The Indian government is considering the proposal to introduce a per capita income-linked reference pricing mechanism for drugs, which could see the prices of some medicines being cut by up to a third.

Based on recommendations from an inter-ministerial committee, the proposal recommends fixing the price of patented drugs by comparing the prices granted in the UK, Canada, France, Australia and New Zealand. The retail price would be fixed by adjusting to the per capita income of the country, the committee advises.

In the report, the committee notes the price of Roche’s lung cancer drug Tarceva, which costs the equivalent of 121,000 rupees in Australia and France but costs 35,450 rupees in India. Adjusted to per capita income would drop the price of the drug in Australia and France to 10,309 and 11,643 rupees respectively, which, the committee says, should be the level for the retail price in India.

These calculations would only apply to drugs that have no therapeutic alternatives on the market.

The move comes at an interesting time for pharma in India as the country looks to shakeup drug procurement and review the intellectual property process.

In June, the country announced plans to make medicines free for everyone from October. Under the proposal the government would fund 75% of the costs and would be based on a central procurement agency that would buy the drugs in bulk. Meanwhile, in February, Natco Pharma was granted a compulsory licence to make and sell a copy of Bayer HealthCare’s patented cancer drug Nexavar for a fraction of the cost – a move that could become more common in a bid to reduce drug prices.

The Indian industry trade body, the Indian Pharmaceutical Alliance, believes the reference pricing proposal has value based on how governments in developed countries, which tend to pay the majority of healthcare costs, are able to negotiate prices. In India, by comparison, up to 79% of patients foot the bill for their own healthcare.  

However, the Organisation of Pharmaceutical Producers of India, the body that lobby’s industry, called the proposal “fundamentally flawed” and planned to fight it.

“To apply the ration of per capita income of India and a developed country to arrive at the in-market price of an imported patented product manufactured in a developed country with a totally different cost structure will be highly irrational and construed as comparison between apples and oranges,” said OPPI director-general Tapan Ray.  

The report is to be reviewed by the department of pharmaceuticals and then will be open for consultation.