impact of discounting, studies that rely on those prices underestimate to some extent the level of price competition among brand-name drugs. Those are the only prices widely available to researchers, however, so they are the ones generally used for analyses. CBO examined the list prices of breakthrough and me-too drugs over time for five therapeutic classes. In four of the five, the list price of the breakthrough product continued to increase in real terms--that is, by more than just the effects of inflation--after the entry of one or more me-too products. In only one case (that of fluoroquinolone anti-infective) did the breakthrough drug lower its list price in real terms after the first me-too drug entered the market. A study by John Lu and William Comanor also found that the average list price of brand-name drugs continues to rise faster than inflation after the introduction of a me-too competitor.(24) For 13 drugs that received an A rating from the FDA (as most innovative), the average inflationadjusted list price after eight years on the market was 7 percent above the launch price. For 48 Brated drugs (slightly less innovative), the inflation-adjusted list price was 32 percent higher, on average, eight years after launch. That same study also found that although prices continued to increase, the rate of increase was slower for those drugs that had more brand-name competitors on the market. The introductory price also tended to be lower when more similar brand-name drugs were already on the market. Those findings suggest that the rate of price increase is slowed by competition between brandname drugs. A breakthrough drug has an advantage over its me-too competitors in that doctors become experienced with it first and are usually hesitant to try a new drug unless it is seen to be more effective or have fewer side effects. New me-too drugs that offer small advantages over 231

competitors may be sold at a lower price initially; then, as they become more widely accepted, their price rises more quickly. That may partially explain why the list prices of C-rated drugs (least innovative) tend to increase much more rapidly over time than the list prices of their more innovative competitors. Lu and Comanor found that for a sample of 69 C-rated drugs, the average inflation-adjusted list price after eight years on the market was 62 percent above the launch price. That high price increase occurred although those drugs were launched at roughly the same price as their closest competitors, on average. Price competition among similar innovator drugs is softened because products are differentiated. It is also softened because entry in the pharmaceutical industry is limited by patent protection and the FDA approval process. Still, companies have an incentive to continue to enter the market with similar brand-name drugs until profits are driven down to a normal (competitive) rate of return that adequately compensates for the risk of investing in drug development. One economist has asserted, based on discussions with industry executives, that more me-too drugs are not developed because they would not be profitable given the high development costs. Companies will choose to develop a brand-name drug similar to others on the market only if they believe that the market is not already saturated, or that their drug may have some quality advantage (such as fewer side effects or greater efficacy) that could enable it to compete effectively and earn profits that more than cover the development costs. Competition should result in firms' earning close to a normal rate of return to their R&D investment, on average. Using average invoice prices, economist Scott Stern found that cross-price elasticities (a measure of buyers' sensitivity to price differences between similar brand-name drugs) in four therapeutic classes were consistent with the assertion that brand-name drugs compete in price. His estimates of price sensitivity were not consistent with the assertion that firms collude to maintain prices as high as what would be charged if a single company produced all of the products. Several other studies have also found that the price differences between patented pharmaceutical products can largely be accounted for by differences in quality, such as side effects and therapeutic effectiveness. The price comparison is based on the average invoice prices paid by various kinds of purchasers for 100 top-selling drugs sold largely through pharmacies. (Top-selling drugs that were dispensed primarily in an inpatient setting, such as a hospital, were excluded.) About 85 percent of the revenues from sales of those drugs (excluding sales to mail-order pharmacies) came from 232

retail pharmacies; the other 15 percent came from sales to other types of purchasers. Those other purchasers paid less, on average, than retail pharmacies for the drugs in question. That finding is consistent with the notion that purchasers are rewarded for their ability to influence the prescription choice of a large patient base. For example, hospitals and clinics paid 9 percent less than retail pharmacies in 1994, and HMOs paid 18 percent less. Federal facilities got the biggest discount, over 40 percent, off the average invoice price paid by retail pharmacies. That comparison is based on invoice prices only, which do not capture rebates and other types of discounts that do not appear on an invoice. The size of the average price differences between types of purchasers, and perhaps also the relative ranking of the no pharmacy purchasers, would change if rebates and all forms of discounts were included. But as long as the excluded rebates and discounts were not larger for retail pharmacies than for the other types of purchasers, on average, then the conclusion drawn that customers of pharmacies without a managed drug benefit pay the highest prices for brand-name drugs--would remain correct. Unfortunately, more complete pricing data are not available. Rebates are an important mechanism for lowering the average prices that manufacturers are paid for prescription drugs bought through retail pharmacies. Since the invoice prices paid by pharmacies do not include the rebates that PBMs and Medicaid receive, Table 4 probably overstates the difference between the average prices that manufacturers earn for drugs channeled through retail pharmacies and the average prices they earn for drugs channeled through other types of purchasers. Competition Between Brand-Name and Generic Drugs One of the primary goals of the Hatch-Waxman Act was to increase the availability of lower-cost generic drugs. Since the act became law in 1984, the market share of generic drugs has indeed been rising steadily--although not all of that increase stems from the act. For drugs that come in easily countable units, such as tablets and capsules, the share of generic units sold more than doubled between 1984 and 1996--from 18.6 percent of all drug units sold to 42.6 percent.

233

Figure-2 Growth in the Market Share of Generic Drugs Since 1984

SOURCE:

Pharmaceutical

Research

and

Manufacturers of America, 1997 Those numbers are probably the best publicly available estimate documenting the rise in generic market share since 1984. However, since countable units do not include injectable drugs and many types of prescription drugs dispensed in liquid form, they are not a perfect measure of average generic market share. Many injectable drugs are dispensed primarily in hospitals and other inpatient settings, so the estimate may under represent those channels of distribution. Countable units appear to yield an estimate of generic market share similar to that measured by the number of prescriptions dispensed through retail pharmacies. The Hatch-Waxman Act encouraged the entry of generic drugs by establishing an abbreviated approval process for generic versions of all no antibiotic drugs (antibiotics already had such a process). In addition, the act reversed a 1984 court ruling and allowed generic manufacturers to begin the tests required for FDA approval before the patent on the innovator drug they were copying had expired. Those changes both increased the probability that a generic copy would become available after patent expiration and reduced the average delay between patent expiration and generic entry from more than three years to less than three months. As generic drugs are substituted for their more expensive brand-name counterparts, the average price of a prescription falls. In CBO's retail pharmacy data set, the average retail prescription price for a brand-name drug with generic substitutes was $37 in 1994. However, including prescriptions that were filled with a generic drug, the average prescription price for a multiplesource drug was only $26. Thus, generic substitution lowered the average cost for a multiple234

source prescription by $11. That result is only a rough estimate, however, since prescriptions may somewhat misrepresent the relative quantities of brand-name and generic drugs sold. For example, if generic drugs tend to have more pills dispensed per prescription than their brandname counterparts, that estimate would understate the degree to which generic substitution reduces the average cost of a prescription. If generic drugs tend to have fewer pills dispensed, the reverse would be true. Effect of Generic Entry on Brand-Name Prices Those consumers who are more sensitive to price, or who are covered by health plans that encourage generic substitution, are more likely to buy a generic drug when it becomes available. As the more price-sensitive consumers switch to the generic version, demand for the original brand-name drug declines and may become less sensitive to price. If that happens, the price of the brand-name drug could theoretically rise more quickly over time than it would have without generic competition. A number of empirical studies have found that the prices of brand-name drugs continue to rise faster than inflation after generic entry. One study also found that brand-name prices increase by about 1 percent with each new generic competitor. At the same time, CBO's analysis shows that discounts on brand-name drugs tend to increase after generic entry, something not fully captured in the invoice prices on which the other empirical studies are based. CBO found that the bestprice discount is 10 to 17 percentage points greater when two or more generic manufacturers produce copies of the brand-name drug. Taken together, the implication of those results is that prices of brand-name drugs do rise faster than inflation for many final purchasers after generic entry, but some purchasers pay less for those drugs after generic entry. For 34 drugs that experienced generic competition for the first time after 1991, the average price increase between 1991 and 1994 was 22 percent. By comparison, average prices for brand-name drugs that faced no generic competition rose by 24.5 percent over that period. And the prices of brand-name drugs that had already faced generic competition by 1991 grew by 22.4 percent during the same period. (Apart from any effect of generic competition, that price increase for multiple-source drugs could be lower because many of the drugs are older ones that have been surpassed by newer treatments.) The differences in the rate of price increase among those three groups of brand-name drugs are small and consistent with the notion that generic competition does not have a large effect on brand-name prices for many purchasers. 235

Effect of Generic Competition on Total Costs for Prescription Drugs Because generic drugs are priced much lower than their brand-name counterparts, they are a source of substantial savings. According to CBO's data on retail pharmacy sales, the average retail price of a prescription for a generic drug in 1994 was $17.40 (see Table 1). Multiple-source brand-name drugs were twice as expensive--averaging $37.40 per prescription. CBO estimates that if each generic prescription had been dispensed at the corresponding brandname price, purchasers of prescription drugs through retail pharmacies would have spent roughly $8 billion to $10 billion more in 1994. Those figures were calculated as follows: CBO assumed that all of the generic prescriptions dispensed in 1994 would have been filled with a higherpriced brand-name drug if the generic drug was not available. Then the price difference between the innovator and generic formulations of a given drug was multiplied by the number of generic prescriptions dispensed for that drug. Adding together the results of those calculations for all of the multiple-source drugs in the retail pharmacy data set yielded an estimate of $7 billion in direct savings from retail purchases of generic drugs in the data set. The sales data cover only 70 percent of the retail pharmacy market, however, although they may cover more than 70 percent of generic drug sales through retail pharmacies since they include nearly all of the 200 top-selling drugs that are dispensed primarily through pharmacies. Assuming that the data set encompasses 70 percent to 90 percent of total generic sales, then savings from all retail purchases of generic drugs through pharmacies would total approximately $8 billion to $10 billion in 1994. Of course, retail pharmacies are not the only sellers of prescription drugs. Since other channels (including hospitals, clinics, and mail-order pharmacies) distribute around 40 percent of prescription drugs, the total savings from generic substitution through all channels were most likely even greater than that amount. That calculation entails a variety of assumptions and caveats. First, it assumes that the quantity of prescriptions filled for a particular multiple-source drug does not increase because a lowerpriced generic has become available. If the number of prescriptions did increase, the calculation would overstate the savings from generic entry. However, limited statistical evidence supports the assumption that the quantity sold does not change. A study by Caves, Whinstone, and Hurwitz found that the total amount sold of a drug in both generic and brand-name forms did not increase after generic entry.

236

Second, the calculation is a rough one because the price per prescription, from which it is derived, does not account for possible systematic differences between the size of brand-name and generic prescriptions. The calculation would be more accurate--though much more cumbersome-if the unit of measure was the cost of an average daily dose. But even that measure contains problems, because the average daily dose can vary among people and among the different medical conditions that a drug is used for. Without the ability to use a better measure, the calculation relies on prescriptions as the unit of quantity to obtain a rough estimate of the savings from generic substitution. Other studies have also concluded that prices of generic drugs decline in response to increased generic competition. Economist Richard Caves and colleagues found that as the number of generic manufacturers increased from one to 10, the average generic price fell from 60 percent to just 34 percent of the brand-name price. With 20 manufacturers, the generic price was only 20 percent of the brand-name price. Since generic prices tend to fall as the number of producers rises, generic manufacturers are most profitable when they are one of the first to enter a market. Market Concentration in the Generic Drug Industry Overall, the generic drug market is not particularly concentrated. Mylan and Geneva, the largest generic firms in 1994, accounted for 16 percent and 12 percent, respectively, of all generic sales in the retail pharmacy data set. Most generic firms had just 1 percent to 5 percent of total generic sales. The markets for individual multiple-source drugs, by contrast, are much more concentrated. For 94 of 110 multiple-source drugs in the retail pharmacy data set, the top two generic firms were responsible for more than half of generic sales. And for 57 of those drugs, the single top generic firm accounted for more than half of generic sales. Leading generic firms may lower their price when new competitors enter the market so as to maintain their dominant position. That would explain how the average generic price falls as the number of manufacturers rises, but sales of many generic drugs remain dominated by one or two companies. Still, Grabowski and Vernon found that in only half of the 18 markets they examined, the lowest-priced generic manufacturer had the largest market share. Factors other than price, such as being the first to enter a market, probably also play a role in determining a generic manufacturer's market share. And one recent study found that generic manufacturers are

237

more likely to enter markets where they have some experience with a drug's dosage form, therapy, or active ingredient. Links Between Generic and Brand-Name Manufacturers Although the same company rarely produces both a brand-name drug and its generic copy, some generic manufacturers are subsidiaries of brand-name firms. In 1994, eight of the 15 largest generic companies in the retail pharmacy data set were owned by innovator firms. Those generic subsidiaries were responsible for 46 percent of total generic sales in the data set. Today, the proportion of generic drugs produced by subsidiaries of innovator firms is probably somewhat smaller than in 1994 because several brand-name manufacturers have left the generic drug business. For example, three of the eight larger generic firms owned by a brand-name company (Rugby, Hamilton, and Warner-Chilcott) have been sold or disbanded in recent years. Some of those brand-name companies experimented with producing generic copies of their own drugs in the early 1990s and found that it was not very profitable. For example, generic manufacturer Hamilton offered copies of the brand-name drugs Anaprox and Naprosyn produced by its parent company, Syntex. During the first calendar year after patent expiration, the average generic price quickly dropped, and Syntex lost 70 percent of its market for those two drugs to generic competition. A few of the brand-name companies that tried to get further into the generic business in the early 1990s, including Hoechst Marion Roussel and Merck, have recently sold generic subsidiaries. Nevertheless, brand-name companies that have long held generic subsidiaries remain committed to their generic business. Today, at least 13 manufacturers of innovator drugs have a generic subsidiary or division (see Table 6). One of the largest generic firms, Geneva Pharmaceuticals, is a subsidiary of Novartis (a company formed by the merger of Ciba-Geigy and Sandoz). Most generic subsidiaries do not produce copies of their parent company's drugs. Out of 112 multiple-source drugs in the retail pharmacy data set, only 13 had a generic subsidiary of the brand-name manufacturer selling more than 10 percent of the prescriptions dispensed through retail pharmacies. In general, the incentives to lower price in order to gain market share are the same for all generic manufacturers, whether or not they are the subsidiary of an innovator firm. But an important exception occurs when the generic subsidiary produces a copy of the parent company's innovator drug. Though infrequent, in such cases the subsidiary may have less

238

incentive to lower price than other generic producers because it does not want to take more sales away from the parent company's drug. And when the generic subsidiary does lower price dramatically, the innovator firm suffers. (C) Contagious disease A contagious disease is a subset category of infectious diseases (or communicable diseases), which are easily transmitted by physical contact (hence the name-origin) with the person suffering the disease, or by their secretions or objects touched by them. The contagious category of infectious/communicable diseases usually require a special mode of transmission between hosts. These include need for intermediate vector species (such as a mosquito for yellow fever), direct blood contact (such as transfusion or needle-sharing), or sexual contact (examples are AIDS and hepatitis B). Changes expected in the pharmaceuticals market due to contagious diseases 1. As a consequence of a series of measures that deregulated the pharmaceutical market at the beginning of the 1990s, by 2004 a structure was in place in which 50% of the products corresponded to "branded generic" drugs, 33% which correspond to "INN generic" drugs sold under their scientific international nonproprietary name, and 17% to "original" brand name drugs. In terms of sales, above all in volume, in general there has been a sustained growth in generic medicines. 2. The changes in intellectual property rules due to contagious diseases that are being negotiated in the FTA will have a direct impact on the pharmaceuticals market, principally affecting the generic brands because by increasing the number of originals that cannot be copied (and their protection period), it will swiftly decrease the relative importance of generic brands in the market. 3. Through important changes in prices due to contagious disease, there will be significant changes in the structure of the current pharmaceuticals market. It is expected that by the end of the thirteenth year, 69% of the market will correspond to "original" brand-name drugs, 20% to "branded generic" drugs and 11% to "INN generic" drugs. 4. The "original" brand-name medicines are targeted for consumption by those with mid- or high-level purchasing power and eventually for ESSALUD [Peruvian public health insurance 239

system]. They have all the formal distribution channels and obtain a high degree of brand fidelity, using different marketing and promotion strategies to increase demand. Generic medicines for contagious disease sold under their scientific name only gain access to this circuit with a great deal of difficulty and concentrate their sales in the public sector. 5. In recent years an average of 30 previously unregistered active principles are registered annually. This represents approximately a third of the new active principles that appear in the world. Although a large number of these active principles are no longer patentable, they would be able to obtain test data protection. Changes expected in the price of medicines due to contagious diseases 6. The characteristics of the pharmaceuticals market has meant that prices of drugs for contagious diseases in the country are higher than those in other countries in the region and even in Europe. In some cases the price differential surpasses 800%. 7. As a result of the FTA, in the first year the price of the "original medicines" could increase by 12.5%, the branded generics could increase by 4.3%, and the INN generics by 0.7%. By years 7 and 13, the former would increase by 72% and 132%, respectively, the second by 22% and 37% and the latter 4.4% and 7.7%. Expected changes in access to medicines for contagious diseases 8. Approximately a third of the population in the country does not have access to essential medicines for contagious diseases. Coverage overall is very low for some diseases where lack of access has serious repercussions for life expectancy and quality of living, such as diabetes, hypertension, schizophrenia, AIDS and cancer. 9. As a result of the FTA, it is estimated that in the first five years after implementation, between 700,000 and 900,000 people will be excluded each year from receiving medicines if the Health Ministry and ESSALUD budgets or the income of the poorest households do not improve. By the sixth year, coverage is expected to improve due to the more intensive use of "INN generics." However, this does not take into account therapeutic innovations. Impact on household spending and the budget for medicines of contagious diseases 10. Household spending makes up 70% of purchases in the pharmaceuticals market (1.6 billion soles a year) and the Health Ministry and ESSALUD make up the remaining 30%. The impact of the FTA on expenditures for health coverage is expected to principally affect household budgets. 240

11. As a result of the inclusion of test data protection in the FTA, an impact is expected in the first year equivalent to US$34.4 million of additional spending. Of that total, US$29 million will be assumed by families (increased out-of-pocket spending) while the difference will be assumed by the Health Ministry and ESSALUD. Between years 7 and 13, additional spending will be in the range of US$130 million to $170 million. Effectiveness of the exoneration of tariffs and sales tax on medicines for contagious diseases 12. In a sample of 200 medicines to treat cancer that are sold in Peru it was observed that the exoneration of the payment of tariffs and sales tax not only failed to reduce the price of oncology medicines, but allowed companies to obtain extraordinary earnings of US$1 million a year as of 2002. 13. It was hoped that removing tariffs and sales tax would lead to a reduction of at least 20% in the final price of medicines to treat cancer. This was only observed in 8% of the products, 19% did not modify their price and 23% increased it. Epidemiological trends in the context of the FTA 14. The projections for the next two decades show an increase in the majority of the known highly contagious diseases. Although these illnesses touch all socioeconomic groups, the poor are the most affected due to their vulnerability. 15. In the case of multi-drug resistant tuberculosis, it is estimated that the number of cases could be reduced if health programs have adequate coverage and are effective. 16. Regarding illnesses such as tuberculosis, malaria and AIDS, where traditional medications are increasingly less effective, and patients must periodically change to using new pharmacological technologies. Due to the effect of the FTA on the price of medicines, this will be delayed or will not take place, with the foreseeable consequences.

