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Is negotiated price a reasonable price?

Is Section 84(1)(b) of The Patents Act of India in danger? A scrupulous analysis by Milind Sathe

Express Pharma published an enlightening article on February 20, 2013 titled 'Compulsory Licensing: The Wild Card' but the joy of relief provided by extremely useful provisions of Compulsory Licensing (CL) was short-lived. Reason was, from February 27th, 2013 many weblinks and news papers provided news indicating if Government is in mood to do away with CL”1 pointing to the Report of the Committee on Price Negotiations for Patented Drugs.2

Australian productivity commission is trying to smoothen ways to grant CL to remedy unlawful anti-competitive conduct and switching to public interest criteria from “reasonable requirements of the public”, and here at home we are creating hostile climate to CL provisions.

Issue of pricing patented medicines:

National Pharmaceuticals Pricing Policy 2012 (NPPP)3 refers to the Committee constituted to decide policy for pricing patented medicines. Department of Pharmaceuticals (DoP) Committee should have restricted report only to pricing aspect, but it touched 'reasonable price' and how Sec 84(1)(b) should be treated. Are IP enactments, CL and making recommendations about it within the scope of Committee? Let us have a bird’s eye view of the report:

1. Has report used double standards?

3.1 of report deals with problems in cost-based pricing e.g. “It is not as easy to determine the cost of a product as one might imagine”. But in 9.5(c) dealing with the medicines introduced first time in India, report says “The Pricing Committee will ….fix the price of new medicines… taking various factors into consideration like cost involved”. Are two standards used?

Could the Committee suggest a) establishing effective mechanism to force producers to submit costs and b) development of skills to arrive at basic pricing?

Committee’s report creates bias against the appropriate realistic, useful cost-based pricing method especially when social welfare, public policy and public interest is at stake. Albeit it is “not as easy to determine the cost of a product” NPPA used cost-based pricing till date and it can do so for patented medicines if patentee wants to trade/operate in India. Will the law of the land be changed to suit foreign entities/patentees or they should conform to the law of the land? Is the law of the land coined to ensure public interest, social welfare, balance of interests and welfare of subjects of this nation or it is for the welfare of the foreign unfaithful patentees who do not work the patent in India, do not care for the law of the land? Will social welfare, public interests and balance of interests be ensured by use of two standards? Is report furthering patentee’s wish not to provide the cost data? Is reference to the prices in developed world, a manifestation of our unwillingness to work, collect and use the data for the welfare of the nation? What is the difficulty in insisting patentee to submit satisfactory verifiable, auditable cost details or India does not want to develop mechanism to verify and audit the information submitted? Alleged difficulties all the more demand solution and point the urgent need for internal improvisation. Do we say it is difficult to administer the country and look for market-based solution?

If a patentee fails to provide information, he will not be able to work the patent and will pave way for CL. Referring to price dictated by him in developed countries is not a solution as he is the only player in the market. We must work to establish realistic cost data in India.

2. Was suggesting anything about CL within Committee’s scope? Or if Committee has the authority to suggest what is reasonable price as per Sec 84(1)(b) or is it empowered to interpret “reasonable price” as per Sec 84(1)(b)?

The most worrisome part is the statement in 8.6 in the report, “The Committee was of the view that once a Government-appointed Committee goes for some form of price regulation of patented medicines and fixes a price of the medicines which is accepted by the government, this fixed price would be supposed to be reasonable and hence it won’t be possible for the Government to use the tool of CL on the ground of reasonableness of the price of the patented medicine.4” (hereinafter THE STATEMENT). Please surf on websites of NPPA and DoP and find out their functions, scope. DoP website confirms that citizens and pharmaceutical industry are its stakeholders. THE STATEMENT doesn’t safeguard stake holders. In stead of reinvigorating it perfectly arrests, demoralises Indian pharma industry. It is against the interests of citizens of this nation. THE STATEMENT should not be considered by Parliament and Law Ministry at all and should not be allowed to impinge upon Sec 84 CL. Can learned friends and judiciary of the nation prevent use of this report to the prejudice of Sec 83 & 84 in toto and Sec 83(g) and 84(1)(b) in specific, and protect them from amendment, deletion of any nature. NPPA website mentions in function no 4, that it monitors the profitability of companies5. Is it doing it without the knowledge of cost details? For sake of this function at least and to support sovereign’s prime duties, can’t it audit and question the submissions from patentee? Is data collection without cost details, a monitoring? Is it going to control prices? Is it monitoring or it is collecting the information? What is monitoring? Their websites do not support their indulgence IPR matters and more specifically contradicting a law and debilitating sovereign.

