Regulating the Generic Drugs Market: Eliminating the difference between Branded and Unbranded Generics

[By Mansi Subramaniam & Sanigdh Budhia

The authors are students at the Gujarat National Law University. 

Introduction

The Indian Pharmaceutical Industry has been transformed greatly in the past few years with the incoming of various companies and brands. It is one of the largest markets in the world, both in terms of volume and value. One of the unique features of the Indian Pharmaceutical Industry is the existence of ‘Branded Generics’. Generics are low-cost, functionally undifferentiated products with identical active components to the patented drugs whereas ‘Branded Generics’ are generic medications sold under a brand name. Branded Generics enjoy an edge over Unbranded Generics even though the chemical composition of both of them are the same because of their brand value, as well as certain anti-competitive practices. This creates a unique problem for the Indian Regulatory Authority for fair competition in the market, i.e., the Competition Commission of India (“CCI”). The latest study of the CCI on the Indian Pharmaceutical Industry highlights the existence of this problem in India and gives recommendations for the same. This article analyses the said problem and gives recommendations to ensure fair competition in the market in the presence of Branded Generics.

Branded Generics Market Quandary

India is the biggest supplier of generics globally. India’s pharmaceutical business is dominated by generics, which account for 97 per cent of the country’s drug consumption in terms of value. Around 10 per cent of these medications are unbranded generics. Branded Generics account for the rest of 87 per cent of all the drugs prescribed. Even though unbranded generics and branded generics are homogenous in nature, there is a significant price differentiation between the two. The price difference between them ranges from 1 to 200 per cent, making Branded Generics very expensive for the population at large. The companies selling Branded Generics increase their market share by selling in large volumes and by adopting certain uncompetitive practices. Since these branded generics are priced higher, they earn a huge profit, resulting in them becoming a market leader in the pharmaceutical sector. These market leaders often determine the prices in the market.

Causes of high-priced Generic Drugs

The prevalence of branded generics is one of the main causes of highly-priced generic drugs. Branded generic drugs are priced higher owing to the high trade margins maintained by the drug manufacturers. Higher trade margins are offered to traders by these companies to prioritize or only stock their drugs in trade and retail stores over other manufacturers.

The general public perception that branded generic drugs are of higher quality in comparison to unbranded generics, is a major reason why the former is preferred, despite the latter being a cheaper option. The CCI study reveals that the market is usually dominated by the highest-priced brand. However, these findings are contradictory to an ideal competitive market. Ironically, studies have even shown that there exists no difference in quality and efficacy between branded and unbranded generics drugs.

The demand for branded generics is further spurred by arrangements between drug companies and hospitals/medical practitioners. Patients are prescribed specific branded drugs, despite the availability of lower-cost options. Private hospitals often have a compulsory tying of consumables (patients are mandated to purchase drugs from the hospital itself), thus leading them to purchase specific brands irrespective of the cost. This issue is further exacerbated by information asymmetry in the market and the fact that consumers are generally unaware of lower-priced options.

Proposed Recommendations

The CCI in its study has recommended that in order to assuage the concerns about the quality of drugs in the minds of people, the quality of drugs should be maintained at a pre-determined standard. It has recommended the implementation of existing quality standards and periodic and scientific testing of drugs. When all the drugs are obligated to satisfy the same specifications and regulations, it is entirely incorrect to presume that a more expensive brand is of higher quality than a less expensive brand or unbranded generics. Even branded generics can fail the quality test if companies do not comply with existing standards. Thus, Branded Generics cannot justify their higher prices based on quality perceptions.

Reducing Doctor- Pharmaceutical company nexus

In order to ensure fair competition among all types of generics in the market, the doctor-pharma company nexus should be restrained. The government should mandate the Uniform Code for Pharmaceutical Marketing Practices (UCPMP) and actively implement it. The UCPMP is India’s version of the US’ Physicians Payment of Sunshine Act (Sunshine Act). Sunshine Act has resulted in fines of millions of dollars for some pharmaceutical corporations. However, in India, the implementation of UCPMP remains voluntary till date. The UCPMP restricts pharmaceutical companies from giving any kind of financial or pecuniary benefits to doctors and their family members, wholesalers, retailers, etc. The pharmaceutical companies often employ such incentivization tactics to persuade doctors to prescribe their high-priced brands over others (and in some cases, doctors have asked for incentives in exchange for prescriptions). Implementing UCPMP mandatorily will curb such practices.