241

CHAPTER-8 ETHICS RELATED TO LIFESAVING DRUGS

India has a booming drug industry and has contributed to making generics at low prices worldwide. We are rightly proud of this. But medicines within India are overpriced and unaffordable, a glaring silent violation of human rights, that gives sleepless nights to many patients leading eventually to their misery and penury. The margins in medicines are extremely high often reaching 1000-4000 percent. More players have not resulted in lower prices of medicines or for that matter lower cost of health services. Demand is supplier induced. The health market creates and promotes wants. Drug Prices and Affordability: How affordable are Indias low-priced medicines for the people of India? Let us look at these facts:  Cost of medicines for multi-drug resistant TB (maintenance phase) is equivalent to 737 days of daily wage of a wage laborer in India.  Daily wages is Rs 90/- average  Coronary heart disease: 209 days of wage labor  Prevention of Hepatitis A: 30 days of wage labor  Iron deficiency anemia (using Dexorange): Rs. 3,744 for 6 months.  Coronary artery disease: Rs.12,541 per year (using the expensive brands).  Diabetes using oral glimepiride 2 mg: Rs. 3660 per year.  Drug resistant TB: > Rs.100,000 for 2 years.  An unskilled worker in US or UK needs to work for 10 minutes to buy 10 tablets of Paracetamol  In India a daily wage worker will have to work at least one hour.  And our Paracetamol is one of the cheapest in the world! To say some drugs cost less than a cup of tea, and therefore should not be price regulated, is a travesty. In many cases medicines are to be taken several times a day and for many conditions at a time. No doctor prescribes a single medicine. Again some medicines are taken for months and years together. Many cups of tea in urban areas are Rs 2 and more per cup! As we show above forget tea, not even a square meal a day is affordable.

242

Cost of Treatment with Biotechnology-based Drugs Abciximab (antianginal, Eli Lily): Rs. 39,480 for a 60 kg man per day Epoeitin alfa (Wepox/Wockhardt, Treatment of anemia of chronic renal failure): Rs. 10,200 for 8 weeks for a 60 kg man AND Rs. 1912 to 11475 per week for a 60 kg man thereafter Interferon alpha-2a (Roferan-A/Nicholas Piramal)used in types of leukemia: Initial therapy costs of Rs. 43,552- Rs 1,30,656 then maintenance therapy costs of Rs. 1,06,158- Rs.3,18,474 (6-18 months tt cost) Etanercept (Enbrel/Wyeth) in severe arthiritis: Rs. 18,131 per week of therapy which has to be taken long term. price of Glivec, an anti-cancer drug: y y Novartis: Rs1,30,000 per month Price of Indian generic equivalence: Rs 10,000 per month

What is the extent of overpricing? We give below a comparison of prices of LOCOST Baroda, a small scale Schedule M certified manufacturer and the market. Table-1 Name of Drug Use LOCOST Market selling

selling prices prices per tab per tab (Rs) Albendazole 400 mg Amlodipine mg 5 In high blood Re 0.25 pressure and as antianginal Atenolol 50 mg In high blood Re 0.20 pressure and as antianginal Enalapril 5 mg In high blood Re 0.30 pressure mild to moderate Rs 1.60 to Rs 2.30 Rs 4 to 22 Rs 1.40 to 5.00 For worms Rs 1.10 (Rs) Rs 9 to 12

243

Fluconazole 150 mg

Fungal Infections in

Rs 3.50

Rs 28 to Rs 32

AIDs and other conditions Cetrizine Anitallergic Re 0.20 Re 0.50 to Rs 3.00 Source of Prices: Circa 2008 from MIMS/CIMS et al.

Market Failure and the Pharma Market in India In markets where competition works, the most bought is the cheapest brand. Many producers bring down prices. Sellers and buyers are equally well-informed about the product before making a purchase decision. Let us review some facts about the pharma industry in India.   Competition does not work in Indias pharma formulations market. The notion of a free market in pharma and health services is a contradiction in terms (see Table 1 below). However Indias pharma sector is a free market in a different sense for a long time: one could make all kinds of irrational medicines from fresh human placenta, animal liver and cattle blood as also arbitrary combinations of different kinds of medicines and sell them at arbitrarily high prices.   In India, the same drug is sold at vastly different prices by equally reputed companies and often by the same company. Brand leader is often the price and volume leader! That is the most popular brand of a drug is also often the highest priced.(In terms of cars, this means a majority buys Mercedes and not Maruti 800.) Medicines are the only commodity in which the end-user (the paying patient) does not decide what to buy and at what cost. The doctor prescribes and the patient pays. In addition, in India every doctor decides on his/her own which brand of which medicine to prescribe. y There is no choice for the consumer in the medicines market. Unlike in case of other commodities the purchaser of medicines is extremely vulnerable at the time of making a decision to purchase a medicine - he/she is seeking immediate relief from suffering.

244

These asymmetries in information - that is unequal information that does not help the patient in making an informed, considered choice - in the doctor-drug company interface as much as in the doctor-patient and drug company-patient, is what leads to market failure. This special nature of the pharma sector is the reason why even in market economies, all issues related to medicines including their prices are the subject of regulation by their Governments. The only exception is the USA even in the USA the prices of medicines are indirectly regulated by health maintenance organizations negotiating prices to be paid on prescription costs. (The Governments own committees have reported that even in the so-called free market countries there is price control of some kind or the other.) Pharma is the only sector in India (and probably in the world) where government tender procurement prices are 1-3% of the retail market prices! This if anything indicates the level of overpricing. An example: for the Tamil Nadu Government, a drug company bids to supply Albendazole 400 mg tablets, a medicine for worms, at a mere 35 paisa per tablet, while brands of this drug sell for Rs.12/- in the market. Indias pharma markets are full of unnecessary, unscientific and therapeutically useless drugs. This leads to further market distortion and market failure -apart from adding to the cost of prescriptions and complications in health recovery. We need to immediately weed out all these medicines by allowing only medicines as per the WHO essential drug list (March 2007). If one studies the ORG-Nielsen list of top-selling 300 medicines accounting for more than Rs 35,000 crores sales (almost 90 percent of the retail market), at least 60 percent of the top-selling 300 medicines are not in the NLEM. Therefore 2/3rds of medicines sold in India are not essential medicines by the Governments own definition. Table 2: A Glimpse of the Free Market of Branded Medicines - What happens when there is no price regulation? Sl. No . Name of Drugs Drug Under price contro l Ofloxacin 200 No Rs. 3.20/Zo/FDC 245 Lowest Price of Brand in Rupees/Brand Name/ Manufacturer Highest Price of Brand in Rupees/Brand Name/ Manufacturer Rs 31.00/ Highest priced brand/lowes t priced brand x 100 969%

Medicines for bacterial infections: like pneumonia, urinary tract infections

1. 2.

mg Levofloxacin 500 mg No

Tarivid/Aventis Rs. 6.82/Levoflox,/Cipla Rs 95.0/Tavanic/ Aventis Yes Rs. 3.90/ Zoxan/FDC No Rs 8.50/Zathrin, FDC Rs. 8.90/ Cifran/Ranbaxy Rs.39.14/ Vicon/Pfizer 460% 228% 1392%

3.

Ciprofloxacin 500 mg Azithromycin25

4.

0 mg

Medicines Used in Viral Infections including HIV/AIDS 5. Zidovudine 100 mg No Rs. 7.70/Zidovir/Cipla Rs. 20.40/Retrovir/ GSK 265%

Medicines Used in Heart Disease, Hypertension, High Cholesterol 6. Amlodipine 5 mg No Rs. 1.51/Amlodac/Zydus Cadila 7. Atenolol 50 mg 8. Valsartan 80 mg Medicines Used in Diabetes 9. Pioglitazone 15 mg 10. Glimepride 1 mg No Rs. 0.80/ Glimestar/Discovery/ Mankind Medicines Used in Cancer 11. Tamoxifen 10 mg No Rs. 2.70/Tamodex/ Biochem Rs. 20.00/Nolvadex/ ICI 12. Letrozole 2.5 mg No Rs. 9.90/Oncolet/Biochem Rs. 181.50/ Femara/Novartis 1833% 741% No Rs. 0.99/Pio/Systopic Rs 6.00/Piozone/ Nicholas Piramal Rs 5.30/Amaryl/ Aventis 696% 606% No No Rs. 0.40/Ziblok,/FDC Rs. 2.45/Tenormin/ Nicholas Piramal Rs. 5.90/Valzaar/Torrent Rs. 41.00/Diovan/ Novartis 694% 612% Rs. 6.00/Amlogard/ Pfizer 397%

Medicines for Psychiatric Ailments 246

13.

Risperidone 2 mg

No.

Rs.1.69/Respidon/Torre nt

Rs. 27.00/Risperdal/ Ethnor

1598%

Medicines for Metabolic Disorders 14. Risedronate 35 mg Medicines for Arthritis 15. Leflunomide 10 mg No Rs 8.00/Rumalet/Zydus Cadila Rs 44.00/Arava/Aventi s Medicines for Erectile Dysfunction 16. Sildenafil citrate100 mg No Rs 29.16/ Penegra/Zydus Alidac Rs 584.00/ Viagra/Pfizer 2002% 550% No Rs 50.12/Risofos/Cipla Rs500.00/Actonel/ Aventis 997 %

Source of prices: Dr Anurag Bhargava, JSS Bilaspur and CIMS/MIMS 2007issues Drug Pricing Policy over the Years Administrative pricing systems for medicines were initiated in 1962, in the wake of the Chinese aggression and the declaration of emergency in 1962. The Defense of India Act was invoked to curb the spiraling prices of medicines. The Drugs (Display of Prices) Order 1962 and the Drugs (Control of Prices) Order 1963 were promulgated. These orders had the effect of freezing prices of medicines as of 1st April 1963. Further attempts to regulate prices were made through the Drugs Prices (Display & Control) Order 1966; the Drugs (Prices Control) Order 1970 promulgated under the Essential Commodities Act 1955 (ECA); the Drug (Prices Control) Order 1979 based on the Drug Policy 1978 the latter policy was an outcome of the landmark Hathi Committee Report of 1975. The thrust of its 224 recommendations was to re-emphasize the leading role for the public sector, the setting up of a National Drug Authority, preference to Indian Sector over the foreign sector, indigenous production of raw materials, selective price control on prices of medicines etc. However it is probably the Patent Act 1970 that has had the greatest effect on lowering drug prices and making Indias Pharma industry largely a force to reckon with. Price controls, after DPCO 1979, have been systematically reduced over the years (see Table1 Comparative Chart Summarizing Price Control Scheme under Various Drug Price Control Orders). 247

Industry did not, and does not, like controls and indeed a major part of the problem was the way price controls were administered. Also since the nineties, there has been a significant paradigm change among policy makers in their view of business and industry. Economic reforms have meant the welcome removal of the license-quota-permit Raj. There was hope that the attendant corruption would go. With liberalization, there has been a gradual dilution of the role of the Government even in sectors like health and education, with the nave hope that the market would take care of the situation. Price control has remained, albeit in a diluted form, and it was the stated aim of the Pharmaceutical Policy of 2002 (henceforth PP 2002) to reduce the rigors of price control. It was widely expected by industry that about 30 to 34 medicines alone would remain under price control.

Table 3: Comparative Chart Summarizing Price Control Scheme under Various Drug Price Control Orders DPCO 1979 1 No of medicines under Price Contr 47 3 DPCO 1987 142 DPCO 1995 76 March 2008 74

2 No. of categories under which the3 above medicines were categorized 3 MAPE % allowed on normative/ National exfactory costs to meet Post-manufacturing expenses and Provide for margin to the mfrs.

Category I Category II Category III

40% 55% 100 %

75% 100% N.A.

100% N.A. N.A.

100 %

248

(Single ingredient Leader products 4 Total Domestic pharma sales covered under Price-Control (Approx) Sources: Dr Anurag Bhargava, JSS Bilaspur and CIMS/MIMS 2007issues Drug Price Control in Other Countries Even the so-called free market countries of the EU and UK have some form of controls price controls, volume controls and cost-effectiveness controls. Twelve out of 16 West European countries control prices of medicines directly. On the contrary, it appears, Indian policy makers are intent on throwing out the baby with the drug price control basket. In fact, price regulation of medicines is the norm all over the world, except the USA, which unfortunately India is trying to emulate. Even in USA, drug companies and health insurance companies always negotiate prices. But the system excludes large numbers of the poor and especially makes medicines costly for the elderly.i One in three non-elderly Americans -- 74.7 million -- was without health coverage for all or part of 2001-2002. UK has its Pharmaceutical Price Regulation Scheme. All European Union (EU) countries have a form of price regulation. In setting prices, these countries use therapeutic comparators and the price of products in other EU markets. Denmark, Greece, Finland, Ireland, Italy, the Netherlands, Portugal, and Sweden set a maximum price in relation to prices in neighboring countries. Belgium, France, and Italy set prices in relation to relative cost, prices elsewhere in the EU, and the contribution made to the national economy. In Austria, France, and Spain there are volumecost and other rebate schemes. Spain and the United Kingdom set their prices to ensure a rate of return within a particular profit range. Canada has a Patented Medicines Prices Review Board, France has a Transparency Commission and Economic Committee on Medicines, Egypt has all medicines under price control, Italy has restricted wholesale margins, Germany has its reference pricing system. Some system of price monitoring and price regulation prevails in Japan, Netherlands, China, Indonesia, Colombia, etc. In some of these countries, drug pricing is tied with national health system reimbursements and or insurance schemes. In response to these measures, big pharma lobbies like Pharma scream Foreign price and access controls on pharmaceuticals distort and inhibit International Trade 249 90 % 70 % 50 % --

and want the US Government to take action, meaning twist arms in other ways. Indeed, it is worth pondering, how come all the developed free market economies do not have a free market with respect to pricing of medicines? And the drug companies there fund their R & D from sales! In the absence of universal free access to health insurance and/or meaningful price controls, in India, the havoc on the majority of the population can well be imagined Total decontrol, or even a semblance of it, as desired by free marketers, is going to the other extreme and has had, and will have, deleterious effects on not only the poor, but on even the middle class of India. Anomalies in Pricing Policies In fact, the Report of Drug Price Control Review Committee of the Government of India had noted: In most other countries, the regulation of the drug prices is considered necessary to contain public expenditure due to governments role in funding social health and insurance schemes that cover hospital and out-patient drugs. The price regulations are used as an instrument to keep their health budgets within reasonable limits. In these countries, a substantial proportion of the population is covered through health insurance and public health schemes. As a result, the consumers are not affected directly by the high prices of medicines or high costs of medical services, but are made to pay for the increased prices/cost through high insurance premium. As opposed to this, a substantial proportion of the population in India is market dependent and has to meet all their expenses out of their own pocket on this account, making price regulation of pharmaceutical products in the market unavoidable. Nevertheless in actual behavior the Government has chosen to ignore the above advice (and many such more recent advices) as evidenced most recently by its intentions to lessen the rigors of price control in Pharmaceutical Policy 2002. The 2002 Policy itself is riddled with illogic as pointed out in a Supreme Court Petition by AIDAN and others. Briefly, PP 2002 and all previous policies (except possibly the first one in 1978) have some common problems: the turnover-based, market share criteria chosen to keep medicines in and out of price control tend to be faulty and lead to anomalies: y Most essential and useful medicines are kept out of price control.

