Drug price control order (DPCO) 2013 : What’s in store?

Last week on Wednesday, May 15 the department of pharmaceuticals issued the new Drug price control order 2013 (can be accessed here) which will alter price regulation dynamics and substantially increase the number of medicines covered by price cap umbrella. The earlier DPCO order regulated prices of only 74 bulk drugs whereas the current DPCO order will regulate prices of as many as 348 medicines. The DPCO 2013 will come into effect somewhere around July 1st i.e. 45 days from the date of issue of the order. Some say that 45 days is a very short time window for companies to comply. 

The DPCO will now allow National Pharmaceutical Pricing Policy NPPP 2012 to regulate the prices of 348 drugs which are covered under essential meds list 2011 thus effectively replacing the earlier DPCO 1995 order. Shan had previously blogged about draft NPPP over here.See here and here to read our previous posts on this. 

Bitter pill ?
Which drugs will come under price control? 
This order doesn’t cover patented drugs. Earlier in March this year the Department of pharmaceuticals (DOP) had issued a draft proposal on price negotiation of patented drugs. Readers may remember that we had posted about this here.
Prices of 652 formulations spanning over 27 therapeutic classes are regulated by DPCO 2013.Prices of some additional anti-cancer drugs including the much talked about Imatinib, Carboplatin, Dacarbazine, Daunorubicn, Chlorambucil, Oxaliplatin and some anti-retroviral cocktails like Zidovudine-Lamivudine-Nevirapine and Stavudine- Lamivudine will now be regulated by the current order. 
New pricing methodology 
Previous DPCO order regulated drug prices based on the manufacturing costs stated by their manufacturers. In the current order however ceiling prices would be calculated by taking simple average of all the drug brands having a market share of more than 1%.The final MRP of the drug would factor in 16% to the retailer. This shifts the ceiling price calculation from a cost based to a market based method. 
But, critics (read patient groups) argue that the previous price regulation method i.e. manufacturing cost based method is important in cases where companies have a monopoly. 
Some industrialists contend that the ceiling price calculation should have been based on a weighted average of prices instead of the simple average formula as currently proposed as the simple average formula fails to provide a level playing field between different companies. 
The catch here is that all the existing manufacturers selling medicines at a price higher than the ceiling price fixed by thee Govt will have to revise their prices downward and all those manufacturers selling medicines at a price below the ceiling price will have to maintain their existing MRP and wouldn’t be allowed to increase their prices. 
After the DPCO 1995 many manufacturers withdrew from market and production levels of many essential drugs fell below critical levels. 
After some lessons learnt the hard way the Govt has incorporated sufficient provisions in the current DPCO to definitively preempt the possibility of an essential drug going off market. 
The DPCO 2013 states that “Any manufacturer of scheduled formulation, intending to discontinue any scheduled formulation from the market shall issue a public notice and also intimate the Government in Form-IV of schedule-II of this order in this regard at least six month prior to the intended date of discontinuation and the Government may, in public interest, direct the manufacturer of the scheduled formulation to continue with required level of production or import for a period not exceeding one year, from the intended date of such discontinuation within a period of sixty days of receipt of such intimation.” 
Incentivizing Innovation: 5 year relaxation from price control 
The DPCO 2013 strives to incentivize indigenous R&D by allowing new drug/new formulation/new processes developed by domestic research and development and patented to be exempted from price control for a period of 5 years. Well this ought to trigger innovation in pharma industry! 
Relevant excerpts from the order: 
Non–application of the provisions of this order in certain cases:
(i) a manufacturer producing a new drug patented under the Indian Patent Act, 1970 (39 of 1970) (product patent) and not produced elsewhere, if developed through indigenous Research and Development, for a period of five years from the date of commencement of its commercial production in the country. 

(ii) a manufacturer producing a new drug in the country by a new process developed through indigenous Research and Development and patented under the Indian Patent Act, 1970 (39 of 1970) (process patent) for a period of five years from the date of the commencement of its commercial production in the country.

(iii) a manufacturer producing a new drug involving a new delivery system developed through indigenous Research and Development for a period of five years from the date of its market approval in India: Provided that the provision of this paragraph shall apply only when a document showing approval of such new drugs from Drugs Controller General (India) is produced before the Government. 
The manufacturers aren’t amused about the price margin erosion, but it seems like a win-win situation for consumers. Here again the key factor will be effective enforcement of the order. Past record of enforcement paints a sorry picture with blatant disregard and open violations of the DPCO provisions.


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24 thoughts on “Drug price control order (DPCO) 2013 : What’s in store?”

  1. This is by far the best take on this new DPCO order.Nice work! It will be interesting to see how this will be linked to the regulatory approvals of these so called ‘new drugs’.

