Competition Law and the Pharmaceutical Industry in India

Yogesh Pai* Dr. Sakthivel Selvaraj K. M. Gopakumar

* Associate Fellow, Centad Health Economist, Public Health Foundation of India (PHFI) Legal Advisor, Third World Network (TWN)

Introduction
Background of the study: Objectives and Methodology and Chapterisation Overview of the Pharmaceutical Industry in India: A Snapshot of Changing dynamics and future challenges The Regulatory web of the Pharmaceutical Sector in India: Implications for Ex-ante Competition The MRTP Experience in the Pharmaceutical Sector Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector in the light of experiences in comparative jurisdictions Competition Advocacy and interventions Conclusion and Draft recommendations

Background of the study: Objectives and methodology

Overarching objective Understand the nature of the pharmaceutical industry and market and explore its implications for industrial capacity, consumer access and public health, with reference to the Competition Act, 2002 Objectives
Present an Overview of Indian Pharmaceutical Industry Strategize means to identify anti-competitive activities prevalent in the pharmaceutical market Examine the industry from horizontal as well as vertical agreement point of view Explore the relationship between pharmaceutical industry and health service providers and the anti-competitive practices prevalent in the market Examine the influence of private nursing homes and drug manufacturers and the purchasing power Emphasis on geriatric medicines Correlate industry dynamics and behaviour with the practices regulated by the competition Act of 2002 by the CCI Explore the possibility of mergers leading to foreclosure of competition. Explore the linkages between abuse of dominance and predatory pricing in the sector Tabulate experiences of jurisdictions with established competition law regimes with reference to the context of the study Propose advocacy strategies

Background of the study: Objectives and methodology

Methodology: Structure based on Competition Assessment framework (CAF): Since economic conditions, laws and institutions can vary greatly between countries, the study has broadly contextualized the framework to the domestic scenario Data on the pharmaceutical industry collected through CMIE, existing studies and reports. Use of Westlaw, Hein Online for study in comparative jurisdictions. Online web resources, websites of comparative competition authorities. Structured and non structured interviews Sample study on potential anticompetitive practices in the pharmaceutical market supply chain. Questionnaire based on Jamaican FTC study framework. Interviews with key stakeholders (as part of ongoing field study) National consultation on the draft study by inviting relevant stakeholders and experts (before final submissions) Chapters: 1) Overview of the Pharmaceutical Industry in India: Changing dynamics 2) The Regulatory web of the Pharmaceutical Sector in India: Implications for Ex-ante Competition 3) Application of Competition Law in the Pharmaceutical Sector: Experiences from the United States and the European Union 4) The MRTP Experience in the Pharmaceutical Sector 5) Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector 6) Competition Advocacy and interventions 7) Conclusion and draft recommendations

Overview of the Pharmaceutical Industry in India: Changing dynamics

The global pharmaceutical industry structure can be divided into two :
The largest firms account for the majority of the R& D investment in the industry and hold the majority of the patents. A small number of MNEs dominate the global pharmaceutical industry, top twenty-five MNEs having accounted for 64.5 percent of the world (2003) Global pharmaceutical sales stood at US $ 712 billion with an increase of 6.4% in 2007.

The Indian Pharmaceutical Industry among top Five producers of bulk drugs in the world Pharmaceuticals market can be roughly classified in to
Bulk drugs (20%) The bulk drug segment of the market has increased in the past decade at around 20% annual growth rate Formulations (80%) Production of formulations has increased by around 15% annually

Firms can be either in production of bulk drugs or formulations or may manufacture both. Firms in to formulations may be further classified into innovating firms and noninnovating firms. However, R&D is insignificant when compared to MNEs. After USA (169), India has the highest number of ANDA approval (132) in US in the year 2007 There are about 8174 bulk drug manufacturing units and 2389 formulations units spread across India. Total: 10563 units

Overview of the Pharmaceutical Industry in India: Changing dynamics

Key Trends in Pharmaceutical Industry (Rs Crores)
Year Capital Investment Production Formulation Bulk Drugs Import Export R&D Expenditure Source: PDRC Reports 1965-66 140 150 18 8 3 3 1980-81 500 1200 240 113 46 15 2184 140 1994-95 1200 7935 1518 1997-98 1840 12068 2623 2868 5353 220 2001-02 2150 13878 3148 3128 5959 260 2002-03 2500 15960 3777 3441 6631 320 2005-06 3200 18750 5113 4267 7980 560

CAGR (2003-03 to 2008)

Exports of pharmaceutical drugs and fine chemicals: 17.8% Imports of pharmaceutical products: 18.4%