250

Non-essential and harmful medicines like anal gin, phenylbutazone, Vitamin E, sulphadimidine, mebhydrolin, diosmine panthonate and panthenols, bacampicilin, etc is under price control.

Medicines for HIV/AIDS, cancer, hypertension, coronary artery disease, multidrug resistant tuberculosis, diabetes, iron deficiency anemia, ORS, tetanus, filariasis,

vaccines (new) for rabies, hepatitis B, sera for use in tetanus, diphtheria, Rh isoimmunisation, anticonvulsants and antiepileptics, diptheria, snake bite, suspected rabid dog bite/rabies, etc. fall outside price control (See boxes below). y Price control, since it is based on market share criteria, produces only partial regulation. Chloroquine for malaria would be under price control but not equally important other anti-malarials. True also leprosy medicines and analgesics. y Of the 300 top selling brands in the ORG Nielsen list of October 2003, only 36 (that is only 12 percent) were price controlled y The rest, that is 88 percent, were not.

There is also a tremendous divergence in the goals of the Pharmaceutical Policy 2002 and the National Health Policy 2002. The former seems to address the needs of the drug industry lobby while the latter is more focused on the real health problems of the country. A tragic dichotomy with the people suffering as a result, a case of the left hand (Chemicals and Fertilizer Ministry) of the Government not concerned with the right hand (Ministry of Health and Family Welfare). The Report of the Standing Committee on Chemicals & Fertilizers, 2005-06, Fourteenth Lok Sabha observes: The Committees examination revealed that though, there is a provision that a strict watch will be kept on the movement of the prices and the Government may determine the ceiling levels beyond which increase in prices would not be permissible, this provision has seldom been applied. In this context, some of the State Governments have also informed that when the cases of high prices of Anti-cancer drugs, Antibiotics, Nutraceuticals and Cetrizine were referred to the National Pharmaceutical Pricing Authority (NPPA), the latter conveyed its helplessness in curtailing the high prices. The Committee are unhappy over this unsatisfactory state of affairs and desire that the situation should be remedied forthwith. They therefore, recommend that for the category of medicines for the same therapeutic use, the Government should determine a reasonable ceiling beyond which increase in prices may not be allowed. 251

Recommendations of Other Expert Committees Several other expert committees set up by the Government of India, in post-liberalization times, have also stressed the importance of drug price regulation. For instance: the Drug Price Control Review Committee of 1999, the Sandhu Committee of 2004, and a Task Force appointed by the PMO in 2005 and chaired by Dr. Pronab Sen from the Planning Commission, the Commission on Macroeconomics and Health 2004, etc. However industry does not want controls of any kind and in accordance with the wishes of the pharma industry, the number of medicines in the price control basket has come down over the years from over 347 in 1979 to 74 in 1995 it would have been less than 30 if the Pharmaceutical Policy 2002 were not stayed by the Supreme Court. The Court directed the Government of India to first decide the basket of essential medicines to be put under price regulation and a methodology thereof. Task Force Report Recommends Ceiling Prices on Formulations: The Government of India appointed a Task Force chaired by Pronab Sen, Principal Adviser at the Planning Commission, to Explore Options other than Price Control for Achieving the Objective of Making Available Life-saving Drugs at Reasonable Prices. The Task Force submitted its report in September 2005 and if implemented they should alleviate many of the gross distortions in drug pricing. The Task Force recommended that the National List of Essential Medicines (NLEM) 2003 should form the basis of drugs for price control/monitoring: To support the process the Government should announce the ceiling price of all drugs contained in the NLEM on the basis of the weighted average price of the top three brands by value of single ingredient formulations prevailing in the market as on 1.4.2005. In cases where there are less than three brands, the average of all existing brands would be taken. The ORG-IMS data can be used for this purpose initially with a retail margin of 20%. For drugs, which are not reflected in ORG-IMS data, the NPPA should prepare the necessary information based on market data collection. In the case of formulations, which involve a combination of more than one drug in the NLEM, the ceiling price would be the weighted average of the applicable ceiling prices of its constituents. Excise duty should continue to be payable on the actual MRP of the individual medicines. In the case of drugs not contained in the NLEM, intensive monitoring should be carried out, for any new formulations based on existing APIs (Active Pharmaceutical 252

Ingredients), manufacturer concerned would be required to submit its intended price along with application for marketing approval to the regulator, which would be granted only if the indicated price is consistent with relevant ceiling price. The NLEM should be revised every three years. Price Regulation: Against TRIPS?  TRIPS is silent on Price Control  Doha Declaration and Art 7 (Objectives) and Art 8 (Principles) of TRIPS assert members right to protect public health over and above TRIPS/WTO  Each member has the right to grant CL and freedom to determine grounds upon which such licenses are granted. (Doha Declaration)  Trade cannot be given primacy in comparison to health and human rights.  One of the grounds for issue of Compulsory Licenses according to the affordable price The African AIDS pandemic has drawn international aid organizations, governments and pharmaceutical companies into a global debate on whether rich countries should pay more for drugs than less developed nations. This system of differential pricing makes sense on social-justice and economic grounds, but it is difficult to administer in the real world, experts told a Wharton conference on Pharmaceutical Innovation in the Global Economy. From an economic standpoint, differential pricing promises to be the magic bullet that helps square the circle of policy objectives. Under this pricing system, wealthy nations underwrite the bulk of costly research and development for new drugs while poorer countries pay for just the cost often only pennies a pill of making the drugs they use. Differential pricing among countries in Europe has been common practice for years. For the system to expand and benefit patients in developing countries, pharmaceutical companies must be able to maintain patent protection. Patent protection allows manufacturers to charge premium prices to pay for new drug development, although many patient advocates contend the Patents Act of India is when the patented medicine is not available to the public at reasonably

253

scope of the developing AIDS crisis warrants suspension of patent rights so that generic manufacturers can make low-cost copies. Manufacturers also need assurances that low-priced products will not find their way back into high-priced markets, thereby reducing demand and prices in those markets. In other words, there must be no spillover effect. Differential pricing will not solve the problem of financing research into diseases that plague poorer nations for which there is no market in the developed world, Some public subsidies need to be available to make that happen. A strong argument can be made for differential pricing on the basis that it would provide more efficient use of existing drugs. This is possible because so much of the cost of a drug, at least 30%, is tied up in the initial research. The cost of actually producing the medicine itself is very small. If differential pricing allows people to consume products at their marginal cost, there is no harm to people in high-income countries. Although there is the sense in the United States that this is unfair, the reality is that if [differential pricing] opens up markets, the people in the affected countries are better off and we are no worse off, noting that differential pricing should not be viewed as cost-shifting. The cost of research and development of a drug should be considered a joint cost, not attributable to specific countries. If poor countries pay any amount over manufacturing costs, prices in highincome countries could be less. Meanwhile, as the discussion about differential pricing heats up, market segmentation is breaking down. In Europe, differential pricing has existed for some time, although the pricing spreads are not as wide as those being discussed in connection with the developing world. The biggest threat to differential pricing in the United States, is legislation that would allow the re-importation, or parallel import, of drugs made in the United States and sold in other countries for less than their U.S. price. Already, informal markets have been established as U.S. residents order drugs from Canada and Mexico.

254

In addition to physical cross-border leakage, countries undermine the economic basis for differential pricing if they use prices charged in foreign markets as a reference for their own price negotiations. The reference may not even be direct. For example, if Brazil references to South Africa and Mexico references to Brazil, U.S. customers who point to Mexican prices are actually arguing for South African prices. What is needed is the willingness of high- and middle-income countries to ban parallel imports and referencing. If governments cannot provide credible promises to cease parallel imports and referencing, the private sector could look to rebates, or other business practices, outside the view of government. One problem, however, is that even in developing countries there is often a subset of rich people who can pay full price. There needs to be some ability to do some segmentation in those developing countries. The easiest way is to do it by private and public sector. GlaxoSmithKline Robert Humenrick whose company is one of the largest manufacturers of HIV/AIDS drugs and vaccines pointed to the many barriers that exist to providing treatment to people in the developing world, including inadequate healthcare delivery systems. We dont believe the issue is purely a price issue, he said, adding that GlaxoSmithKline has been involved in differential pricing schemes since the 1980s with vaccines and in the late 1990s with drugs for HIV/AIDS. The company has 116 programs in 50 countries. Humenrick, too, cited obstacles that hinder differential pricing. First, he said, differential prices must be sustainable. This means setting prices that meet our costs and assuring we can sustain a high quality of products for as long as needed. He also said that if rich countries reference lower prices in the developing world during their own price negotiations, that will undoubtedly undermine the industrys willingness to extend differential pricing across the developing world. Less developed countries also have responsibilities to make the scheme work, said Humenrick. Countries must be vigilant in ensuring that drugs marked for use in a poor country are not resold into more developed countries at a profit. In early October European news agencies reported that $18 million in GlaxoSmithKline low-priced AIDS drugs destined for Africa were diverted to Europe. 255

Towse, director of the Office of Health Economics in London, discussed a working document by the European Commission that outlined policy on differential pricing and access to pharmaceuticals. One helpful aspect of the commissions report, he suggested, is that it dismisses the differences in terms used to describe differential pricing, such as equity pricing, variable pricing, tiered pricing, or simply, discounts. The commission says, lets not get hung up on what we call it. What we are talking about is prices that are close to the cost of production that can be sustained. REGULATION OF PRICES There is a legitimate fear that with the introduction of product patents in India, the prices of existing drugs which get covered under patents will tend to rise sharply. In the case of new patented drugs, the prices are likely to be high ab initio, In addition, essential drugs which are not covered under the Drugs Prices Control Order (DPCO) could also display rising prices if market dominance exists or comes into existence over time. It is, therefore, imperative that a mechanism be established whereby the government can monitor the prices of drugs on an ongoing basis and either impose price control or call the manufacturers in for negotiations if there are any untoward or unjustified price increases. There is a point of view that holds that price regulations are not necessary for drugs and that competition should be able to provide the necessary discipline. The Task Force does not entirely agree with this point of view on the grounds that any sector in which consumer sovereignty is abridged for any reason needs to be regulated. As has been argued in the previous chapter, there is little, if any, consumer

sovereignty in the pharmaceuticals sector. The first, and most important, point that needs to be noted in this connection is that no price negotiation mechanism can be effective unless there is a credible threat of price controls being imposed and enforced. Therefore, the DPCO or its equivalent must continue to exist with adequate provision for imposing price control as and when deemed necessary in public interest. It is also essential that the principles underlying price controls and/or negotiations be clearly articulated and benchmarks established. Shortcomings of the Existing Price Control Mechanism In so far as price control legislation is concerned, the present situation is far from satisfactory. Since the DPCO is issued under the Essential Commodities Act (ECA), the only real penal

256

provision available under it is prosecution leading to imprisonment. While criminal action and imprisonment is appropriate for controlling production and sale of spurious and sub-standard drugs or for deliberate hoarding, it is excessively draconian for pricing issues. On the other hand, it is not even entirely clear whether this provision can at all be applied to corporate, since a body corporate cannot be imprisoned and neither can its functionaries unless specific provisions to this effect exist in the law. Moreover, the provisions requiring manufacturers to provide their pricing data for regular monitoring under the ECA, or the DPCO, are not effective. Although the DPCO does provide for regular submission of price lists and other details, it is mainly observed in the breach. Consequently, monitoring compliance of price control orders involves market surveys, which are both tardy and expensive. The present basis and methodology for imposition of direct price controls also need to be considered afresh. The existing system is based on criteria relating to turnover and market dominance in specific APIs, and is implemented through detailed examination of cost structures of manufacturers. Both these need to be reconsidered. In the first instance, it is not clear how much distortion is caused by selecting individual APIs for price control from within a wider therapeutic segment rather than the therapeutic class itself. Second, the choice of the API on the basis of turnover is questionable since, as has been argued, it simply ignores market dynamics, on the one hand, and may not reflect the essentiality of the drug, on the other. As things stand, for instance, of the 74 drugs presently under price control (about 10% of total APIs in the country), only 15 are present in the National List of Essential Medicines (NLEM), which is just over 4% of the total number of drugs in the NLEM. It is not clear, therefore, what purpose is being served by such price controls, except to hold down the prices of a few drugs. An effective drug price control system should be more strategic in nature. It should select APIs which are essential in some sense and will have the maximum cascading effect on the entire therapeutic class. More often than not, these will be the newer drugs on the market which may not, and in fact probably will not, have the highest turnover, but will display high degree of market concentration. Fixing prices on the basis of costs is both intrusive as well as prone to manipulation. Often this may be inescapable, but a preferable alternative would be to determine controlled prices on the 257

basis of benchmarks. The price of the closest therapeutic alternative existing in the market readily suggests itself as an option, and the main consideration then becomes the extent of the margin that would be permitted. This of course presumes that therapeutic equivalence has been established, and systems would need to be in place for doing so. There would, however, be a problem with blockbuster drugs for which no therapeutic equivalent may be available. The main weaknesses of the current DPCO, however, lie elsewhere. First, it is overly focused on the bulk drug, for which detailed costing and price fixation is done. The prices of formulations are determined on a more ad hoc basis based on the price fixed for the bulk drug. As a consequence, its impact falls disproportionately on the bulk drug manufacturer, and there is evidence of several bulk drugs going out of production because of such price controls. This is detrimental to the interests of all stake-holders. Equally importantly, since the bulk drug

manufacturer is constrained to sell at a fixed price, he is likely to always give preference to an existing buyer rather than to a potential new entrant. This constrains the emergence of new companies and formulations in the price-controlled segment and is inherently anti-competitive. Second, since the controlled prices of formulations of a particular API are determined on a lowest common denominator basis, they tend to be clustered within a narrow band. This allows virtually no space for a new entrant to come in at an uncovered price point. As a result, production activity and competition in the product segment tend to stagnate. Third, the experience in recent years has been that circumventing price controls is extremely easy through non-standard combinations, strengths, and other such innovations. In addition, there is a tendency for prescriptions to move away from controlled drugs to non-controlled drugs in the same therapeutic class. The consequence on the quality of treatment is not known, but it is almost certain that the consumers end up buying higher priced products. On the positive side, Para 10(b) of the DPCO, 1995 empowers the government to impose price controls even on non-scheduled drugs, which has been used quite effectively through a price monitoring system currently in place. The guideline used for this purpose is a permissible price increase of up to 20% on an annualized basis. Although this provision has not really been used, there is evidence that its presence has moderated the pace of price increases in drugs. However, a permissible annual increase of 20% leaves open the possibility of drug prices doubling every 4 years, which is clearly not in the interest of the country.

