Competition Assessment of the
Indian Pharmaceuticals Sector
Aditya Bhattacharjea
Fiyanshu Sindhwani
Centre for Development Economics,
Delhi School of Economics
Structure of the report

Introduction
◦ Importance of drug availability and pricing in India
◦ Special features of the market for medicines








Evolution of the policy regime
Empirical analysis of market structure
Competition law
Drug price control
Foreign direct investment—takeovers
TRIPS and patent protection
Public production, procurement and distribution
Competition assessment checklist
Evolution of policy regime
1970: Patents Act and DPCO
 1973 FERA
 Restrictive trade policy
 MRTP Act


Progressive relaxation of all the above
from 1990s
Analysis of Market Structure


For pharma firms in Prowess, Price-cost margin, CR4 and HHI all
show decline since around 2004.
Sharp decrease in ‘entry’ of new firms, significant increase in ‘exit’
 large decrease in net entry
◦ High interest rates
◦ Inability to comply with GMP
◦ Expiry of tax concessions given in HP




Aggregate import penetration has risen
But competition takes place at the level of therapeutic segments or
individual drugs
Calculations for 9 specific dosages of individual drugs show much
higher concentration, increasing between 2005 and 2010 for some
of them (is CR4 > 90% for 500mg calcium tablets and 40mg insulin
injections).
Need to look at firms’ practices. Branding of generics allows
differentiation, marketing and coexistance of high prices with high
market shares.
Structure-conduct-performance
analysis
Carried out for 610 pharma firms in Prowess,
1990-2010. Results contrary to expectations:
 Coefficients for market structure and MSsquared are insignificant
 For log (assets) it is negative and
significant larger firms have lower PCM
 Coefficients for R&D intensity and
advertising intensity are negative and
significant. These raise costs today but
effects are felt later?
 Dummies for TRIPS periods are positive and
significant
Competition law


Ineffectiveness of MRTP Act
Review of all pharma-related cases decided
till now under Competition Act
◦ Three cases of regional chemists’ & druggists’
associations forcing manufacturers to limit
number of stockists, restricting bidders for
government procurement, and fixing trade
margins
 These practices are carried out nationwide
 Fine based on association’s turnover grossly inadequate
 Fixation of trade margins by NPPA: RPM by govt
mandate?
Merger cases

6 pharma cases decided since June 2011; all were approved.

The ultimate control over the parties in the combination remains the same
before and after the combination (intra-group reorganization).

Companies not engaged in similar businesses and no vertical integration
(conglomerate merger).

Absence of one of the parties in India in the business of the other party

Significant presence of other players (no AAEC)

CCI modified non-compete agreement in one instance
But we have identified several mergers that were not screened
because the combined assets or turnovers of the firms were below
the thresholds specified in the Act, or the assets/turnover of the
target was below the threshold specified by the 2011 notification.
Case for reviewing thresholds for this sector?
Closure of several firms: case for failing firm defence?


Trade Policy



Coverage of import licensing brought down
from 1980s, tariffs from 1990s – for most
drugs, now 10% basic duty + 16% CVD +
special CVD 4% + educational cess 3%
SPSS restrictions, incl registration and
licensing of foreign manufacturing premises
in some cases.
Antidumping: India now the world’s biggest
(ab)user; non-market economy treatment of
China (e.g. AD duty on metronidazole since
2000).
Drug Price Control

Review of debate over transition from costbased pricing of 74 drugs under DPCO 1995
to market-based formula (average price of all
brands with >1% market share) for all 348
NLEM drugs in NPPP-2012.
◦ Weaknesses in arguments on both sides
◦ Price controls are usually imposed for natural
monopolies where the number of products and
producers is few and competition infeasible.
◦ Possibility that controlled prices can be used as
focal prices for facilitating oligopolistic
coordination – parallel with cement case?
◦ Example: Diclofenac
Foreign Direct Investment and
Takeovers

Review of Maira Committee Report
◦ Screening by CCI (with extra expertise on health issues)
preferable to FIPB.
◦ Case for reducing merger review thresholds –
Competition (Amendment) Bill 2012.

Review of debate on role of MNCs
◦ Market share of foreign firms has not gone up post-TRIPS
◦ But they are increasingly supplying the market through
imports, esp of high priced patented drugs and also
generics
◦ Effects of takeover on R&D inconclusive, but MNCs
overall have much lower R&D intensity
◦ Too early to detect impact of 2008-10 foreign takeovers?
IPR Issues – Impact of TRIPS
Some evidence that growth rate of R&D expenditure
and the number of process and product patents filed
by leading Indian firms declined after 2005.
 R&D for drugs to treat diseases of greatest public
health importance (malaria, TB) neglected in favour of
‘lifestyle’ diseases by both Indian and foreign firms.
 Encouraging signs of India using TRIPS flexibilities:

 Grant of compulsory licenses for Bayer’s Nexavar and now 3
more cancer drugs.
 Use of 3(d) to deny evergreening patent for minor improvements
in Novartis’s Glivec
 Pre-grant opposition  refusal of patent to Astra Zeneca’s Iressa
 Post-grant revocation of patent for Roche’s Pegasys and Pfizer’s
Sutent
Public production and procurement
In 2008, Health Ministry closed down 3 leading PSUs
on grounds of not complying with GMPs. Reopened
in 2010 but production still far below earlier levels 
govt has to procure vaccines from private producers
at much higher prices.
 Government procurement rules to ensure GMPs
have been struck down by High Courts as excluding
competition without adequate justification.
 Need to provide assistance to smaller units to
comply with GMP and to enforce quality standards
under Drugs and Cosmetics Act. This would increase
competition for bidding and also weaken industry’s
argument against debranding.