Overview of the Pharmaceutical Industry in India: Changing dynamics

Share of MNCs and Indian Companies in the Indian Pharmaceutical Industry
80 70 60 50 40 30 20 10 0 MNC Indian 1952 38 62 1970 68 32 1978 60 40 1980 50 50 Year 1991 40 60 1998 32 68 2004 23 77

Source: Sudip Chaudhuri, The WTO and Indias Pharmaceuticals Industry: Patent Protection TRIPS and Developing Countries, New Delhi, Oxford University Press, 2005. pp 18

Overview of the Pharmaceutical Industry in India: Changing dynamics

Production of Indian Pharmceutical Industry and their ratio
20000 18000 16000 14000 Rs Crores 12000 10000 8000 6000 4000 2000 0 Formulations Bulk Drugs Ratio 1965-66 150 18 8.3 1980-81 1200 240 5.0 1994-95 7935 1518 5.2 1997-98 12068 2623 4.6 2001-02 13878 3148 4.4 2002-03 15960 3777 4.2 2005-06 18750 5113 3.7 4.0 3.0 2.0 1.0 0.0 Formulations Bulk Drugs Ratio 9.0 8.0 7.0 6.0 Ratio 5.0

Source: PDRC Reports

Overview of the Pharmaceutical Industry in India: Changing dynamics

No of Overseas Acquisitions by Indian Companies (1995- Oct 2007)
Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: EXIM Bank

No of Acquisitions 1 1 1 1 1 6 7 12 20 14 14

Overview of the Pharmaceutical Industry in India: Changing dynamics

Indian Pharmaceutical Greenfield OFDI, 1977-March 2007 (USD Million)

Source: Pradhan, Jaya Prakash, (2008)

Overview of the Pharmaceutical Industry in India: Changing dynamics

Flow of FDI in various sub-sectors

20000 18000 16000 14000 12000 10000 8000 6000 4000 2000
Telecommunication Pharmaceuticals Chemicals Automobile Real Estate Construction Petroleum Services Cement Mining Power IT

Inflows of FDI in Pharmaceuticals Industry from 2002-03 to February 2009 (USD Million)

Year
Million US$

FDI Inflows 40 109 292 217 51 181

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Cumulative April 2000-Feb 2009 Source: DIPP

1457

Source: DIPP

Overview of the Pharmaceutical Industry in India: Changing dynamics

Investment by top 20 Pharmaceutical Companies in 2007 (Rs Croress)
S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Company Ranbaxy Ltd Dr. Reddy Ltd Sun Pharma Cipla Cadila Lupin Wockhardt Torrent Pancea Biotech Arbindo Pharma Matrix Orchid USV Indo-Swift Biocon Glenmark Strides arcolab Dabur Piramal Alembic Sales 3656 4146 1722 3658 1759 2052 1189 895 843 1991 776 934 659 356 887 839 395 322 2001 723 R&D Exp 461 293 188 176 162 142 127 112 107 97 92 63 60 59 48 43 38 36 35 35 Investment % of Sales 12.61 7.07 10.92 4.81 9.21 6.92 10.68 12.51 12.69 4.87 11.86 6.75 9.10 16.57 5.41 5.13 9.62 11.18 1.75 4.84

Indian % Investments in R&D has not been substantial even while top firms have geared up to product innovation

Report of the Taskforce (2008), Ministry of Commerce and Industries, Dept. of Commerce, Govt. of India

Overview of the Pharmaceutical Industry in India: Changing dynamics

Worldwide Patent Filings of Leading Indian Pharmaceutical Firms

Overview of the Pharmaceutical Industry in India: Changing dynamics

R&D Expenditures in Major Sectors Indian Industry (US Million $)

Source:Dhar and Gopakumar (2006)

Overview of the Pharmaceutical Industry in India: Changing dynamics

R&D Intensities of Global Pharmaceutical Major in 2004-05

Source: Dhar and Gopakumar (2006)

Overview of the Pharmaceutical Industry in India: Changing dynamics

Report of the Taskforce (2008), Ministry of Commerce and Industries, Dept. of Commerce, Govt. of India

Clinical Research Organisation Market-size of India (USD Million)

Report of the Taskforce (2008), Ministry of Commerce and Industries, Dept. of Commerce, Govt. of India

Clinical Research Organisations in India Cost advantage in Clinical research organisations and the market size.

