DPCO-2013 amendment will boost growth of API industry

The expected outcomes of PLI scheme include drug security through self-sufficiency in manufacturing of 53 critical bulk drugs

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Last Updated on October 17, 2020 by The Health Master

The amendment needs to be brought in Drug Price Control Order, 2013 (DPCO-2013) to boost production of active pharmaceutical ingredients (APIs) in the country again, according to the Export-Import Bank of India (India Exim Bank) report.

As long as pharma margins keep getting pushed down by price-capping, drug-makers will keep looking for cheaper imports of APIs, stated the report titled “Domestic policy constraints for exports in select sectors including pharmaceuticals”.

It was prepared by a team comprising Dr Harsha Vardhana Singh, former deputy director general, World Trade Organization; Rajeev Kher, distinguished fellow, RIS; Dr Jayant Dasgupta, former ambassador of India to the WTO; Dr. Veena Jha, former head of UNCTAD India; and TS Vishwanath, principal adviser with APJ-SLG Law Offices.

Pharma price-capping flies in the face of reason-the latest Economic Survey points out that the prices of drugs that came under DPCO 2013 increased, on an average, by Rs 71 per mg of the API versus Rs 13 per API-mg for drugs that remained outside the order, making it clear that price controls don’t really help.

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So, while the API-package is indeed a timely intervention, the government still must swallow the bitter pill of shrinking the ambit of the DPCO and the National List of Essential Medicines, said Rajiv Kher, a distinguished fellow with RIS, a leading think tank of the ministry of external affairs who was part of a team roped in by India Exim Bank to prepare the report.

The expected outcomes of Production-Linked Incentive (PLI) scheme include drug security through self-sufficiency in manufacturing of 53 critical bulk drugs, the assured availability of various essential drugs listed under NLEM at affordable prices and a cumulative reduction in imports by around Rs.46,400 crore in the next eight years, stated Kher.

Moreover, at the end of five years, import substitution of specified drugs per annum will be Rs. 8,500 crore, against current imports of Rs. 19,000 crore. The schemes will also create 7,000 direct and 14,000 indirect jobs, he added.

According to a notification issued by the department of pharmaceuticals, the PLI scheme for promotion of domestic manufacturing of critical key starting materials (KSMs)/ DIs and APIs, is designed to accord benefits to the tune of Rs. 6,940 crore to greenfield projects.

Financial incentive will be given to eligible manufacturers of 53 critical bulk drugs, KSMs/ APIs & drug intermediaries on incremental sales for a period of 6 years. Out of identified 53 critical bulk drugs, 26 are fermentation-based and 27 are chemical-based. Fermentation-based bulk drugs will get a 20% incentive for the first 4 years, 15% for the 5th year & 5% for the 6th year. Chemical synthesis-based bulk drugs will get a 10% incentive for a 6-year period.

Given that the scheme looks at a base year of FY20 for incentives on the basis of incremental sales, it would likely attract big pharma players. However, the government must rationalize its overzealous price-capping policy; the scope of the DPCO has been increasing over time, despite India having one of the cheapest drug prices in the world. This has forced drug makers to cut costs and favour cheap Chinese API over locally made ones.

Interestingly, the government’s 2017 draft pharmaceutical policy seemed to acknowledge this when it said, “the Drug Price (Display & Control) Order 1966 put 18 APIs (raw materials) under price control (and) from 1996 imported APIs and intermediates started becoming hugely lucrative as a price cap on drugs forced the manufacturers to obtain the cheapest raw material with the basic minimum efficacy/ quality,” the report pointed out.

The draft policy never spoke of the drugs themselves but, over time, suppliers prefer to produce more of the drugs that are not under price control. Yet, after discussing the adverse impact of price controls on the API industry, the draft policy batted for them. It is this thinking that the government will have to give up if it wants API production in the country to take off again, it added.

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