258

Thus, in its present form, the DPCO is not very effective either in its coverage or in subserving its intent, or in terms of its broader impact on encouraging production of essential drugs and promoting a competitive framework. The only purpose the DPCO may serve at present is to control the pricing of the scheduled drugs, and to instill a sense of fear which may have a limited impact on the pace of price increases in the drug industry. In such a situation, there is a

compelling case for providing an alternative system and legislation which could serve the purpose without taking recourse to extreme measures. The objective of such an alternative regulatory framework should be to ensure sufficient space for competitive forces to play their role without running the risk of a systemic rise in prices. It is also necessary to reconsider the monitoring and enforcement provisions so that they are effective without being draconian. There are a number of alternative penalties that can be thought of, such as fines, compounding of offences, temporary or permanent withdrawal of production or distribution licences, etc: Alternative System of Price Regulation In the opinion of the Task Force, therefore, direct price control in the sense that it is understood today is neither necessary nor effective. An alternative system of price regulation is, therefore, proposed, which has the following features: y Price regulations should be imposed not on the basis of turnover, but on the essentiality of the drug and on strategic considerations regarding the impact of price control on the therapeutic class. This must be a dynamic process. y Price regulations should be applied only to formulations, i.e. the medicine actually used by the consumer, and not to upstream products such as bulk drugs. In other words, intraindustry transactions should not be controlled unless there are compelling reasons for doing so. y There should be no attempt to impose uniformity in prices of regulated drugs on a lowest common denominator basis, and only a ceiling should be prescribed. Companies should be free to decide their price-quantity configuration within the prescribed price limit. y The ceiling prices of regulated drugs should normally not be based on cost of production, but on readily monitorable market-based benchmarks. The National List of Essential Medicines (NLEM), 2003 should form the basis on which the selection of drugs for active regulation is made. The NLEM contains such medicines that

satisfy the priority health needs of the countrys population. These are intended to be available 259

within the context of a functioning health system at all times in adequate amounts in the appropriate dosage forms. These medicines have been selected by an Expert Core Committee constituted by the Director General of Health Services (DGHS) out of the WHO model list of essential medicines, Essential Drugs Lists of various States, medicines used in various national health programmes and emergency care drugs. There are two categories of medicines in the NLEM, 2003 the core medicines and the complementary medicines. The complementary medicines denote those medicines which may be needed when the core medicines are not readily available or they may be required in specific situations or locations for well founded reasons. Although the NLEM is specified in terms of APIs and a few fixed-dose combinations, no price regulation should be applied to the APIs themselves, but to all formulations made there from. To start the process, the government should announce the ceiling price of all formulations based on these 354 drugs (APIs and fixed-dose combinations) contained in the NLEM on the basis of the weighted average prices of the top three brands by value of single ingredient formulations prevailing in the market as on the latest date for which market data from ORG-IMS is available prior to the announcement of the policy. In cases where there are less than three brands, the average of all existing brands would be taken. Since the ORG-IMS data relate to dealers prices, a standard retail mark-up of 20% may be provided as per the existing arrangement in the industry. The reference product (formulation) should be specified in terms of specific strength and pack size for each product which would form the basis for the ceiling price determination. The price ceiling, however, would be specified on a per dosage basis, such as per tablet/capsule or standard volume of injection. The ceiling prices of all other strengths and dosages would be determined on the basis of a standard formula, which would be related to the ceiling price of the reference formulation. The suggested formula for this purpose is as follows: P(s) = P*.[1 + a.{(s s*)/s*}] Where: P(s) = price ceiling for strength s P* s s* a = price ceiling for reference strength s* = strength in terms of API content = reference strength = constant such that 0 < a < 1 260

The constant a in the above formula recognizes that the cost of production of a tablet or injection decreases as the strength is increased. However, it is also recognized that the other costs, such as promotional expenses and profit margins, which constitute a substantial fraction of the price of a formulation, do not exhibit the same behavior. Therefore, great care needs to be taken to ensure that a is not chosen in a manner that incentivizes companies to produce nonstandard strengths in order to maximize profits. Preliminary exercises carried out by the Task Force indicate that the appropriate value of a is 0.8 for tablets/capsules and 0.7 for injectibles. These may be used to begin with, and further refinements can be carried out over time. Prices of formulations should be allowed to move freely so long as the ceiling prices are not breached. Price relaxations for higher ceilings may be permitted for non-standard delivery systems, packaging and pack sizes through applications to a negotiations committee to be set up for this purpose, which then should become applicable for all similar cases. The NPPA already has standard mark-up norms that are allowed in most such cases, and these should be automatically applied before the case is referred to the negotiations committee. In the case of formulations which involve a combination of more than one drug in the NLEM, the ceiling price would be the weighted average of the applicable ceiling prices of its constituents. For formulations containing a combination of a drug in the NLEM and any other drug, the ceiling price applicable to the essential drug would be made applicable. However, the company would be free to approach the price negotiations committee for a relaxation of the price on the basis of evidence proving superior therapeutic effectiveness for particular disease conditions. Although the above may take care of limiting future price increases, it leaves open the question of further moderation of prices of existing essential drugs. It is, therefore, suggested that a reference price should be derived from the prices quoted in the bulk procurement by government and other agencies. This is in fact the system which is effectively in operation in countries which have strong and wide-spread public health-care systems. Recognizing that such prices are likely to vary from order to order and location to location, an average would need to be used. In addition, a mark-up will need to be allowed to cover trade margins and other distribution costs. An analysis of the available data suggests that a 100% margin should be ample. However, the Task Force recognizes that the bulk purchase systems prevailing in India leave a lot to be desired, and the prices derived from them may not reflect the true prices of quality 261

drugs.

There is considerable evidence that the systems are riddled with all manner of

malpractices, such as sub-standard or under-strength drugs and short-supplying. It is, therefore, not possible to use these prices immediately, despite the fact that there are a few notable examples of excellent systems of bulk purchase, such as in Tamil Nadu and Delhi, and in institutions like the Armed Forces, Employees State Insurance (ESI) and some hospitals. Furthermore, it needs to be recognized that any such price monitoring strategy based on bulk purchase data may compromise the tender processes in bulk purchases. As it is, there is evidence of cartelization and other undesirable practices in drug tendering, and these are likely to become worse. It is, therefore, of the highest importance that the benchmarking is not based on a fixed set of bulk purchase tenders, and the tendering systems are properly designed. Suggestions in this regard are given later in this Report. Until such time there is reasonable assurance that the bulk price systems are reliable and reflect quality drugs, such benchmarking should not be used or should be confined only to such bulk purchases which meet certain minimum standards for tender procedures. Since it would take time to streamline the bulk procurement procedures and to generate reliable data on such bulk purchases prices, the ceiling prices should be allowed to rise on the basis of the wholesale price index for manufactured goods (this would be a subset of Wholesale Price Index (WPI) and is readily available from the Ministry of Industry). This could be done twice a year on pre-specified dates. The determination of the ceiling prices and ensuring compliance should not be discretionary and should be completely transparent. The regulator should set up a computer based system which would scan the price data provided by companies against the ceiling prices determined as above and identify formulations which breach the relevant price ceiling. The company manufacturing or marketing such a product would be required to reduce its price or to face penal action. Companies should be permitted to represent for any price increase on valid grounds and with appropriate documentation, which should be considered by the negotiations committee and then, if accepted, become applicable to the entire class of products. There are two issues which are left unaddressed by the above proposal. First, the ORG-IMS data at present covers about 246 of the 354 items contained in the NLEM. Of the remaining, about 40 are not directly purchased by individuals and are primarily used in hospitals with little market sales, for which there may be no urgency to announce ceiling prices since they are mostly 262

procured through bulk purchases. The industry has also agreed to make available these items at 50% of the market price to the government. The prevailing market prices of the formulations of the remaining 60 odd drugs would have to be collected immediately through a quick market survey before the policy is put into effect. Second, 15 of the drugs presently under price control through DPCO 1995 are also contained in the NLEM, for which free market prices will simply not be available. Since the ceiling prices are to be determined on the basis of existing prices, the present controlled prices will become the ceiling for these drugs. It is recognized that this is iniquitous and may be distortive, but there is little that can be done at present. It is, therefore, suggested that for all such drugs the bulk purchase price, if available, should be immediately examined to consider whether the ceilings should be adjusted upwards.

Finally, it is extremely important that the NLEM should be revised periodically, say every 5 years, in order to reflect new drugs and significant changes in pattern of drug sales within the therapeutic categories, for which a permanent arrangement needs to be made by the Department of Health. Price Ceiling vs. Price Freeze During the consultation process, it emerged that the industry would prefer to have a freeze on the existing prices of all formulations produced from APIs in the NLEM with provision of annual escalations rather than the ceiling price that is being recommended by the Task Force. It is claimed that this measure would serve the same purpose as the price ceiling, with one significant advantage the prices of all formulations would remain stable as against the possibility of increases in the prices of those formulations which are initially below the ceiling price. It has been claimed that all prices will tend to move up to the ceiling as soon as the government announces the ceiling price. The Task Force has considered this proposal in all seriousness, and is of the view that the two proposals are not similar in terms of their impact. In this regard, the following points need to be made: y There is no reason to believe that under the ceiling price system, all prices will tend to converge to the ceiling. Each company typically selects a particular price niche in which it is competitive and is unlikely to change it casually. If it does so, it is likely to lose 263

heavily and will return to its original price point. Moreover, if a particular price point is vacated by an incumbent, it is quite likely that a new company will fill the niche. y The price freeze proposal is inherently anti-competition since it does not allow any flexibility to the companies to adjust to market dynamics. Thus the market structure for the existing products gets frozen almost permanently. y A price freeze can apply only to existing products and not to any new product.

Therefore, it leaves open the possibility of the freeze being easily circumvented by small changes in the formulations or even in the brand names. Such behavior could completely negate the intention of the policy. In view of the above points, the Task Force is of the opinion that the price freeze proposal has serious drawbacks, and does not provide an acceptable substitute for the price ceiling approach. Price Monitoring and Price Negotiations There is a legitimate fear that price regulation of only a selected basket of drugs can lead to a switch in production and prescription behavior away from these drugs towards those which are not covered. This is certainly a possibility since the NLEM is based on specific APIs and not on therapeutic categories. Thus there is ample space for doctors to address disease conditions without necessarily prescribing the drugs under price ceilings. The likelihood of this happening is less under the proposed system than at present since it does not disturb the existing market equilibrium in any significant manner. There is, therefore, no rational reason for companies to change their marketing strategies in the immediate future. Nevertheless, in the longer run, it is possible that the relative profit abilities may alter sufficiently to induce such switching behavior, and some provision will need to be made. This aspect can be addressed through a price monitoring mechanism. The key element of any price monitoring system is the benchmark or reference price that is used. There is a suggestion that the current market price of every formulation plus an annual percentage escalation could serve the purpose. The danger in this is that the escalation factor may become the basis for all companies to raise prices on a regular basis, thereby defeating the very purpose of such a mechanism. Cost-based benchmarking too does not recommend itself due to its intrusiveness and the delays that are involved. In the case of drugs not contained in the NLEM, it is suggested that three separate categories be distinguished: 264

1. Isomers of APIs in the NLEM these should be brought under the same ceilings as applicable to the NLEM molecule. 2. Existing drugs falling into a pre-specified list of therapeutic categories intensive monitoring should be carried out for all formulations in specified therapeutic categories. Any significant variation in the prices (say above 10 per cent annually) would be identified for negotiation. The therapeutic categories which may be considered for such treatment in annexed. 3. All other drugs should be completely free of price regulations, and only regular Only in cases where there is evidence of unusual price

monitoring should be done.

escalations, significant change in prescription behavior or public complaints should there be any regulatory action. The advantage of this method is that normal market behavior is dynamically taken into account, and to facilitate this, a half-yearly revision of the benchmarks may be considered. New and Patented Products The above suggestions relate mainly to existing formulations, and it is necessary to lay down the guidelines for new drugs. As has already been argued, one of the main pressure points for moderating the price of drugs is the entry of new products. However, for this role to be played effectively, it has to be ensured that the prices of new drugs are not completely out of line with the existing. Any new formulation based on existing APIs would be required to submit its intended entry price along with application for marketing approval, which would be granted only if the indicated price is consistent with the relevant ceiling price, if applicable. If there are no price ceilings, i.e. the new formulation is not based on an API contained in the NLEM or its isomer, the proposed entry price should be accepted automatically and then subjected to the disciplines indicated above wherever applicable. All patented drugs and their formulations should compulsorily be brought under price negotiation prior to the grant of marketing approval. Failure of such negotiations should then invite either price control or compulsory licensing. There are a number of alternative ways of ensuring that the price of a patented drug reflects the purchasing power in the country and is not confined only to the highest income groups. The use of purchasing power parity (PPP) indices has been suggested, for instance, and there are other alternatives such as the ratio of per capita 265

incomes. However, it is felt that it would be preferable to benchmark the prices of new patented products to the prices prevailing in the domestic pharmaceuticals market, and not to any general measure of prices or incomes. This is likely to distort the relative prices much less than any other method. The other dimension of benchmarking is the foreign price that is used for the purpose. The various suggestions that exist at present usually depend upon market prices in selected foreign markets, which may not actually serve the purpose. It is necessary to recall that most other countries have a very substantial proportion of their pharmaceutical usage going through either the public healthcare system or through reimbursements. The prices used in these cases arise either out of negotiations or from bulk purchases. Since much of the work is already done, India should take advantage of this information in its negotiations. Much of this data is not readily available in the public domain, and arrangements will have to be made with selected countries to obtain the requisite information. It is, therefore, suggested that all applications for marketing of patented drugs should be required to contain comprehensive information on not only the market prices charged in other countries, but more particularly the prices negotiated for reimbursement or bulk purchases. The reference prices to be used for such negotiations should be based on the premium enjoyed by the drug in the lowest priced market abroad compared to its closest therapeutic equivalent in that same country. This premium can then be applied to the corresponding price of the same therapeutic equivalent prevailing in the domestic market to determine the reasonable price in Indian conditions. In other words, what is being suggested is that patented drugs should be allowed the premium it commands elsewhere, but applied to the prices prevailing in India. Information needs for price regulation In order to make the proposed system of price regulation effective, a number of collateral measures need to be implemented. First, regular reporting of prices (MRP) and any changes therein must be made mandatory for all essential drugs, and eventually for all drugs. At present there is no legal provision for compelling such disclosure from companies, and the experience has been that most companies do not provide such data on a regular basis. It is necessary, therefore, to provide a legal basis for compelling such disclosures with appropriate non-criminal penalties such as temporary revocation of license. Second, there must be standardization which will enable meaningful price comparisons. This has two dimensions: (a) standardization of pack 266

sizes and strengths; and (b) uniform MRP for the entire country. The first will need to be imposed legally so that violations are punishable. The second should be feasible without too much problem since the VAT rates are now more or less common between states. Mandatory price reporting does not, however, do away with the need to have a well-designed system for ex-post price monitoring in the market. In fact, it becomes all the more important, and its periodicity may have to be increased. The present system is too weak and needs to be strengthened significantly. The availability of the price data should be ensured by the measures described above, but additional information would need to be generated on at least other two dimensions. First, for establishing market dominance or producer behavior, it would be necessary to establish a prescription monitoring system whereby the trends in specific brands or formulations being disproportionately prescribed either nationally or even regionally could be tracked. Second, there would have to be a system in place to measure the availability of drugs on an on-going basis in order to assess whether artificial scarcities are being created. Ethics appears to deal with, among other things, the problem of right and wrong conduct, intrinsic good and evil and relevance of means to ends. All these three imply a certain world view; and in turn imply a certain consistency of one's actions to this world view. We will examine the subject of low cost drug production with the above understanding of ethics. Our experiences are centered on LOCOST, a voluntary agency based in Baroda. LOCOST founded in 1983, has gone on from trading in formulations, to loan license and to manufacture in its own formulations unit. LOCOST has been also active, now and then, in educational issues and in promotion of rational drug therapy. LOCOST has also handled project exports and technology transfer to a neighboring country for a major bulk drug project. LOCOST has survived, and has, by and large, shown that low priced quality formulations can be an economically viable idea. Survival, and viable survival at that, tends to generate narratives and discourses that portray those involved in a favorable, even heroic, light. This is especially so when the sutradhars are the principal actors themselves. This narration of ethical issues involved in no exception, although an attempt will be made at some kind of reflective discourse.

267

On Being Clean Voluntary organizations like LOCOST that are into business operate under twin compulsions: to be 'business like' and to adhere to the ethos of voluntary organization, and in our case of nonprofit trusts. One of the most important issues in the macro business environment in India is that of corruption. Have we corrupted and indulged in corruption? To our best of knowledge we have not. Bribing or speed money is basically to get your work done fast lest the rug is pulled under your feet by the many arms of the government. The effect of us not bribing is that permissions get delayed. Others take 24 hours in getting things done; for us it takes even 24 weeks at times. This has led to some inbuilt delays. Our response time is slow in making changes as per customer's requirements. Have we indulged in indirect corruption? That is through consultants and intermediaries one goes through? Here we are not so sure. Except in one case where we certainly know that our consultant paid Rs. 500/- to a government functionary, without our knowledge, and without doing which he felt that our temporary electrical connection will simply not be on. Otherwise we have told our consultants not to give money on our behalf. Most of the time most of our consultants privately snigger at our morality. But they put up with us. For the most part, we try to get deal with those bureaucrats still unbrutalised by the environment of a government office: Sahib, this is a trust doing good. They make essential medicines for the poor. The government functionary let goes, although not without scoring points in a school masterly fashion. In a few cases, the functionary genuinely believes he/she should not take money from a 'good-works' organization. At other times the rent paid by the consultant on behalf of other clients exonerates us. Some friends have counted 35 statutory acts/bodies which small-scale business organizations in India have to comply with. We reckon that the regular ones are about a dozen. Most of these statutes have provision for inspectors who visit you and have the power to demand compliance, often on some abstruse technically, by putting their 'observations' in the 'Visit Book'. The attitude of most of these functionaries is you are likely to have violated some provision, so it is up to you to wriggle out of it. You are guilty unless you prove innocent. The onus of the proof lies with you. The easy way is to pacify government visitors from the start: Send your vehicle to receive