Overview of the Pharmaceutical Industry in India: Changing dynamics

Size-wise Classification of mergers

Spatial Classification of mergers

Ownership patterns of mergers

Source: Beena, 2006

Overview of the Pharmaceutical Industry in India: Changing dynamics

Drugs sales and its Brand Equity

Current retail market pegged at US $ 7.8 US Billion and estimated to reach US$ 16 Billion by 2015. (Dept of Commerce Taskforce Report) Existing level of competition in the retail market in India (Jha, 2008)

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition

Ex ante application of different policy and legal interventions can have positive and negative implications on the dynamics of competition in the pharmaceutical sector. No single sector regulator in pharmaceuticals: This presents challenges in coordinated single national strategy Draft National Pharmaceutical Policy, 2006 Innovation and Regulation Issues: Creative destruction and the innovation paradox The innovation productivity crises in the global pharmaceutical industry; focus on me too drugs. The innovation structure in linear and on a patent based framework Upstream technologies can be patent protected Public funded R&D protection; Open source innovation; National Innovation Bill, and miscellaneous policy interventions- their implications for ex ante competition Intellectual Property Rights and implications for ex-ante competition Patents (Patents Act, 1970, as amended up-to 2005)

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
Nature and content of the patent law: the complexity of patent scope Scope of patentability: Sec 3(d) and its experience in evaluating pharmaceutical applications Working of the Pre-grant and post-grant opposition Mechanism Acquisition and enforcement Substantial patent applications under mail-box may involve NCEs disclosed pre-1995 Recent landmark judicial trends under patents law Madras High Court Decision in Novartis case (2007) Delhi High Court Decision in Roche v. Cipla (2009) Rigid mechanism of Compulsory Licensing Mechanism under the Patents Act (the regulatory interface with competition law) Grounds for Compulsory license Some instances of abusive conduct may be remedied under patents Act on ex ante basis Not a single instance of application made post 2005 Overly rigid procedural requirements. Waiver requires the govt. to notify on health emergency grounds; in normal instances expiry of three years duration is essential

Limited scope of patent law limitations and exceptions: research exemption, Bolar provisions, Government use, Parallel imports etc

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
The Trademarks Act, 1999 Parallel imports of trademarked goods Differential standard test for evaluating consumer deception in case of pharmaceuticals? Use of international non-proprietary names: Implications for competition

Institutional challenges in avoiding abuse of Intellectual Property rights Drug Regulation and Competition
Less than 0.2% to 0.3% spurious drugs in the country as per Parliament question number 1084. Amendment of Schedule M of Drugs and Cosmetics Act, 1940 (GMP Compliance and Competition)
Najma Heptullah Committee Report Small scale pharma perceives threat Closure and opening of Govt. Vaccines units due to Schedule M Some standards may unscientific and overly burdensome undermining the competitiveness of the small scale pharma industry

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
Drug Marketing approvals and Competition
The Central Drug Authority (amendment) Bill

Follow-on biologics and ex-ante Competition: Changing dynamics in the generics landscape? Data-protection and Competition
Impact of Drug-patent linkage: recent Delhi High Court Order expecting the drug controller to comply police patents before granting marketing approval

NPPA, Price controls and ex-ante Price Competition

Prior to 1962 there was no price control, price of medicines were high, domination of MNC. First Price regulation in Medicines was introduced in 1962. In 1970, the Drug Prices Control Order issued under the Essential Commodities Act, 1955. Subsequently DPCO was revised in 1979, 1987 and 1995

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition Price Control Regime in India
The Honble Supreme Court in the K.S. Gopinath case (2003), directed the government to ensure that essential and life-saving drugs do not fall out of price control Study by NPPA (Pandey, 2008):15 TOP FORMULATIONS of 15 TOP BULK DRUGS which remained under Price Control in DPCO,1995/ went out of Price Control in 1995. (1994 Prices compared with July,2007)
Comparison Price Increase Price Decreased Total Price increase / during the period reduction Unit Nos Nos. Nos. % DPCO 6 9 15 10.3% Non DPCO 15 15 117.8%

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
Under the current DPCO 1995, the Retail Price are fixed as follows
Year Number of Drugs Approx Market Share (%)

(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 Postmanufacturing Expenses)

1979 1987 1995 to 2009

347 142 74 74

80 60 40 20

DPCO 1995 - a uniform MAPE of 100% is granted

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition

Pricing of Patented Drugs: No Price Controls in India

National Pharma Policy (2006) requires price negotiations of patented drugs. Growing evidence of over pricing of patented drugs (at-least 10 patented drugs are available in the market- all are imported formulations): For e.g.: Valganciclover (priced @ 1040/450 mg tablet); Erlotinib (priced @3841/100mg tablet); Pegylated interferon alfa-2a (priced @18200/180mg PFS) Dept. of Pharmaceuticals in currently trying to experiment models on mandatory price negotiations for patented drugs and medical devices. However, the mechanism is beset with problems. Experience from other jurisdictions shows that price negotiations do not work in the direction of reducing costs: The Price negotiations model: Three categories identified for Price Negotiations Patented drugs with substantial therapeutic benefits and no-equivalents available Patented drugs with substantial therapeutic benefits and equivalents available Patented drugs with no therapeutic benefits

