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Competition Policy for the Pharmaceuticals Sector in India

Competition Policy for the Pharmaceuticals Sector in India. Nitya Nanda CUTS, Jaipur & Amirullah Khan IDF, Gurgaon. The Industry – A View. Almost non-existent before 1970, a prominent producer of healthcare products, meeting 95% of the country’s needs now

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Competition Policy for the Pharmaceuticals Sector in India

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  1. Competition Policy for the Pharmaceuticals Sector in India Nitya Nanda CUTS,Jaipur & Amirullah Khan IDF, Gurgaon

  2. The Industry – A View • Almost non-existent before 1970, a prominent producer of healthcare products, meeting 95% of the country’s needs now • Indian production constitutes about 1.3% of the world market in value terms and 8% in volume terms  • Likely to grow from about US$5.5bn in 2000 to US$25bn in 2020  • Global attention during TRIPs and Public Health debate – great promise • Doubts if the industry can provide affordable medicines even to the people in India

  3. The global Scenario

  4. Nature of the Industry • Four primary medical sciences: Allopathy, Ayurveda, Unani and Homeopathy • Allopathic medicines - most important and are subject to price regulation  • Market is broadly divided into bulk drugs (20%) and formulations (80%)  • The organized sector - 70% in terms of value. The top ten companies - 30% of total sales  • The individual market shares of companies are small – several products and several “relevant markets” within the industry  • Roughly, different therapeutic segments and some of them are highly concentrated

  5. Different Therapeutic Segments

  6. Pharmaceuticals Regulation • Consumption patterns are not affected by prices - a unique example of market failure  • In many countries, government bears most or all of the costs of medicines - As a monopsonist, the government may be able to control drug prices  • In developing countries, people are covered neither by public nor private insurance  • The doctors and the pharmacists - companies influence them  • Bypassing doctors - fall prey to company advertisements or to local pharmacists, even in the US

  7. Pharmaceuticals Regulation (Contd.) • Practically all countries in the world have mechanisms to regulate also a significant move to insist on generic prescription • Regulating Prescribing Doctors • Regulating Pharmacists • Regulating Prices • International benchmarking • Control on the evolution of prices over time • Control of prices relative to cost

  8. Pharmaceuticals Regulation in India • In the early fifties, introduction of compulsory manufacturing of finished products and later, of raw materials of new drugs   • In the 60s, two public sector companies, Hindustan Antibiotics Ltd (HAL) and Indian Drugs and Pharmaceuticals Ltd (IDPL)  • Till 1962, no price control • In 1962, control imposed under the Defence of India Act, 1915 - The Drugs (Display of Prices) Order, 1962 and the Drugs (Control of Prices) Order, 1963

  9. Pharmaceuticals Regulation in India • During 1970, the Indian Patents Act (IPA) and the Drug Prices Control Order (DPCO) issued underthe Essential Commodities Act, 1955 • DPCO revised in 1979, 1987 and 1995 • DPCO 1970 was a direct control on the profitability and an indirect control on the prices • DPCO, 1979 stipulated ceiling prices and put 370 drugs under price control • Retail Price = (MC+CC+PM+PC) x (1+MAPE/100) + excise duty (MC = material cost including cost of bulk drugs/excipients: CC = conversion cost; PM = cost of packing material; PC = packaging charge; MAPE = Maximum Allowable Post-manufacturing Expenses)

  10. Pharmaceuticals Regulation in India • DPCO, 1987, dugs under price control reduced from 370 to 142 and higher MAPE provided • The New Drug Policy 1994 liberalised the criteria for selecting drugs for price control • DPCO 1995 - a uniform MAPE of 100% was granted • DPCO 1995 drugs under price control from 142 to just 76 • The New Pharmaceutical Policy, 2002, number of drugs under price control to just 38

  11. Market Shares of Drugs under DPCO

  12. Decontrol and Prices • Price control and patent regime – prices among the lowest in the world  • Prices started rising as soon as controls were removed - brand leader is usually one of the most expensive  • Drugs under patent much cheaper in India but off-patent drugs (80-85% of current sales) are not necessarily cheaper •  Prices of some top selling drugs are higher than those in Canada and the UK

  13. Decontrol and Prices - International Cost Comparison of Select Drugs

  14. Decontrol and Prices • The price difference - no direct interaction between the consumer and the drug market • Pharmacists in developed countries - little influence over the volume of prescription-drug sales - marketing push usually targets doctors • Pharmacy owners banded together to form a huge cartel - All India Organization of Chemists and Druggists (AIOCD) • AIOCD forced some drug companies to sign "memorandums of understanding" to increase profit margins to pharmacies

  15. Competition Issues: Collusions • No knowledge of domestic cartel. Vitamins cartel alone cost India about $25mn in the 1990s • Collusive behaviour of the pharmacies in India is a matter of grave concern • Market becomes smaller due to high margin - harmful for the long run growth of the industry • December, 2004 the Ministry of Fertilisers & Chemicals tried to bring in curbs on trade margins by amending the DPCO • Competition Act 2002 - only trade unions are allowed collective bargaining

  16. Competition Issues: M&As • Industry is highly fragmented, intense consolidation activities expected • Top global pharmaceutical companies are consolidating – impacting in India • Large Indian companies are also expanding their reach overseas through acquisitions • The deals will require complex analysis - the impact on different therapeutic segments • For example, Glaxo-Wellcome-SmithKline Beecham was allowed to merge conditionally in EU, divested product categories with competition concerns

  17. Competition Issues: Abuse of Dominance • Patents Act, 1970 has significant implications for abuse of dominance • Absence of product patent - difficult to sustain monopoly • WTO TRIPS - product patent from 2005 • The art of dealing with abuse of dominance (no experience) • Canada - Patented Medicine Prices Review Board (PMPRB) • Competition Act 2002 – provisions not strong enough

  18. In Lieu of Conclusion • Manufacturers demanding more decontrol – arguing, competition will improve availability and affordability of essential drugs • UPA government's NCMP has promised to "take all steps to ensure the availability of life-saving drugs at reasonable prices" • Supreme Court order in the K.S. Gopinath case, March 10, 2003, directing the government to ensure that “… essential and life-saving drugs do not fall out of price control"

  19. In Lieu of Conclusion • Regulatory regime - hard on the manufacturers but soft on the doctors and the pharmacists • Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 – not effective • Bangladesh example? • Bulk drugs buyers are informed producers – different approach? • Import competition - Few specified life saving products at zero duty but for most others, the effective duty rate more than 56 percent • For scheduled (regulated) drugs, the MAPE is 100 percent for domestic and 50 percent for imported drugs

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