Nitya NandaNitya Nanda

CUTS, Jaipur&

Amirullah Khan IDF, Gurgaon

Competition Policy for the Pharmaceuticals Sector

in India

The Industry – A ViewThe Industry – A View

Almost non-existent before 1970, a prominent producer of healthcare products, meeting 95% of the country’s needs nowIndian 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 promiseDoubts if the industry can provide affordable medicines even to the people in India

The global ScenarioThe global Scenario

Stage of development Number of countries Industrial Developing Total

Sophisticated pharmaceutical industry with a significant research base

10 Nil 10

Innovative capabilities 12 6 (Argentina, Brazil,

China, India, Korea and Mexico)

18

Those producing both therapeutic ingredients and finished products

6 7 13

Those producing finished products only

2 87 89

No pharmaceutical industry 1 59 60 Total 31 159 190

Nature of the IndustryNature of the Industry

Four primary medical sciences: Allopathy, Ayurveda, Unani and HomeopathyAllopathic 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

Different Therapeutic SegmentsDifferent Therapeutic SegmentsProduct category Patent Coverage DPCO Coverage Players Analgesics & Anti-pyretics

Most are off-patent. High Major players are Burroughs Wellcome, SmithKline Beecham, Hoechst and Wockhardt. A large number of local players

Antacids and Anti-ulcerants

High High Antacids: Knoll and Parke Davis. Anti-ulcerants: Glaxo, Cadila, Ranbaxy, Dr Reddy’s Labs etc.

Antibiotics Old generation - off-patent. Newer generation - High

The latest generation drugs

Glaxo, Ranbaxy, Cipla, Hoechst, Alembic, Burroughs Wellcome, Ambalal Sarabhai etc.

Anti-tuberculosis products

Low Only Rifampicin Lupin (dominant), Hind. Ciba., Cadila, Glaxo and Hoechst

Anti-parasitic & Anti-fungal products

Low Relatively low Anti-protozoal: Nicholas Piramal, SmithKline Beecham Pharma, Ranbaxy, and Cipla. Anti-fungal: Bayer, Fulford, Glaxo etc.

Cardiac Therapy New drugs are many. Popularly used in India: Low.

Low Sun Pharma, Torrent, Cadila, ICI etc.

Corticosteroids All popularly used are off-patent.

Key drugs Betamethasone and Dexamethasone

Glaxo, Crosslands, Wyeth, Fulford, Merind. etc.

NSAIDs, Anti-rheumatic products

Low High

Knoll, Roussel, Hind Ciba, Pfizer etc.

Respiratory System ailments

Very low. Very low. Anti-cough: Pfizer, Parke Davis, Nicholas Piramal. Anti-cold: Burroughs, Alembic etc. Anti-asthmatics: Cipla (dominant)

Vitamins Off-patent Very high E-Merck, Pfizer, Glaxo, Abbott etc.

Pharmaceuticals RegulationPharmaceuticals RegulationConsumption 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

Pharmaceuticals Regulation Pharmaceuticals Regulation (Contd.)(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

Pharmaceuticals Regulation in Pharmaceuticals Regulation in IndiaIndia

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

Pharmaceuticals Regulation in Pharmaceuticals Regulation in IndiaIndia

During 1970, the Indian Patents Act (IPA) and the Drug Prices Control Order (DPCO) issued under the Essential Commodities Act, 1955DPCO revised in 1979, 1987 and 1995DPCO 1970 was a direct control on the profitability and an indirect control on the pricesDPCO, 1979 stipulated ceiling prices and put 370 drugs under price controlRetail 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)

Pharmaceuticals Regulation in Pharmaceuticals Regulation in IndiaIndia

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 controlDPCO 1995 - a uniform MAPE of 100% was granted DPCO 1995 drugs under price control from 142 to just 76The New Pharmaceutical Policy, 2002, number of drugs under price control to just 38

Market Shares of Drugs under Market Shares of Drugs under DPCODPCO

Year Number of drugs

Approximate market share (%)

1979 347 80 1987 142 60 1995 74 40 2004 38 20

Decontrol and PricesDecontrol 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

Decontrol and Prices - Decontrol and Prices - International Cost Comparison International Cost Comparison of Select Drugsof Select Drugs

Drug Dose Canada UK India Amoxycillin 250 mg 1.75 2.59 2.89 Ampicillin 250 mg 1.75 2.42 3.18 Erythromycin 250 mg 1.25 2.87 3.28 - 4.17 Cephalexin 250 mg 3.00 7.74 4.46 Propanolol 40 mg 1.25 0.25 1.39 Atenolol 50 mg -- 2.65 1.29 Prednisolone 10 mg 1.50 1.09 1.32 Paracetamol 500 mg 1.25 0.32 0.49 Haloperidol 0.25 mg 0.13 1.60 0.55 Phenobarbitone 30 mg 0.25 0.28 0.50

Decontrol and PricesDecontrol and Prices

The price difference - no direct interaction between the consumer and the drug marketPharmacists in developed countries - little influence over the volume of prescription-drug sales - marketing push usually targets doctorsPharmacy 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

Competition Issues: Collusions Competition Issues: Collusions

No knowledge of domestic cartel. Vitamins cartel alone cost India about $25mn in the 1990sCollusive behaviour of the pharmacies in India is a matter of grave concernMarket becomes smaller due to high margin - harmful for the long run growth of the industryDecember, 2004 the Ministry of Fertilisers & Chemicals tried to bring in curbs on trade margins by amending the DPCOCompetition Act 2002 - only trade unions are allowed collective bargaining

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

Competition Issues: Abuse of Competition Issues: Abuse of DominanceDominance

Patents Act, 1970 has significant implications for abuse of dominanceAbsence of product patent - difficult to sustain monopolyWTO TRIPS - product patent from 2005The art of dealing with abuse of dominance (no experience) Canada - Patented Medicine Prices Review Board (PMPRB)Competition Act 2002 – provisions not strong enough

In Lieu of ConclusionIn Lieu of Conclusion

Manufacturers demanding more decontrol – arguing, competition will improve availability and affordability of essential drugsUPA 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"

In Lieu of ConclusionIn Lieu of Conclusion

Regulatory regime - hard on the manufacturers but soft on the doctors and the pharmacistsIndian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 – not effectiveBangladesh 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 percentFor scheduled (regulated) drugs, the MAPE is 100 percent for domestic and 50 percent for imported drugs