THE STATEMENT doesn’t conform to “Incentivising Private Sector for development of new Drugs for diseases endemic to India” 6. Besides the potential to create bias against 84(1)(b), THE STATEMENT puncture’s Section 83, the industry, innovative spirit, inventive ingenuity, subject population and nation.

3. THE STATEMENT stops, prohibits FOR EVER capable Indian pharma companies from providing patented medicines at a price lower than price fixed by alleged negotiation, based on inadequate data such as absence of costs inputs. If the regulation of prices of drugs in the NPPP is based on the essentiality of drugs, should it prevent a producer from marketing a drug formulation using CL provisions at a price lower than negotiated price? Doesn’t it throttle access to essential medicines? Doesn’t it prevent, stop affordable medicines from being provided to subject population of this country, by unnecessary interpretation and constriction of the term “reasonable price” in Sec 84(1)(b)? Readers please decide.

Is negotiated price as per report, a reasonable price at all?

As marked-based pricing is based on available information in the public domain as against factual production costing data, there is no reason to call it a reasonable price at all. In fact, it is an unreasonable price because it is arrived in the absence of transparency about costs of inputs, conversion, packing, distribution and mark ups and also in the absence of multiple players providing the same product. Therefore Committee’s impression that it is reasonable is far from the truth. If any producer could produce it at lower cost, will the negotiated price still be called reasonable? By creating fog around Sec 84(1)(b), THE STATEMENT closes doors to Indian producers to supply it at lower costs and yet calls the negotiated price a reasonable price. The approach in THE STATEMENT far from being useful

  1. to achieve objective of fixing reasonable and affordable price
  2. to serve subject population that too by the route of insurance and healthcare subsidy by Govt.
  3. in a country with insignificant per capita income and
  4. in a country where gaps in imports and exports are widening every year
  5. when a country needs internalisation of new technologies
  6. when Govt's healthcare schemes are thinking to provide patented medicines and whose percentage is bound to rise for obvious reasons.

In 8.4 report admits that “even if the Price Negotiation Committee feels the price to be reasonable, it still may be out of reach of general public in India and may seem unreasonable to them.” Yet committee suggests Govt. to abandon 84(1)(b) and consider the price fixed by it to be reasonable. Negotiated price when forced as a reasonable price contradicts Section 83(7)(a)(i) (ii)and (ii). It contradicts reasonable requirement of public clause. Reasonably affordable price is always a reasonable requirement of public in any nation.

Negotiated price is unreasonable price because it is arrived using the market data of countries that are in altogether different state of socioeconomic and infrastructural achievements. If the data from the UK, Australia, the US, Canada is to be adhered to, Committee report should have first asked the Government to lift the socioeconomic conditions of the nation, equate infrastructural achievements, standard of living, lift level of income and GNI to the levels present in these referred nations and then use the data for price negotiation. If Committee can suggest interpretation of reasonable price, it should not say suggesting improvement in GNI and infrastructure is beyond its scope. When Committee report has failed to suggest to the Govt. what it should do first as mentioned here-in-before, their recommendation to treat negotiated price as reasonable price should be scrapped off.

While recommending the option of arriving at negotiation price after applying GNI factor, the committee has overlooked or missed the several better and practically relevant options.

  1. Establishing and using means to assess realistic cost in this land to produce the same product and use this data for fixing price. This practical approach is more relevant in case of India because the world uses India as a cost effective outsourcing platform. Report in 8.3 mentions that India is far ahead most of developing countries in pharma sector7. And yet in 8.4 it expresses doubt about finding out input costs and arriving at costs in India.
  2. Refresh the memory of first ever CL and recollect that patentees price was about 45 times higher than the price offered by Indian company (price abroad was about 60 times higher than price offered by Indian company). Does Committee assure price negotiation mechanism and negotiated price at least this much effective? So second better option is lowest price in other market X number of rupees equivalent to one unit of currency of that country divided by 60 or 70 or 95 or negotiated price, whichever is lower. i.e. The formula is  Lowest price X Number of rupee per 1 unit of currency of that country divided by 60 or 70 or 95 or ...
    Truly speaking first case of CL has provided adequate input to correlate possibilities of Indian price with the price of the same medicine abroad. Committee’s option to select a singular price, instead of selecting lower of the two or lowest of the multiple options, is not good for the subject population of India. Courts please note.
  3. Third better option is if any producer proposes to market the drug at a price lower than that arrived by alleged price negotiation, then the negotiated price shall be lowered to that extent. If the patentee is not ready to provide the medicine at that lowered price, his patent shall be compulsorily licensed for five years or shall be revocated as his refusal shall be construed as his submission not to work the patent/ invention in India. Option 2 &3 reinforce CL provisions of Indian enactment instead of rendering them redundant as recommended by committee.

