After e-commerce, CCI looks at pharma sector to unlock competition

The Competition Commission of India (CCI) has launched a study to identify and address anti-competitive practices in the pharmaceutical sector as the country grapples with the Covid-19 pandemic that has accelerated household spending on health care.

Ashok Gupta, chairperson of the CCI, told Business Standard that identifying mechanisms that lock competition in the pharmaceutical markets and addressing them through proper instruments becomes all the more important during a pandemic.

While the Covid-19 pandemic made the study more pertinent, the CCI decided to launch it in the light of the huge number of cases relating to trade practices in the sector.

The study will capture the role of trade associations and e-pharmacies in the distribution chain and whether it is distorting markets and competition in the sector. “Our years of enforcement has shown us that certain industry practices in the pharmaceutical sector do not allow markets to work effectively and healthy competition to drive the market outcomes in the form of low prices and reliable quality,” the CCI chairperson said.

The study will focus on four key aspects of the distribution chains in the sector, including discounts and margin policies at wholesale and retail levels, the role of trade associations, regulatory rationalisation of trade margins and the impact of e-commerce on price and competition.

The anti-competition watchdog will also investigate the extent of proliferation of branded generic drugs in India with its implications for competition and to assess potential hurdles in the entry of biosimilar drugs in India. “There are several cases that the Commission has adjudicated upon and several complaints still come in on how the entire supply chain of drugs is self-regulated by the trade associations,” the CCI chief said.

The tight control of the supply chain by these associations, the CCI observed, created market distortions. “It has made pharmaceutical markets impervious to incentives of competition, resulting in sub-optimal outcomes in terms of price and quality. Left to themselves, market participants would compete on price and quality and not just follow the ‘diktats’ of the associations.”

The CCI could issue an advisory for pharma companies based on its findings. “If we identify practices rampant in the industry that choke competition and hence affordability of medicines, we may come out with an advisory for all the participants in the drug supply chain — from pharma companies to retailers — that may take the form of certain Dos and Don’ts,” Gupta said.

The CCI had earlier done a similar study to understand the e-commerce landscape and whether the same parameters can govern the traditional and the online market. “This study, too, is an attempt to reach out to all relevant stakeholders to gather insights and have clarity on the identified issues that are expected to have a bearing on competition in the pharmaceutical market in India. The findings will inform and complement the Commission’s efforts in fostering competition in the sector,” Gupta added.

With rising out-of-pocket expenditure for pharma services increasing the financial burden on households, he said access to affordable medicines was of paramount importance.

While affordability has been policy focus, the CCI is hoping to understand factors that influence drug pricing and the mechanisms that restrict price competition so as to ascertain the appropriate interventions which may help unlock competition in the sector.