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
The first category identified for price negotiations Lowest international reference price (market price) 40%-70% reductions for prescriptions generated from public health facilities Challenges in the Price negotiations: Does it lead to affordable prices? Public procurement and Competition Drug Expenditure by Govt. (All-India): Drugs & Med. ( Mln): 18890.38 Health Exp. (Rs. Mln): 1962636.86 % of Drugs to Health Exp: 9.63 Tamil Nadu Model (TNMSC) Covers 12000 medical facilities No recorded evidence of bid-rigging or other anti-competitive activities due to structural and institutional settings of the TNMSC model Efficiency in quality and supply Emerging challenges in the TNMSC model Practices in the Central Govt. Procurement and others Minimum turnover clause: For participating in public procurement (20-50 crore) turnover must be shown- this will exclude small scale industry competitors from the market E.g. Indian Railways has fixed Rs. 50 crore as the benchmark

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition

Drug procurement prices v. retail prices (Sakthivel, 2009) Monoposony v. Monopoly

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
Taxing and ex ante competition issues: Major findings of the NIPER study on Price comparison of the drugs manufactured in the exempt v. non-exempt states Opening up of Generic stores in each districts (Jan Aushadhi shops) Prices most competitive

Insurance can complement or distort incentives for consumers to avail cheaper drugs- not much of a concern where insurance penetration and prescription drug coverage is scant. Ministry of Health universal health insurance coverage may change the dynamics

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition Consumer Issues: Source of Healthcare Spending
Interaction between consumer health care and competition
Poverty and health care spending: Probability of the poor falling sick is 2.3 times more. A Rs. 1000 increase in per capita income increases life expectancy at Birth by 3 years. An Estimated 3.3% of the population is getting pushed below poverty line on account of medical treatment
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Medicines Other Expenditure Medicines Other Expenditure

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition Consumer Issues: Source of Healthcare Spending
Private Firms 3% Central Govt. 7.2% Local Govt. 2.2% External Funds 2% Public Firms 2% NGO s 0.3% O thers 0.1%

State Govt. 14.4%

90 80 70 60 50 40 30 20 10 0 Drugs to IP Drugs to OP Drugs in OOP

Households 68.8%

% S p e n t o n D ru g s

Rural India
Source: Sakthivel Selvaraj (2009): From NSS, 1999-2000.

Urban India

IP-Inpatient; OP-Outpatient; OOP-Out-of-pocket

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition & Consumer Access Issues WPI on Drugs and Medicines and WPI on All Commodities (1993-2004)
275 255

Drugs & Medicine All Commodities

235

215

Price Index

195

175

155

135

115

95

1 993-94

1 994-95

1 995-96

1 996-97

1 997-98

1 998-99

1 999-00

2000-01

2001 -02

2002-03

2003-04

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition & Consumer Access Issues
Pattern if per capita monthly out of pocket expenses on medicine and health care in 1999-2000

Source: Computed from NSSO Report 461, 55th Round

Out of pocket expenses in India (2000), Centad study on Economic Constraints for Access to medicines (2006)

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition & Consumer Access Issues Increasing shortages of UIP Vaccines Demand & supply of UIP vaccines has been erratic
UIP vaccine DPT DT TT BCG OPV Measles Hep.B 1991-92
(in lakh doses) Demand 1320.24 350.00 1190.00 500.60 1550.60 500.00 ----Supply 1270.30 650.82 2319.71 168.50 950.50 680.00 ---Demand 1916.96 378.01 3651.45 894.94 4823.66 2688.10 843.83

2006-07
(in lakh doses) Supply 1636.88 370.29 2887.94 758.66 4812.48 2688.10 843.83

Source: Y Madhavi, NISTADS, 2009. Compiled from Annual reports of Health Information of India 1991 to 2004-05 and national Health Profile 2007

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition Matrix of Promotion (Amitava Guha, 2009)

Pharmaceutical Company Marketing Departments use...

Sample Re pre se ntative Visits
Ind ust r y p aid meals

Conference Travel Gifts

C o mp any Sp eaker s

CME Funding
R esear ch F und i ng

Advertising
DTCA
Pr ess r el eases Pr o f essio nal Jo ur nals

Consumer

Presciber

Pharmacist

to influe nce ...

Consumer

Pharmacist Precriber

who in turn can influe nce ...

Consumer

Prescriber

Pharmacist

who in turn can influe nce ...

