The Government of India recently notified the Drug Price Control Order (DPCO) 2013. It will replace the DPCO 1995.
The new DPCO has come into being after being discussed for almost a decade.
The main features of the DPCO 2013
- The new order will bring 652 drugs under price control. At present, only 74 bulk drugs and their formulations are currently under price control.
- It will also enable the National Pharmaceutical Pricing Policy 2012 to regulate prices of 348 drugs covered under the National List of Essential Medicines (NLEM) 2011.
- The new policy differs from the existing DPCO 1995 in that it is based on the simple average price (SAP) for all brands with a market share above 1 per cent in their segment.
- The new policy also uses a market-based pricing mechanism against the earlier proposed cost-plus method.
- At the core of the new regime lies the ceiling price. This would be calculated by taking the simple average of prices of all brands of a drug with a market share of 1% or more. The maximum retail price of a drug would factor in a margin of 16% to the chemist. The prices prevailing in May 2012 will be taken as the reference point for calculating the caps.
- Companies selling medicines above the government-mandated ceiling rates would have to slash prices to conform to the new rules, but those selling drugs below the ceiling price wouldn’t be allowed to raise prices. This will ensure a fall in the prices of most essential drugs, and price increases in none.
- Firms that launch new medicines can sell them at or below government-set price caps.
- Existing firms will not be allowed to stop production of any drug without permission from the government.
- Drug producers will be permitted an annual increase in the retail price in sync with the wholesale price index.
There is no doubt that the Indian consumer will be the biggest beneficiary under the new Drug Pricing Control Order 2013 (DPCO 2013). The prices of some brands may fall by up to 70 per cent.
It is estimated that the policy will cover two-thirds of the Rs. 60,000 crore domestic industry. The impact over the industry can be analysed on short and long term basis.
The larger companies with established brands may be able to sustain better but there could be some loss of market share. In the short-term, industry profitability could decline. However, despite the initial hit on profitability, volume growth over the next few years will help companies recover.
In the long-term, the policy proposes to reduce the bandwidth of prices of the same molecule and this will have an impact on manufacturers in the mid and lower segments.