268

them at the railway station (although they are entitled to TA/DA), give them lunch at a 'decent place if it is anywhere near lunch time, and in general be very deferential and do not question their most illogical observations in your Visit Book. We on our part try to be deferential, within limits of what we think does not compromise with our dignity although it may try our patience. An Excise and Prohibition functionary in charge of alcohol quota for our factory once decided to vent his spleen, not having found any fault, on the score that our Factory Manager does not serve water on his arrival. He insisted on taking some 'shakti ki davaee' and took some three to four bottles of syrups (total cost Rs. 50/-). More recently, one of the local government functionaries, who presumably came to advise us on our compliance leading to better manufacturing practices, brazenly asked for and was given 100 tablets of Chloroquine (total cost Rs. 53/-). In both cases the writer regrets to report that we were not strong enough to tell the functionaries concerned, "No, you cannot take the medicine". Regular companies have other strategies: of also giving a packet on departure; this prevents serious comments in the Visit Book and subsequent queries that can keep you busy at least a month. When it is your turn to visit their offices, officials tend to extend their 'cooperation' when you have 'cooperated'. A businessperson, who has probably put family jewels on mortgage to complete his/her capital requirements, is threatened, with or without justification, by a Pollution Control Board inspector that his/her factory will be closed. The businessperson also tends to cooperate, though not necessarily to comply with anti-pollution requirements. We do not give packets. We are kept busy weeks, and at times, months on end in trying to comply, or argue out, points made in the Visit Book by government functionaries or notings otherwise made in files. And ethical response would probably be that we tell the functionaries off. We tried politely in the beginning. We now find it is not worth the trouble. Our main business is to produce quality drugs at low cost, so why invite unnecessary correspondence/meetings regarding so-called compliance? But is our main business only to produce quality drugs but not also to oppose dehumanising tendencies anywhere? Bureaucracy humiliates and dehumanizes. Oh yes, we have not bribed in the classical sense, but when we know for sure, and have visibly seen, instances of illegal gratification, of company executives giving licensing authorities costly presents in cash and kind 269

as Diwali gifts, should we keep quiet? Surely our short-term expediency of 'avoiding trouble' and 'getting on with our main task' conflicts with our long-term goals. Also, with what clean conscience do we continue to advocate the (politically correct NGO) line of more role for the State in industry and public welfare when we find the State does not serve anybody but its own minions? A related issue is of size and scale: today our size is relatively modest. We are able to manage this aspect of our environment because we are small. What happens when the size triples, demand from our target market segment (namely those working with the poor) increases? Should we limit our size only because we cannot manage the spurious requirements of our statutory functionaries and babus? Is it ethically right for a voluntary agency to flee from a battle of right versus wrong? Probably no thriving business today in India is run squeaky clean. There is some yielding of bureaucratic whims in anticipation of bureaucratic nitpicking; and bending of rules and even laws depending on one's confidence to 'work' the system. For ourselves at LOCOST, we are clear we will close down, even if it causes inconvenience to workers and to customers. LOCOST, if push comes to a shove, will pull down its shutters. However, such industrial bravery stories are quickly forgotten and life carries on. For our response would not have made an iota of difference to the system. Choice of product, pricing and ethics Any business has to make what it considers safe, ethical products. In drugs, safety is a relative issue. No drug is free from side effects. In some drugs, certain new side effects and adverse drug reactions are known only as time passes. It is practically impossible to become expert in the several scientific disciplines that feed into the pharmacological knowledge of medicines. This requires that as an ethical group one draws upon accepted standard sources of national/international expertise. At the same time one benchmarks available expert information with practical field experience. In the process, we need to develop awareness about the politics of the knowledge industry, and of medicine and health. An instinctive feel of who is saying what and why helps. At a first level, in drawing up a list of drugs for production, one takes recourse to standard essential drug lists like WHO, Hathi Committee, etc. and formulates, with the help of more 270

immediately available local experience, one's own essential drug list depending on local community requirements. Being an ethical drug manufacturer means you make only essential generic medicines. You are spared of innovating new fixed dose combinations that tend to mislead uninformed customers. Again among essential drugs, one makes only what current scientific and clinical experience considers rational. Thus we make only Amoxycillin and not also Ampicillin; Doxycycline only and not also Tetracycline. We are also in the process of weeding out Indomethacin as it has more adverse side effects; and other analgesics like Paracetamol and Ibuprofen are preferable. In each of these and a dozen other cases, the drugs not made and/or being weeded out are not banned, there is a flourishing demand for all of them, and probably the customer is not going to change his prescription practice despite our entreaties. And to top if all, not making them means foregoing that many amount of sales. In the case of LOCOST, we have imposed on ourselves another constraint: that of supplying medicines only to those working with the poor. This in principle means only NGOs and social action groups. Mostly the poor use the government sector. But till date, we have not been able to make any dent on the government sector. Nor have we really tried hard. The kind of compromises we need to make, of 'sharing the proceeds' with government functionaries, etc. have deterred us. Recently, one intermediary told us to stay off when he realized we were a public trust. This intermediary helps procures orders from DGSTD, defense, railways, etc. He tried to impress us by saying how he has recently increased the orders from a government department, for a well-known Baroda based company, from 35 lakh units to one crore units. His commission, the worthy told us, was 20 percent. This writer asked him how on earth anybody could be competitive, let alone make any profit, if he had to pay such a hefty commission for generic medicines. He told us that some of the supplies are made only on paper, bills passed and sales proceeds shared. It is difficult, he assured us, for anybody in the government to physically check as the orders run into crores of tablets and capsules. However, this is not new to us. We often hear many such variants of how drug companies manage to quote ridiculously low prices. This is something we live with. In the Indian dream, not unlike the American dream, nothing succeeds like success. One practical consequence is that not all our customers are willing to go along with us in

271

examining the total integrity of our competitive manufacturers, resting content with the end prices and performance of the products supplied. This is agonizing for us. So then, just to retain goodwill we cut down prices further, which in turn means generating more sales to even stay at the same level of revenue as last year (like Alice running twice as hard to stay put in the same place). Increasing sales and maximizing utilization of capacity is desirable for another reason: we reach out to more of our target market segment. But this in turn affects the size of our operations: from a small-scale industry we become medium-scale and further more. With increased size, as noted before, there is the question, will we continue to be able to stick to our values? And whether ethics like small is beautiful? Indeed if anything the ethic of small is beautiful takes a severe beating in a rapidly changing globalizing economy, and especially so in a highly inflationary environment like the one we have had for the last 4 years. Let us take pricing, profits and salaries - factors interrelated to each other. On the whole our pricing should be lesser than the market prices of drugs, otherwise it undermines the very rationale and logic of our existence. We have claimed that good quality medicines can be made at prices lesser than market formulations. We have done so in the past. Can we continue to do so? Is low pricing of medicines sustainable on a long-term basis given the many boundary conditions of being a voluntary, ethical organization? Clearly how low our pricing can dip, is contingent on how much revenue we need to generate to keep operations going, the breakeven point. Minimum revenue to be generated keeps going up every year, thanks to inflation. Minimum revenue is also contingent on how much or how little you decide to pay to your workers. What when should our workers get? At the least, they cannot get less than the official minimum wages. But as anybody who has looked into the politics of minimum wage announcements knows, minimum wages provisions are decided by the ruling elite of politicians, bureaucrats and business lobbies like chambers of commerce. They all need each other. So the minimum wave fixed is what suits the collective political interests of this triumvirate. These minimum wages do not buy a decent house, good education for one's children and a decent quality of life. They probably keep a single-wage earner family of four from continuous starvation. Clearly then by just paying as per the statutory minimum wages, one cannot, as an 272

ethically oriented organization, sleep peacefully in the night. While this is not the place to give an answer to this vexed question, we need to work out salary levels that can at least help a worker enjoy middle-class life style without middle-class consumerism and vulgarity. In any case it is hardly ethical for a voluntary organization to rest content with the statement that 'we are paying a worker his/her minimum wage', or worse, his/her 'market value' when we know well that the invisible hand of the market tends to tilt towards those already well-off. Reverting back to the issue of pricing, can we say then that one of the major factors that determine the scale of the organization is the minimum comfort wages to be paid to workers which in turn ought to determine pricing? What then of surplus? Surplus generation is determined by, and in turn determines, prices, sales and the scale of a low cost drug manufacturing effort. Surplus is necessary for funding depreciation, for ploughing back into capital investments in the future and to inspire confidence in bankers, funders and one's own workers. Nobody is going to subsidies a loss-making concern for long. Adequate surplus can also ensure lower interest burden in the future which in turn means lower costs of manufacture. How much profit/surplus to make is also determined by other concomitant requirements like allocating money for research, education and product development. It is doubtful whether any significant research leading to product development and product innovation can be done by small-scale organizations in competitive markets. This is basically because there is not enough surplus to do so. In LOCOST's case, our research and education is independently funded. We do not do any product development. Funding of research is at the best of times a complicated issue. Current market wisdom is forcing even CSIR labs to do a bit of their own generation. Can and should a low cost drug producing unit continue to source money for this from outside? More important is of course the issue of what type of research that a voluntary drugmanufacturing unit can conduct, assuming that it should do research. There are no easy answers. If there is one area where ethical standards are visibly called upon in drug manufacturing, it is in the area of quality control. Today pressures of competition often force manufacturers to take short cuts. An ethical organization cannot afford to do so. The pharmacopeia often sanctions a 10% tolerance limit. Manufacturers are known to save on costs by making formulations at the 273

lower end of the limit (a 500 mg tablet of, say Paracetamol, would contain only 451 mg of the active substance). Legally, a 451 mg Paracetamol still passes in quality control. The customer would seldom know. Most Indians have low body weight, therefore the dosage by weight really does not suffer. So is it okay? No, it is not. It is misguiding the customer just as claiming extra advantages of branded over generic drugs is misguiding the public. The other area of quality control is too actually to do all the tests specified in the pharmacopeia. Again, if some tests are not done, it does not really seem to matter. But then in a very real sense, one is playing with people's lives. So it is better to do all the tests. There are also expectedly, many grey areas. A raw material consistently fails in, say, iron content, and on the margins at that. And there are no other alternative manufacturers of the raw material or in the case of others, the quality is suspect on several other counts. Do we take the raw material for manufacture especially as the small deficiency with respect to iron is not going to make a difference in the tablet? There is a big demand piling up. Customers are getting increasingly irate. Do we manufacture? No. We do not manufacturer even at the risk of appearing cruel. Even if you know that other manufacturers are making a killing on faulty raw material. There is a related requirement: if a raw material or excipient fails, a report is to be sent to the drug authorities who in turn presumably force the negligent raw material manufacturer to correct his/her output. When there are serious problems with the quality of the sourced raw material, we do make a formal report, even if we have seldom seen any corrective action. Often we find it is more effective to talk to the manufacturer, apart from returning the failed raw material. Probably the 'market mechanism' of many quality conscious manufacturers returning the faulty raw material will force the manufacturer to correct his/her manufacturing process. However there are so many ifs and buts in this kind of a posture. At best our own stance is wishy-washy ethically. If we are serious about ethics and systemic promotion of quality, we ought to be willing to take on manufacturers, suppliers and the Drug Administration and follow up until we get an appropriate response. There was the time we went to the press by announcing that a nice-looking, blister-packed Rifampicin 450 mg of a manufacturer in Vapi had only 250 mg. A senior FDA authority later 274

politely told this writer how we should approach the FDA and assured this writer avuncularly that if we had such problems, we will solve your problems, why go to the press? This is not the place for a critique of the FDA. For a part critique of the Maharashtra FDA, that licenses many of the major drug units of this country, the reader is urged to read the Justice Lentin Commission Report (1989) on the Mannitol tragedy. If only more manufacturers would come together and share their experiences, one can make the administration probably less venal and more responsive. But no manufacturer in the commercial sector would like to put his bottom on the sling; partly because everybody feels he/she has some skeletons to hide, or the authorities may create skeletons where none existed before. So everybody tends to be 'practica', and life carries on in liberalized India. There are something which intrinsically not done (or 'evil') like making a substandard drug. During the manufacturing operation, we can claim to have set yardsticks, which are more stringent than the statute book, yardsticks, which actually matter. Most manufacturers with some semblance of a conscience do set for themselves some such yardsticks. The State authorities related to the 35 acts specified above, however tend to often look at the letter of the law than the spirit. In fact, the system lets off the hook those who violate the real intent of the law. Ordinary, well-meaning persons, can be made to look guilty offenders by an administrative ruling or an executive fiat. One develops over time an intuitive understanding of the relative importance of various administrative actions, often punitive in intent, and develop ethical ways of coping and yet being functional. An ethical organization in business by virtue of its existence needs to cultivate more humane values and ethos internally. Ethically, anything that conflicts with these values, must not be pursued. LOCOST after some deliberation has decided that the following minimal values and processes are important: 1) Promotion of good quality generic drugs and rational therapy 2) Promotion of health education 3) Influencing national/state level health policy with a priority on drugs Operationally, the following values and processes would sought to be actualized in phased manner:

275

1) Encourage people to be as free and autonomous, as possible, with increasing sense of self-responsibility and self-discipline. 2) Clean, non-bribing culture with transparency and openness in all matters. 3) Participation in decision making processes and a culture of egalitarian and humane ethos. 4) Simplicity in every aspect of working, organizing meetings, presenting ideas in speech and in writing. 5) Internationalizing of LOCOST by all employees as an alternative organization with larger societal and personal goals. Specifically the following shall be sought to be implemented in a period of 5 years to the extent possible: a) Reduction of salary differences between highest and lowest paid levels, or at least paying lower levels better than industry and statutory norms. Benefits must be same for everyone even if salaries continue to show difference. b) Reduction of differences between leaders and the led, and empowering of those who work to take decisions. c) Financial decisions must be taken after considering quality, price and market constraints. d) Partner profile: Continue as we do for 2 years and then re-examine any necessity for change in reaching out to newer consumer segments. e) All activities geared towards rational therapy (but not policy influencing or research) should be built into cost (like quality control). f) Reach out in symbolic ways, if be with a measure of tentativeness and deliberateness, understanding that those who implement must feel comfortable, even as there are built in limitations of middle-class elite trying to actualize democratic and participatory goals. The former has choices and options in life which workers do not as a rule have. Nevertheless, those who have must consciously strive to minimize the differences and contradictions between our private and public lives. Value actualization is a process that can never be completely, if not perfectly, achieved. At best, we should consider our sincere efforts 'experiments in truth' 1

276

There are many other issues that need discussion. But this essay is becoming long and that increases the risk of it not being read. For the sake of brevity we will just mention a few other important issues which bear discussion in a longer effort: ethical issues in promotion, labeling and marketing of drugs; ethical dilemmas in concurrently manufacturing and marketing drugs from other systems of medicine; issues generic to the NGO paradigm of organization; ethical issues related to lobbying, public advocacy and our attitudes to the government; ethical issues in the liberalization versus regulation debate; issues of human rights in the manufacture, marketing and use of pharmaceuticals; gender issues in the choice, manufacture and marketing of drugs; and how should an ethics conscious person conduct himself/herself in a milieu of less than perfect people in a less than perfect world. At the bottom of it all, our reading of reality, the frameworks we use, are often deep ethical issues. Organizations, low cost or otherwise, making modern medicines, are active supporters of the modern science paradigm, of a positivist paradigm of a reality out there. Our continuous ongoing production and distribution of drugs, often to public applause, comes across as an unproblematic espousal of modern medicine and modern science. Leave aside the debate of the hegemonic nature of modern science and medicine, and the violence it has done to a humane ethos. What is it we can do about the gigantic industrial chemical complex upon which medicines are based, and about what it does to our environment? How do we continue to sell medicines endorsed on basis of double blind clinical trials, or otherwise on research methodologies, whose ethicality is suspect? At the heart of these dilemmas are questions of method in science, and of the nature of development and what they together do to human cultures. Unless one makes some progress in these issues, consistency of means and ends, one of the pillars of ethics, would appear to be in some kind of a soup. With it, drug production, low cost or otherwise, does appear to be a bit of a flawed enterprise. The Hathi Committee In the context of large-scale expansion of the drugs and pharmaceuticals industry, with a view to ensuring the regulated and rapid growth of drug manufacture and further with a view to ensuring that all essential drugs are made available to the consumers at reasonable prices, Government constituted a Committee in February, 1974 under the Chairmanship of Shri Jaisukhlal Hathi, 277

which had Members of Parliament along with officials and non-officials as members, to enquire into various facets of the drugs industry in India. The terms of reference included progress made and status achieved by the industry, role of public sector, growth of indigenous industry, including the small scale, technological requirements, quality control measures, pricing of drugs etc. Almost all the aspects of the drugs and pharmaceutical industry were critically examined by Hathi Committee with a view to achieve self-sufficiency and to serve the national interest. Hathi Committee submitted its report in April 1975. The report contained 224 recommendations spread over 8 chapters on various aspects of Pharmaceutical Industry. The thrust of

recommendations related to reemphasizing the leading role for the public sector, setting up of National Drug Authority, preference to Indian Sector over the foreign sector, indigenous production of raw materials, selective price control on prices of drugs etc. It was proposed that a body to be called the National Drugs and Pharmaceutical Authority be established at the Central level, with a permanent secretariat, for registration of new formulations and rationalization of existing formulations. Standardization of packaging, monitoring of

adverse reaction and promotion of use of generic name were also pursued along with strengthening infrastructural facilities for quality control and giving statutory effect to good manufacturing practices. Loan licensing system under Drugs and Cosmetic Act was proposed to be abolished in a phased manner. It may be noted here that the above mentioned proposed authority was not same in character as the National Drug Authority envisaged by the Hathi Committee . As regards Licensing, the list of items reserved for the public sector was pruned keeping in view their performance and the requirement in the country. Indian private sector, however, continued to be given favorable treatment as compared to units having foreign holding. In order to have the desired result from the measures in the areas of licensing and pricing policies, it was necessary to have appropriate fiscal policy measures. Therefore, duty incidence on raw materials, drug intermediates and drugs was recommended to be structured in a graded way so as to make indigenous production viable. The Drugs (Prices Control) Order, 1987 was promulgated under which the system of retention and pooled pricing was given up and, therefore, the Drug Prices Equalization Account stood abolished. Price fixation for imported bulk drugs was done away with. In case of formulations, the concept of leader price was replaced with the concept of ceiling price to be followed by all. 278