Feedback captured by various mechanism related to each target group

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition
Perception of the Pharmaceutical Industry

Possible Anticompetitive Practices in the Pharmaceutical Market Supply Chain In India, a CUTS study has already identified certain anticompetitive practices prevailing in the Indian pharmaceutical market A Centad Sample Study as part of this project is ongoing. The sample study has encompasses structured interview questionnaires to select hospitals, medical practitioners, medical representatives, retailers, wholesalers Many non-structures interviews conducted during this project point to various anticompetitive practices condemned by the Competition Act, 2002

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition

CUTS Study (2006) and NPPA Fact sheet retail margins

The Regulatory web of the Pharmaceutical Sector in India: Its implications for exante Competition Survey of web of laws governing the supply chain and health care professionals

The Surveyed Acts

Drugs and Cosmetics Act, 1940 The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 Indian Medical Council Act, 1956 Consumer Protection Act (CPA), 1986 The Pharmacy Act, 1948 Indian Medical Council Act, 1957 Code of Medical Ethics Regulations, 2002 MCI Regulations, 2000 Voluntary code of OPPI, IDMA etc Other miscellaneous regulations

The regulatory survey revealed the following

No adequate framework to regulate perverse incentives and promotional materials The Drugs and cosmetics act does prohibit promotion of drugs before registration with a Drug Regulatory Agency

The Regulatory web of the Pharmaceutical Sector in India: Its implications for ex-ante Competition Survey of web of laws governing the supply chain and health care professionals
There is no practical legal distinction made between prescription and nonprescription medicines DTCA of prescription pharmaceuticals allowed: Certain advertisements may run foul of the law There is no adequate regulation on prohibiting promotion of drugs inconsistent with approved information There is no adequate regulation on prohibiting promotion in disguise There is no statutory framework, except the code of ethics of the Medical council of India to suggest that no gifts/financial benefits/benefits in kind should be offered to health care professionals as inducements to prescribe particular medicines? Drugs and Magic Remedies Act does not have a full proof mechanism to require that promotional materials are submitted for pre-approval Except for the Advertising standards council of India code, no other statutory provision can be pointed out that sets out specific standards in relation to information available on the internet i.e. to prevent consumers from gaining inappropriate access to information

The MRTP Experience (some cases)

Director-General (I & R) V. All India Organization of Chemists and Druggists and Ors. (Restrictive Trade Practices Trade Enquiry No. 193 of 1986) Issue concerned obtaining letters of no-objection certificates (NOC)/letters cooperation (LOC), before marketing a new product. That guidelines so prescribed are also in violation of section 33(1) (a) and 33(1) (j) of the Act, thereby prejudicial to public interest. Director General (Investigation and Registration) V. Biddle Sawyer Ltd. (R.T.P.E. No. 59 of 1999) Issue of under-utilization of installed capacity of the unit. Price maintenance Union of India (UOI) and Anr. V. Cynamide India Ltd. and Anr. etc. AIR1987SC1802 Pricing of Non DPCO Drug. While deciding on the crux of the issue of interests of the manufacturers of determining the price of the drugs, the court was of the opinion that the interests of the manufacturers are not to be discouraged at all by price controls. In Re Sarabhai M. Chemicals P. Ltd and Anr. V Respondents (MRTPC RTP Enquiry No. 45 of 1975) and RTP Enquiry No 45 1975

The MRTP Experience

Director General (Investigation and Registration) V. Fulford India (RTPE No. 63 of 1999) Drug promotion by sampling: held since the drug so concerned has to be prescribed by the registered practitioner, the court presumed that samples of drugs were to be tested first and then medicated. It was also agreed with the since marketing is one of the essential concomitant of sale, considerable cost is also incurred in the same. Director-General (Investigation and Registration) V. Indian Drugs Manufacturers Association and Anr [1992]73 CompCas663 (NULL) The inquiry related to an increase in the price of drug owing to an agreement reached between the respondents for fixing uniform discount over the whole-sellers and the retailers. Held any agreement between the buyer and the sellers not hit by MRTP. Director General (Investigation and Registration) V. Infar (India) Limited (R.T.P Enquiry No. 320 of 96) Resale price maintenance case. Tribunal was of the opinion that since the prices are mentioned as maximum retail prices, it is obvious that the retailers are authorized to sell the drug less that what has been prescribed in the list. So retailers are in complete freedom fix the price below the price so mentioned in the list.

