Anti-Cancer Drugs: Caps on Trade Margins will still leave most patients poorer

AIDAN’s Statement on Government’s move to cap trade margins of 42 anti-cancer drugs

30 March, 2019 (data has updated after 15 May 2019)

All India Drug Action Network (AIDAN) appreciates the Government’s recent decision to curb profiteering in the pharma trade channel by capping trade margins on brands of 42 anti-cancer medicines. However, AIDAN is concerned that most anti-cancer medicines still very much remain unaffordable to most Indians because there is no curb on profiteering by pharma manufacturers.

  1. PROCESS LEADING UP TO EXERCISE OF TRADE MARGIN CAPPING/ ‘RATIONALISATION’
  • We note that the decision on trade margins was made in the absence of consultation to solicit the views of stakeholders, particularly patients who would be affected.
  • The formula itself was developed by the Standing Committee for Affordable Medicines and Health Products (SCAMHP), chaired by Niti Aayog, which is not equipped with the technical expertise housed at the NPPA nor the data for analyzing and designing a methodology to cap margins. It was unfortunately accepted by the NPPA without further due diligence.
  1. ARBITRARY SELECTION OF 42 ANTI-CANCER DRUGS FOR PURPOSE OF LOWERING PRICES
  • The selection of 42 drugs by the MOHFW was not based on consultations with stakeholders including patient groups. While we welcome the intervention to reduce prices for these 42 drugs, there are many equally high-priced anti-cancer drugs whose prices remain unaffordable and need to be curtailed.
  • For example, a strip of 5 mg tablets of Axitinib, used to treat kidney cancer, costs Rs. 41,737. A 50 ml bottle of Cetuximab, used to treat head, colon, rectum and neck cancer costs Rs. 94, A 45 mg vial of Ixabepilone, which is used to treat advanced breast cancer, costs approximately Rs. 72,000. A box of containing 150 capsules of Ceritinib, a targeted therapy for non-small cell lung cancer, cost Rs. 1,19,700.
  • High prices of several drugs in the cancer segment may be linked to patent barriers and monopolies. In these cases, we do not recommend the exclusive use of trade margin capping to bring down prices but rather the application of various policy tools to increase competition and bring about true affordability (see section on patented medicines).
  • A few medicines picked for this exercise such as paclitaxel, doxorubicin and bortezomib were already part of the NLEM 2015 due to which certain strengths and forms are under direct price control. It is a testiment to the inadequate scope of the DPCO that these medicines were included in the list of 42 cancer medicines, in spite of being essential medicines.
  1. FLAWS OF THE FORMULA
  • Under the formula, the 30% margin on the Retail Price is actually equivalent to a 42.8% markup from the Price to Stockist (PTS). This methodology is a radical departure from the existing practices of providing margins in the DPCO, which is to the detriment of consumers who would not get the full intended benefit of the 30% cap. A 42.8% markup provides excessively high margins to the trade. Moreover, the profit margins of manufacturers of these medicines continue to be uncontrolled and opaque.
  • The formula does not disturb the margins of companies before the medicines reach the stockist. This is a particularly glaring exclusion when it comes to the high margins of companies/entities importing drugs into India. It is encouraging that NPPA has asked companies to submit data on landed costs and we hope post the data collection, the data would be shared in the public domain and margin capping would be brought to subsume importing entities as well. Capping of margins should begin from the ex-factory price or the landed cost, whichever is applicable.
  • Even after the current exercise, there are wide variations in the prices of different brands of the same medicine (see Table 6). This needs to be corrected. We are wary of trade margin capping being expanded in isolation of other price lowering measures as it is inadequate in addressing market distortions. Uniform ceiling price caps for life saving medicines are much more effective.
  • Given the wide variation of prices and the extremely high prices of some medicines, graded margin capping should have been implemented. For the higher priced medicines, the percentage margin caps should have been accordingly reduced so as to limit the quantum of the margins in absolute terms. This has been ignored by applying a blanket margin cap of 30% of the retail price (or 42.8% markup over price to stockist).
  1. IMPACT OF TRADE MARGIN CAPPING IN ANTI-CANCER DRUGS
  • No data has been made available for five of the 42 anti-cancer drugs, namely, dasatinib, olaparib, olaratumab, osimertinib and ribociclib. Therefore, we are unable to assess the impact on prices for these drugs.
  • There is ample evidence that trade margins in trade were excessive prior to the regulation. Analysis of the data published by NPPA shows that theoretical markups in the trade channel were as high as 1500%. In fact for 388 out of 526 brands, the trade markups would have been greater than 100%.
  • NPPA’s attempts at price capping of trade margins of anticancer drugs is a welcome attempt. But we find that the prices are still high after capping.
Table 1: Overview of Percentage Price Reduction per unit
Percentage Price Reduction No. of brands As a percentage of total no. of brands
0 to <25% 127 24%
25% to <50% 169 32%
50% to <75% 167 32%
75% and above 63 12%
Total 526  

