On November 18 2021, the Competition Commission of India released the key findings and observations of its market study on the pharmaceutical sector in India, which was initiated in October 2020, with the objective of understanding issues such as: (i) the factors that influence price competition in the pharmaceutical sector; (ii) pharmaceutical distribution and the role of trade associations; (iii) trade margins and drug pricing; (iv) prevalence of branded generic drugs in India; and (v) impact of online pharmacies on competition.

1. Trade Margins

• The Competition Commission of India (‘CCI’) has noted that high retail margins set in relation to the non-scheduled drugs by manufacturers acts as financial incentives for chemists to stock and dispense their brands and keeps price competition at bay. Further, the CCI has noted that hospital pharmacies and doctor-run pharmacies are also a key route for the supply of high margin, high MRP drugs. In addition, the CCI has noted that manufacturers extend discriminatory pricing/margin vis-à-vis

• The CCI has observed that trade margin rationalization, i.e., capping of trade margins, may prove to be effective. However, it has identified that trade margin rationalization may also result in distortionary effects such as: (i) substitution of drugs under margin control with those outside its ambit, when the entire therapeutic class is not covered under such scheme; (ii) increase in high priced drugs, owing to retailers’ or hospitals’ interest in selling drugs.

• The CCI has stated that effective competition between retailers through price discounts could address the issue of high retail Further, the CCI has stated that it will target its future enforcement and advocacy to prevent: (i) determination of trade margins by industry associations or the practice of discouraging chemists from offering discounts; (ii) bundling of hospital services with pharmacy services; and /or (iii) charging higher MRP for consumables from locked-in patients.

2. Trade Association Practices

• Basis its precedents, the CCI has noted that the trade associations have been used as a means to collaborate and to collectively create and enforce norms, i.e., No-Objection Certificates (‘NOC’) and Product Information Services (‘PIS’) norms, that impact entry and supply and thereby competition.

• The CCI noted that its intervention has had a significant positive impact as it has forced most trade associations to discontinue such NOC and PIS norms.

• The CCI stated that these issues are addressable through appropriate regulatory mechanisms and that the CCI may use its advocacy mandate to take this up with the Central and the State drug regulators.

• The CCI has urged the trade associations to take up effective competition compliance programmes. 

3. Online Pharmacies

• The key concerns identified in relation to online pharmacies are: (i) discounts offered by the platforms; and (ii) concentration of personal health data with few platforms.

• The CCI observed that the position on online discounts as stated in the market study on e-commerce will apply to discounts offered by the online pharmacies and that the assessment of the discounts offered by online pharmacies will be a fact-intensive exercise done on a case-by-case basis.

• The CCI noted that provision of integrated end-to-end offerings by e-pharmacies increases efficiency and access. However, it leads to concentration of data with few platforms.

• In this regard, the CCI has observed that antitrust laws in India are wide enough to enable the assessment on harm that may be caused to competition by use of data by digital entities with market power. Further, the CCI has noted that online pharmacies should adopt self-regulatory measures until data protection laws are enacted in India.

4. Competition on Generic Drugs

• The CCI has noted that the domestic market for generic drugs is characterized by the presence of multiple manufacturers for each molecule / formulation and the same ought to play an important role in bringing down the drug prices.

• However, the CCI has observed that brand competition overrides price competition in the domestic market, as high-priced generic drugs sustain high market shares despite the presence of low-priced alternatives being available.

• The CCI has identified two factors for ineffective price competition in the domestic generic drugs market – (i) brand differentiation by purported heterogeneous quality of drugs; and (ii) higher financial incentives to chemists that influence the retail sale of drugs.
• To ensure that there exists price competition in the generics drugs market, the CCI has identified the need to homogenize the quality of the drugs and has committed to use its advocacy program to push for a multi-pronged and harmonized regulatory response by using the following measures: (i) uniform and effective implementation of quality standards; (ii) better transparency; (iii) periodic testing of drugs; (iv) quality control across supply chain and public procurement; (v) standard compliance marks for unbranded generic drugs; (vi) awareness creation; (vii) establishing a digital drugs databank; and (viii) ensuring improved availability of drugs.

Key Takeaways

• The CCI, based on the findings of a market study, has initiated actions/inquires against certain anti-competitive practices in the market. For instance, the CCI’s e-commerce market study led to a bevy of investigations against various digital platforms operating in India. Similarly, one could expect an increase in CCI’s enforcement action in the pharmaceutical space.
• It might be prudent to assess the practices/conduct in relation to (i) tying and bundling of products and services; (ii) quantum of discounts offered by online pharmacies; (iii) resale price maintenance by the manufacturers; (iv) involvement of trade associations in fixation of trade margins; and (v) trade associations engaging in NOC and PIS norms.