Download - 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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PharmaceuticalsRegulationinIndiaPharmaceuticalsRegulationinIndia
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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PharmaceuticalsRegulationinIndiaPharmaceuticalsRegulationinIndia
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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