Analysis of CCI’s Market Study on the Indian Pharmaceutical Sector
[Randeep is a student at Jindal Global Law School.]
The Competition Commission of India (Commission) released the findings of its market research on India's pharmaceutical industry (report) on 18 November 2021. Although the pharmaceutical industry is regulated, the research began in October 2020 intending to learn more about the elements that drive price competitiveness in the industry. The Commission selected the key areas for competition regulation and advocacy in the pharmaceutical industry based on secondary research, stakeholder outreach, and empirical analysis. This article summarises the report's core competitiveness challenges and suggestions, as well as the four specific themes that need additional discussion, namely: (i) the widespread presence of branded generic drugs in India and its consequences for competition; (ii) the importance of trade margins; (iii) the purpose of trade associations; and (iv) pharmacies on the internet. Additionally, the article conducts a cross-jurisdictional analysis to assess the competition concerns that the Commission may have overlooked in its report.
Analysis of the Commission’s Findings
The following are the major competitive problems, as well as some of the Commission’s recommendations for the designated priority areas, as stated in the report:
The Widespread Presence of Branded Generic Drugs in India and Its Consequences for Competition
Since generic medications are identical and interchangeable with their brand-name counterparts, competition in the market is mostly based on price. When generic pharmaceuticals are offered under unique brand names, however, brand rivalry outweighs pricing competition, according to the study. As a result, market leaders in each generic medicine category demand greater rates than their competitors. The research also revealed that one of the reasons for the selling of unbranded generic pharmaceuticals being confined to government procurement agencies instead of the open retail market was the prescription of medicines by brand names rather than common names.
In furtherance of moving generics competition from non-price to price and to alleviate concerns regarding medicine quality the research recommends (i) the promotion/facilitation of generic entry; (ii) prescription by generic drug name; and (iii) pharmacy substitution between generics to alleviate concerns about drug quality and transfer generic competition from non-price to price. In addition, the research recommended, among other things:
Consistent and efficient implementation of established quality standards across states by providing regulators with competent employees with the necessary expertise and skills, cutting-edge infrastructure, and adequate resources.
Improved transparency to fill in the gaps in information on permits, inspections, and non-compliance charges, for example, by publishing and making real-time data/information accessible on a central internet site. Furthermore, the establishment of a readily available, extensive, online, and centralised drug databank that consolidates real-time data on active pharmaceutical companies in the country, as well as their products, production, and marketing organisations, to resolve the information gap in the pharmaceutical sector.
To combat bogus drugs, periodic, methodical, and scientific testing of drugs via sample collecting and testing using a scientific and statistically sound technique is required.
As shown in developed nations, maintaining quality control by adopting good distribution practise (GDP). It was suggested that the Central Drugs Standard Control Organization's proposed GDP guidelines be encouraged and enforced.
Ensure that unbranded generic pharmaceuticals have standard compliance markings as an institutional quality signalling mechanism, which may provide physicians with the confidence they need to prescribe generics.
The Importance of Trade Margin
Pharmaceutical firms compete for storing and marketing their medicines by delivering financial incentives to pharmacies in the form of significant trade margins, according to the report. While this inducement helped new or restricted product portfolio firms to enter the market and develop their market share versus incumbents, it did not result in reduced prices for consumers. According to stakeholder input, these hospital and doctor-run clinics were the principal source of supply for high-margin, high-MRP medications. In-patients are shielded from retail competition since they are frequently required to purchase prescribed medications from hospital pharmacies. While there is a rivalry between pharmaceutical firms on trade margins, there was no motivation for pharmaceutical firms to compete on the ultimate price paid by consumers since there was no meaningful competition at the retail level.
Since the price consequences of high retail margins may be reduced by the successful rivalry between merchants (via price discounts provided to customers), the Commission asserted that it will proceed to dissuade and inhibit: (i) collaborative determination of trade margins by sector; and (ii) any coordinated effort to fix, constrain, or dissuade the providing of discounts by pharmacists and wholesale distributors. Furthermore, the report recommended that trade margins be rationalised by regulatory action by the National Pharmaceutical Pricing Authority (NPPA) to reduce large trade profits. Provided that (i) Commission’s contribution does not extend to ascertaining what the suitable price of the goods should be; and (ii) this regulatory tool may have some distortionary impact, the report recommended undertaking pilot projects across a range of therapeutic classifications to verify the feasibility of trade margin rationalisation.
