Foreign pharma may adopt differential pricing at last

Unnikrishnan of the Mint recently reported that foreign pharma companies are finally ‘mulling’ over whether to adopt differential pricing for their drugs in India.

The foreign drug makers plan to offer these medicines at different tiers of prices for government supply, patient access programmes, hospitals in rural areas and non-profit organizations, said an official with the Organisation of Pharmaceutical Producers of India (OPPI), an industry body that chiefly represents foreign drug firms present in India. The discussions are at an early stage and the strategy may vary for individual companies, he said.

The reasons behind this move are firstly the intense competition that they face from generic manufacturers secondly the recent Roche-Cipla judgment where the Court seems to have been influenced by the huge price differences between Roche’s patented drug and Cipla’s generic drug (Cipla’s drug was one third the price of Roche’s drug) and thirdly to avoid compulsory licensing by the government. Mint reports that companies such as Pfizer are reportedly developing a three tier price model for their anti-cancer drug Stuent.

SpicyIP is happy to hear of this development. Affordable medicines are always good news. But we are also a little skeptical on its implementation. As most of our readers may know MNC adopt the same prices in their Indian markets as in their foreign markets. The reason they do this is to avoid parallel imports into their Western markets. ‘Parallel imports’ refers to the practice of a distributor importing patented, trademarked products meant for one jurisdiction into his home jurisdiction. For e.g. if in case drug companies do indeed mark-down their prices in India then in that case it is very possible that an online pharmacy will start placing orders for these drugs and consequently sell them for a higher price in the Western markets.

Several western countries have legislations preventing parallel imports. (For a more detailed overview on this topic please click here for a detailed albeit dated paper on parallel imports in the pharma industry) But the fact of the matter is that parallel imports still do occur. For e.g. it was reported in 2002 that parallel imports in the U.K. cost the pharma industry a loss of 1 billion pounds a year. The pharma industry is obviously opposed to parallel imports since it erodes their profits.

In my opinion the differential pricing model may run into two problems: One is the problem of parallel imports. The other is the problem of enforcing a differential pricing model within India itself i.e. how exactly do they seek to ensure that drugs meant for the rural market, and hence cheaper, remain in the rural market without being imported into the urban markets. Basically the same problems as parallel imports but this time it is within the country. This is not to say that to implement such a model is impossible but merely challenging. Generics like CIPLA have been reported to have adopted such differential pricing models. Anyway here’s hoping for the best!

Prashant Reddy

T. Prashant Reddy graduated from the National Law School of India University, Bangalore, with a B.A.LLB (Hons.) degree in 2008. He later graduated with a LLM degree (Law, Science & Technology) from the Stanford Law School in 2013. Prashant has worked with law firms in Delhi and in academia in India and Singapore. He is also co-author of the book Create, Copy, Disrupt: India's Intellectual Property Dilemmas (OUP).

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