Provision was made to recover the amount accrued due to charging of prices higher than those fixed or notified by the Government. Ceilings for maximum pre-tax return were retained as before. A total of 142 drugs and their formulations were brought under price control against 347 drugs under earlier DPCO 1979. Since 1986, the Drug Industry grew significantly, in terms of production of bulk drugs and formulations. In many cases, manufacture of bulk drugs was also established from the desired basic stage. It was estimated that in case of bulk drug production the contribution of small-scale sector was approximately 30 per cent of the total production in the country. The Indian Pharmaceutical sector was able to carve a special niche for itself in the international market as a dependable exporter of bulk drugs. Drug Policy of 1994 and Drugs (Prices Control) Order, 1995 Government announced further modifications in the Drug Policy 1986 in September 1994, followed by a DPCO in 1995. The salient features of these modifications were as follow: (a) Industrial Licensing was abolished except for drugs produced through

biotechnological processes and for drugs reserved for production by public sector units. (b) For encouraging production of drugs from basic stage, a tariff mechanism was proposed to be used along with providing for rate of return higher by 4% over the existing rates. (c) Only 5 drugs in regard to which public sector units had made huge investment were reserved for production by them with the provision to review the situation after 3 years. (d) Foreign investment limit was raised to 51% from the then existing 40%. (e) To give encouragement to research and development effort, provision was made to exempt new drugs from price control for a period of 10 years. (f) Price control system was proposed to be operated through a single list of drugs based on criteria laid down in the policy and formulations based on these drugs were allowed 100% MAPE. (g) Drugs having turnover of Rs. 400 lakh or more having no market competition as per laid down parameters and drugs having turnover less than Rs. 400 lakh but not less than Rs. 100 lakh having monopoly situation were kept under price control. In this way, the number of drugs under price control was 76 (presently 74) as against 142 earlier. 279

(h) Task of price fixation/revision and related matter were proposed to be entrusted to an independent body of experts to be called National Pharmaceutical Pricing Authority, while the Government retained the power of review. Another step towards simplification and streamlining was providing for time frame of two months for formulation pricing and four months for bulk drug pricing. (i) Ceiling prices were proposed to be fixed for commonly marketed standard pack sizes and were made obligatory for all, including small-scale units, to follow. (j) National Drug Authority under the Ministry of Health and Family Welfare was proposed to be set up to look after the quality control aspects, rational use of drugs and related matters. Post 1994 Situation As already noted, the process of liberalization was set in motion in 1991, which considerably reduced the scope of industrial licensing and abolished many non-tariff barriers to imports. This process of liberalization and opening up of economy was reflected in changes effected in the policies from time to time. Foreign direct investment through automatic route was raised from 51% to 74% in March 2000 and subsequently to 100%. Public Sector units had to face competition from imports and fell sick. Reservation of 5 bulk drugs production exclusively by public sector was abolished in order to meet the demand in the country. The pharmaceutical industry in India achieved global recognition as a low cost producer and supplier of quality bulk drugs and formulations to the world. In 2004-5, drugs and

pharmaceutical production in the country stood at over Rs 35,000 crores, out of which exports accounted for Rs 16,000 crores. Industry started questioning the meaning of terms like turnover, market share, etc. and many writ petitions were filed in various High Courts. Majority of the cases were at Delhi and Mumbai. The latter ruled in favor of industry and an appeal was filed in Supreme Court which referred the case back to Mumbai High Court. However, the petitioner companies adopted the strategy of appealing/filing cases in other High Courts also on different issues. To sum up, the industry, which has been averse to price control, has been taking shelter under legal wrangling and thereby trying to thwart the implementation of Drugs (Prices Control) Order. Meanwhile, two major issues surfaced on account of globalization and implementation of our obligations under TRIPs, which impact on the long-term competitiveness of Indian industry.

280

Recommendations of PRDC and DPCRC In order to strengthen the pharmaceutical industrys research and development capabilities and to identify the support required by Indian pharmaceutical companies to undertake domestic R&D, a Committee was set up in 1999 by the Department of Chemicals & Petrochemicals by the name of Pharmaceutical Research and Development Committee (PRDC) under the Chairmanship of Director General of CSIR. Also, in order to review the drug price control mechanism, with the objective, inter-alia, of reducing the rigours of price control, where they had become counter-productive, a committee called the Drug Price Control Review Committee (DPCRC), under the Chairmanship of Secretary, Department of Chemicals & Petrochemicals was set up in 1999. It emerged from the report of DPCRC that the domestic drugs and pharmaceuticals industry needs reorientation in order to meet the challenges and harness opportunities arising out of the liberalization of the economy and the impending advent of the product patent regime and, therefore, the span of price control over drugs and pharmaceuticals ought to be reduced substantially. However, keeping in view the interest of the weaker sections of the society, it was proposed that the Government should retain the power to intervene comprehensively in cases where prices behave abnormally. Thus, it was felt that there is need to establish effective monitoring systems so as to make a smooth transition from controlled regime to monitoring regime in a medium and long term perspective. The availability of medicines at reasonable prices has been the subject matter of intense debate ever since independence of the country, and the Central Government has been taking various steps to meet this objective. From time to time, drug policies have been adopted to strike a balance between the often conflicting interests of industry and consumers in moving towards the objective of greater accessibility and affordability of drugs. The present Government also

attaches a high priority to this subject and has the declared objective of raising the public health expenditure and to make available life saving drugs at reasonable prices with special attention to the poorer sections of the society. During the course of last over one year, the issue of drug prices has been discussed frequently both within and outside Parliament. A major reason for this has been the apprehensions arising from the introduction of the product patent regime in pharmaceuticals in India with effect from 281

1st January, 2005 in line with our international commitments under WTO/TRIPs agreements. Since Indian Industry has mainly grown as a generics industry on the strength of process patents, this would mean a fundamental shift in the operating environment of the industry in the times to come. There is no doubt that India would continue to benefit from its strong generics production for a long time to come, yet the freedom to reverse-engineer newer molecules would be vastly hampered. Apprehensions have been expressed that introduction of product patent would lead to steep increase in the prices of medicines, affecting their affordability by the common man. It may be mentioned here that, due to the strong base of generics that has been already established, a majority of the drugs are outside the ambit of product patent and should continue to be available in the future. Prices of these drugs too are not likely to be affected adversely in the immediate future, but the repercussions over the longer term are less predictable. Added to this are the safeguards built into the Patents Act, 1970 at the time of amending it, which will ensure continuous production and availability of most of the existing drugs.

Despite the safeguards in the Patents Act, our strong generics base and comparatively low prices of drugs, there are worries on account of very low purchasing power of the vast segments of the poor population in the country. These concerns get reflected differently owing to different perceptions of different people and organizations. Nevertheless, the point remains that it is very difficult for the Government to ignore the fact that availability of essential drugs must be ensured at affordable prices to the common man, and extra measures and safeguards may have to be taken for improving accessibility of drugs to the poor people.

Price controls on pharmaceuticals in India In the early stages of production of pharmaceuticals in India, the industry produced only conventional drugs such as tinctures and other spirituous preparations, vaccines etc. Antibiotics and synthetic drugs were introduced after the Second World War. Soon after the independence of the country, the multinationals and the trading concerns started importing the finished formulations. Subsequently, the production activity was stepped up based on imported bulk drugs. The establishment of public sector units during 1954 to 1961 was an important milestone in the development of pharmaceutical industry in India. By 1965-66 there were about 2000 282

manufacturing units producing formulations worth Rs. 1,500 million. Production of bulk drugs was also picking up and had reached to the level of Rs. 180 million. Table 4: Pharmaceutical Prices in Selected Countries (Indian rupees) Drug Ciprofloxacin 500 mg tabs Norfloxacin 400 mg tabs Ofloxacin 200 mg tabs Cefpodoxime Proxetil 200 mg tabs Diclofenac Sodium 50 mg tabs Ranitidine 150 mg tabs Omeprazole 30 mg caps Lansoprazole 30 mg caps 6.02 22.50 39.00 74.09 578.00 684.90 178.35 290.75 226.15 863.59 2047.50 1909.64 247.16 870.91 708.08 3.50 84.71 59.75 674.77 60.96 India 29.00 20.70 40.00 114.00 Pakistan 423.86 168.71 249.30 357.32 Indonesia 393.00 130.63 204.34 264.00 USA 2352.35 1843.56 1973.79 1576.58 UK 1186.70 804.78 818.30 773.21

Source: Joint submission made by Indian Drug Manufacturers Association (IDMA) and Organization of Pharmaceutical Producers of India (OPPI) The prices of drugs were brought under statutory control for the first time by Government of India in the wake of the Chinese aggression and the declaration of emergency in 1962. Due to soaring prices of medicines the Drugs (Display of Prices) Order 1962 and the Drugs (Control of Prices) Order 1963 were promulgated under the Defense of India Act. These orders had the effect of freezing the prices of drugs as on 1st April 1963. The industry was highly critical of the freeze order on the ground that the prices of relevant raw materials were not similarly frozen. As a result, Government took two steps in 1966. Firstly, a system of selective increases was introduced in place of the system of total freeze. Secondly, 18 essential drugs were identified and referred to the Tariff Commission for examining the cost structure and recommending fair selling prices. 283

According to the Drugs Prices (Display & Control) Order 1966, it was obligatory for the manufacturers to obtain prior approval of Government before increasing the prices of all formulations in their lists as on 30th June 1966 (frozen for all practical purposes at the level of April 1963). By amendment in August 1968, those which were sold under pharmacopoeial names (nowadays known as generics) were exempted from price approval. Exemption was also made in the case of new drugs, i.e. drugs which have been evolved as a result of original research and intended to be marketed for the first time. The Tariff Commission, after studying the cost structure of 18 selected bulk drugs and their formulations and some related matters, submitted its Report to Government in August 1968. Soon after the receipt of the Tariff Commissions Report, the Government initiated action to consider the various recommendations in consultation with the different organizations concerned with the matter. A Task Force with the following composition was constituted on the 29th November 2004 to explore various options other than price control for achieving the objective of making available life saving drugs at reasonable prices:

Principal Adviser (PP) (Dr. Pronab Sen), Planning Commission Joint Secretary (PI) (Shri G.S. Sandhu) D/O. C&PC Joint Secretary (Smt. Rita Teaotia) (D/O Health) Member Member Chairman

Subsequently in February 2005, the Drugs Controller General of India (Dr. Ashwani Kumar) and Member Secretary, National Pharmaceutical Pricing Authority (Shri Pradip Mehra) were nominated as permanent Special Invitees to the Task Force. The Task Force held meetings on 9.12.2004, 13.1.2005, 22.2.2005 and 24.3.2005. Separate meetings with Drug Industry Associations were also held on 24.1.2005, 6.7.2005, 16.7.2005, 29.7.2005, 5.9.2005 and 6.9.2005. A meeting with NGOs was also held on 29.6.2005. Further, the Task Force's draft recommendations were provided to most of the Industry Associations and the same were discussed with them in the meetings chaired by Hon'ble Minister(C&F). During 284

these meetings various issues relating to drug and pharmaceuticals were discussed and on that basis the Task Force has furnished its final report to the Government. recommendations are as follow: 1. The Strategic Approach: The major

The Task Force recommends that price regulation should be on the basis of Essentiality of the drug and it should be applied only to formulations and not to upstream products, such as bulk drugs. No effort should be made to impose a uniform price, and only a ceiling price should be indicated. The ceiling price of essential drugs should normally not be based on cost of Other drugs falling into

production but on readily monitorable market based benchmarks.

selected therapeutic categories should be brought under a comprehensive price monitoring system with mandatory price negotiations system, if necessary. The regulatory mechanism should be significantly strengthened both at the Centre and in the States. A process of active promotion of generic drugs should be put in place including mandatory rebranding for selected drugs. Public Sector Enterprises (PSEs) involved in the manufacture of drugs should be revived where possible and used as key strategic interventions for addressing both price and availability issues. The drug regulator must maintain a data base of brands and their compositions and no change should be permitted in the composition of a given brand. There should be bulk purchases of drugs by Government agencies, cooperatives or consumer bodies through public-private partnership and insurance companies should be encouraged to extend health insurance covering medicines. 2. Drugs and Therapeutics (Regulation) Act:

A new legislation viz, Drugs and Therapeutics (Regulation) Act (DATA) should be enacted for price control on drugs. Under DATA Government should be empowered to impose a price or limit the increase in price, and to clearly lay down the principles governing or the reasons leading to imposition of any such price control and to seek or compel disclosure of any information or data relevant to its functioning. The powers and provisions of the DATA would be in addition to those contained in the Drugs and Cosmetics Act, 1940 and Essential Commodities Act, 1955. 3. National Authority on Drugs and Therapeutics:

As a long term objective, the Task Force endorses the proposal made by the Planning Commission in the Mid-term Appraisal of the Tenth Five Year Plan to establish a National 285

Authority on Drugs and Therapeutics (NADT), as an independent regulatory agency integrating the offices of the Drugs Controller General of India, the Central Drugs Standard Control Organization (CDSCO) and the National Pharmaceutical Pricing Authority (NPPA) along with all the powers and functions of these bodies. In the interim, a dual regulatory system comprising of the National Drug Authority (NDA) and the NPPA is proposed with standing arrangements for resolution of over-lapping responsibilities. 4. Other Regulatory Issues:

Consistent with the strengthening of the Central Drug regulatory system, the state's supervisory and regulatory capacity should also be strengthened. The Centre should financially support State Governments to bring their state drug control formations to a threshold level, especially as far as the price monitoring functions are concerned. The recommendations of the Mashelkar

Committee 2003 report should be adopted as a blue print for this purpose. 5. Principles of Price Regulation:

The Task Force recommends that the National List of Essential Medicines (NLEM) 2003 should form the basis of drugs for price control/monitoring. To support the process the Government should announce the ceiling price of all drugs contained in the NLEM on the basis of the weighted average price of the top three brands by value of single ingredient formulations prevailing in the market as on 1.4.2005. In cases where there are less than three brands, the average of all existing brands would be taken. The ORG-IMS data can be used for this purpose initially with a retail margin of 20%. For drugs which are not reflected in ORG-IMS data, the NPPA should prepare the necessary information based on market data collection. In the case of formulations which involve a combination of more than one drug in the NLEM, the ceiling price would be the weighted average of the applicable ceiling prices of its constituents. Excise duty should continue to be payable on the actual MRP of the individual medicines. In the case of drugs not contained in the NLEM, intensive monitoring should be carried out, for any new formulations based on existing APIs, manufacturer concerned would be required to submit its intended price along with application for marketing approval to the regulator, which would be granted only if the indicated price is consistent with relevant ceiling price. The NLEM should be revised every three years. 6. Patented Products:

286

All patented drugs and formulations should compulsorily be brought under price negotiation prior to the grant of marketing approval. The reference price to be used for such negotiations will be the prevailing price of the closest therapeutic equivalent in the domestic market/lowest price at which the drug is marketed internationally. 7. Bulk Procurement:

Bulk purchase mechanism should be streamlined to ensure that the current malpractices are curbed so that the prices reflect the true value of quality drugs. In order to reduce the financial burden of public health system it would be appropriate that a lower ceiling price is fixed for the bulk procurement by Government. 8. Promotion of Generics:

Public procurement and distribution of drugs through the public health system should mainly be for generic drugs. Quality certification may be provided free to dedicated generic drug

manufacturers and there should be no control on price or distribution margins specified for generic drugs. 9. Access Arrangements:

The low volume high priced drugs such as cancer drugs, anti AIDS/HIV drugs may be exempted from the payment of excise duty, custom duty, octroi and other levies if any. This benefit should be passed on to the patients. 10. Public Sector Undertakings:

The role of PSUs producing drugs should be recognized and all Departments of Central Government must be advised to first procure their drugs from the PSUs at prices approved by NPPA for the drugs covered under the essential category. For other drugs produced by these PSUs, procurement may be done at prices worked out by a committee constituted for this purpose. 11. Scheme for BPL families:

The Central Government has set up a National Illness Assistance Fund (NIAF) under which assistance to states up to 50% of their share is provided out of this fund in the State illness Fund (SIF) set up by respective states. A BPL patient is provided financial assistance up to Rs.1.50 lakhs. The Task Force feels that there is an imperative need for the states to set up the SIFs and revolving funds in all Government hospitals for making available medicines free of cost to BPL families. 287

12.