  2. By including the newly defined “new Drugs” which is different from and broader than the new drugs as per the Drugs and Cosmetics Act, almost each incremental innovation pertaining at least to the dosage and the strengths of product (be it patentable) is exempted from price control only for a period of 5 years from commercialisation!!!!

    This makes the 20 year term of a patent meaningless. What is the need of compulsory licensing provision in the patent act then?? which ensures that the patented medicine is available to public at an affordable price.
    This in fact discourages companies from innovating/developing advanced versions of products containing essential medicines.

    It is equally important that while being concerned about the price control of medicine in India, steps should be taken to ensure that the public receive a product with world class quality ….and therby make sure that the public is not paying the cost of cheaper medicine on a longer term!!!….

    waiting for the “DRUG QUALITY IMPROVEMENT ORDER” as well…


  3. Thank you Anon.

    Thanks for your very insightful comments DAB.

    The definition of new drug is the same as the one in the D&C act. The last para of the DPCO order states “Notwithstanding anything contained in this Order, for the purpose of this paragraph “new drug” shall have the same meaning as is assigned to under rule 122E of the Drugs and Cosmetics Rules, 1945”

    This order doesn’t cover patented drugs. In March this year there was a draft policy for pricing of patented drugs, it has not yet been finalized.

    Also I totally agree with on quality issue especially after the recent Ranbaxy fiasco.

  4. Thanks madhulika…i missed reading the 122E lines….

    However why the para 32 mentions the patented new drugs then??

    My reference for the quality aspect was also the same story


  5. That leads me to a further question that will patented “new drugs” be exempted from the price control beyond 5 years??

    It doest appear so from the para 32…..There is an ambiguity.

    and if the answer to the question above is “NO”….there is no point coming up with a patentable new drug as the monopoly will effectively be only upto a maximum of 5 years from the first commercialisation….

    The only thing which is clear to me about the para 32 is its ambiguity…!!

    If possible please help.


  6. DAB,
    The answer to your first question is NO

    although price control relaxation for patentable new drugs is applicable only for a period of 5 years consider the benefits of a patent monopoly…

    Since the ceiling price is based on a market(simple avg of all brands having more than 1% market share) a patentable new drug/new formulation will have the advantage of a niche product

  7. Respected Ms. Vishwanathan,

    When can we get the ceiling prices of drugs?
    Which site will provide the same?

    Dr. Sagar
    MBBS MD (Pharmacology)

  8. Dr. Sagar,

    The first batch of revised prices is likely to be announced soon.

    But just to give you an idea;Consider two top selling brands: if company X sells a brand at 40Rs and Company Y sells a brand at 80 Rs, the ceiling price will be fixed at 60Rs(simple avg) and company X will have to continue selling at 40Rs, it cannot increase its price and company Y will have to reduce its price to 60Rs(ceiling price)

    But the Confederation of Indian Pharmaceutical Industry(CIPI) has just called for a review of DPCO order because the order may adversely affect many small and medium enterprises.

  9. Dear Madhulika,
    Sorry for such delayed comment.
    I have learnt recently that with regard to the “new Drugs” – Patented/non-patented, the DPCO 2013 will not be applicable retrospectively. So the new drugs approved before the DPCO 2013 will not be covered.
    I agree that in an ideal situation if patented only single/licensed “new drug” product should be available in the market and therefore the price control should not be a concern for the manufacturer. However, in most of the cases identical products or products with slight variations in the new drugs are simultaneously approved by the Drug authorities in India. At times some of them are also subject of infringement suits in different courts. Is there any provision that deal with such allegedly infringing products available in the market for the purpose of deciding the ceiling price??


  10. Thank you for your comment DAB,
    Here’s the thing, unfortunately there is no provision that deals with allegedly infringing products for the purpose of ceiling price calculation.
    If the infringing product manages to become a top selling brand (garners more than 1% market share) then it would be factored in for the purposes of ceiling price calculation.
    The question of infringement will have to be adjudicated by courts.

    @rahulkumar: the revised prices may be announced this month …

  11. Hi,

    There are various scenarios mentioned in DPCO guidelines, can you throw some light on analyzing the part in which there are less than 5 players in the industry who have market share of more than 1%

  12. I m owner of a wholsales medical shop. If the prices are supposed to change from 1st july then what are we shopkeeper supposed to do with the existing stock of the products whose prices have changed.

  13. I am planning to open up a pharma company(not manufacturing). Will it be wise to do so in this scenario?

  14. all companies are converting nutrational products from drug to food suppliment,but in actual that is chemical preprations,how dept allow them to conver from one form to another. and companies will raise the MRP of such products.called food suppliment,eg METHYLCOBALAMINE, IRON, CALCIUM,LYCOPINE AND OTHER B-COMPLEX

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