Industrial
Promotion Policies - Central Government
Pharmaceutical Policy
Introduction
1.
The basic objectives of Government's Policy relating
to the drugs and pharmaceutical sector were enumerated
in the Drug Policy of 1986. These basic objectives still
remain largely valid. However, the drug and pharmaceutical
industry in the country today faces new challenges on
account of liberalization of the Indian economy, the
globalization of the world economy and on account of
new obligations undertaken by India under the WTO
Agreements. These challenges require a change
in emphasis in the current pharmaceutical policy and
the need for new initiatives beyond those enumerated
in the Drug Policy 1986, as modified in 1994, so that
policy inputs are directed more towards promoting accelerated
growth of the pharmaceutical industry and towards making
it more internationally competitive. The need for radically
improving the policy framework for knowledge-based industry
has also been acknowledged by the Government.
The Prime Minister's Advisory Council on Trade and Industry
has made important recommendations regarding knowledge-based
industry. The pharmaceutical industry has been identified
as one of the most important knowledge based industries
in which India has a comparative advantage.
2. The process
of liberalization set in motion in 1991, has considerably
reduced the scope of industrial licensing and demolished
many non-tariff barriers to imports.Important steps
already taken in this regard are: -
Industrial
licensing for the manufacture of all drugs and pharmaceuticals
has been abolished except for bulk drugs produced
by the use of recombinant DNA technology, bulk drugs
requiring in-vivo use of nucleic acids, and specific
cell/tissue targeted formulations.
Reservation
of 5 drugs for manufacture by the public sector
only was abolished in 1999, thus opening them up
for manufacture by the private sector also.
Foreign
investment through automatic route was raised from
51% to 74% in March, 2000 and the same has been
raised to 100%.
Automatic
approval for Foreign Technology Agreements is being
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 procedure
prescribed by the Government would be followed.
Drugs and
pharmaceuticals manufacturing units in the public
sector are being allowed hfto face competition
including competition from imports. Wherever possible,
these units are being privatized.
Extending
the facility of weighted deductions of 150% of the
expenditure on in-house research and development
to cover as eligible expenditure, the expenditure
on filing patents, obtaining regulatory approvals
and clinical trials besides R&D in biotechnology.
Introduction
of the Patents (Second Amendment) bill in the Parliament.
It, inter-alia, provides for the extension in the
life of a patent to 20 years
3.
The impact of the policies enunciated, from time to
time, by the Government has been salutary. It has
enabled the pharmaceutical industry to meet almost
entirely the country's demand for formulations and
substantially for bulk drugs. In the process the pharmaceutical
industry in India has achieved global recognition
as a low cost producer and supplier of quality bulk
drugs and formulations to the world. In 1999-2000,
drugs and pharmaceutical exports were Rs.6631 crores
out of a total production of Rs.19,737 crores. However,
two major issues have surfaced on account of globalization
and implementation of our obligations under TRIPs
which impact on long-term competitiveness of Indian
industry. These have been addressed in the Pharmaceutical
Policy-2002. A reorientation of the objectives of
the current policy has also become necessary on account
of these issues:-
The essentiality
of improving incentives for research and development
in the Indian pharmaceutical industry, to enable
the industry to achieve sustainable growth particularly
in view of anticipated changes in the Patent Law;
and
The need
for reducing further the rigours of price control
particularly in view of the ongoing process of liberalization.
4. It is
against this backdrop, that Pharmaceutical Policy-2002
is being enunciated.
Ensuring
abundant availability at reasonable prices within
the country of good quality essential pharmaceuticals
of mass consumption.
Strengthening
the indigenous capability for cost effective quality
production and exports of pharmaceuticals by reducing
barriers to trade in the pharmaceutical sector.
Strengthening
the system of quality control over drug and pharmaceutical
production and distribution to make quality an essential
attribute of the Indian pharmaceutical industry
and promoting rational use of pharmaceuticals.