Excise Duty Relief:

The Task Force has recommended to reduce the excise duty on all pharmaceutical products from 16% to 8%. In order to mitigate the rigors faced by and to provide a level playing field for small scale pharma units to enhance the exemption limit of small scale units from the present Rs.1 crore to Rs.5 crore. 13. Research and Development:

Keeping in view the introduction of Product Patent Regime in India the Task Force has recommended that fiscal incentives should be granted over a much longer period of time, say 10 years, rather than the limited period extensions that are being made presently. The corpus of Rs.150 crore under the Pharmaceutical Research and Development Support Fund (PRDSF) needs to be sufficiently increased over the next 5 years. 14. Facilitating Schedule M Implementation:

A special fund should be created for providing interest subsidy on borrowings to small scale pharma units adopting Schedule M implementation. This assistance should be in addition to any other financial assistance. 15. Public Awareness:

To create public awareness and to educate the people, a dedicated web site needs to be created in addition to other possible modes of enhancing public awareness like public literatures, booklets, newsletters/magazines etc. 16. Settlement Commission as a Device for funding Certain Activities:

A Settlement Commission on the lines of constituted by the Income Tax Department needs to be constituted for settling the cases of past and future arrears of overcharging from the drug companies. All on-going court cases should be brought before the proposed settlement

commission and efforts be made to arrive at some workable settlement.

INSTITUTIONAL AND OTHER ISSUES The various suggestions made in the preceding chapters require a number of legal and institutional changes for them to become effective. In particular, there is a pressing need to bring drug prices under a new legislation instead of being governed by an order passed under the Essential Commodities Act. Equally, if not more, important is the need to strengthen and reorganize the drug regulatory system, both at the Centre and the States. In fact, the present state 288

of drug regulatory institutions leaves much to be desired not just from the pricing angle, but from the drug approval and quality enforcement dimensions as well. Drugs and Therapeutics (Regulation) Act It is suggested that the Drugs (Prices) Control Order (DPCO), which is presently an order under the Essential Commodities Act (ECA), should be converted to a legislative enactment The Drugs and Therapeutics (Regulation) Act (DATA). The main features of this Act are as follow: 1. Empowering government or its designated authority to impose a price or limit the

increase in the price or control the price in any other manner of any individual, class or category of drug or therapeutic product for any period of time it deems appropriate in public interest. 2. Requiring the government or its designated authority to clearly lay down the principles

governing or the reasons leading to imposition of any such price control or any deviations permitted there from. 3. Authorizing the government or its designated authority to seek or compel disclosure of

any information or data relevant to its functioning from all manufacturers, marketers, distributors or retailers of drugs and therapeutic products. 4. Requiring all companies involved in the manufacture or marketing of drugs and

therapeutic products to submit authenticated price lists of all their products along with other relevant details to government or its designated authority on a regular basis with a frequency to be specified by the latter. 5. Granting the government or its designated authority the power to approve a brand name

for a specific product, to prevent changes in the composition of a product marketed under an approved brand name and to determine the nomenclature under which a product can be marketed, if necessary, for all drugs and therapeutic products.

6.

Providing penalties, for violation or non-compliance with the provisions of the Act or the These penalties could be graded fines,

Rules framed and orders issues under the Act.

temporary withdrawal of marketing approval, withholding of marketing approval, compounding of offences, etc: 7. The powers and provisions of the DATA would be in addition to those contained in the

Drugs and Cosmetics Act and the Essential Commodities Act. Central Drug Regulatory System 289

The Task Force considered two alternative structures for the central drug regulatory system. The first envisages a separation of functions between two central agencies one dealing with all matters relating to drug approvals and quality assurance, and the other dealing with all matters related to market behavior, including pricing and availability. This essentially involves the conversion of the office of the Drugs Controller General of India (DCGI) to form an autonomous National Drug Authority (NDA), on the one hand, and strengthening of the National Pharmaceutical Pricing Authority (NPPA), on the other. The second is based on the proposal made by the Planning Commission in the Mid-term Appraisal of the Tenth Five Year Plan to establish a National Authority on Drugs and Therapeutics (NADT), which would integrate the offices of DCGI, CDSCO and the NPPA, along with all the powers and functions of these bodies. There is something to be said for both these alternatives. As far as the first is concerned, the Ministry of Health & Family Welfare favours this structure on the grounds that the two functions are completely distinct, require distinct skill sets, and have separate obligations. Current global practices also distinctly separate the regulatory and price administration of the pharmaceutical sector. Moreover, the separation of powers ensures that the NDA remains relatively insulated from the pulls and pressures emanating from the commercial aspects of the drug industry, and can therefore focus on therapeutic and quality issues. This avoidance of conflicts of interest is the most powerful argument in favor of this option, especially in the context of the levels of governance existing in the country at present. It also involves minimum changes in the existing institutional structures, and is thus relatively easy to implement. The Mashelkar Committee 2003 has also endorsed such a system. On the other hand, there are distinct drawbacks as well. In the first place, the NPPA simply does not have any field formation which can carry out the enforcement functions. This role is presently being played by the State drug control agencies, which are jurisdictionally under the DCGI. This arrangement not only reduces the effectiveness of the price regulation mechanism, but also does not meet the attribute of separation of powers and functions at the operating level. Second, the presence of multiple regulatory authorities enables drug companies to engage in forum shopping, i.e. exploit the presence of a multiplicity of agencies without adequate coordination to their own advantage. Third, and most importantly, it should be clear from the preceding chapter that the nature of price regulation that is being proposed in this Report 290

involves close linkage between the therapeutic aspects of drugs and the price regulation regime. It would, therefore, be inefficient to operate this system through two separate agencies. The integrated regulatory system envisaged by the NADT obviates the above problems, but it does involve the creation of a super regulator, with the possible problems of conflict of interest. Keeping in view the above considerations, therefore, it is felt that creation of the NADT may be kept as a long run objective towards which the central drug regulatory system should evolve. For the interim, however, the dual structure may be implemented with the following additional dimensions: In order to strengthen the price and market regulatory system, separate dedicated cells may be created in the State drug control agencies for undertaking these functions under the direction of the NPPA. If necessary, these may be funded by the Central Government. The manpower, skill set and technical capabilities of the NPPA may be suitably enhanced to take care of the additional responsibilities. The revamped NPPA and the NDA must set up standing arrangements for addressing overlapping issues such as price negotiations and brand approvals in a coordinated manner.

National Authority on Drugs and Therapeutics As has already been mentioned, all things considered, in the long run a merger of the NDA and the NPPA appears desirable and should be worked towards. The Drugs and Cosmetics Act would have to be amended for this purpose. The NADT would also be the designated authority of the government for implementation of DATA. Ideally the NADT should be an independent regulatory agency under the Ministry of Health & Family Welfare with appropriate statutory backing from DATA, but for the immediate future it may be set up as an attached office through the issue of the necessary government orders. The NADT should constitute two Expert Committees which would be responsible for: (a) regular updating and revision of the National List of Essential Medicines (NLEM); and (b) Price negotiations as prescribed under the Rules framed under DATA. These Committees should be chaired by the Chairman, NADT, and comprise primarily of outside experts drawn from government Ministries/Departments, ICMR, health professional, pharmacologists, civil society organizations, etc:

291

The NADT should not only carry out all the regulatory functions, but also be responsible for the promotional activities which are mentioned in this Report, such as quality certification and marking, promotion of generic drugs, maintenance of the public web-site/data base on drug prices, etc: The functions proposed to be assigned to the NADT will require a significant enhancement in both the manpower and the skill sets available in the existing organizations which are proposed to be merged. In particular, there is need to develop strong capabilities in pharmacoeconomics, which is completely absent at present. The Mashelkar Committee Report (2003) has detailed the requirements for the Drug Controllers office, which should be adopted as the initial blue-print. A summary of the Mashelkar Committee Report is annexed. In addition, a suitable manpower and training requirement plan should be drawn up for it to effectively carry out the other functions that have been indicated. A suitable mechanism for financing the NADT will need to be evolved, especially if it is to be made into an independent regulator. The Planning Commission has suggested a cess for this purpose, which could be a possible solution.

Other Regulatory Issues Since the NADT will be wielding considerably greater powers and authority than any existing organization, there is need to consider the establishment of an appellate body, and provisions will have to be made in the Rules framed under the various concerned Acts. Consistent with the strengthening of the Central drug regulatory system, the state supervisory and regulatory capacity should also be strengthened. The Centre should financially support state governments to bring their state drug control formations to a minimum level. The

recommendations of the Mashelkar Committee should be adopted as a blue-print for this purpose. A beginning has been made by the Ministry of Health which has already undertaken a Capacity Building Project through World Bank assistance to support the State Governments to augment their regulatory capacities. This should be continued with even greater vigor in order to ensure a world-class regulatory system. Since these institutional changes are likely to take time, the various functions and authority needed to give effect to the recommendations of this Report will need to be clearly demarcated between the existing regulatory bodies until they are eventually merged. It is suggested that all 292

matters relating to pricing should vest in the NPPA, and all other functions, including brand regulation, be carried out by the NDA. As far as the NPPA is concerned, the following changes are recommended: Review the present structure and staffing pattern and strength of NPPA to make it more effective The tenure of Chairman should be minimum for 2 years Strengthen the monitoring system of NPPA through appropriate computerization and software d) Establish a live linkage of NPPA with the State Drug Controllers through a dedicated Drug Price Monitoring Cell in each of the major States. The full cost of these Cells should be funded by Central Government for a period of at least 5 years

Bulk procurement procedures Since the long-term operation of the proposed price regulatory mechanism is depending upon the prices prevailing in bulk procurement activities, it is imperative that the bulk purchase mechanism be streamlined to ensure that the current malpractices are curbed so that the prices reflect the true value of quality drugs. Since bulk purchases are a valuable method for enabling smaller companies to diversify and grow, care should be taken to ensure that the bulk purchase orders are not so large as to exclude smaller manufacturers if they qualify otherwise. It is suggested that the following conditions should be considered as minimum criteria for evaluating bulk purchase operations for inclusion in the reference price computations: (a) (b) Procurement only from pre-qualified manufacturers and not from middle-men or traders. GMP compliance of the manufacturer. Although this is now legally required, it needs to

be specified as pre-qualification and enforced. (c) Minimum three years of track record in sustained production of the concerned drug.

Balance sheets of past three years may be obtained to assess the installed manufacturing capacity and financial strength of the manufacturer (d) (e) Post-award inspection of manufacturing facilities Procurement of preferably generic drugs only.

Bulk procurement systems not conforming to the above requirements should not be taken into account for working out reference prices. In order to ensure that bulk purchase data is available from a variety of sources, the government should consider specifying the above requirements as a condition for any financial support to 293

States and other designated agencies for procurement of drugs for distribution through the public health care system.

Role of Public Sector Undertakings (PSUs) It is well recognized that PSUs can play a significant role in ensuring availability and keeping a check on the prices of drugs produced by them. Whether it was the earthquake in Latur or in Kutch or the recent floods in Mumbai the PSUs when called upon have come to the forefront in supplying some of the essential drugs urgently required in such emergencies. The need to have vibrant public sector pharma enterprises has become all the more pertinent in the era of product patents where, in order to meet a public health crisis, they can be awarded compulsory licences to make patented medicines. In addition, PSUs can also be an important source of information on costs of production, if it becomes necessary for price regulation purposes. Finally, the PSUs can be used for strategic intervention in price formation processes for drugs which may not be under price regulation. The existing PSUs have huge installed capacities and operational sing it in its entirety may not be worthwhile. There is, however, need to revive them to a limited extent (keeping in view their viability) and to provide them an assured market in the public health system. It is suggested that all departments of Central Government may be advised to first procure their drugs from these PSUs at prices approved by NPPA for the drugs covered under the essential category. For other drugs produced by these enterprises, procurement can be done through the normal tendering process. Another system can be to have a common Pricing and Supply Committee for all the Central pharmaceutical PSUs, which can determine the prices of drugs produced by them and also the list of drugs which must be necessarily produced for the public health system. Excise Duties One of the most glaring anomalies in policy is that while the government has laid great emphasis on moderating the prices of drugs, it continues to tax pharmaceutical products at the same rate as any other consumer non-durable, namely at 16%. This issue has become particularly visible since the State governments reduced the applicable VAT rate to 4% in recognition of the essential nature of pharmaceutical products. It is suggested, therefore, that the excise duty rate on pharmaceuticals should be reduced to 8%. Ideally, this reduction should be applicable only to the essential drugs and their formulations, but in view of the complexity of monitoring and 294

enforcement, it is suggested that it be applied across the board. At most, the loss to the exchequer on this account would be less than Rs. 1,000 crore. To make matters worse, the government issued a notification on 7th January, 2005 vide which it levied excise duty on drugs on the MRP. An abatement of 40% in the MRP was given to allow for marketing and other expenses. This means that excise duty is to be levied on 60% of the MRP. This has brought about a sharp reaction from the small scale pharmaceutical industry due to the sudden increase in tax burden which created a big anomaly owing to the tax free areas of Himachal Pradesh, Uttaranchal and J&K. There has been a very intense and vocal demand from industry for giving relief to these units. On the basis of the experience of the last few months, the impact of this measure on the small scale pharmaceutical units reveal that there are both positive and negative effects. These are as follow: Positive Effects: a) The biggest positive effect has been on the working and practices of the small units. It has brought about the much needed discipline in terms of reasonableness in the costing and prices of drugs produced by them which are mostly branded generics. There is a pressure to keep the prices low to avoid a proportionate increase in the excise duty burden. This was absent earlier. b) There has been a downward trend in prices of most of the branded generic drugs

produced by small scale units as the incidence of excise duty on 60% of the MRP becomes significantly higher than what it was on the ex-factory price .In order to keep the burden low the MRP has been reduced in most cases Negative Effects: a) The major negative effect has been the wide disparity created in the tax burden between the units established in the zero-duty areas and rest of the country .The small scale units in other parts of the country find it difficult to compete with their counterparts in these areas and face the threat of closure unless they also shift to those areas or are provided some relief. b) Possible loss of revenue to the government due to large scale movement of

new/established units into zero duty areas and tendency to pay lower duty by units in other areas due to evasion as a result of very high tax incidence ( on 60 percent of MRP as compared to exfactory price earlier ) c) Another adverse effect has been on the implementation of Schedule M of the Drugs and

Cosmetics Act,1940. It is estimated that about 10 percent of the small units have already 295

implemented it while another 10 percent were in the process of doing so. Due to the uncertainty and higher tax burden leading to reduced capacity to finance the high cost involved in the implementation of Schedule M its implementation by these units has reportedly been stopped midway. On balance, it can be concluded that the MRP based excise is in the long term interest of industry and should stay. However to mitigate its rigours and to provide a level playing field for small units it is essential that the exemption limit of small scale units is enhanced from the present Rs. 1 crores to Rs. 5 crores. Both these steps, namely the reduction in the excise duty rate and the enhancement of the exemption limit, are likely to provide the much needed relief to the small scale units leading to their survival, improved quality and better tax compliance, which would have a positive effect on the revenues of Government. In any event, the loss to the exchequer is not likely to be large.

Encouraging R&D The introduction of product patent regime in India has made it imperative for augmenting resources for greater R & D in pharmaceutical sector. The present level of R&D in this sector is quite low as compared to most of the developed countries. While the pharmaceutical companies need to step up their expenditure on R & D it is necessary on the part of Government to provide liberal incentives and resources for activities related to drug discovery and drug development. The following incentives are available for R&D purposes in the pharmaceutical sector: a) Section 80-1B(8A) of Income Tax Act : Any company carrying on Scientific R&D, deduction of 100% of Profits and Gains of such business for a period of 10 consecutive assessment years, beginning from the assessment year.

b) Section 35(2AB)(1) of Income Tax Act: A company engaged in the business of biotechnology, drugs, pharmaceuticals, etc. incurring any expenditure on scientific research (excluding cost of land or building) on in-house R&D facility, a deduction of a sum equal to 150% of expenditure so incurred is allowed c) A corpus fund of Rs. 150 crores to fund R&D projects.

296

It has been suggested that domestic R&D activity should be encouraged through relaxations being made in price regulations which would otherwise be applicable. The Task Force, however, does not favor this approach since most such suggestions are bad in law and can also lead to unforeseen distortions in the regulatory system. It is felt that a better method would be to provide a more liberal fiscal regime for domestic R&D. Some suggestions in this regard are as follow: y The benefit of 150% weighted exemption under section 35(2AB) may be increased to 200%. y Section 35(2AB) may be extended to depreciation on investment made in land and building for dedicated research facilities, expenditure incurred for obtaining regulatory approvals and filing of patents abroad. y It should also be examined as to whether the expenditure made on clinical trials by the Indian companies should be made eligible for the purpose of above mentioned incentives. y The fiscal incentives are at present only available up to 31st March, 2007. Since R&D activity has to be carried over long periods of time, fiscal incentives should be granted over a much longer period, say 10 years, rather than the limited period extensions that are being made presently. At present, the Pharmaceutical Research and Development Support Fund (PRDSF) corpus of Rs. 150 crores (where only interest income is available for spending) is utilized for funding R&D projects of Research Institutions and industry. It is not sufficient to meet the present day and the emerging requirements of this sector. It needs to be sufficiently augmented over the next five years. Immediately it should be converted into an annual grant of Rs. 150 crores, and thereafter it should be suitably increased in a phased manner over a period of next five years.

297

CHAPTER-9 LIMITATIONS, CONCLUSION AND RECOMMENDATIONS

 Limitations Work on the project study on pricing policies of medicines in pharmaceutical companies was a wonderful experience. But every project has some limitations. I too faced large no of difficulties while going through the project. Some of them are as follow: Pricing of the medicines in pharmaceutical companies is long and complicated process which includes government regulation, profit margin, competitive angle etc. so it was difficult to study all the aspects simultaneously.  Pricing strategies of a product is a confidential data of a company which is not open to everyone so it was difficult to get the whole information regarding pricing of drugs in pharmaceutical companies.  And lastly time was the limit for the project given.

