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