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.
threads most popular
thread most upvoted
comment newest
first oldest
first
Even pharmaceutical sector is also at very critical stage.. but CCI has already issued a notice to KINGFISHER & JETAIRLINES for their practice ...
Anti-Competitive terms of Licenses -
In the pharmaceutical industry, “Gilead” signed voluntary non-exclusive licenses with companies in South Africa and notably eleven generic manufacturers in India for the production and sale of an HIV-AIDS drug, ‘Tenofovir disoproxil fumarate’ ( referred here as TENOFOVIR) as well as product patents on Emtricitabine, and combinations of the two.
The terms in these licenses are generally standard- with a payment of a royalty rate of 5%, meeting quality standards of the WHO and/or US FDA, and the grant-back licenses on improvements, modifications and derivatives.
In a blatant attempt to get market power, Gilead’s Licensing terms had certain anti-competitive features of the license including the requirement of royalty payment where Gilead does not hold a patent, prohibition of supply of active pharmaceutical ingredients (APIs) to firms/markets not approved by Gilead and lastly, that licensed sellers were required to purchase the APIs from Gilead affiliated licensed suppliers. These terms imposing restrictions / prohibition of supply etc. are an attempt to (hypothetically speaking) eliminate competition in the market and hence anti-competitive as per law.
Evergreening of patents -
Can the recent practices of pharma companies of over-hyping the merits of the newer versions of the drug be considered anti-competitive and stopped?
As of now, the fear of elimination of older drugs from the market maybe non-existent in India where there isn’t much of a health insurance trend; there will always be a very large percentage of the population that just cannot afford the newer drug and doctors will be compelled to prescribe the cheaper (older) versions, thereby keeping these in the market. But will this always be the case? If not, we are back once again to the wisdom of having provisions like 3(d) of the Indian Patent Act, that prevent evergreening by denying patents to incremental innovations that do not otherwise demonstrate enhanced efficacy.
Pharmaceutical companies that have invested in the development of medicines should achieve a return on their investments. But this does not mean they can abuse these exclusive rights by excessive prices and seeking patents over minor changes to extend monopoly prices. This would be considered as anti-competitive. Unfortunately however, this goes against the spirit of the patent system and is not justified given the vital investments made by the public sector over decades that make the discovery of these medicines possible.
Marketing Exclusivity
Recently, the Indian drugmaker, Glenmark pharmaceuticals has received first-to-file status for three of its abbreviated new drug applications ( ANDA ), namely, Zeita ( generic name ezetimibe ), Tarka ( trandolapril + verapamil ) and cutivate ( fluticasone lotion ).
First to file and first to invent are legal concepts that define who has the right to the grant of a patent for an invention. The first to file system is used in the majority of countries, with the notable exception of the United States, which operates a first to invent system.
In a first to file system, the right to the grant of a patent for a given invention lies with the first person to file a patent application for protection of that invention, regardless of the date of actual invention.
With this first-to-file status comes the advantage of a 180-days marketing exclusivity ( from the date of approval of the ANDA ). During this period the US food & drug Administration may not approve another ANDA, for such a generic product after the approval.
During this period, the company can garner huge profits since they will not face any competition for half a year and the generic version will be sold at 70-80% of the branded product price.
Although litigations are at various stages for all the three products but if Glenmark wins, the company will gain an edge over the market in the six months exclusivity time, which is much sought out for. Although the marketing exclusivity granted is legally enforceable, any anti-competitive terms involving restriction on price, vendor etc. to exploit consumers / competitors will come into the trappings of competition law curbing such restrictive terms and punishing the entity for their anti-competitive conduct.
The need to sensitize members of the Competition Commission and the Tribunal to the techniques of modern competition analysis is immense. Putting the Competition Advocacy provision to extensive practice is therefore a must.
Past experience with sectoral regulators has shown how lacunae in the Act allow for amateurish ideas and un-evolved interpretations of provisions and a narrow reading of the larger objective. For instance, this could bring down the role of the commission as a negotiator on "fair" pricing, by intervention in contractual disputes.
Taking the case of co-operation between the two sectoral regulators – Telecom & Competition Commission:
Interplay between the regulatory mechanism of Telecom and Competition -
Telecom and competition policy would require close compatibility. The regulatory and competition issues are intertwined and would work well if the two bodies function like a conjugal family.
What would hold them together and enable them to deal with domestic issues in tandem?
The Telecom Regulator has to play the role of a conservative man who is less liberal ( more regulatory ) – till there is scope for more competition in the market and the industry is still evolving – market dominance / power remains in few hands;
The Competition authority is like a vigilant woman of the family – intervening for frequent checks and balances – to work towards opening the market and discouraging concentration of power.
The growing telecom sector is a good example of the co-operative work required - the two enforcement agencies need intense co-operation – keeping in mind the aims / objects of the policy.
The regulator must respect competition principles - when the regulator allows the competition to open up with the help of the competition authority’s role as and when intervened – it will help the market get the right balance – benefiting consumers
There is always an element / risk of abuse by industry – violating regulatory provisions –requiring competition authority to enforce its law.
This is the time when utmost co-operation – smooth and constant dialogue between regulators and competition enforcers would get the balance right !
Working together is the key to their success !!
threads most popular
thread most upvoted
comment newest
first oldest
first