Source: AIDAN, recalculated from NPPA data, May 2019

Table 2: Overall Reduction per unit
Price Reduction No. of brands As a percentage of total no. of brands
Upto Rs 500 195 37%
Rs 500 to <1000 29 6%
Rs 1000 to <5000 159 30%
Rs 5000 to <10,000 82 16%
Rs 10,000 and above 57 11%
Total 522*  
Source: AIDAN, recalculated from NPPA data, May 2019
*Units not available for four brands
Table 3: Retail Prices per unit of brands of anti-cancer drugs before and after Trade Margin Capping
Retail Price Before After
Upto Rs 500 107 159
Rs 500 to < Rs 1000 70 60
Rs 1000 to < Rs 5000 98 175
Rs 5000 to < Rs 10,000 90 53
Rs 10,000 to < Rs 25,000 121 53
Rs 25,000 to < Rs 50,000 28 20
above Rs 50,000 8 2
Total 522* 522

Source: AIDAN, recalculated from NPPA data, May 2019
*Units not available for four brands

  • After this cap on the trade margin, single units of many drugs still cost patients anything from Rs 2000 to Rs 20,000 to Rs 43,000. When accounting for courses of treatment and the financial impact over a month or a year, the amounts are prohibitive and unaffordable for not only BPL but even middle-class patients.
  • Companies have traditionally kept MRPs artificially inflated even though huge discounts were being offered to patients. The price reductions, which in some cases are impressive, through trade margin capping is also an outcome of a specific abberation in the promotion of cancer drugs – one of hefty discounts and invisible offers (e.g., buy 2, get one free). The NPPA appears to have been able to account for these discounts based on the format in which data was collected from companies.
  • However, this is not an easily replicable model as the results are not guaranteed in other segments of health products where such marketing and promotion practices do not apply.
  1. INADEQUATE IMPACT ON PATENTED MEDICINES
  • In the case of patented medicines such as sunitinib, nilotinib, crizotinib etc., the exercise has led to negligible price reductions, in contradiction with the stated objective of increasing affordability. In fact the trade margin rationalisation legitimizes the high prices claimed by manufacturers.
  • We believe that the Government should take definitively steps to implement the public health safeguards provided in the Patents Act such as compulsory licensing and government use, to generate competition in the market to achieve the lowest possible price.
  • The recent statements by Vinod Paul, Member (Health) of Niti Aayog and chairman of the Standing Committee for Affordable Medicines and Health Products that, “The prices of patented drugs cannot be curbed and should not be curbed … In principle, it is a discovery and we should respect the innovation”[1] cast doubts about the commitment of the Government with regard to creating affordability of patented medicines. They go against the laws of the land and are an attempt to unduly influence the actions of the other Government agencies such as the Patent Office, the Department for Promotion of Industry and Internal Trade and the Ministry of Health and Family Welfare.
  1. ESCAPE HATCH CREATED DUE TO JANUARY 3, 2019 AMENDMENTS TO DPCO
  • A massive escape hatch has been created by amendments to Para 32 of the DPCO whereby any of the anti-cancer drugs can apply for an exemption from the DPCO on the basis of patents, even frivolous ones. The government appears to be in denial that para 32 supersedes public interest safeguards such as incorporates in para 19 and and provides a blanket exemption from the provisions of the DPCO.
  1. POSITIVE MOVE TO CHECK UNETHICAL MARGINS OF HOSPITALS
  • In respect of regulation of hospital margins, we welcome the move as a means to curtail the unbridled and unethical profiteering that hospitals are indulging in by taking massive margins. However, a 42.8% markup that hospitals will now enjoy is much too generous and must be brought down[2].
  1. NEED TO SAFEGUARD PRICE CONTROLS
  • The DPCO 2013 currently covers less than 10% by value of the Indian pharma market. It is a flawed instrument as it calculates price caps on a market-based simple average price methodology instead of a cost-plus method.
  • Curbing of trade-margins is being described and promoted as a new form of price regulation of medicines. AIDAN is opposed to using trade-margin capping as a substitute for price control over of all medicines, particularly for all essential and life saving medicines.

In summary, the current approach to price regulation through reduction of trade margins does not go far enough to offer an effective solution to high prices of anti-cancer medicines. It legitimises, in effect, the high prices of the brands of the 42 anti-cancer drugs and would not adequately reduce the financial burden of needy patients. AIDAN calls upon the NPPA to not limit itself to trade margin caps but to move ahead with cost-based price control over all essential and lifesaving medicines and their combinations. 

[1] https://theprint.in/india/governance/modi-govt-slashed-prices-of-cancer-drugs-just-not-for-the-costly-ones/205115/

[2] NPPA’s previous analysis shows that huge commissions are taken by hospitals across the entire range of medicines, consumables and medical devices. It has commonly been observed that medicines and consumables combined account for about a third to half of the total bill for hospitalization. Profit maximizing model of healthcare delivery in private hospitals can lead to irrational and inappropriate treatments and poor outcomes for patients.

 

For further information contact S. Srinivasan, chinusrinivasan.x[at]gmail[dot]com, Malini Aisola, malini.aisola[at]gmail[dot]com. Additional tables providing further analysis of the price reductions in anti-cancer medicines can be provided upon request.

 

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