Who will the Indian Competition Commission hit first? Judging by what the Europeans have been doing, it may very well be the pharmaceutical sector, argue Warsha Kalé and Marcus Pearl.
With a net worth of approximately $8bn the Indian pharmaceutical industry is big business locally and globally - India is the fourth largest pharmaceutical producer in the world, exporting its drugs to 212 countries globally.
However, domestically, India has a large population without access to essential medicines. A total of 84 per cent of India’s total expenditure on health is private, meaning that most Indians pay for medicines with little assistance from the state, and a significant proportion of the rural population cannot afford treatment.
Such facts and figures mean that affordability of pharmaceuticals is particularly important in the Indian context.
It would therefore not be surprising if the Competition Commission of India (CCI) followed in the European Commission’s footsteps by using its new regulatory powers to focus on behavioural abuse in the pharmaceutical sector.
The pharmaceutical industry presents interesting issues given the persistent tension. On the one hand, there is the need to incentivise the research and development necessary for developing companies (or originators) to produce new medicines.
On the other hand lies the need for generic companies (or generics) to keep prices down, using originator blue prints to produce cheaper, unbranded versions of those medicines.
Patent rights provide the carrot for originators, allowing them exclusivity to produce the patented drug for a limited period. Competition law provides the stick, preventing originators from abusing their exclusivity and protecting the entry of generics into the market at the expiry of patents.
The CCI has commissioned a market study into the pharmaceutical sector which is due to be finalised by the end of September and it may well be that its conclusions will draw from a recent inquiry by the European Commission into the pharmaceutical industry.
When the Europeans' final report was published on 8 July, European Competition Commissioner Neelie Kroes emphasised the importance of the market to consumers: "The sector is too important to the health and finances of Europe's citizens and governments to accept anything less than the best… We will not hesitate to apply the antitrust rules where such delays result from anticompetitive practices.”
This sentiment has been bolstered by the first investigations already underway in Europe. Indian generics Unichem Laboratories, Matrix Laboratories and Lupin have notably been implicated in the investigation, along with the originator French firm Les Laboratoires Servier.
Servier developed the anti-hypertension drug, perindopril and allegedly entered into agreements with Unichem, Matrix, Lupin and others to delay the launch of a generic version of perindopril in Europe.
If found to have infringed European competition law, the Indian companies face fines of up to 10% of their annual turnover.
The report by the European Commission found that originators were abusing their dominance and delaying the entry of generics into the market by a number of strategies including:
(a) filing large numbers of EU-wide patents and pending patent applications for a single medicine;
(b) launching lengthy patent litigation with generics: the majority of which were won by the generics potentially signalling that much of it was unwarranted (out of around 700 reported cases, 60% were won by generics);
(c) concluding over 200 settlement agreements, half of which restricted generic entry and over 10% of which included “reverse payment settlements” (where originators essentially paid generics not to enter the market); and
(d) intervening in national procedures to approve generic medicines, leading to an average delay of four months to their entry into the market.
In particular, reverse payment settlement agreements were identified by the European Commission as being especially debilitating to competition and the CCI’s research has identified that these abuses also exist in the Indian market. The US House Committee on Energy and Commerce has also approved an amendment to a health bill that will outlaw agreements that keep generics off the market.
On top of that, the Indian Department of Pharmaceuticals is currently discussing the inflated turnover criteria of Rs 50 crore for medicine procurement with other government departments. The CCI’s research notes that this threshold will exclude small scale industry competitors from the market and Indian Drug Manufacturer’s Association reportedly already complained to the CCI on the matter last December.
This, coupled with the European Commission report and the involvement of Indian firms in the European investigation makes it more than likely that one of the CCI's first Indian targets will be companies operating in this truly global sector.
Warsha Kalé (pictured) is associate director in the EU and competition group at Berwin Leighton Paisner in London and co-chair of the firm's India Group.
Marcus Pearl is a senior associate in Berwin Leighton Paisner's business and technology services group and co-chair of the firm's health care group.