 Conclusion Changes to the approval process for generic drugs made by the Hatch-Waxman Act, combined with the changes in demand for generic drugs discussed in Chapter 2, have prompted a dramatic rise in generic competition since 1984. That increased competition has helped hold down the average price of a multiple-source prescription drug by encouraging the substitution of lowerpriced generic drugs for brand-name ones. In 1994, such substitution saved final purchasers of prescription drugs through retail pharmacies roughly $8 billion to $10 billion (at retail prices). Manufacturers of generic drugs, who sell nearly identical versions of the same product, compete more intensely on the basis of price than do manufacturers of innovator drugs, who compete more on the basis of quality and other differences between products. Average list and invoice prices of brand-name drugs do not typically fall after generic competitors enter the market. On a selective basis, however, manufacturers of brand-name drugs do offer discounts and rebates to some purchasers, and those discounts tend to be larger when generic versions of the drug are available. The data necessary to determine what volume of purchases is sold at a substantial discount do not exist. The industry group Pharmaceutical Research and Manufacturers of 298

America estimates that discounts saved purchasers $5.3 billion in 1994, $3.5 billion of which went to non-Medicaid purchasers.(69) (That $3.5 billion represented over 5 percent of the value of non-Medicaid prescription drug sales.) The extent to which brand-name drugs compete through price is difficult to assess. Limited empirical evidence suggests that competition between similar brand-name drugs causes their prices to rise more slowly over time than would otherwise be the case. However, evidence also suggests that the prices of me-too drugs increase much more rapidly over time than the price of the breakthrough drug. Much of that analysis is based on list prices or average invoice prices, which do not include many charge-backs and rebates. Clearly, some price competition is occurring, particularly in the segment of the market that can negotiate discounts when several similar brand-name drugs are available. As Chapter 2 noted, that segment of the market is growing with the emergence of PBMs and the proliferation of other managed care techniques. Still, since the size of discounts and the quantity of drugs sold at a discount are not known, it is difficult to assess the extent of competition brought about through discounting. Responsibility for medicine pricing and access to essential medicines is fragmented and distributed across different ministries. India has a prolific generic industry with hundreds of generic equivalents, but with medicines known only by their trade name and brand loyalty affecting the market. Several public sector departments provide health care to citizens; four were included in the survey.

The WHO/HAI Price Component data collection and analysis methodology is sufficiently robust that this case study of eight medicines, in two sectors, within NCT Delhi, has identified several key issues related to medicine pricing, availability and affordability. This includes several strengths and weaknesses in the public procurement systems, trade relationships in the private sector supply chain that skirt government pricing structures, and the cumulative impact that tariffs are having on medicine prices. With 80% of the population being forced to buy their medicines out-of-pocket, there is much that the government, the public and the private sectors can do to increase access to essential medicines. Few important recommendations:

299

Government to increase transparency in manufacturer-set MRP or remove the MRP from non-scheduled medicines.

y y y y

Bring all medicines under National EML under price control. Government to remove all tariffs on medicines to increase access. Develop a policy for generic substitution and generic prescribing. Establish a working group (from MoH&FW, MoC&F, DCGI, private sector, academics, and NGOs) to explore ways to bring all essential medicines onto scheduled list.

Establish links between procurement offices of central government, DHS, MCD and NDMC to share information on procurement and reduce replicated effort.

y y y

Central government to investigate use of proprietary medicines and local purchases. All public procurement bodies to enforce reliable delivery from suppliers. Monitor and evaluate procurement system, procurement price and private sector price at regular periodic interval by external agency based on a standardized methodology like WHO/HAI.

This investigation into the price components of medicines in NCT Delhi has shown that the lack of transparency in medicine prices is impeding access. Improving transparency in pricing and procedures through continued research and monitoring of systems will have a positive impact on access to medicines and the health of the people of India.  Recommendations Post-liberalization, the State clearly has a welfarist and interventionist role, especially in the areas of health, education and removal of hunger. The legitimacy of the State as an instrument of ensuring the right to health care and distributional justice needs to be asserted. y Price regulation of medicines is a key public policy measure for health of Indias teeming masses. Only the Government of India can do it. Like it has done for cell phone rates, insurance premia, electricity tariff, bank interest rates, etc. y All market distorting factors like irrational fixed dose combinations, hazardous and bannable medicines should be removed.

300

Unfair and unethical practices of drug companies like drug promotion, which often includes fancy gifts, and trips abroad all need to be curbed. These will reduce health expenditures significantly.

All public health programmes should have a centralized pooled procurement system like Tamil Nadu and Delhi State governments.

There should be a strict watch on prices of lab investigations, medical procedures and surgical operations too. Why is it cataract surgery with Intra Ocular Lens Implant can be done at Rs 600 in the world class Arvind Eye Hospital in Madurai whereas most other reputed private hospitals charge Rs 20,000 and above? In fact the Government happily reimburses the latter for its employees.

As a result of this study, the following recommendations are proposed. Transparency in procurement in the public sector y The Central Procurement Agency of DHS, NCT Delhi, and MCD procurement system should be monitored and evaluated periodically to see if they are continuing to meet the need of the institutions they serve (in terms of availability and accessibility) or whether the systems need updating. y NDMC to review their technical requirements for manufacturer pre-qualification, specifically the financial turnover of the company, to be more in-line with other procurement agencies. y CGHS to re-evaluate their working relationship with HSCC: either HSCC provides the service they are paid for, or CGHS should identify an alternative procurement agency. MSO could be considered as an option once their procurement is operational and transparent but the cost lost to their handling fees must be considered. y The Central Government should develop a rational Essential Medicines List to be used for procurement for CGHS dispensaries. A strict policy of generic or single molecule prescribing should be used in CGHS facilities, with a few exceptions granted for certain conditions and medicines. Procurement in the public sector should be limited to EML items.

301

Establish links between procurement offices of central government, DHS, MCD and NDMC to share information on procurement and reduce replicated effort. A common list of black listed companies is one possibility.

Establish periodic monitoring and evaluation of all public sector procurement agencies. One option is monitoring and evaluation by an external agency, e.g., study like this based on a standardized methodology.

Markups in the private sector supply chain y Review the list of scheduled medicines, and ensure that all Essential Medicines have their price reviewed by the government. y Review the NPPA pricing formula, specifically the Maximum Allowable Postmanufacturing Expenses. Investigate whether the MAPE should be a flat rate, or whether a staged MAPE could benefit retailer, patients and manufacturers. Develop systems to monitor scheduled medicine prices, especially with regard to reductions in the prices of active ingredients over time. Taxes and tariffs y Government to remove all tariffs on medicines.

Medicine pricing y Government to increase transparency in manufacturer-set MRP or other option is to remove the MRP from non-scheduled medicines. y y Include all essential medicines under the NPPA drug price order. Establish a working group (from MoH&FW, MoC&F, DCGI, private sector, academics, and NGOs) to explore ways to bring all essential medicines onto scheduled list. Promote generic substitution y y Develop policies for generic substitution and generic prescribing. Increase consumer awareness of the wide range of quality-controlled generic equivalents and the benefits of generic substitution. y Train doctors, pharmacists and patients in generic substitution.

302

STEPS TO STRENGTHEN THE INDUSTRY Indian companies need to attain the right product-mix for sustained future growth. Core competencies will play an important role in determining the future of many Indian pharmaceutical companies in the post product-patent regime after 2005. Indian companies, in an effort to consolidate their position, will have to increasingly look at merger and acquisition options of either companies or products. This would help them to offset loss of new product options, improve their R&D efforts and improve distribution to penetrate markets. Research and development has always taken the back seat amongst Indian pharmaceutical companies. In order to stay competitive in the future, Indian companies will have to refocus and invest heavily in R&D. The Indian pharmaceutical industry also needs to take advantage of the recent advances in biotechnology and information technology. The future of the industry will be determined by how well it markets its products to several regions and distributes risks, its forward and backward integration capabilities, its R&D, its consolidation through mergers and acquisitions, comarketing and licensing agreements.

303

BIBLIOGRAPHY
REPORTS AND MAGAZINES 1. IMS Health: IMS Intelligence. 360 Global Pharmaceutical Perspectives, 2004. 2. Organisation of Pharmaceutical Producers of India, 2004. 3. Indian Government National Pharmaceuticals Policy, January 2006. 4. Pharma Review (The Indian Pharma Reference Guide), August 2005. 5. Verband der Chemischen Industrie e.V. Country Report: Information on National Economies, Chemical Markets and Foreign Trade, June 2005. 6. Indian Pharma Machinery Manufacturers Association, 2005. 7. Kotak Securities report, October 2003. 8. PriceWaterhouseCoopers. India-Prescription for Growth, July 2005. 9. Tufts Center for the Study of Drug Development. Impact Report, May 2000. 10. Confederation of Indian Industry study, September 2004. 11. Indian Government National Pharmaceuticals Policy, January 2006. 12. Ibid 13. Associated Chambers of Commerce and Industry of India Report to Government, November 2005. 14. Organisation of Pharmaceutical Producers of India, 2004. 15. Pharmabiz, September 8, 2005. 16. SSKI India. Pharmaceuticals-Sweet Pill? February 2006. 17. Pharma Marketletter, January 16, 2006. 18. AARP Data Digest, February 2006. 19. IMS Health data quoted in PharmaWeek, March 16, 2006. 20. Health data presented at Drug, Chemical and Associated Technologies Association meeting, New York, March 2004. 21. Datamonitor. Biogenerics 2005: A New Level of Complexity, October 2005. 22. Economic Times of India, February 11, 2006. 23. SSKI India. Pharmaceuticals-Sweet Pill? February 2006. 24. Pharma Marketletter, September 12, 2005. 25. Financial Express report, quoted in Pharma Marketletter, April 25, 2005. 304

26. Organisation for Economic Cooperation and Development. Science, Technology & Industry Working Paper 2005-6: Dynamics of Biotechnology Research and Industry in India: Statistics, Perspectives and Key Policy, May 2005. 27. Frost & Sullivan. Opportunities for European Pharmaceutical Companies in India, July 2005. 28. Umakanta Sahoo/Chiltern International Private Ltd, India . Clinical Trial Data Management Outsourcing-India, May 23, 2005. 29. Ibid. 30. Kotak Securities report, October 2003. Websites: www.cato.org//pubs/regulation/regv23n1/danzon.pdf http://nppaindia.nic.in/frequent.html#11 http://www.citizenstrade.org/pdf/peruvianhealthministry_impactofiponaccesstomeds_042005 http://www.indlaw.com/guest/DisplayNews.aspx?204B6175-4F83-4E15-A256-BEE79F11880D http://nppaindia.nic.in/drug_pol86/txt1.html http://www.whoindia.org/LinkFiles/Commision_on_Macroeconomic_and_Health_02_14 http://www.journals.elsevierhealth.com/periodicals/heap/article/S0168-8510(09)00102X/abstract http://www.kscourts.org/Kansas-Courts/Supreme-Court/Orders/2009/2009sc006 http://www.lawlink.nsw.gov.au/lawlink/drug_court/ll_drugcourt.nsf/pages/adrgcrt_drugcrt1rewa rds http://medind.nic.in/haa/t06/i1/haat07i1p41. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1592909/pdf/calstatejmed00078-0030a.pdf

305

ANNEXURE
ANNEXURE-I List of Therapeutic Categories for Intensive Monitoring 1. ANTI-INFECTIVE MEDICINES (including Antihelminthics, Antibacterials,

Antileprosy, Antitubercolosis, Antifungals, Antivirals, Antiprotozoals). 2. MEDICINES AFFECTING THE BLOOD (Antianaemia medications and medicines affecting coagulation). 3. CARDIOVASCULAR MEDICINES (Antianginal, Antiarrhythmics, Antihypertensives, medicines used in heart failure, Antithrombotic medicines) 4. 5. 6. 7. MEDICINES ACTING ON RESPIRATORY TRACT (Antiasthmatics, Antitussives) HORMONES, OTHER ENDOCRINE MEDICINES, CONTRACEPTIVES IMMUNOLOGICALS (including Sera, Immunoglobulins, and Vaccines) GASTROINTESTINAL MEDICINES (Including Anti-ulcer medicines, Antiemetics, Anti-inflammatory medicines, medicines used in diarrhea) 8. 9. 10. PSYCHOTHERAPEUTIC MEDICINES ANTICONVULSANTS/ANTIEPILEPTICS ANTINEOPLASTIC, IMMUNOSUPPRESSIVES, AND MEDICINES USED IN PALLIATIVE CARE 11. ANALGESICS, ANTIPYRETICS, NSAIDS, MEDICINES USE IN RHEUMATOID DISORDERS 12. 13. 14. 15. 16. ANTIALLERGICS AND MEDICINES USED IN ANAPHYLAXIS BLOOD PRODUCTS AND PLASMA SUBSTITUTES DERMATOLOGICAL MEDICINES DISINFECTANTS AND ANTISEPTICS DIURETICS

306

17. 18.

OPHTHALMOLOGICAL PREPARATIONS VITAMINS AND MINERALS

ANNEXURE-2 List of Abbreviations AIDS Acquired Immune Deficiency Syndrome API Active pharmaceutical ingredient Assocham Associated Chambers of Commerce and Industry of India CAGR Compound annual growth rate cGMP current Good Manufacturing Practice CRAMS Contract manufacturing and research services CRO Contract research organization DMF Drug master file DNA Deoxyribonucleic acid DPCO Drug Price Control Order EMEA European Medicines Agency FDA Food and Drug Administration (U.S.) GSK GlaxoSmithKline HIV Human Immunodeficiency Virus IPR Intellectual property rights ITES Information technology-enabled services M&A Mergers and acquisitions MNC Multinational company NCE New chemical entity OECD Organisation for Economic Cooperation and Development OPPI Organisation of Pharmaceutical Producers of India OTC Over-the-counter medical products Pharmexcil Pharma Export Promotion Council PPP Public/private partnerships R&D Research and development TB Tuberculosis TCS Tata Consultancy Services TRIPs Trade-related aspects of intellectual property rights 307

VAT Value-added tax WTO World Trade Organization Annexure - 3 List of Bulk Drugs Reserved for Public Sector 1. Streptomycin 2. Tetracycline 3. Oxytetracycline 4. Gentamycin 5. Sulphaguanidine 6. Sulphadimidine 7. Sulphamethoxy-pyridazine 8. Sulphadimethoxine 9. Vitamin B1 10. Vitamin B2 11. Folic Acid 12. Quinine 13. Analgin 14. Phenobarbitone 15. Morphine N.B. Bulk drugs would include salts, esters and derivatives, if any. Annexure - 4 Group of Bulk Drugs Covered by Broad-Ranging Groups 1. All types of Penicillins 2. Erythromycin, Griseofulvin, Rifampicin 3. Chloramphenicol and its intermediates namely L-Base. 4. 6-APA and 7-ADCA from Potassium Pencillin G 5. Semi-synthetic Penicillins like Ampicillin, Amoxicillin etc. 6. All types of Cephalsporins 308

7. Sulpha Drugs other than those reserved for Public Sector 8. Steroids & Hormones including the following Prednisolone, Prednisone, Hydrocortisone, Beta-methasone, Ethinyl Oestradiol, Norethisterone, Norgestrel, Testosterone, Progesterons etc. 9. Theophylline, Aminophylline, Hydroxyethyl-Theophylline -Xanthinol Nicotinate and Synthetic Caffeine 10. All Barbiturates other than Phenobabarbitone 11. Analgin , Isopropylantipyrine 12. Chlorpromazine, Prochloroperazine, Promethazine, Trifluoperazine, Triflupromazine 13. Chloroquine, Amodiaquine 14. Oxphenbutazone, Phenylbutazone 15. Diphenydramine, Bromodiphenhydramine 16. Hydrocholorothiazide, Cyclopentazide 17. Chlorophenesin Mephenesin 18. Xylocaine, Procaine, Benzocaine, Prilocaine 19. Metronidazole Tinidazole 20. Tobutamide Chlorpramamide 21. Acetazolamide Thiacetazone 22. Diazepam, Chlordiazepoxide, Oxazepam, Nitrazepam, Lorazepam 23. Pheniramide, Chlorpheniramine 24. Ibuprofen, Ketoprofen, Flurbiprofen, Naproxen 25. Salbutamol, Terbutaline 26. Furazolidine, Nitrofuratoin, Nitrofurazon, Furaltadone 27. Chlorcyclizine, Cyclizine, Meclozine, Buclizine, Diethyl Carbam Zine Citrate 28. Propranolol, Atenolol, Metroprolol, Oxprerolol, Pindolol 29. Mebendazole, Thiabendazole, Benbendazole
30. Drugs obtained by extraction from plant material such as Belladonna, Hyocymine,

Sennosides, Digoxin, Ammalicine, Pesperpine, Vincristine, Vinblastine, Quinine, Quinidine, Emetine, Strychnine, Brucine etc. N.B. - Bulk drugs would include salts, esters and derivatives if any. 309

310