Encouraging
R&D in the pharmaceutical sector in a manner
compatible with the country's needs and with particular
focus on diseases endemic or relevant to India by
creating an environment conducive to channelising
a higher level of investment into R&D in pharmaceuticals
in India.
Creating
an incentive framework for the pharmaceutical industry
which promotes new investment into pharmaceutical
industry and encourages the introduction of new
technologies and new drugs.
6. In order
to strengthen the pharmaceutical industry's 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 this Department by the name of Pharmaceutical
Research and Development Committee (PRDC) under
the Chairmanship of Director General of CSIR.
7. To qualify as R&D intensive
company in India, the PRDC has suggested following
conditions (gold standards) :-
Invest
at least 5% of its turnover per annum in R&D,
Invest
at least Rs.10 Crore per annum in innovative research
including new drug development, new delivery systems
etc. in India,
Employ
at least 100 research scientists in R&D in India,
Has been
granted at least 10 patents for research done in
India,
Own and
operate manufacturing facilities in India.
The recommendations
of the PRDC in so far as they relate to the Pharmaceutical
Policy have been taken into account while formulating
the proposals on pricing aspects.
9.The
Pharmaceutical Research & Development Committee
has recommended in its report, submitted inter-alia,
the setting up of a Drug Development Promotion Foundation
(DDPF) and a Pharmaceutical Research & Development
Support Fund (PRDSF). Necessary action in this regard
has been initiated.
10. As far
as the question of price control is concerned, the
span of control has been gradually reduced since 1979.
Presently, under DPCO, 1995 there are 74 bulk drugs
and their formulations under price control covering
approximately 40% of the total market. The functioning
of the Drugs (Price Control) Order, 1995, has brought
to light some problems in the administration of the
price control mechanism for drugs and pharmaceuticals.
In order to review the current drug price control
mechanism, with the objective, inter-alia, of reducing
the rigours of price control, where they have become
counter-productive, a committee, called the Drugs
Price Control Review Committee (DPCRC), under the
Chairmanship of Secretary, Department of Chemicals
& Petrochemicals was set up in 1999, which has
given its report. The recommendations of DPCRC have
been examined and taken into account while formulating
the "Pharmaceutical Policy - 2002".
11. It has
emerged that the domestic drugs and pharmaceuticals
industry needs reorientation in order to meet the
challenges and harness opportunities arising out of
the liberalisation of the economy and the impending
advent of the product patent regime. It has been decided
that the span of price control over drugs and pharmaceuticals
would be reduced substantially. However, keeping in
view the interest of the weaker sections of the society,
it is proposed that the Government will retain the
power to intervene comprehensively in cases where
prices behave abnormally.
12. In view
of the steps already taken and in the light of the
approach indicated in the foregoing paragraphs, the
decisions of the Government are detailed below :-
Industrial
licensing for all bulk drugs cleared by Drug Controller
General (India), all their intermediates and formulations
will be abolished, subject to stipulations laid down
from time to time in the Industrial Policy, except
in the cases of
Bulk drugs
produced by the use of recombinant DNA technology,
Bulk drugs
requiring in-vivo use of nucleic acids as the active
principles, and
Foreign investment
upto 100% will be permitted, subject to stipulations
laid down from time to time in the Industrial Policy,
through the automatic route in the case of all bulk
drugs cleared by Drug Controller General (India),
all their intermediates and formulations, except those,
referred to in para 12.I above, kept under industrial
licensing.
Automatic
approval for Foreign Technology Agreements will be
available in the case of all bulk drugs cleared by
Drug Controller General (India), all their intermediates
and formulations, except those, referred to in para
12.I above, kept under industrial licensing for which
a special procedure prescribed by the Government would
be followed.
Imports of
drugs and pharmaceuticals will be as per EXIM policy
in force. A centralized system of registration will
be introduced under the Drugs and Cosmetics Act and
Rules made thereunder. Ministry of Health and Family
Welfare will enforce strict regulatory processes for
import of bulk drugs and formulations.
