Experts Warn of Risks From Govt Price Floor on Key Pharma Inputs
It is warned that the price floor set by the government on the necessary inputs for pharmaceuticals can be risky, particularly with respect to the pharma price floor impacting local markets.
“Incorporating price floor into economic theory is facilitated by the separability of production and consumption. However, without separability, it is highly likely.
A minimum import price (MIP) on essential pharmaceutical ingredients is being proposed by the government. This is in response to aggressive pricing and dumping by Chinese companies. While this move is for the protection of local drug manufacturing, the imposition of a pharma price floor could lead to unexpected side effects on the drug ecosystem.
Significant Pharma Inputs Assessed
The proposal is primarily focused on Penicillin-G (Pen-G). Involving amoxicillin and 6-aminopenicillanic acid (6-APA) production is optional. These resources form an integral part of healthcare in hospitals. They are essential for India’s penicillin antibiotic market.
The Importance of Penicillin-G
The parent compound of several antibacterial compounds is Pen-G. The parent compound is processed to yield 6-APA, GCLE, and 7-ADCA. These are utilized in creating high-volume medicines such as cephalosporins, ampicillin, amoxicillin, and common combinations of antibiotics.
An MIP at the Pen-G level would automatically set a cost floor on dozens of price-controlled drugs, which is a concern, especially considering the pharma price floor implications experts say.
Impact of Prices and Accessibility of Medications
“Essential” drugs, which in many cases enjoy slim profit margins, are expected to be more costly following a chain-wide MIP. “While it would be a good gesture on the part of the government to protect domestic infrastructure,” another expert advised, “it must in no way damage MSMEs in the chain of supply. It should not increase costs of lifesaving antibiotics for needy people.”
Low Margins and Previous Price Adjustments
The ceiling prices for penicillin-serologically related antibiotics were raised earlier by the National Pharmaceutical Pricing Authority (NPPA) in 2019 and 2024. This was based on the manufacturers’ claims of non-viable economics. According to experts, it is apparent that without trade barriers, essential anti-infectives are already facing heavy pressure on pricing. This is caused by the pharma price floor policy.
Disruption of Government Contracts
At present, it spends more than ₹1,012.6 crore on amoxicillin and crucial combinations. As reported, companies could face a loss of approximately ₹350 crores. They wonder, will the pharma price floor impact margins if API prices rise to levels recommended in the Suggested MIP?
Such shocks to costs often trigger supplier pullouts, failed tendering exercises, and retendering. These affect access to medicines, based on previous experiences.
Capacity Gaps and Import Dependence
The cost of Pen-G has once again started at $13.5 per kg, and this was so before the COVID-19 pandemic. Over 8,000 tons of Pen-G and 11,250 tons of 6-APA were bought by India just in the previous year alone. However, its production capacity remains limited to just 3,600 tons every year.
Experts say that there has not been any meaningful open market domestic supply of Pen-G or 6-APA in the fiscal year. This situation is exacerbated by the pharma price floor regulation. The demand for the domestically manufactured product has exceeded capacity.
PLI Plan and the Danger of Over-Protection
To promote local manufacturing and reduce dependence on China, the Production Linked Incentives (PLI) scheme was launched in 2020. However, imposing a high MIP on PLI support may result in short-term assistance turning into long-term support. It could push costs on patients and health expenditure. This increase is often driven by the extensive use of a pharma price floor.
They argue that instead of establishing a price floor at a national level, improvements and scaling can handle issues of low capacity utilization and high fixed costs of production.
Finding the Correct Balance
Experts agree that it’s imperative to promote local manufacturing, but this has to be accomplished in a manner that satisfies supply factors such as affordability. They note that a broadly applied pharma price floor concerning required pharmaceutical components poses the risk of solving a problem but creating many more.
