Memorandums for Companies

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					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
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
The global Scenario
   Stage of development                     Number of countries
                               Industrial      Developing             Total
Sophisticated pharmaceutical      10                 Nil               10
industry with a significant
research base
Innovative capabilities           12                   6               18
                                              (Argentina, Brazil,
                                            China, India, Korea and
                                                    Mexico)
Those      producing    both       6                   7               13
therapeutic ingredients and
finished products
Those producing finished           2                  87               89
products only
No pharmaceutical industry         1                 59               60
Total                             31                 159              190
 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
     Different Therapeutic Segments
Product category   Patent Coverage                DPCO Coverage      Players
Analgesics & Anti- Most are off-patent.           High               Major players are Burroughs Wellcome, SmithKline Beecham
pyretics                                                             Hoechst and Wockhardt.
                                                                     A large number of local players
Antacids and Anti- High                         High                 Antacids: Knoll and Parke Davis.
ulcerants                                                            Anti-ulcerants: Glaxo, Cadila, Ranbaxy, Dr Reddy’s Labs etc
Antibiotics        Old generation - off-patent. The           latest Glaxo, Ranbaxy, Cipla, Hoechst, Alembic, Burroug
                   Newer generation - High      generation drugs     Wellcome, Ambalal Sarabhai etc.

Anti-tuberculosis   Low                           Only Rifampicin     Lupin (dominant), Hind. Ciba., Cadila, Glaxo and Hoechst
products
Anti-parasitic    & Low                           Relatively low      Anti-protozoal: Nicholas Piramal, SmithKline Beecha
Anti-fungal                                                           Pharma, Ranbaxy, and Cipla.
products                                                              Anti-fungal: Bayer, Fulford, Glaxo etc.
Cardiac Therapy     New drugs are many.           Low                 Sun Pharma, Torrent, Cadila, ICI etc.
                    Popularly used in India:
                    Low.
Corticosteroids     All popularly used are off-   Key         drugs Glaxo, Crosslands, Wyeth, Fulford, Merind. etc.
                    patent.                       Betamethasone and
                                                  Dexamethasone
NSAIDs,       Anti- Low                           High              Knoll, Roussel, Hind Ciba, Pfizer etc.
rheumatic products
Respiratory System Very low.                      Very low.           Anti-cough: Pfizer, Parke Davis, Nicholas Piramal.
ailments
                                                                      Anti-cold: Burroughs, Alembic etc.
                                                                      Anti-asthmatics: Cipla (dominant)
Vitamins            Off-patent                    Very high           E-Merck, Pfizer, Glaxo, Abbott etc.
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
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
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
 Pharmaceuticals Regulation in India
During 1970, the Indian Patents Act (IPA) and
the Drug Prices Control Order (DPCO) issued
under the 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)
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
Market Shares of Drugs under DPCO


          Number of   Approximate
   Year   drugs       market share (%)
   1979   347         80
   1987   142         60
   1995   74          40
   2004   38          20
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
Decontrol and Prices - International
Cost Comparison of 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 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
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
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
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
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"
 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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