In principle
approval to the establishment of the Pharmaceutical
Research and Development Support Fund (PRDSF) under
the administrative control of the Department of
Science and Technology, which will also constitute
a Drug Development Promotion Board (DDPB) on the
lines of the Technology Development Board to administer
the utilization of the PRDSF.
With a
view to encouraging generation of intellectual property
and facilitating indigenous endeavours in pharma
R&D, appropriate fiscal incentives would be
provided.
The guiding
principle for identification of specific bulk drugs
for price regulation should continue, as per DPCRC's
recommendation, to be: (a) mass consumption nature
of the drug and (b) absence of sufficient competition
in such drugs. However, the DPCRC's recommendation
regarding the new criteria for ascertaining the mass
consumption nature of a bulk drug on the basis of
the top selling brand is not acceptable as it gives
rise to anomalies.
In this context,
it may be noted that there is no tailor made data available
for the purpose of ascertaining the mass consumption
nature and absence of sufficient competition with reference
to a particular bulk drug. There is only one source
namely, "Retail Store Audit for Pharmaceutical Market
in India" published by ORG-MARG, which lists out all
major brands and their sale estimates on All India basis.
This publication contains data for single ingredient
as well as multi-ingredient formulations. However, it
does not give complete description of all the ingredients
of the pharmaceutical product listed therein.
Hence, there
is need to obtain information in regard to composition
of each brand, dosage form wise and pack wise, from
various other publications / sources, viz.,
(a) Indian Pharmaceutical
Guide (IPG)
(b) Current Index of Medical Specialities
(CIMS),
(c) Monthly Index of Medical Specialities
(MIMS),
(d) Drug Today
(e) Information provided by some
manufacturers
(f) Label composition as indicated on market samples.
Though none
of these sources can be said to be exhaustive and comprehensive
in regard to market information, yet under the given
circumstances, these are the best available. It has
also been noted that the sale value of any combination
formulation is not directly relatable to a single particular
bulk drug forming part of the combination formulation.
Combination formulations involve too many variables,
viz., strength of a particular bulk drug and its proportion
with respect to other bulk drugs used in the combination
formulation, price difference between bulk drugs used
in combination formulation, pack sizes, dosage forms
etc. In view of these facts, ORG-MARG sales data for
combination formulations does not yield information
in regard to mass consumption nature and absence of
sufficient competition with reference to a particular
bulk drug. Also, it is to be borne in mind that processing
of such data, which requires cross-checking with other
publications and sources of information in regard to
composition of each brand, dosage form-wise and pack-wise
may involve instances of omission / commission.
In view of above, it would be
logical to conclude that although ORG-MARG sale estimates
available in regard to all single-ingredient formulations
of a particular bulk drug would not yield the sale value
of that bulk drug in the form of all its formulations,
yet it would adequately reflect the mass consumption
nature of that bulk drug in the form of single ingredient
formulations, which may be used as a practical indicator
for formulating the policy. The
Department through NPPA,
with the help of NIPER
has developed the desired database for single ingredient
formulations from the retail store audit data as published
by ORG-MARG. On this basis, the Department proposes
to undertake the exercise of identifying the bulk drugs
of mass consumption nature and having absence of sufficient
competition according to the following methodology:
-
The
279 items appearing in the alphabetical list of Essential
Drugs in the National Essential Drug List (1996) of
the Ministry of Health and Family Welfare and the
173 items, which are considered important by that
Ministry from the point of view of their use in various
Health Programmes, in emergency care etc., with the
exclusion., as in the past, therefrom of sera &
vaccines, blood products, combinations etc. should
form the total basket out of which selection of bulk
drugs be made for price regulation.
The ORG-MARG
data of March 2001 would form the basis for determining
the span of price control as suggested by DPCRC.
The Moving
Annual Total (MAT) value for any formulator in respect
of any bulk drug will be arrived at by adding the
MAT values of all his single-ingredient formulations
of that bulk drug, its salts, esters, stereo-isomers
and derivatives, covering all the strengths, dosage
forms and pack sizes listed against that formulator
in all groups / categories of the ORG-MARG (March
2001).
