Pharmaceutical Competition Commission Default Navigation Market Research

The Covid-19 pandemic has stayed the course for the pharmaceutical sector. In an iteration of such a goal, the Competition Commission of India (ICC) has stepped up its advocacy efforts, with engagement with industry and recommendations on antitrust issues. Of course, such studies also serve as a precursor to further scrutiny with the possibility of enforcement action (as has been the case in e-commerce and social media for data issues).

In October 2020, CCI announced that it would deepen the competition law issues plaguing the pharmaceutical industry and presented its in-depth study in November 2021. CCI held one-on-one meetings and group discussions with representatives of pharmaceutical companies , resellers, pharmacists, e-pharmacies, professional associations, sector experts, doctors and regulators. He also performed an empirical analysis of pharmaceutical sector data and statistics collected from public and private entities.

In its market research, CCI explored three loopholes in this sector: (i) branded generics versus unbranded generics; (ii) e-pharmacies versus physical stores; and (iii) innovators versus imitators.

Branded generics versus unbranded generics

Generic drugs refer to non-patented products made by various manufacturers. This helps keep prescription drug prices low, lower health care costs, and improve access. These are functionally undifferentiated products that make the generic drug market appear very competitive.

However, only around 10 percent of drugs in the domestic market are ‘unbranded generics’, i.e. marketed with their chemical names, while 87 percent of drugs dispensed are ‘branded generics’. that is, generic drugs sold with a brand. While the former are largely purchased and distributed through our public health infrastructure, the latter are sold in private retail stores. This leads to “brand competition” between manufacturers instead of “price competition” because the price variation between branded and unbranded generics is greater than 100 percent. Therefore, where consumers should ideally benefit from an average of 17 brands for each formulation, they are paying premium for the brand name drugs.

High-priced branded generics have a greater market share than low-cost unbranded generics for three reasons: (i) inadequate information to consumers about drugs; (ii) unobservable quality of drugs; and (iii) prescribing drugs by brand names rather than generic names. In addition, consumer preference for brand name drugs is generally due to the perception that a higher price means better quality.

To allay concerns about the price-quality correlation of drugs, CCI made some recommendations, including the creation of a national digital drug database. In addition to the importance of the Central Organization for the Control of Pharmaceutical Standards (CDSCO) in quality control, CCI insisted on public awareness programs to be carried out to preach the cost-effectiveness and effectiveness of unbranded generic drugs. However, it will face aggressive advertising / promotion from brands.

CCI noted the success of ‘Janaushadi Kendras’ but stressed that the availability of standard-compliant unbranded generic drugs must also increase in the private retail market.

E-pharmacies versus physical stores

Online pharmacies operate under two main models: market / platform and inventory. In the first case, e-pharmacies simply play the role of intermediary, connecting buyers and sellers. While in the latter, they integrate their warehousing functions with carrier and forwarding agents (CF Agents), who work directly for pharmaceutical companies. In the traditional brick and mortar (BM) supply chain, multiple layers increase the cost to the end customer, such as consignee’s agent, warehousing and cold chain management, transportation , C&F agents, stockists, sub-stockists and finally the private retailer.

However, the main difference between the two modes lies in the proximity and immediate availability of the drugs, the additional cost or any other consideration for the consumer. CCI reiterated its position on predatory / large discount strategies used by e-pharmacies, which must be examined in the light of competition based on effectiveness and merits.

CCI also noted that the e-pharmacy space in India is seeing an increase in major mergers and acquisitions, which perhaps means increased scrutiny of the reporting of these transactions.

Innovators vs. imitators

A theme throughout the study was that the presence of multiple brands selling the same generic drug with inherently no real modification stifled innovation. Patented medicines are commercially advantageous for companies because they are insulated from competition for the duration of their patent. Investments in R&D, clinical trials and approvals drastically reduce profits.

A pharmaceutical company could simply continue to manufacture generic drugs at its own price and make big profits by relying on the price-quality correlation of consumers. For example, Diclofenac (100 mg), a pain reliever sold by the market leader, saw a 172 percent price change from a lagging market, making brands immune to competition. by price.

In addition, the study indicated that several major brands have their products manufactured by third parties, who also manufacture the same drug for other pharmaceutical companies. Thus, imitation is easier than innovation, with commercially similar end results.

Conclusion

Extensive data analysis and extensive stakeholder consultations led to a holistic analysis of the pharmaceutical sector in India. Some revelations were well known to industry players but not to consumers. This study should constitute an effective toolkit for the ICC in the field of merger enforcement and control in the pharmaceutical sector.

—Written by Dhanendra Kumar, Former Chairman of the Indian Competition Commission, and Rahul Singh is a partner of Khaitan & Co Mumbai. The authors acknowledge the assistance of Yatharth Singh (Partner, Khaitan & Co Mumbai). The opinions expressed are personal.

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