Transcript Size of the Economy - CUTS International

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
Industrial
Number of countries
Developing
Total
Sophisticated pharmaceutical
industry with a significant
research base
Innovative capabilities
10
Nil
10
12
18
Those
producing
both
therapeutic ingredients and
finished products
Those producing finished
products only
No pharmaceutical industry
Total
6
6
(Argentina, Brazil,
China, India, Korea and
Mexico)
7
2
87
89
1
31
59
159
60
190
13
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
Analgesics & Anti- Most are off-patent.
pyretics
DPCO Coverage
High
Players
Major players are Burroughs Wellcome, SmithKline Beecha
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
products
Anti-parasitic
& Low
Anti-fungal
products
Cardiac Therapy
New drugs are many.
Popularly used in India:
Low.
Corticosteroids
All popularly used are offpatent.
Only Rifampicin
Lupin (dominant), Hind. Ciba., Cadila, Glaxo and Hoechst
Relatively low
Anti-protozoal: Nicholas Piramal, SmithKline Beecha
Pharma, Ranbaxy, and Cipla.
Anti-fungal: Bayer, Fulford, Glaxo etc.
Sun Pharma, Torrent, Cadila, ICI etc.
NSAIDs,
Anti- Low
rheumatic products
Respiratory System Very low.
ailments
Vitamins
Off-patent
Low
Key
drugs Glaxo, Crosslands, Wyeth, Fulford, Merind. etc.
Betamethasone and
Dexamethasone
High
Knoll, Roussel, Hind Ciba, Pfizer etc.
Very low.
Anti-cough: Pfizer, Parke Davis, Nicholas Piramal.
Very high
Anti-cold: Burroughs, Alembic etc.
Anti-asthmatics: Cipla (dominant)
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
Year
Number of
drugs
Approximate
market share (%)
1979
1987
1995
2004
347
142
74
38
80
60
40
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
Amoxycillin
Ampicillin
Erythromycin
Cephalexin
Propanolol
Atenolol
Prednisolone
Paracetamol
Haloperidol
Phenobarbitone
Dose
250 mg
250 mg
250 mg
250 mg
40 mg
50 mg
10 mg
500 mg
0.25 mg
30 mg
Canada
1.75
1.75
1.25
3.00
1.25
-1.50
1.25
0.13
0.25
UK
2.59
2.42
2.87
7.74
0.25
2.65
1.09
0.32
1.60
0.28
India
2.89
3.18
3.28 - 4.17
4.46
1.39
1.29
1.32
0.49
0.55
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 prescriptiondrug 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