In 3.4 report mentions “In absence of the details of cost of the input raw material, R&D cost etc. and ……., it is very difficult to finalise a negotiated reasonable price,” but ends with recommendation of negotiated price without stipulating when to review, on the top of it, it recommends review by manufacturer, which is against common norms and yet says this to be reasonable price in relation to Sec 84(1)(b). How’s that? Report says that Australia reviews the prices every year and Japan never approves full premiums on innovativeness. Why not learn something from them? Fix a norm of six months for review. Review should not result in rise in price without justification and an opportunity to Indian players to introduce the same at lower price.

The report perfectly contradicts alertness and opinion expressed and care shown by Department of Industrial Promotion and Policy (DIPP) and Lawyer’s Collective HIV/ Aids Unit and “Campaign for Essential Medicines Medecins Sans Frontiers(MSF)-NGOs that option of price negotiations should not be allowed to dilute CL on the ground of unaffordable pricing of drugs, re-negotiations of the prices should be conducted at periodic intervals; and price negotiation should not weaken the position of CL, that price negotiation cannot be carried out when costs of patented drugs are not known, respectively. I propose price review at the interval of six months.

How can negotiated prices be considered as reasonable when in 8.1 report says that “The prices of patented medicines are very high beyond the reach of general masses of the country. Even after the prices of patented medicines are negotiated by a Government Committee, the same may remain unaffordable to the masses.”? In spite of unaffordability of negotiated prices expressed in 8.1, it recommends “the price negotiations for the patented medicines for the Government procurement/reimbursement and for health insurance coverage by any other insurance company,” in 9.1 and also recommends that “the government should expand the coverage of healthcare and insurance scheme (at least for prescription medicines) for all the citizens who are not covered under any other insurance /reimbursement scheme.” One wonders if this was the objective for which committee was constituted. Is this recommendation within the scope of Committee?

In 8.3 it states that “India is far ahead most of developing countries in pharma sector” but why it mixes this with affordability? In India poor access to medicines and their unaffordability is still a big unresolved problem and still report recommends to dent Section 84(1)(b)?

Further it says, “In pharma sector, it is very difficult to find out similarly placed countries vis-à-vis India”. It is not required. What is required is to ensure effective and successful use of CL, the way other countries who are not “similarly placed” have used. Albeit these countries may not be “similarly placed” their administration seems to be better skilled and willing than that of India in making effective use of CL. Interestingly these nations which are not “similarly placed” sourced medicines from India under CL under clauses similar to our 84(1)(b), and the Committee recommends redundancy of 84(1)(b).

In 8.4 price-based on price negotiation on various input cost, report expresses difficulties in finding input costs in a transparent way but never it recommends to establish a mechanism to resolve the problem. It is like amputing the arm if there is a bruise on the arm, instead of treating it to heal. Why can’t patentee be asked to substantiate the submissions and be audited? Why can’t means and methods to instill transparency or build capabilities and willingness to audit be recommended? Why can’t development of ways to arrive at the cost in Indian scenario be recommended? Report gives extraordinary free hand to patentee than promoting Indian industry, servicing the subject population and saving the tax payers money. Instead of educating patentee that his behaviour may open his patent to CL, committee is suggesting constriction of CL clause in patent enactment.

Correlating the negotiated price with Sec 84(1)(b) may lead to fixing of a price much above what an Indian company can offer and an unreasonable price will be forced. Can DoP or Committee ensure that its price will always be the lowest or Indian pharma companies will still be able to serve Indian subject population by offering medicines at lower prices? Was it impossible to suggest that negotiated price shall not be considered as reasonable price if any other pharma company proposes the lower price? Alternatively it could have stated that merely because Government fixes the price does not render it reasonable as reasonableness of price and affordability dictate lower/the lowest price among all options should be treated as reasonable price as it enhances affordability. This would have allowed capable Indian companies to compete without scratching Sec 84(1)(b) and would motivated willing companies. This way it would have de facto ensured objectives of promoting invention and innovation besides being in the best interest of India and Indian subject population. It is not in the best interest of unfaithful patentees that disrespect Indian subject population, Indian laws.

