Why API price needs to be part of NPPA’s pricing formula

In December end, a group of doctors from different specialities met media to highlight the safety of ranitidine (See report: https://bit.ly/2Qj2p9f). The anti-ulcer medication has been under the lens of regulators as certain batches were found to have higher than acceptable levels of the carcinogen N-nitrosodimethylamine (NDMA) (See report: https://bit.ly/378BN1j).

A key takeaway from the doctors is that certain drugs are not meant to be taken beyond the time-frame prescribed by their doctors. For example, ranitidine should not be consumed for more than 6-8 weeks. The point is, how can the use of medicines be regulated when most medication in India is available over-the-counter (OTC) with no prescription required?

The larger issue is that manufacturers are not as fully in control of the quality of the input ingredients as they would like to be. Thus even though no regulator has explicitly banned these products, manufacturers are voluntarily recalling certain lots as they prefer to be safe rather than sorry, as they cannot vouch for their API suppliers’ manufacturing procedures. Industry sources also point out that testing procedures prescribed could be too expensive for smaller companies to implement on a continuous basis.

This is yet another fallout of India’s over-dependence on imports for key APIs. A recent paper from PwC, assessing the impact of the rise in APIs’ prices on pricing of formulations in the Indian pharma market, points out that API prices have increased at a CAGR of 10 per cent in the past six years whereas allowed price rise based on current provisions of the price revision formula has grown by a CAGR of just 2.9 per cent. The API accounts for 40-60 per cent of the formulation price, and can go much higher in certain cases based on prevailing API prices.

The PwC paper also notes that the percentage of API (excluding API intermediates) imports from China has spiked from ~1 per cent in 1991 to ~80 per cent in 2018 primarily backed by large scale manufacturing incentives and state-driven subsidies offered in China to promote exports. Many API manufacturers in India have shut shop during this period faced with cheaper APIs from China.

India Pharma Inc has pointed out that as per Department of Pharmaceuticals showed that India is highly dependent on imports for at least 12 essential drugs listed within the 2011 National List of Essential Medicines (NLEM 2011) and ~80-90 per cent of these imports are from China. The essential drugs include paracetamol, metformin, ranitidine, amoxicillin, ciprofloxacin, cefixime, acetyl salicylic acid, ofloxacin, ibuprofen, metronidazole and ampicillin. Many of them continue to be in NLEM 2015 as well. Thus the over-dependence on China and other countries imperils not just the health of the pharma industry in India, but also that of patients.

PwC’s suggestion to break out of this over-dependence is to use API price increase as an input to the current formula. The suggested revision will work both ways i.e. if API prices go up then it will increase the ceiling price over and above allowed WIP. Conversely, if the API prices go down, then the ceiling price will be revised further down. Let us hope that policymakers will consider such suggestions.