This article is written by Anjeeta Rani, pursuing a Certificate Course in Competition Law, Practice and Enforcement from LawSikho.
India is growing fast as a manufacturing destination. The expenses of manufacturing in India are usually lower than those in China. With an increasing number of Western firms importing or producing their products in India, quality control has become a major concern. In the sale of pharmaceuticals, quality standards have become crucial. Various authorities prescribe different kinds of standards, such as GMPs (Good Manufacturing Practices) (GMP). Good manufacturing practices are included in the World Health Organization’s (WHO) drug safety guidelines (WHO).
The greatest challenge in the pharmaceutical industry is to strike a balance between customer welfare and business objectives. While health plans are considered necessary to ensure equal access to healthcare services, industry considers it as antithetical to Research and development. As a corollary, competition law must operate in concert with the various laws, rules, and regulations that govern the pharmaceutical industry.
This article shall deal with the issues pertaining to competition law in the pharmaceutical industry due to the lack of proper regulation compliance and inequity in those compliances among companies of different levels and scales. For this purpose, the article has been divided into three major chapters dealing with the laws and regulations to be followed by the pharmaceutical industry, the issues prevalent in adhering to compliance and how the non-compliance of the rules and the regulations in general leads to competition issues in the market.
Regulatory framework for pharmaceutical industry
Ex-ante competition in the pharmaceutical industry, particularly the early entrance of generic medicines, can be aided or hindered by drug regulation. The Drugs and Cosmetics Act of 1940 is one of the most important regulatory frameworks that explicitly decides on the entrance of pharmaceutical goods in the market. The Drugs and Cosmetics Act governs the sale, production and distribution of drugs in India. The major goal is to avoid inferior quality medicines from lowering medical treatment standards and to eliminate the inevitable drugs of medical or surgical treatment. The Act specifies that its requirements must be enforced in addition to any other drug-related legislation already in place.
Based on WHO’s guidelines, India’s GMP requirements for medical devices and pharmaceuticals are addressed under Schedule M and Schedule M III of the Drugs and Cosmetics Act (DCA). Schedule M, particularly enforces the GMP dealing with specifications for pharmaceutical plant, equipment, and premises.
Schedule M outlines the criteria for medical devices and pharmaceuticals in terms of quality assurance, self-inspection, quality audit and quality control systems, as well as the factory premises, materials, plant, and equipment. Small-volume injectable, large-volume parenteral, APIs, tablets, capsules, and other medicines have further criteria. GMP laws in India are now more closely linked with ISO 13485. Standardization of quality criteria would make it easier for Indian medical device manufacturers to register their products.
Compliance issues with India’s GMP standards
The measures provided under the Drugs and Cosmetics Act and their intended aim to assure quality under Section 16 of the Drugs and Cosmetics Act are inconsistent. Some of them have had grave consequences from the viewpoint of competition. Many of them have had serious ramifications in terms of competition. Due to a lack of technical know-how and limited financial and technical capacity to access the broader market, Small and Medium Enterprises (SMEs) are unable to comply with GMP requirements, creating a significant market barrier for them.
Many units have been reportedly closed due to their inability to comply with WHO-compatible Good Manufacturing Practice (GMP) standards, albeit compliance deadlines for medium and small-scale units have been eased. However, there is no allowance for upgrading production standards to conform with WHO GMP requirements, which the government has made necessary under Schedule M of the Act. The Ministry of Micro, Small and Medium Enterprises has extended the Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Up-gradation to Pharma Micro, Small and Medium Enterprises (MSMEs) for 179 items of machinery and equipment necessary, primarily for GMP compliance. However, this subsidizes only the fixed investment costs, not the costs of operation and maintenance, which also includes higher remuneration for better-qualified technicians. A higher profit margin would be required to meet such recurring costs.
A controversial case in this regard is that of shutting down of three public sector units namely Central Research Institute at Kasauli, Pasteur Institute at Coonoor, and BCG Vaccine Laboratory at Guindy by the government in the year 2008 because they did not comply with norms of Good Manufacturing Process (GMP). They had been supplying vaccines for the government’s universal immunization program (UIP), however, after the closure of these units, the government procured vaccines from private manufacturers. The elimination of major competitors from the market allowed private producers to increase their prices substantially.
Competition law concerns within the pharmaceutical industry
Consumers benefit from quality and safety standards for goods and services as they assure a minimum level of quality. Even though it means certain competitive limitations, this is particularly needed. To put it another way, only goods and services that meet the minimal requirements are permitted to compete. However, in some cases, businesses or groups of firms in dominant positions may utilize rules and specifications to prohibit new firms from entering the market. Such activities draw the attention of the relevant section on abuse of power and exclusionary practices as they are intended to prevent market access.
According to a CUTS research, the majority of pharmaceutical companies assessed acknowledged the presence of collusive activities in the sector, with 32.2% of respondents claiming that such practices are widespread in the industry. Irrational medication prescriptions by doctors driven by bribes from pharmaceutical firms were among the fraudulent activities. As a consequence, they often prescribe overpriced medicines that aren’t essential. The knowledge asymmetry and poor elasticity of demand to price adjustments encourage such rent-seeking conduct because the doctors are the ones influencing it and not the consumers. Collusion also occurs in the distribution chain between drug makers, wholesalers, retailers, and Medical Representatives, inflating the cost of drugs and whole treatment disproportionately. In such a rigged economy, consumers have little or no choice except to buy what doctors prescribe or what chemists sell.