Conclusion:

Readers to analyse the issue and conclude:

  1. if price negotiated by NPPA or DoP or Committee (NDC) thereof be considered as reasonable price as per Section 84(1)(b) of The Patents Act of India? I request it should not be.
  2. Should this report be allowed to be used to amend, neutralise or delete Section 84(1)(b)? I appeal, it should not be allowed to be used to repeal Section 84(1)(b).
  3. Will price negotiated in case of patented drugs/formulations, in the absence of cost data and derived only on market prices of developed world which are dictated by patentee, be reasonable and or affordable? I don’t feel they will be reasonable.
  4. If the report contradicts Section 83(g) “General principles applicable to working of patented inventions” of The Patents Act of India? Yes. It does. This will slowly lead to questioning Section 83(g) and recommendation to scrap that as well. Do not allow it to happen.
  5. Let NDC decide Price. Should NDC recommend, interpret and decide if it is reasonable price or not? Is NDC empowered to decide what is reasonable and what is not? OR should it be decided by Courts or judiciary? I say deciding reasonableness of price from the point of view of Section 84(1)(b) or Section 83(g) of The Patents Act of India is beyond the scope of NDC. It should be decided by Courts or Judiciary. This report should not be allowed to be used to dent Sec 83(g) and Sec 84(1)(b).
  6. Should this report be allowed to prevent capable Indian companies from marketing patented medicines at a price lower than one fixed by NDC? No. That freedom must be retained by keeping Sec 83(g) and Sec 84(1)(b) UNTOUCHED.
  7. Should the Committee recommended in 9.3 include representatives from entity having foreign capital? No. It should not.
  8. If representatives from insurance companies are to be included in price negotiation committee, their role, responsibilities, skills to reduce the price should be verified, authenticated by Prime Minister of India first.
  9. Do the recommendations from the report arrest innovation, inventive ingenuities, progress of economy, employment generation, distribution and redistribution of wealth within India, technology dissemination into India? Yes.
  10. Do the recommendations of the report contradict Section 83 “General principles applicable to working of patented inventions” of the Patents Act of India in total? Yes. It does and hence the recommendation should be repealed in toto.
  11. What happens when one reads it with Article 13 of Constitution of India?

Expressions and opinions in this article are personal

References:

  1. http://social.eyeforpharma.com/market-access/india-considers-ending-compulsory-licensing-tactics Last accessed on 6th March 2013
  2. http://pharmaceuticals.gov.in/NPPP2012.pdf Last accessed on 4th March 2013
  3. http://pharmaceuticals.gov.in/NPPP2012.pdf Last accessed on 4th March 2013
  4. Report of the Committee On Price Negotiation for Patented Drugs Subtitle 8.6 on Page no 28/38accessible at http://pharmaceuticals.gov.in/ Last accessed on 6nd March 2013.
  5. http://www.nppaindia.nic.in/function.htm. Last accessed on 2nd March 2013.
  6. http://pharmaceuticals.gov.in/ Last accessed on 2nd March 2013, R F D, Results Framework Document for Department of Pharmaceuticals (2011-2012):
  7. 8.3 of the report

Comments  

 
#6 GEIPER 2013-03-12 14:20
This is a great articles! thanks
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#5 IVAN 2013-03-07 22:09
Lovely!
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#4 Dr. Sandeep 2013-03-07 22:09
EXCELLENT ARTICLE!!!
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#3 Richa Sharma 2013-03-07 15:10
The report should not be used to stop Indian companies from providing affordable medicines to the public at large. Government subsidies are paid from money collected from tax payers so an option for lowest price should always be available. CL provisions should remain untouched.
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#2 Dr Sandeep Singh 2013-03-07 14:44
Option to Indian companies to quote lower prices should be kept open. It should not be blocked. thought provoking article. Reasonably affordable price may not be negotiated price. Let courts decide that.
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#1 Dr Sandeep Singh 2013-03-07 14:41
Thought provoking article. I think "reasonably affordable" still needs to be decided by Courts. indian companies should be provided freedom to quote price and that sbould not be prevented.
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