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Competition Issues in Marketing in the Indian Pharmaceutical Sector

OECD Global Forum on CompetitionFebruary 27-28, 2014

Pradeep S MehtaCUTS International

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Outline

Indian Pharma sector: a snapshot

Systemic issues peculiar to pharmaceutical industry:

Collusive practices among players in healthcare delivery

Coercive practices in the distribution and supply chain

CUTS track record on the subject

Conclusions - more questions than answers!

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Indian Pharma Industry – a Snapshot• Indian pharmaceutical Industry is ranked 3rd in volume

and 14th in value terms globally

• One of the largest and most advanced among the developing countries growing at 9-10% p.a. from a mere US$0.3bn US$ in 1980s to US$12.5bn in 2012

• Highly fragmented with more than 20,000 firms. Top 250 controlling 70% of the market

• Branded generics dominate the market, making up 75-80% of it – considered as generic capital of the world

Access to medicines by the poor is still a problem

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Relevant legislations

• Drugs and Cosmetics Act, 1940.• Drugs and Cosmetics Rules, 1945.• Drugs and Magic Remedies (Objectionable Advertisements)

Act, 1954.• The Indian Medical Council Act, 1956.• Indian Medical Council (Professional Conduct, Etiquette and

Ethics) Regulations, 2002• Essential Commodities Act, 1955• Drug Price Control Order, 1995.

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Regulatory agencies

• National Pharmaceutical Pricing Authority (NPPA)• Central Drug Standard Control Organization (CDSCO)• Drug Controller General of India (DCGI)• Department of Pharmaceuticals, Ministry of Chemicals and

Fertilizers• State level: State Drug Control Authorities

Other key laws and policies that affect pharmaceutical sector include:

• Competition Act, 2002• Indian Patent Act, 1970• TRIPs Agreement• Policies relating to Trade, FDI, Procurement, others.

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Consumer Context

• High out of pocket expenses: World Bank, 2011-12: Out of pocket expense: 86 per cent--highest in the world

• Greater than the smaller neighbouring economies like Nepal and Sri Lanka which is 49 and 44 percent respectively

• In India, health-care expenditures aggravates poverty, resulting in about 39 million people falling into poverty p.a.

• Possible reasons could be: – Low public expenditure on healthcare financing (1.1% of GDP), – Inadequate insurance coverage, – High presence of private for-profit hospitals, and – Doctor-pharma co nexus to raise demands of expensive drugs

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Two major issues broadly

1. Collusive Practices among players in the healthcare supply chain

• Drug Manufacturers– Doctors: – Incentives for Prescribing Irrational Combinations– Prescribing Expensive Brands

• Hospitals/Doctors – Diagnostic clinics: – Frequency of ‘referrals’ for diagnostic tests– Usual practice of paying cuts/commissions to the referring doctors

2. Coercive practices in the distribution and supply chain

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• Recently, GSK accused in China of spending 3bn Yuan ($490mn) in bribing doctors, hospitals and government officers.

• Past five years: $13bn paid as fine by leading firms including GSK, Pfizer, AstraZeneca, Merck, Abbot, Eli Lily and Allergen to settle charges of misleading marketing and bribing doctors

• Such nexus widely discussed and published in Indian media but no documented evidence

• Competition Commission of India failed to take action citing lack of evidence

• However, numerous surveys and interviews indicated collusion is quite common in the pharmaceutical market

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CUTS Prescription Audit Studies

• 1995 survey in six states of India– 26 percent prescription without mandatory diagnosis– About 60 percent of prescriptions were irrational– Polypharmacy was found to be very high

• 2010 survey in the states of Assam and Chhattisgarh– Only 20 percent consumers obtained medicines from

public hospitals as doctors prescribe expensive medicines available only in private chemist shops

– Incidence of polypharmacy and irrational combination is around 50 percent in both the states

Common denominator: ‘incentives’ to mis-prescribe

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And the consequences are….

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Some steps taken, and yet to be taken• Voluntary actions by pharma companies

– GSK announces it will stop paying to doctors for drug promotion– AstraZenaca, ElliyLilly, Abott, Pfizer etc, announced voluntary

disclosure about CMEs, physician payment details on its website• In India, Income Tax Dept announced in 2012 that freebies not

allowable as expenditure, and doctors to pay tax on such freebies

• Department of Pharmaceuticals mulling over mandatory code for pharmaceutical marketing practices by companies

• CUTS submitted a detailed Memo to CCI on such issues in July, 2012 and urged to take Suo Moto/Ex officio action, to no avail

• CUTS also suggested to CCI to launch a survey, but not done

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Coercive practices in the supply chain• Instances of shortage of essential medicines on retail shelves after

new DPCO was announced in early 2013• Many wholesalers and distributors found that their margins were

eroded and stopped distributing some of these drugs• Such practices prevent consumer access to affordable medicines

Source: Times of India, 24 September, 2013

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Collusion along the pharma distribution chain

• These practices have been carried out nationwide for over 30 years

• Ineffectiveness of MRTP Act is the main reason: limited resources, only ‘cease and desist’ orders but with little outcome, because of lack of bite

• Following significant cases handled by CCI in last few years: – Varca Chemist and Druggist and others vs Chemists and

Druggists Association, Goa– Vedant Bio Sciences vs Chemists & Druggists Association of

Baroda– Santuka Associates Pvt. Ltd. vs All India Organisation of

Chemists and Druggists

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Santuka Associates Pvt. Ltd. vs All India Organisation of Chemists and Druggists (AIOCD)

• This is more prominent case against the national level body. The other two were more or less identical but against smaller regional associations

• AIOCD is the body of pharmacies across India having more than 0.75mn members

• Allegations against AIOCD for regularly indulging in following anticompetitive practices:– Distribution tied with No Objection Certificate (NOC) for

appointment of distributor/stockists– Mandatory Advertisement on Launch of New drugs– Demanding high commissions – such margins rarely passed onto

consumers– Boycotting firms not in agreement of above

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CCI Order found AIOCD Guilty-I

1. Requirement of NoC by AIOCD creates a restraint on freedom of trade and has an effect on market supply

2. Requirement of advertisement for launching a product in the markets is an additional and stricter burden borne by drug manufacturers results in entry barrier and hence restrict supply of drugs in the market

3. Agreement to fixed trade margins of the wholesalers and the retailers has the effect of directly or indirectly determining the purchase or sale prices of the drugs in the market, thus reducing competition

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CCI Order found AIOCD Guilty-II

4. Boycotting drug manufacturers is an illegal act having a far-reaching effect on the distribution and availability of drugs: denial of market access and non-availability5. In view of the above anti-competitive practices, the Commission imposed a maximum penalty (INRs 5mn or $1mn) on AIOCD (10 per cent of its turnover)

Alas, the fine based on association’s turnover is grossly inadequate, and should have been levied on the members’ turnover

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Concluding remarks!

The pharma sector is too clever to allow fair competition, they thrive on sickness and unfair practices!