The MRTP Experience

In Re: All India Organization of Chemists and Druggists and Ors. (Restrictive Trade Practices Enquiry No. 51 of 1986) Young Medicos Cultural Organization v. Pharmaceuticals Wholesalers' Association, [1993] 3 Comp LJ 123 (MRTPC) it was held that the boycott of the life saving drugs brought about by the active connivance and encouragement of the errant parties is a restrictive trade practice as it causes to consumers and general public considerable suffering because of non-availability of the medicines. Director General (Investigation and Registration)Vs. Pfizer Ltd. (Restrictive Trade Practice Enquiry No. 15 of 1997) Director-General (Investigation and Registration)Vs. Zandu Pharmaceutical Works Ltd. [1994]81CompCas 377(NULL) The commission was of the view that the price enumerated less than what has been prescribed in the list is no way in violation of the act. Furthermore giving discounts or issuing free items along with the drug is not deemed to be prejudicial to public interest or is violation of restrictive trade practices act. The commission did not affirm with the charges so leveled in the case.

The MRTP Experience

Synbiotics Ltd., a pharmaceutical company, allowed certain discounts to its pharmacists. This was upheld as in accordance with the MRTP. It was held to be a mercantile practice prevailing and permissible under the law for promoting the sale of pharmaceutical products. [2001 CTJ 45 (MRTP) Director General (I&R) v. Stangen Pharmaceutical Ltd. [2005 CTJ 82 (MRTP)] Director general (I & R) v. Jagson Pal Pharma Ltd. [2002 CTJ 151 (MRTP)] Director General (Investigation and Registration) Vs. Parke Davis India Ltd. and Ors (I(2004)CPJ15(MRTP))
Loan License Agreement with the Small Scale Unit for manufacturing the impugned formulations with the sole purpose of circumventing the need for prior approval of price fixation. Held: the commission has to prove that the alleged trade practice can be called a restrictive trade practice only, if it has the effect of preventing, distorting or restricting competition, has to be satisfied. The commission was dissatisfied with the enquiry proceedings and did not find any substantial material in the matter and decided in the negative.

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Defining relevant product market in pharmaceuticals Pharmaceutical markets are different as conditions prevailing in others do not prevail in this sector.
The conventional SSNIP test presents very important challenges: Are pharmaceutical markets different? Does the Cellophane Fallacy apply? Who is the consumer? Limited price sensitivity is shown by consumers! Does price matter? In prescription drugs, the ultimate consumer is not the buyer. The doctor is the buyer, the consumer only pays. The costliest brand is the highest sold even in the presence of substitutes There are no practical constraints in setting market prices in drugs A single drug may constitute a relevant product market? Competition in this sector may largely on non-price grounds Interchangeability may be difficult Do generics constitute a different market from those of patented drugs?

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Defining relevant product market in pharmaceutical in lieu of section 2(t) definition: The standard approach is the use of therapeutic classification (Anatomical Therapeutic Chemical (ATC) Classification) is resorted to. The WHO maintains the classification and is accessible on through the website The EU maintains similar classification. How is the ATC defined? The ATC classification groups drugs as per the organ or system for which they are developed to target. The first level is ATC1 The therapeutic, pharmacological and chemical properties are in ATC 2, 3 and 4. The fifth level can used at an increased level of sophistication. Astrazeneca case (2005) and evaluating relevant product markets (EU) Evaluation in the EU pharma inquiry context is yet to be seen SmithKline Corp. v Eli Lilly (1978) US 3rd CAFC Barr Laboratories, Inc. V Abbot Labboratories

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Review of US FTC cases points out to the following considerations Whether the drugs treat the same diseases, condition, or indication Whether the drugs treat a disease by interacting with the body in the same manner (whether they have the same mechanism/action) Whether the drugs have the same specific chemical compounds Whether drugs have the same dosage form such as injectible, liquid, capsule, tablets etc.. Whether drugs have the same frequency of dosage Whether they are branded or generics Whether they require a prescription or are sold over the counter Whether they are currently marketed or in development

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Anticompetitive agreements Section 3, which prohibits such agreements. Section 19, which provides for inquiry into anti-competitive agreements. Section 27, which concerns orders, passed by the Commission after inquiry into agreements or abuse of dominant position They are one of the strongest provisions in the Act- The AAEC test Vertical restraints: Most practices that were studied in the pharmaceutical market supply chain can be violative of section 3(4) when r/w section 19

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Horizontal Agreements (sec.3 r/w 19): Difficulty in evaluating evidence of anticompetitive horizontal agreements Case laws from Comparative jurisdictions Vitamins Cartel OJ [2003] L6/1, [2003] CMLR 1030 (EU and other jurisdictions) Roche, BASF, AVENTIS fined Euro 855.23 million Sandoz Proditti Farmaceutici v. Commission (1990 ECR I-45) Bayer v. Commission (2004) Danish Association of Pharmaceutical Producers and the Danish Ministry of Health (EU) (Quota sharing arrangement Will restraints in licensing IP not covered by Patents Act be violative of section 3 (3) (b)? EU Technology Transfer Block Exemption (Regulation 772/2004) Block Exemption and its scope under the EU (article 5 exceptions) US FTC-DOJ guidelines on Licensing Intellectual Property Patent pools, standardisation and IPRs Will deceptive and misleading advertisement fall foul of section 3?

