The government’s move to cap trade margins on non-scheduled cancer medicines could cut excessive mark-ups and bring relief to patients. But for expensive patented drugs such as Keytruda, the intervention leaves a bigger question unanswered: how much of the final bill comes from distribution margins, and how much from the price at which the medicine enters the market?
India’s cancer drug market is worth around Rs 12,500 crore annually, and non-scheduled medicines account for the overwhelming share of this business. An analysis of Pharmarack data cited by the National Pharmaceutical Pricing Authority found that these medicines carry an average trade mark-up of around 170%, with mark-ups reaching as high as 700% in some cases.
The government has now moved to cap trade margins at 30% for 110 non-scheduled cancer medicines, estimating potential price reductions of up to 70% and annual savings of Rs 2,500 crore for patients. The move follows a Supreme Court hearing on the high mark-ups in cancer medicines, during which the court described the practice of a medicine costing Rs 2,700 being sold to a patient for Rs 27,000 as dacoity in broad daylight.
However, while restricting the margins earned along the supply chain can reduce the final price, it does not automatically make an expensive patented medicine affordable. This becomes clearer when the economics of India’s cancer drug market and the prices of newer oncology injectables are examined.
The country registers over 15.5 lakh new cancer cases every year and the rate of incidence is rising at a rapid rate. But evidence shows that just a fraction of cancer patients can access and afford prohibitively expensive targeted and immunotherapy drugs like Keytruda, which promise dramatic improvement in survival and quality of lives.
This drug, indicated for 22 different types of cancers, has pembrolizumab as its active pharmaceutical ingredient, and it can cost patients up to Rs 10.1 lakh per month or 1.2 crore a year, making it largely unaffordable for those in need.
India’s anti-cancer medicines market comprises approximately 225 drugs and 500 formulations, with an annual turnover of around Rs 12,500 crore. Of this, scheduled cancer medicines account for approximately Rs 2,250 crore, while the remaining Rs 10,250 crore comes from non-scheduled medicines.
Scheduled medicines are included in the National List of Essential Medicines. Their prices are regulated through a ceiling-price mechanism administered by the pricing authority. Non-scheduled medicines, by contrast, do not ordinarily have a government-fixed ceiling price under the same mechanism, although annual price increases are restricted to 10% under applicable rules.
This creates a significant difference in how the two segments are regulated. For scheduled medicines, the government controls the maximum price. For non-scheduled medicines, the price is generally determined by the manufacturer, with the scope for government intervention through other provisions of the Drug Price Control Order.
The pricing authority's analysis found substantial differences in transaction prices across retail pharmacies, hospitals, and e-pharmacies, including variations in the discounts offered against the maximum retail price. These differences suggest that patients may pay considerably different amounts for the same medicine, depending on where and how they obtain it.
The 30% trade-margin cap targets one part of this problem: the mark-up added as a medicine moves through the distribution chain. It is not, by itself, a general ceiling on the price charged by the manufacturer. For a medicine whose price has been inflated substantially by distributor and retailer margins, restricting those margins can produce a meaningful reduction. But where the manufacturer's price is already high, limiting the distribution mark-up has a more constrained effect on the final bill.
The latest intervention draws on the government's earlier experience with trade-margin rationalisation. In February 2019, the pricing authority invoked extraordinary powers to impose a 30% trade-margin limit on 42 non-scheduled anti-cancer drugs, covering 526 brands and resulting in maximum retail price reductions of up to 91%.
That precedent demonstrates that controlling excessive margins can produce substantial price reductions in some circumstances. But the size of the reduction depends on the price structure of the individual medicine and the margins that existed before the intervention.
A 700% mark-up does not mean that every cancer medicine is sold at seven times its manufacturing cost, nor does it mean that every patient will receive a 70% discount. Trade mark-ups are calculated on a particular price base, and the relationship between the manufacturer's price, the distributor's price, and the maximum retail price determines how much room there is for a reduction.
This point also matters because the maximum retail price is not necessarily the amount every patient pays. Pharmacies and hospitals may offer discounts, while hospital bills can include administration, infusion, and other treatment-related charges. A reduction in the medicine's maximum retail price may therefore not translate into an identical reduction in the patient's overall cancer-treatment expenditure.
Medical professionals note that regulating profit margins is a positive step for the healthcare industry, though clinicians may not always track the intricate details of pricing margins or which specific products are affected. Meanwhile, patient rights advocates suggest the measure could offer meaningful financial relief for individuals purchasing non-scheduled therapies.