The government is considering a proposal to cap the price of all medicines that are out of price control at the time of launch. The allegation against pharmaceutical companies is that they launch new products at very high prices, which in government parlance is referred to as gold-plating. The proposal envisages that for such medicines prices would be allowed to be raised by up to 10 per cent per annum. If the proposal is accepted, the government will have to ascertain the cost of production of each medicine and then prescribe a "reasonable" profit margin. In the absence of well-defined guidelines on what constitutes a reasonable margin, this opens the doors for arbitrariness. At a time arbitrariness needs to be minimised in decision making, this is a step in the wrong direction. It will only make India a difficult country to do business in for pharmaceutical companies, domestic as well as international.
India is the world's most fragmented pharmaceutical market. A share of five to six per cent is enough to become the market leader. That's because there are thousands and thousands of pharmaceutical companies in the country. This is a legacy of the pre-2005 patent regime when companies were free to make any medicine, so long as they didn't infringe upon a process patent. As a result, for every generic medicine there are hundreds of brands in the market. Prices of these medicines are, therefore, very competitive - amongst the lowest in the world. Patented medicine is a different matter. (India moved to a regime of product patents after 2005.) Companies price them higher because the cost of developing a molecule is high - it can cost in excess of a billion dollars. Also, the pipeline of new drugs is drying up. So, companies feel the need to extract more and more profits from medicine before the patents run out. Some companies seek to evergreen their patents on frivolous grounds.
There are enough remedies for any malpractice over patents and prices. The government can grant a compulsory licence to a generic company if some life-saving medicine is exorbitantly priced. It has already done that in the case of Bayer's anti-cancer drug, Nexavar, by authorising Natco Pharma to make an inexpensive version, and is contemplating handing out compulsory licences for three more high-priced anti-cancer drugs. Evergreening of patents can be challenged in the courts. In this scenario, to cap the price of all new medicines is not really required. It only shows the government's desire to exercise more and more control over the industry.
Concurrent with this is the proposal to expand the ambit of price control from 74 bulk drugs to 348 formulations. At the moment, 18 per cent of the Indian pharmaceutical market, estimated at ~67,000 crore per annum, comes under price control; the new regime will push it up to 30 per cent. Price controls are required when companies are making super-normal profits. There is enough research to show that the profits of pharmaceutical companies in India are not higher than those in other countries, or higher than companies in other sectors of industry. But the government seems to be in no mood to listen.