Price cap: Generic cancer drugs see sharp price cuts, no change for single-source medicines

Why in the News

Capping trade margins on cancer medicines has cut prices sharply where generic makers compete, but has left patented, single-source drugs, made by only one company, exactly where they were. Ten days after the Union government capped margins on 137 cancer medicines, manufacturers announced revised maximum retail prices (MRPs) effective from November 9.

What is trade margin rationalisation?

1. What it is: A trade margin is the gap between a company’s first sale price to a distributor and the MRP a patient pays. Capping it is like fixing the most a shop may add.
2. Why it was used: Large markups on cancer drugs made patients pay far above the first sale price. A cap pulls the MRP down toward that price.
3. The takeaway: A margin cap only trims what sellers add, so it cannot lower a high price the company itself sets.

What happened to prices after the cap?

1. Scale of revision: The revised MRPs cover 543 formulations, meaning the different brands and doses of the 137 selected drugs.
2. Little or no change: Prices stayed unchanged for 146 formulations, and several more fell by less than ₹100.
3. Steep generic cuts: The chemotherapy drug thiotepa saw the biggest cut, of 91%. The breast cancer drug pertuzumab fell by 68%.
4. Within the regulator’s range: The cuts fell within the 20% to 70% range forecast by the National Pharmaceutical Pricing Authority (NPPA), the drug price regulator.

Why did patented drugs not get cheaper?

1. Protected drugs unchanged: Prices of all drugs under patent, licensing or other protection mechanisms stayed the same.
2. Pembrolizumab: The patented lung and breast cancer drug pembrolizumab (Keytruda, by Merck) still costs ₹2.16 lakh per 100 mg vial. Patients cannot afford it even with patient assistance programmes.
3. Ribociclib: Patients approached the Kerala High Court for an affordable price of the patented drug ribociclib (Novartis). A pack of 21 pills still costs ₹24,435.
4. No competition, no cut: Generic makers already compete on price, so a cap squeezes their markups. A single patent holder faces no rival, so its first sale price stays high.
5. Earlier pilot drugs still costly: Most drugs from the government’s 2019 pilot remain on the current list, so that measure did not make them affordable.

How can companies keep prices high within the cap?

1. First point of sale: The cap is measured over the price at the first point of sale, a price the company itself sets.
2. Free goods billing: A company can bill a distributor at an inflated price and make up the difference with free vials. The MRP is set over that bill, so it stays high within the 30% cap.

Challenges

1. Ceilings cover listed drugs only: The Drugs (Prices Control) Order, 2013 (DPCO) fixes a ceiling price, the most any brand may charge, only for drugs in its schedule, so many new cancer drugs fall outside it.
2. Weak recovery of overcharging: Most overcharged sums the NPPA has demanded from drug makers remain unpaid, much of it stuck in court cases.
3. Unused patent flexibilities: India has granted only one compulsory licence, an order letting a generic maker copy a patented drug. Eg. Natco received it in 2012 for Bayer’s sorafenib.

Way Forward

1. Cost-based margin cap: The NPPA should measure the cap over manufacturing or import cost, as experts suggest, not over the company’s first sale price.
2. Patent law for patented drugs: The Union government should use Patents Act, 1970 provisions, such as compulsory licensing, to make single-source cancer drugs affordable.
3. Invoice audits: The NPPA should audit company-to-distributor invoices to catch free goods schemes.

Conclusion

The cancer drug margin cap works where generic competition already exists and fails where one patent holder sets the price. Whether the government moves the cap onto real costs and uses patent law for single-source drugs will decide if cancer treatment becomes affordable.

Key numbers

1. Spread of the revision: 21 formulations fell by less than ₹100, and the average change was just over ₹5,000 per formulation.
2. 2019 pilot: 34 of its 42 drugs remain on the current list.
3. Steepest generic cuts: thiotepa fell from ₹80,071 to ₹7,150 per 100 mg vial, and pertuzumab from ₹94,951 to ₹30,593 per vial.
4. Ribociclib monthly cost: ₹58,000 (2022) to ₹78,000 (2025).

Back2Basics: National Pharmaceutical Pricing Authority (NPPA)

1. What it is: The NPPA is India’s drug price regulator, set up in 1997 under the Department of Pharmaceuticals.
2. Pricing powers: It fixes and revises the prices of scheduled drugs and medical devices under the DPCO.

Matching Previous Year Question

“No direct PYQ traced in the provided files. Thematic PYQ: [2015, GS2, 12 marks] For achieving the desired objectives, it is necessary to ensure that the regulatory institutions remain independent and autonomous. Discuss in the light of the experiences in recent past.”