The Purpose of Trade Associations
Given their frequent violations of the Competition Act 2002 (Act), trade groups can hinder competition by imposing collective control over the access and supply of pharmaceuticals, according to the report. The Commission had earlier sanctioned them and ordered them to stop engaging in anti-competitive practises such as (i) requiring a no-objection certificate (NOC) for the appointment of wholesale distributors by producers, which had the impact of restricting wholesale distributors in a given geographic area; and (ii) imposing product information service (PIS) costs for the launch of innovative drugs in a given geographic area.
While stakeholder input indicated that the Commission's directives to end the practise of mandatory NOC and PIS norms had a strong positive influence, the report urged trade associations to implement efficient competition conformance initiatives to make certain that the associations and/or their participants do not, directly or indirectly, violate the Act's provisions.
Pharmacies on the Internet
Although internet pharmacies were fairly novel in India, the report found that this category grew rapidly, with the pandemic giving a strong push to online purchases of items, including medications. As a result, the main concerns in this area were: (i) online pharmacy discounts; and (ii) the consolidation of personal health information with very few online pharmacies.
The report found that discounting methods can be pro-competitive when they are: (i) offered by new entrants to offset the incumbency advantage; and (ii) given based on efficiency improvements. Nonetheless, as a fact-intensive process, the competitive evaluation of discounts or any other specific behaviour of online pharmacies would have to be done on a case-by-case approach.
In terms of personal healthcare information consolidation, the report found that India's competition rules are broad enough to investigate any potential competition harm induced by unequal data collection/use by digital organisations with market dominance. Furthermore, the report recommended that internet pharmacies apply self-regulatory mechanisms in the areas of data collecting, usage, sharing, and privacy to safeguard patient confidentiality and sensitive private health information until the government passes a data protection law.
Prior to the Commission, numerous other countries' competition watchdogs conducted market surveys and studies on the influence of the pharmaceutical industry on the competition. Similar to its Indian counterpart, the UK Competition and Markets Authority (CMA) has focused on excessive pricing by dominant pharmaceutical enterprises. However, the CMA has also launched several inspections into the so-called 'pay for delay' agreements, which have piqued competition authorities' attention in recent years. In such cases, the incumbent originator enterprise (who has the original product rights) compensates the generic enterprise to abandon or postpone its market entry ambitions. While these agreements may benefit both the originator and the generic enterprise, who benefit from extended market exclusivity and a windfall profit from the originator enterprise, they have been deemed anti-competitive because they are similar to market sharing arrangements and postpone price competition at the cost of healthcare systems.
In the United States, the Federal Trade Commission has subjected pharmaceutical enterprises to litigation in several cases wherein the enterprises have been accused of anti-competitive behaviour through the means of reverse-payment settlements and product switching. Patent conflicts between branded enterprises and generic enterprises are often settled outside the court. These agreements often include the parties agreeing to generic product entry dates, either at or before the branded drug's loss of exclusivity (LOE), depending on expected litigation costs and risk evaluations. The plaintiff branded pharma firm pays the defendant generic medication company as part of a 'reverse payment' settlement. Reverse payment settlements are susceptible to antitrust review, according to the Supreme Court in FTC v. Actavis, since they may impair competition by postponing the debut of a generic rival. Product switching is when a branded drug manufacturer reformulates a branded medicine at or near LOE and induces patients and doctors to switch to the new product. While introducing an upgraded product is not illegal, removing an older product from the market poses a serious competition risk since it might reduce demand for the original branded medicine before generics can reach the market, thereby eliminating generic competition.
With the outbreak of the coronavirus pandemic, guaranteeing the smooth operation of the pharmaceutical industry has become a top priority for both the government and authorities. In light of this, the report is timely in that it examines and addresses current competitive challenges in the areas of medicine distribution, pricing, and availability. To address these vexing concerns, the report offers incisive recommendations for ensuring the pharmaceutical sector's long-term competitive interests. While it is a step in the right direction, a cross-jurisdictional analysis makes it apparent that there still exist some competition concerns in the pharmaceutical sector that the Commission failed to acknowledge, such as 'pay for delay' agreements, reverse-payment settlements and product switching which has piqued competition authorities' attention all over the world. To remedy the competitive landscape of the sector, it is imperative that the Commission takes inspiration from foreign competition authorities and takes the necessary steps to prevent pharmaceutical firms from indulging in the aforementioned practices.