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Patent Settlements ( they can be violative of section 3) Reverse payments: payments made patentees to the competitors wanting to challenge patents. Such payments to competitors may even exceed profits which such competitor would have made by entering into the market. Are they natural extension of patent rights? Greater chances of the patent being invalid when challenged by generics- Some recent trends and patterns Reverse payments in the Indian Pharmaceutical Industry: No recorded evidence in the Indian context as yet, Ranbaxy decided to drop lawsuits in different foreign jurisdictions after the Daichi takeover. Position in the US: Courts have had a pro-settlement approach: Reasoning- such agreements reduce costs and increase innovation; they are natural by-products of patent protection
In re Cardizem CD Antitrust Litigation- per se illegal: Only potential competitor would refrain from marketing its generic version of Cardizem CD even after obtaining FDA approval. Schering Plough; Tamoxifen and Ciproflaxacin case The pending Cephalon case

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Medicare Prescription Drug, Improvement and Modernization Act, 2003 requires parties to provide notice of settlement agreements to antitrust enforcement agencies Agreements not to compete FTC against US courts unwarranted leniency: Arguments for declaring them as per se illegal Cephalon, Inc., Civil Action No.: 1:08-cv-00244 (D.C.D.C.) Agreements on Price or Price-Related Terms Colegio de Optometras de Puerto Rico, C-4199 (consent order 2007) and others The EU Pharmaceutical Sector inquiry During the period 2000 2007 originator companies spent on average 17% of their turnover from prescription medicines on R&D worldwide (approximately 1.5% of turnover was spent on basic research to identify potential new medicines, the rest mostly on (pre-)clinical trials and tests). Products and Patents Patent Filing and Patent Enforcement Strategies Patent-Related Exchanges and Litigation Settlements and Other Agreements Other Practices Affecting Generic Entry Cumulative Use of Practices against Generic Companies

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Abuse of Dominant position Section 4, r/w section 19 Possibility of emergence of super dominance patented products market leading to monopolistic pricing. Presumption in case of patented products? A 2007 Report of the Office of Fair Trade (UK) recommended that pharmaceutical price regulation scheme should be reformed in order to make the prices paid by NHS reflect the therapeutic value to patients of the drug in question Dominant position: Hoffman-La Roche v Commission (1979)- large market shares may in themselves be evidence of a dominant position, save exceptional circumstances Vertical integration as a barrier for entry Existence of IP (Tetra Pak 1 (BTG License)- entry barriers Abuse: Price and non-price Comparative jurisdictions have not shown active interest in price regulation United Brands jurisprudence Deutsche Post AG (2001) GlaxoSmithKline (EU) T168/01- case of dual pricing However, the South African Competition Commission has some experience: Harmony Gold Mining Co Ltd v. Mittal Steel South Africa Ltd (2007) GSK and Boehringer-Ingelheim issues licenses on ant-retroviral after threat from SA Competition Tribunal : Royalty decided at 5%

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Refusal to License IP and the Essential Facilities Doctrine Trinko (US Jurisprudence) v. Microsoft (EU jurisprudence) Predatory pricing activities has been experienced in comparative jurisdictions soon after the expiry of the patent to restrict generic entry GlaxoSmithkline France (EU Case): Held that GSK held dominant position in the market for an injectable antibiotic. The Council endeavored to show that the laboratorys predatory pricing policy had been implemented in a related market for the purpose of forcing out the competing generic drug manufacturers in order to enable it ultimately to raise its sale prices. Napp Pharmaceutical Holdings Ltd (2001): Predatory and excessive pricing AstraZeneca (2005): It can be an abuse of dominant position to misuse the regulatory process (patents)- Commission- Case in appeal to CFC

Competition Law in India: Challenges in its application and in the Indian Pharmaceutical Sector
Regulation of Combinations (section 6 r/w section 20)
Issues in identifying relevant markets in combinations The AAEC test in case of combinations and evaluating efficiencies Combinations that can harm generic competition- reduction in price competition Elimination of substitute products from the market and foreclosure of competition Change in generic firms strategy after acquisition

Case laws from Comparative jurisdiction Recent US FTC consent orders: Mylan/Merck and Sun/Taro: existence of multiple generic version meant that patented products no longer constrain the price of generic drugs; ordered divestment of products (2008) American Home Products Corporation/American Cyanamid Company, 119 F.T.C. 217 (1995) (consent order) Pfizer Inc. and Pharmacia Corporation

