India's union cabinet has given its nod for the implementation of the National Pharmaceutical Pricing Policy (NPPA). The policy aims to put in place a regulatory framework for pricing of drugs to ensure that they are available at reasonable prices. The Indian government has also stated that it will consider providing sufficient opportunity for innovation and competition to support the growth of the pharma industry.

Under the new policy, a new formula is likely to be used for calculating the ceiling price, which will be a simple average of all brands with one percent market share cut-off, as against the earlier announcement made on September 27, 2012, by a group of ministers (GoM) headed by India's union agriculture minister, Mr Sharad Pawar, with the ceiling-price formula as the Weighted Average Price (WAP) of all brands with one percent market share. This formula was opposed by the finance minister (who favored a cost-based approach) during an earlier cabinet meeting.

In a memorandum to Mr P Chidambaram, India's union finance minister, the Associated Chambers of Commerce and Industry in India (ASSOCHAM) said, "The weighted average price of all brands, having greater than one percent market share formula recommended by the GoM, will result in over 20 percent price reduction in 60 percent of the National List of Essential Medicines (NLEM). The WAP mechanism to control the price of essential medicines will achieve twin objectives of public health and industrial growth."

The chamber further said that the existing cost-based policy reveals its lack of relevance in current market conditions, significant limitations and adverse impact on the industry and patient access. For one, it has shifted bulk drug production out of India to countries like China, escalated prices for select medicines, scaled down the number of industry players, lessened innovation in cost control medicines and limited new introductions, and above all, failed to help medicines reach patients located in rural areas.

The cost-based policy has created an inefficient and inconsistent mechanism of price calculation that is not aligned with India's needs. A drug price control policy must be carefully calibrated to avoid adverse trade-offs in achieving key drug policy objectives for striking a balance between ensuring quality, affordability and reasonably priced to patients and enabling development within the industry. The ASSOCHAM memorandum said, "Given the severe handicaps of cost-based pricing, a market-based pricing policy would best suit India's needs as it would not only improve affordability but also the availability and encourage competition, innovation, and growth and help harness the export potential."
The pharmaceutical industry understands that, the access to essential medicines is a critical component of an effective health system, and it is imperative that good quality and safe medicines remain accessible, available and affordable to beneficiaries.