The MAT value
for all the formulators, as defined in sub-para (iii)
above, in respect of a particular bulk drug will be
added to arrive at the total MAT value in the retail
trade.
The MAT
value for an individual formulator, in respect of
any bulk drug, as arrived at in sub-para (iii) above,
will be the basis for calculating the percentage share
of that formulator in the total MAT value arrived
at as in sub-para (iv) above, in respect of that bulk
drug.
Bulk Drugs
will be kept under price regulation if:-
The total
MAT value, arrived at as in sub-para (iv) above,
in respect of any particular bulk drug is more
than Rs.2500 lakhs (Rs.25 Crore) and the percentage
share, as defined in sub-para (v) above, of any
of the formulators is 50% or more.
The total
MAT value, arrived at as in sub-para (iv) above,
in respect of any particular bulk drug is less than
Rs.2500 lakhs (Rs.25 Crore) but more than Rs.1000
lakhs (Rs.10 Crore) and the percentage share, as
defined in sub-para (v) above, of any of the formulators
is 90% or more.
All
formulations containing a bulk drug as identified
above, either individually or in combination with
other bulk drugs, including those not identified
for price control as bulk drug, will be under price
control. The Government shall, however, retain the
following over-riding power:
In cases of
drugs/formulations listed by the Ministry of Health
and Family Welfare, mentioned in sub-para (i) above,
and those presently under price control, having significant
MAT value as per ORG-MARG but not covered under the
criteria in sub-para (vi) above, as a result of this
proposal, the NPPA
would specially monitor intensively their price movement
and consumption pattern. If any unusual movement of
prices is observed or brought to the notice of the
NPPA,
the Authority would work out the price in accordance
with the relevant provisions of the price control
order.
(b)
Maximum allowable post-manufacturing expenses (MAPE)
Maximum Allowable
Post-manufacturing Expenses (MAPE) will be 100% for
indigenously manufactured formulations.
(c)
Margin for imported formulations
For imported
formulations, the margin to cover selling and distribution
expenses including interest and importer's profit shall
not exceed fifty percent of the landed cost.
(d) Pricing of
Formulations
For Scheduled
formulations, prices shall be determined as per
the present practice. The time frame for granting
price approvals will be two months from the date
of the receipt of the complete prescribed information.
The present
stipulation that a manufacturer, distributor or
wholesaler shall sell a formulation to a retailer,
unless otherwise permitted under the provisions
of Drugs (Prices Control) Order or any other order
made thereunder, 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 percent thereof in case of Scheduled drugs,
will continue.
The present
provision of limiting profitability of pharmaceutical
companies, as per the Third Schedule of the present
Drugs (Prices Control) Order, 1995, would be done
away with. However, if necessary so to do in public
interest, price of any formulation including a non-Scheduled
formulation would be fixed or revised by the Government.
(e)
Ceiling prices
Ceiling prices
may be fixed for any formulation, from time to time,
and it would be obligatory for all, including small
scale units or those marketing under generic name,
to follow the price so fixed.
(f)
Exemptions
A manufacturer
producing a new drug patented under the Indian Patent
Act, 1970, and not produced elsewhere, if developed
through indigenous R&D, would be eligible for
exemption from price control in respect of that drug
for a period of 15 years from the date of the commencement
of its commercial production in the country.
A manufacturer
producing a drug in the country by a process developed
through indigenous R&D and patented under the
Indian Patent Act, 1970, would be eligible for exemption
from price control in respect of that drug till the
expiry of the patent from the date of the commencement
of its commercial production in the country by the
new patented process.
A formulation
involving a new delivery system developed through
indigenous R&D and patented under the Indian Patent
Act, 1970, for process patent for formulation involving
new delivery system would be eligible for exemption
from price control in favour of the patent holder
formulator from the date of the commencement of its
commercial production in the country till the expiry
of the patent.