The Essential Commodities (Control of Unethical Practices in the Marketing of Drugs) Order, 2017 (“CUPMD Order”) was released by the government in 2018 and was proposed to be passed as a law under the Essential Commodities Act, 1955. The order noted that doctors are often lured to recommend a particular drug in exchange for incentives. This order outlawed such transactions and proposed the creation of a new authority known as the Ethics Compliance Officer, who would be in charge of investigating any alleged violation of the CUPMD Order. This order needs to be converted into a law and implemented effectively. In 2017, the government proposed to bring in a law ensuring that doctors prescribegeneric drugs only. The Medical Council of India has already recommended the same. However, this law was never enacted. The government should actively take steps to enact and implement the said law in order to ensure that doctors do not favour one company over another.

Price Control Mechanism for Generic Medicines

The Government needs to revisit the pricing mechanism of generic drugs. The National Pharmaceutical Pricing Authority (“NPPA”) is responsible for regulating the prices of drugs and to ensure their availability at affordable prices. The NPPA should control the prices of generic drugs by imposing price caps in a phased manner. The Drug Price Control Order, 2013 lists 851 drug formulations whose prices can be capped. Recently, NPPA capped the prices of 12 anti-diabetic drugs. Similarly, NPPA should impose price caps on those essential generic drugs whose prices are exorbitantly high. Moreover, the government should reconsider the price-control mechanism, as it now accords greater weight to brands that are dominant in the market. The current price control mechanism estimates a drug formulation’s price ceiling as an average of all brands with a market share (by value) of more than 1 per cent. As a result, the methodology only considers brands with a larger market share, even if they are more expensive (which is usually the case, since it is the high-priced brands that dominate the market). In other words, this results in the price ceiling being determined by high-priced branded drugs only, as the formula excludes any brand/generic drug with less than 1 per cent market share, even if its prices are low. Thus, the current price control mechanism is ineffective, and needs to be reworked.

Regulating Anti-Competitive practices under the Competition Act, 2002

In a market where there is a huge price disparity between branded generics and unbranded generics, it becomes essential to mitigate such disparities through the Competition Act, 2002. This can be done through the regulation of vertical anti-competitive arrangements among different levels of the pharmaceutical supply chain. Section 3 of the Competition Act, 2002 prohibits anti-competitive agreements. While the CIC has taken cognizance of anti-competitive agreements between pharma associations and pharma manufacturers, vertical anti-competitive agreements have been relatively ignored.

For instance, agreements entered into by drug manufacturers restricting traders from dealing in other brands or unbranded generics should be expressly brought under the ambit of Section 3(4)(b) of the Competition Act, 2002, which prohibits such ‘exclusive supply agreements’ between parties at different stages or levels of the production chain when these are likely to adversely affect competition in the market.

Collusion between medical service providers and drug manufacturers have been recognized by the CCI; however, such practices are still rampant. The compulsory tying up of hospital services with consumables, to promote certain brands of generic drugs should be explicitly brought within the purview of ‘tie-in arrangements’ (between pharma companies and medical service providers), enumerated under Section 3(4)(a) of the Act. Such tie-in arrangements are aimed at subverting competition, and are detrimental to the consumers, thus necessitating its regulation.

One of the key safeguards against anti-competitive market practices is Section 4 of the Competition Act, which prohibits the abuse of dominant position by an enterprise/group. Supplier induced demand in the pharmaceutical sector (through ‘exclusive supply agreements’ and ‘tie-in arrangements’ and information asymmetry) together place certain companies at a dominant position as they operate independent of competitive forces prevailing in the market such as price, quality, etc. These pharma companies further impose excessive prices, thus construing an abuse of their dominant position. However, The CCI has rarely intervened in cases with excessive pricing as the primary allegation. Hence there is a need for the CCI to take cognizance of the abuse of dominant position by pharma companies in various generic drugs markets.

Conclusion

Since Indian Competition Law is at its nascent stage and is still developing, it is imperative to bring antitrust activities, which are emerging now in the pharmaceutical sector, under its domain. The legislation to ensure that doctors prescribe generic drugs only should be enacted and enforced. The doctor-pharma company nexus can further be prevented by the mandatory implementation of the UCPMP and CUPMD Order. Additionally, exorbitantly priced generic drugs can be prevented by imposing price caps on particular formulations. The Competition Act’s primary goal is to promote fair competition and consumer welfare, hence the market of Branded Generics needs to be regulated in order to ensure fair competition in the market and to give consumers fair choice with respect to generic drugs in the market.

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