The Indian government is probing a complaint that a Chinese manufacturer is exploiting a loophole in essential medicine pricing rules to undermine government’s efforts to cap prices of cardiac stents.
Sources in the industry and the government confirmed to Outlook that Chinese stent manufacturer MicroPort, which entered India after price control regime was put in place, is being probed for registering its Indian distributors as importers or manufacturers. By knocking off a cog in the supply chain, the company increased its margins and its ability to pay higher kickbacks to doctors than multinationals or Indian companies that are restricted by price cap.
READ ALSO: Heart For Mart Sake
Law prohibits a manufacturer or importer from doubling up as a distributor to prevent unfair trade advantage.
National Pharmaceutical Pricing Authority (NPPA), India’s drug pricing regulator, has been facing an onslaught from stents manufacturers, mainly multinational companies, after it passed an order in February capping the price of stents. They created an artificial shortage of high-end drug eluting stents as well as trying to withdraw such stents citing business non viability.
The NPPA’s order for price control restricted trade margins for manufacturers/importers at 8% for of cardiac stents. The margin for distributors is 8% according to the rules. While the MNCs were fighting the government, the Chinese company tiptoed into market and registered all their distributors in India as importers to increase the margins available to them for distribution.
According to government sources, a complaint has been registered in the regard. “The company seems to have found a loophole of sorts in the DPCO order,” says an official in the NPPA who wishes to remain unnamed.
“We are looking into the matter and if the allegations are true, strict action will be taken against them.”
The company’s ability to increase trade margins by skipping a step in the distribution chain has enabled them to entice doctors and hospitals with higher margins. More and more doctors are recommending Chinese stents to their patients, a fact spotlighted by the jump in their market share.
Probir Das, the managing director of Terumo, a multinational stent manufacturing company, said, “In a matter of just three months, Chinese companies have managed to disrupt the way the stent market in India functions and have already increased their market shares by 7-8%.”
The efficacy of such stents is also questionable since they do not have the approval of the U.S. Food and Drug Administration.
Mircoport has not yet replied to Outlook’s request for comments.
Multinational companies say that they are the worst hit by the price control regime because bringing all drug eluting stents under one umbrella severely restricts innovation.
“The restricting cap on prices is a deterrent in two ways to multinationals, said Das. “Such companies will not introduce new technology of any kind to India in the future. Further, the companies will also wish to withdraw the present high end stents present in the market like in the case of Abbot and Medtronic’s,” he said.
Bhupendra Singh, the Chairman of NPPA, has said the information submitted by all companies show an average trade margin of 8% is financially viable for stent manufacturers.
“We have been fair in the devising of prices and have kept in mind the needs of the companies. There exists a clause in the DPCO,” according to Singh, “where if a company claims superiority in product and can back it up with published and reliable data; it can apply for differential pricing. No company has come forward to apply for such differentiated pricing.”
Indian companies too faced the brunt of price control but not as much as the multinationals. An Indian stent manufacturer, said the move has given Indian companies a chance to adopt new models of marketing.
“While profit margins may be restricted, with a cap on prices patient affordability has increased and more patients can afford the procedure. We make our stents readily available to all hospitals which ask for them and are thus able to achieve sales despite very low margins. However, our ability to do R&D for newer technologies is definitely restricted,” he said.