The health ministry may oppose the market-based price fixing model suggested in the draft National Pharmaceutical Pricing Policy (NPPP).

The ministry is of the opinion that a market-based pricing strategy, which in a broad sense takes the average of the prices of top three brands as the ceiling price, will not result in any real price control.

In a separate move, the ministry has also written to the Planning Commission to consider shifting the medicine price regulator — the National Pharmaceutical Pricing Authority (NPPA) — from under the administrative purview of the ministry of chemicals and fertilisers to the health ministry. The suggestion, which forms part of the ministry’s XII Plan recommendations, is meant to turn the NPPA function from a health or patient perspective rather than an industry friendly one.

The NPPA, which fixes the prices of medicines notified as scheduled drugs under the Drugs Price Control Order, is now part of the Department of Pharmaceuticals, a bureaucratic arm set up for the development of the pharmaceutical sector. Health ministry officials said they are in the process of formalising their opinion on the draft pharma pricing policy before conveying it to the Department of Pharmaceuticals.

The policy was criticised severely by public health groups, who said the proposal to end the cost-based price control mechanism could result in high medicine prices. The industry had welcomed this shift by saying that it would bring in more transparency in fixing drug prices.

The pharma pricing policy was prepared after the Supreme Court wanted the Central Government to frame a drug policy that will bring all essential medicines under price control. While the drug policy has only 18 per cent of the Rs 62,000-crore drug market under price control, the proposed one will cover over 60 per cent of the domestic drug market. The new policy will see all medicines on the National List of Essential Medicines (NLEM)-2011 under price control.

According to industry estimates, the NPPP will result in a dip of up to Rs 3,000 crore in the industry’s net profits. A senior health ministry official said the ministry, which finalizes the list of essential medicines, may also add some more drugs to the recently updated list to accommodate some high priced life-saving drugs.

The health ministry is also proposing to provide all NLEM medicines free through public health institutions. The pricing policy will be final only after a Cabinet approval. The department of pharmaceuticals has not given any timeline for finalising the policy.

The Reserve Bank on Friday notified new rules doing away with automatic approval for foreign direct investment (FDI) in existing pharmaceutical companies. Tightening the norms, the government had last month done away with automatic approval of FDI in the existing pharmaceutical companies.

"FDI, up to 100 per cent, would be permitted for brownfield investment (i.e. investments in existing companies), in the pharmaceutical sector, under the Government approval route," RBI said in a notification. Under the new rules, for any merger or acquisition, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB). After six months, it will be the monopoly watchdog Competition Commission of India (CCI) which will vet such deals.

The decision follows directions from Prime Minister Manmohan Singh, who along with his senior Cabinet colleagues had deliberated on October 10 over concerns arising out of several acquisitions of domestic pharmaceutical companies by overseas firms.

For the new investment, 100 per cent FDI will be allowed under the automatic route, under which investors only inform the Reserve Bank about the inflows and no specific government nod is required. "FDI, up to 100 per cent, under the automatic route, would continue to be permitted for green field investments in the pharmaceuticals sector," RBI said.

The filter was suggested by a high-level committee, headed by Planning Commission Member Arun Maira. Concerns have been raised over the impact of a spate of acquisitions of homegrown firms by multi-national companies.

The recent acquisitions include Ranbaxy Laboratories buy out by Daiichi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France and Piramal Health Care by Abbott Laboratories of the US. The affordability factor has so far been the hallmark of the Indian generic drugs all over the world, thanks to robust growth of the homegrown players.

The pharmaceutical companies may suffer sales loss of Rs 3,000 crore if the government's span of control increases, as proposed in the new pricing policy for the medicines, a section of the industry said.

In its memorandum to the Department of Pharmaceuticals, Indian Pharmaceutical Alliance (IPA) said the draft National Pharmaceuticals Pricing Policy (NPPP) 2011, would increase government control over 75 per cent of the drugs sold in the country. "The IPA estimates that domestic price reductions alone will result in aggregate loss of sales of nearly Rs 3,000 crore, to the industry," the IPA said.

It said that NPPP 2011 proposes to add 1,154 drugs and 6,441 formulations. This would amount to raising the span of government control to 75 per cent, against 60 per cent of the retail market, as indicated in the NPPP.

"The proposed additions will enlarge the scope of price regulation by over eight times the current volume to about 68,000 packs making the task unwieldy and ineffective," the IPA said.

Drug price reductions in the country will also have corresponding impact on export realisation as the importers benchmark their purchase price to the domestic market.