Many businesses have gained legal monopolies of specific drugs as a result of the enhancement of patent protection after the Patents Act amendment in 2005. The product patent system, as the name suggests, involves the grant of patent to the finished product regardless of the method employed to obtain it. Once a product has been granted a patent, it is no longer possible to manufacture it, even by using a different method. This has raised serious concerns about the availability of affordable necessary drugs, posing a danger to competition by delaying generic entry and increasing the industry’s exposure to monopolistic behavior. Although amendments to Schedule M (GMP) of the Drugs and Cosmetics Act and Schedule Y (new drug discovery) have improved worldwide competitiveness, the product patent regime does not assist the generic business as much as the process patent system did.
Case laws in the pharmaceutical industry
In various cases, brazen collusion has been found amongst pharmacies. These cases expose a raft of common anti-competitive practices affecting the pharma distribution chain throughout the country for several years, involving producers as well as distributors, with government policy playing a facilitating role.
Varca Druggist & Chemist & Ors. vs. Chemist & Druggists Association, Goa
The informant Varca Druggist & Chemist along with two other pharmaceutical drugs and medicines firms filed a complaint before the Director General (Investigation & Registrations), Monopolies & Restrictive Trade Practices Commission (DGIR, MRTPC) alleging that the Chemist & Druggist Association, Goa (CDAG) was indulging in restrictive trade practices. After the repealing of the MRTP Act, the case was transferred to the CCI. After the investigation, the CCI concluded that the practices and conduct of CDAG were controlling and limiting the supply of drugs in the district of Baroda, Gujarat which were violative of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002.
Vedant BioSciences vs. Chemists & Druggists Association of Baroda
The information was filed by Vedanta Biosciences, Baroda alleging that Chemists and Druggists Association, Baroda (CDAB), an association, framed various guidelines, meant to benefit its members in carrying out their business of stocking, wholesaling and retailing pharmaceutical products has become a monopolistic body and has started indulging in certain restrictive trade practices. The CCI found contravention by CDAB because it appointed stockists by way of issue of NOC and regulated the number of stockists in contravention of Section 3(3)(b) of the Competition Act, 2002 and imposed restrictive conditions related to giving PIS approval for launching a product which was in contravention of Section 3(3)(b) of the Act.
M/s Santuka Associates Pvt. Ltd. vs. All India Organization of Chemists and Druggists and Ors.
Santuka Associates Pvt. Ltd. filed an information under Section 19 of the Competition Act, 2002 before the CCI for abusing its dominant position by All India Organization of Chemists & Druggists (AIOCD). The opposite party, AIOCD which is an all India body registered under the Societies Registration Act, had control over the stockists of medicines and drugs throughout the country and was involved directly in influencing the purchase and sale price of the drugs and pharmaceutical products throughout India. The Commission passed orders under Section 27 of the Act against AIOCD and its members directing them to cease and desist from indulging in the alleged practices which were found to be anti-competitive and in violation of Section 3 of the Act.
Bharat Biotech International Ltd vs. A. P. Health and Medical Housing and Infrastructure Development Cooperation
The Government of Andhra Pradesh took up a program called ‘Immunization Strengthening Program’ to immunize the citizens of the State from Hepatitis-B by administering a vaccine called Hepatitis-B Vaccine. For implementing the program, the Government of Andhra Pradesh invited tenders only from the primary manufacturers in India with a further condition that such primary manufacturers of vaccines should possess WHO pre-qualification. The High Court while declaring the government’s order as arbitrary held that the Government overlooked the cost factor and excluded certain manufacturers, suppliers and importers of the vaccine while favoring select ones and hence, it cannot seek shelter to set aside the prequalification.
M/s Sagar Medical Hall & Ors. vs. State of Bihar & Ors.
The State Government of Bihar had issued an order restraining the regional licensing authorities from issuing or renewing the license for sale of drugs. The petitioner filed a case against this order as the State Government had decided not to grant license temporarily on the ground that the number of shops available in the State is sufficient to meet the demand of the public. The High Court held that when grant or renewal of license is governed by the statutory rules, the decisions regarding such questions has to be taken in reference to these Rules only and the decision taken by the State Government cannot outweigh those rules. This decision of the state was viewed as a hindrance to the competition by limiting the number of suppliers that can operate in the market.
Compliance with GMPs is essential for the industry’s credibility in both local and foreign markets. Anticompetitive actions must be discovered quickly across the industrial chain. In terms of vertical constraints, there is a need for improved enforcement of regulatory framework in the pharmaceutical sector.
It is important to separate the regulatory regime from that of the pharmaceutical IPR regime and a necessary step can be reviewing the Drugs and Cosmetics Act. While the Drug Controller General of India (DCGI) is exclusively responsible for this, the National Competition Policy Council (NCPC) has also a lot of work to do in maintaining the generic competition and therefore actively pressing for the dissociation.
Long-term implications for measuring the effects of pharmaceutical standardization on small-scale manufacturers may require more detailed examination. The issue at hand is that schedule M should not jeopardize safety requirements. It should be stressed , however, that establishing criteria must be scientific rather than arbitrary. It must also give greater clarity to improve compliance. Substantial engagement is required in this area to encourage the rationalization of pharmaceutical standards and the preservation of ex-ante competition.
Information asymmetry among consumers is one of the primary causes driving market failures in the pharmaceutical sector. While customers have a variety of options, their capacity to choose is influenced by several factors, the most important of which is the availability of information. It is important to improve the public information system in areas where consumers are aware of basic medicines.
The SMEs should be aided in overcoming barriers posed by GMP compliance standards, and GMPs should be implemented without prejudice, while MSMEs should be given subsidized credit. It should be guaranteed that the drug regulation framework operates in a transparent and equitable manner. Any divergence from competition policy principles should be made public and explained.
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