A leading industry group has urged the India government to abandon cost-based drug pricing and introduce a market-based pricing policy, which would, it says, improve affordability and availability of medicines, and encourage innovation, competition and growth.

Such a policy would also harness the sector's export potential, helping the government achieve its target of $25 billion worth of annual pharmaceutical exports by 2014, says the Associated Chambers of Commerce and Industry of India (ASSOCHAM), in a memorandum sent to Finance Minister P Chidambaram, ahead of a meeting of Ministers to discuss the proposed National Pharmaceutical Pricing Policy on November 21.

Implementation of the government's plan to price-control 348 essential drugs would place 70% of the Indian pharmaceutical market "under the inconsistent and inefficient cost-based price control mechanism of the Drug Price Control Order (DPCO) 1995," and the 348 essential drugs would be "crippled by the disastrous repressions," making it "almost impossible" for drugmakers to supply essential medicines, ASSOCHAM warns.

On the other hand, introducing a pricing formula based on the Weighted Average Price (WAP) of all brands with more than a 1% market share would result in price reductions of over 20% for 60% of the drugs included on the National List of Essential Medicines (NLEM), it forecasts.

The existing cost-based pricing policy has already created a number of major adverse impacts, the group points out. "For one, it has shifted bulk drug production out of India to countries like China." The policy has also "escalated prices for select medicines, reduced the number of industry players, reduced innovation in cost-controlled medicines and limited new introductions - and, above all, failed to help medicines reach patients located in rural areas," it tells the Minister.

Market-based pricing would best suit India's needs, the memorandum advises. It would encourage investment in quality and hence patient safety, which is "extremely important given the problem of counterfeit drugs plaguing the country and the lack of confidence in generic drug quality in the medical community and amongst patients."

Market-based pricing would also be based on widely-available information in the public domain, as against individual manufacturer-level production costing data, and would therefore result in more transparent and fair pricing, it adds.

Such a policy would also ensure the continuous availability of price-controlled medicines, instead of creating an unviable manufacturing environment, as has happened with cost-based pricing, ASSOCHAM tells Mr Chidambaram. It would allow patients to benefit from access to innovation and the introduction of new medicines, "as players will continue investing in R&D." In contrast, cost-based pricing "does not factor in the R&D and innovation efforts and costs undertaken by pharmaceutical players."

Finally, the group says that under its proposals "patient access to good-quality medicines will significantly improve, as manufacturers will be encouraged to invest in quality raw materials and processes."

• Meantime, revenues for India's pharmaceutical majors rose 30% overall for the quarter ended September, with net profits up 18.5%, reports leading broker Sharekhan.

The sector was boosted by a number of factors including a 19% depreciation of the rupee during the period, new product launches and a 40% increase in revenues in the US market. Domestic sales were up 20% during the period, and are expected to continue strong in the current quarter (ending in December) with home-market sales last month having grown 17% year-on-year, driven by treatments for malaria and diabetes, and anti-infectives, it says.