Competition Issues in Pharmaceuticals

8/7/2019 Competition Issues in Pharmaceuticals

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Nitya NandaNitya Nanda

CUTS, Jaipur

&

Amirullah KhanIDF, Gurgaon

Competition Policy for the

Pharmaceuticals Sectorin India


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The IndustryThe Industry A ViewA View

Almost non-existent before 1970, aprominent producer of healthcare products,meeting 95% of the countrys needs now

Indian production constitutes about 1.3% ofthe world market in value terms and 8% involume terms

Likely to grow from about US$5.5bn in 2000to US$25bn in 2020

Global attention during TRIPs and PublicHealth debate great promise

Doubts if the industry can provide affordablemedicines even to the people in India


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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


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Nature of the IndustryNature of the Industry

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

Allopathic medicines - most important and aresubject 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 aresmall several products and several relevantmarkets within the industry

Roughly, different therapeutic segments andsome of them are highly concentrated


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DifferentTherapeuticSegmentsDifferentTherapeuticSegmentsProduct category Patent Coverage DPCO Coverage Players

Analgesics & Anti-

pyretics

Most are off-patent. High Major players are Burroughs Wellcome, SmithKline Beecha

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 Reddys Labs et

Antibiotics Old generation - off-patent.

Newer generation - High

The latest

generation drugs

Glaxo, Ranbaxy, Cipla, Hoechst, Alembic, Burrou

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 Beech

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.


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PharmaceuticalsRegulationPharmaceuticalsRegulation

Consumption patterns are not affected byprices - a unique example ofmarket failure

In many countries, government bears mostor all of the costs of medicines - As amonopsonist, the government may be ableto control drug prices

In developing countries, people are coveredneither by public nor private insurance

The doctors and the pharmacists -companies influence them

Bypassing doctors - fall prey to companyadvertisements or to local pharmacists,even in the US


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Pharmaceut

icalsRegulat

ion(C

ontd.)

Pharmaceut

icalsRegulat

ion(C

ontd.)

Practically all countries in the worldhave mechanisms to regulate also a

significant move to insist ongeneric prescription Regulating Prescribing Doctors

Regulating Pharmacists

Regulating Prices International benchmarking

Control on the evolution of prices over time

Control of prices relative to cost


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PharmaceuticalsRegulationinIndiaPharmaceuticalsRegulationinIndia

In the early fifties, introduction ofcompulsory manufacturing of finishedproducts and later, of raw materials ofnew drugs

In the 60s, two public sector companies,Hindustan Antibiotics Ltd (HAL) andIndian Drugs and Pharmaceuticals Ltd(IDPL)

Till 1962, no price control

In 1962, control imposed under theDefence of India Act, 1915 - The Drugs(Display of Prices) Order, 1962 and theDrugs (Control ofPrices) Order, 1963


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During 1970, the Indian Patents Act (IPA) andthe Drug Prices Control Order (DPCO) issuedunder the Essential Commodities Act, 1955

DPCO revised in 1979, 1987 and 1995

DPC

O 1970 was a direct control on theprofitability and an indirect control on the prices

DPCO, 1979 stipulated ceiling prices and put 370drugs under price control

Retail Price = (MC+CC+PM+PC) x (1+MAPE/100)

+ excise duty(MC = material cost including cost of bulkdrugs/excipients: CC = conversion cost; PM = cost ofpacking material; PC = packaging charge; MAPE =Maximum Allowable Post-manufacturing Expenses)


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DPCO, 1987, dugs under price controlreduced from 370 to 142 and higherMAPE provided

The New Drug Policy 1994 liberalised thecriteria for selecting drugs for pricecontrol

DPCO 1995 - a uniform MAPE of 100%was granted

DPCO 1995 drugs under price controlfrom 142 to just 76

The New Pharmaceutical Policy, 2002,number of drugs under price control to

just 38


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MarketSharesofDrugsunderDPCOMarketSharesofDrugsunderDPCO

Year

N mber of

r gs

Approximate

market share (%)1979 347 80

1987 142 60

1995 74 40

2004 38 20


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DecontrolandPricesDecontrolandPrices

Price control and patent regime pricesamong the lowest in the world

Prices started rising as soon as controlswere removed - brand leader is usually oneof the most expensive

Drugs under patent much cheaper in Indiabut off-patent drugs (80-85% of currentsales) are not necessarily cheaper

Prices ofsome top selling drugs are higherthan those in Canada and the UK


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DecontrolandPricesDecontrolandPrices-- InternationalInternationalCostComparisonofSelectDrugsCostComparisonofSelectDrugs

Dr g Dose a a a UK I ia

moxycillin 250 mg 1.75 2.59 2.89

mpicillin 250 mg 1.75 2.42 3.18

rythromycin 250 mg 1.25 2.87 3.28 - 4.17ephalexin 250 mg 3.00 7.74 4.46

ropanolol 40 mg 1.25 0.25 1.39

tenolol 50 mg -- 2.65 1.29

rednisolone 10 mg 1.50 1.09 1.32aracetamol 500 mg 1.25 0.32 0.49

aloperidol 0.25 mg 0.13 1.60 0.55

henobarbitone 30 mg 0.25 0.28 0.50


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DecontrolandPricesDecontrolandPrices

The price difference - no direct interactionbetween the consumer and the drug market

Pharmacists in developed countries - little

influence over the volume of prescription-drug sales - marketing push usually targetsdoctors

Pharmacy owners banded together to form ahuge cartel - All India Organization ofChemists and Druggists (AIOCD)AIOCD forced some drug companies to sign"memorandums of understanding" toincrease profit margins to pharmacies


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CompetitionIssues:CollusionsCompetitionIssues: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 concernMarket becomes smaller due to highmargin - harmful for the long run growthof the industry

December, 2004 the Ministry ofFertilisers& Chemicals tried to bring in curbs on

trade margins by amending the DPCO

Competition Act 2002 - only trade unionsare allowed collective bargaining


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CompetitionIssues:M&AsCompetitionIssues:M&As

Industry is highly fragmented, intenseconsolidation activities expected

Top global pharmaceutical companies areconsolidating impacting in India

Large Indian companies are also expandingtheir reach overseas through acquisitions

The deals will require complex analysis - theimpact on different therapeutic segments

For example, Glaxo-Wellcome-SmithKlineBeecham was allowed to merge conditionallyin EU, divested product categories withcompetition concerns


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CompetitionIssues:Abuse ofDominanceCompetitionIssues:Abuse ofDominance

Patents Act, 1970 has significantimplications for abuse of dominance

Absence of product patent - difficult to

sustain monopolyWTO TRIPS - product patent from 2005

The art of dealing with abuse ofdominance (no experience)

Canada - Patented Medicine PricesReview Board (PMPRB)

Competition Act 2002 provisions notstrong enough


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InLieuofConclusionInLieuofConclusion

Manufacturers demanding more decontrol arguing, competition will improve availabilityand affordability of essential drugs

UPA government's NCMP has promised to "takeall steps to ensure the availability oflife-savingdrugs 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 drugsdo not fall out of price control"


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InLieuofConclusionInLieuofConclusion

Regulatory regime - hard on the manufacturersbut soft on the doctors and the pharmacists

Indian 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 savingproducts at zero duty but for most others, theeffective duty rate more than 56 percent

For scheduled (regulated) drugs, the MAPE is 100percent for domestic and 50 percent for importeddrugs


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Competition Issues in Pharmaceuticals

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