Competition Assessment Checklist and Prescriptions

P1 (Fostering Competitive Neutrality) : Closure of 3 PSU’s on grounds of GMP
 Reverse Discrimination. Prescription: Revival package with management overhaul,
but subject to competitive neutrality principles.

P2 (Procedures should be rule bound, transparent, fair and non-discriminatory) :

GMP eligibility conditions rejected by High Courts in drug procurement
Apply GMPs on nondiscriminatory basis, but provide concessional credit to MSMEs.

Antidumping duties on imports: support tightening of AD rules in WTO; take
objections by user industries more seriously.

Tariff preferences extended to (some) SAFTA members: Probably not serious
enough to justify changes

Acquisitions of Indian firms by the FIPB route: Reroute through CCI with lower
notification thresholds and inputs of public health expertise.

P3 (Third party access to essential facilities on reasonable fair terms will ensure
effective competition and therefore, should be provided in law): Use TRIPS
flexibilities more aggressively and resist pressures to impose ‘TRIPS-plus’ conditionalities
Competition Assessment Checklist…

P4 (Ensure free and fair market process):
Move towards debranding after ensuring alternative quality control mechanisms;
expose pharma companies’ unethical attempts to influence prescribing behaviour

P5 (Effective Control of anticompetitive conduct through competition
rules) :

Anticompetitive practices by chemists’ associations

Exclusive Dealing Arrangements

RPM
More suo moto inquiries; impose penalties based on chemists’ turnover, not
associations’; avoid fixation of trade margins in price control

P6 (Notification and public justification of deviations from principles of
competition policy)

Antidumping and SPSS

Review of acquisition proposals through FIPB route

GMP enforcement and exemptions
Give clear public justification for such deviations from competition principles
THANK YOU!

Comments welcome:
aditya@econdse.org
Analysis of Market Structure
CR4
30
25
20
Prowess
IDMA
15
Prowess + Trade
Prowess + IDMA + Trade
Prowess Domestic Sales + Trade
10
5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
Analysis of Market Structure
450000
400000
350000
Rs Million
300000
250000
Imports
200000
Exports
150000
100000
50000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Created by the authors using http://commerce.nic.in/eidb/default.asp; HS Code: 30
Import Penetration Ratio
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Created by the authors using Ministry of Commerce and Prowess Database
2009
2010
Years
Analysis of Market Structure
Therapeutic Category
Anti-infectives
Cardiac
Gastro Intestinal
Respiratory
Pain / Analgesics
Vitamins / Minerals /
Nutrients
Anti Diabetic
Gynaec.
Neuro / CNS
Year: 2005
Molecule
Cefixime Oral Sol. 200 mg
Atorvastatin 10 mg
Rabeprazole + Domeperidone 20
mg
Cough Prep. Ethicals 100 ml
Diclofenac Combination OS 50 mg
No. of
No. of
Drugs/Packs Formulators CR4_Firm
55
61
25
618
231
208
Calcium Oral Solids 250 IU
Human Insulins 40 IU
Conv.Iron Liquid 200 ml
Alprazolam OS 0.5 mg
50
126
85
No. of
Therapeutic Category
Anti-infectives
Cardiac
Gastro Intestinal
Respiratory
Pain / Analgesics
Vitamins / Minerals /
Nutrients
Anti Diabetic
Gynaec.
Neuro / CNS
Year: 2010
51
53
HHI_Firm
66.60
1557.03
47.68
846.43
23
212
136
57.70
41.32
31.50
1370.67
641.79
430.52
134
8
90
69
66.35
97.96
57.89
76.31
1471.19
4566.20
1122.91
1697.31
No. of
Molecule
Drugs/Packs Formulators CR4_Firm HHI_Firm
Cefixime Oral Sol. 200 mg
136
76
854.22
49.10
Atorvastatin 10 mg
87
58
685.27
41.59
Rabeprazole + Domeperidone 20
mg
91
74
33.23
497.40
Cough Prep. Ethicals 100 ml
582
205
34.12
449.77
Diclofenac Combination OS 50 mg
145
96
55.32
963.04
Calcium Oral Solids 250 IU
Human Insulins 40 IU
Conv.Iron Liquid 200 ml
Alprazolam OS 0.5 mg
28
36
148
78
20
10
96
51
95.34
93.35
72.97
71.76
7450.90
4771.17
2492.88
1642.64
Drug Price Control
Diclofenac Combination OS 50 mg
16
14
Market Share
12
Price-Market Share
Scatter
TNMSC Price
10
8
NPPP Regulated Price
6
4
2
Source: Computed by the
authors using IMS data
0
0
1
2
3
4
5
6
Price per tablet (in Rs.)
7
8
9