The DPCRC has suggested that the low cost drugs measured
in terms of "cost per day per medicine" may be taken
out of price control. Any formulator can represent
to NPPA
with proof of per day cost to consumer-patient. NPPA
will be authorised to exempt such formulation from
price control if its cost to consumer-patient does
not exceed Rs. 2/- per day, under intimation to the
Government. All orders passed by the NPPA
will be prospective in operation. Whenever the concerned
formulator wishes to revise the price, he, before
effecting any change in price, would be bound to inform
NPPA
and seek fresh exemption and in case the cost to consumer-patient,
on the basis of the proposed revised price, exceeds
beyond the limit of Rs. 2/- per day, obtain the necessary
price approval.
(g)
Pricing of scheduled bulk drugs
For a Scheduled
bulk drug, 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. The time frame for granting price approvals
will be 4 months from the date of the receipt of
the complete prescribed information.
The Government
shall, however, retain the overriding power of fixing
the maximum sale price of any bulk drug, in public
interest.
(h)
Monitoring
The DPCRC's
recommendations to have effective monitoring and
enforcement system and to move away from the "controlled
regime" to a "monitoring regime" is in the present
context an extremely important recommendation as
imports will increasingly compete with local drugs
and pharmaceuticals in the domestic market. A new
system based on solely market prices data is required
to be evolved and controls applied selectively only
to cases where, either profiteering or monopoly
profit seeking is noticed. The National Pharmaceutical
Pricing Authority, set up in August, 1997, would
need to be revamped and reoriented for this purpose.
It will continue to be entrusted with the task of
price fixation / price revision and other related
matters, and would be empowered to take final decisions.It
would also monitor the prices of decontrolled drugs
and formulations and over-see the implementation
of the drug prices control orders. The Government
would have the power of review of the price fixation/and
price revision orders/notifications of NPPA.
Although
the prices of some bulk drugs have been steadily
decreasing, yet the same do not get reflected in
the retail price of non-Scheduled formulations.
Also, there is need to check high margin/commission
offered to the trade by printing high prices on
the labels of medicines to the detriment of the
consumers. It is,therefore, proposed to strengthen
the National Pharmaceutical Pricing Authority by
providing appropriate powers under the DPCO which
would make it mandatory for the manufacturer to
furnish all information as called for by NPPA
and also to regulate such prices, wherever, required.
The other
recommendations of DPCRC like giving powers to drug
control authorities to dispose of small and petty
offences etc., will require an amendment to the
Essential Commodities Act. This suggestion is considered
not practicable. Monitoring price movement of drugs
sold in the country as well as that of imported
formulations will require developing appropriate
mechanism in the NPPA.
(i)
Drug price equalization account (DPEA)
Provision
would be made in the new Drugs (Prices Control) Order
(DPCO) to ensure that amounts which have already accrued
to the DPEA and those which are likely to accrue as
a result of action in the past, are protected and
used for the purpose stipulated in the existing DPCO.
progressively
benchmark the regulatory standards against the international
standards for manufacturing,
progressively
harmonize standards for clinical testing with international
practices,
streamline the procedures and
steps for quick evaluation and clearance of new
drug applications, developed in India through indigenous
R&D, and
set up a world class Central
Drug Standard Control Organisation (CDSCO) by
modernizing, restructuring and reforming the existing
system and establish an effective net work of drugs
standards enforcement administrations in the States
with the CDSCO
as a nodal center, to ensure high standards of quality,
safety and efficacy of drugs and pharmaceuticals.
The National
Institute of Pharmaceutical Education and Research
(NIPER) has been set up by the Government of India
as an institute of "national importance" to achieve
excellence in pharmaceutical sciences and technologies,
education and training. Through this institute, Government's
endeavor will be to upgrade the standards of pharmacy
education and R&D. Besides tackling problems of
human resources development for academia and the indigenous
pharmaceutical industry, the institute will make efforts
to maximize collaborative research with the industry
and other technical institutes in the area of drug
discovery and pharma technology development.