EU Commissions Guidelines on Assessment of Horizontal Mergers

Competition Advocacy
A Muliti-pronged strategy for creating awareness about competition issues on ex ante basis. Since there are different actors in the Pharmaceutical industry and healthcare markets, strategies can be specifically with reference to: The need that generic companies must take initiatives in effectively challenging patent grants. Industry associations must be made aware about possible anticompetitive effects of acquisitions and mergers of generic companies. Need for generating awareness among patent offices about anticompetitive effects due to wrong application of patentability standards prescribed under the law Need for generating awareness among S&T authorities about the implications on normative IP framework in case of Public funded Pharmaceutical R&D in the light of experiences from comparative jurisdictions Concerted efforts for generating awareness about the loopholes in the law regulating actors and activities in the pharmaceutical supply chain Need to create awareness among the Drug regulatory authorities about possible impact of Drug-patent linkages and issues around Data Exclusivity and Competition Need to sensitize the NPPA about pricing issues connected to patented drugs and other branded generic medicines Need to create awareness among the Drug regulatory authorities about possible impact of standardisation on the competitiveness of small scale enterprises

Competition Advocacy
Need for creating awareness among government Agencies involved in drug procurement so as to adopt best practices in drug procurement largely based on the Tamilnadu model. Need to sensitize Government agencies about impact of minimum turnover requirement in case of drug procurement Need for Generating awareness among various actors in the supply chains
Medical Practioners should be sensitized about the importance and efficacy of generic medicines for prescription Marketing reps. and companies must be made aware of ethical standards of marketing, drug promotion and awareness and must built around direct to consumer advertising. A proper statutory framework must be proposed. Wholesalers and retailers must be made aware of possible actions against them for keeping supranormal margins through anticompetitive agreements. Hospitals with drug outlets must be asked to streamline their procurement policies and adopt best practices in procurement. Issues for advocacy involve excessive pricing and profit margins maintained by such outlets Jan Aushadhi must be popularized on an all India basis. Rashtriya Swasthya Bima Yojana, 2008 must be popularized

Need for greater consumer awareness about generic drugs

Need for greater consumer awareness about health insurance Other Government agencies must be made aware of evaluating their actions by keeping in mind the competitive structure of the Indian pharmaceutical industry and consumer access from a health care perspective

Draft Conclusions (pending results from field

sample study)
It is noted worldwide and in India that the Pharmaceutical industry is prima-facie not functioning in a competitive market framework due to the unique characteristics prevailing in the industry, behaviour of actors and markets characterized by asymmetries in information and structural uniqueness. The industry is in need of more regulation since there is no sector regulator. Competition law can fill in the essential gap. Healthcare concerns (affordability and access for consumers must be central to maintaining sustainable and competitive industry framework). Market competition fairly inadequate for bring down drug prices Post-2005 scenario presents challenging issues concerning access to patented knowledge and patented drugs Consumption pattern are not affected by prices. Sans price controls, negative consumer welfare implications evident. Pricing of patented and branded generics outside the scope of price control is a major concern. Price negotiations on patented drugs may not ensure affordability and could undermine other best available alternative public health safeguards. Price control of patented drugs is the essential. Price control must also extend to branded generics and all drugs in the National Essential Drug List Assessments of relevant product markets in case of pharmaceuticals is different and complex. Unique characteristic of pharmaceutical markets must be considered as discussed in the study.

Draft Conclusions (pending results from field

sample study)
Pharmaceutical industry is facing increasing consolidation. It will be important to evaluate unique characteristics of the Indian industry and consumer needs while evaluating efficiencies in combinations. Generic availability and change in priorities of firms focus must be evaluated. Acquisition and enforcement of patents and abuse of regulatory procedures needs to be closely watched. The relationship between IPR and Competition law must be further studied with specific emphasis on the pharmaceutical sector. Patent settlement and agreements not to compete must be condemned per se. Public procurement of drugs may involve concerns for competition unless procurement policies by all states are not streamlined. The pharmaceutical supply chain is complex and not well regulated. Further studies in the nature of a Drug Regulatory Audit may be conducted. Many practices in the pharmaceutical supply chain can involves concerns of competition Hospital procurement and pricing policies involve anticompetitive concerns Medical practitioners are influenced by unethical drug promotion in favour of branded medicines. Direct to consumer advertising is in need of further regulation. Voluntary guidelines for drug promotion has not worked. Need for a stringent statutory framework. Very low level of consumer drug information and consumer awareness about generic medicines

Thank You