Explained: CCI market study on pharma sector

What are the key findings of the CCI?

The CCI found that the market for generic drugs is driven by brand competition instead of price competition despite such drugs being functionally and chemically identical. Generic drugs are chemically identical to drugs that once had patent protection.

Pharmaceuticals including generic drugs account for about 43.2 per cent of out of pocket healthcare expenditure in India according to the CCI study and about 62.7 per cent of the total health spending in the country.

Why does brand competition override price competition in the market for generic drugs?

The study concluded that brand differentiation in terms of a perception of different levels of quality and trade margins offered to incentivise chemists were key drivers of brand competition in India’s markets for generics.

The report found that manufacturers that concentrate their efforts on the creation of brand image and brand loyalty have been able to command a price premium on chemically identical drugs by striving “for the patronage of prescribing physicians,” adding that patients who are unaware of the attributes and substitutes for drugs simply purchase medications prescribed by physicians and dispensed by chemists.

The CCI also highlighted that the perception of difference in the quality of drugs by different manufacturers also feeds into brand differentiation

“ As evidenced by the formulation-level data on prices and market shares, market leadership position is often enjoyed by brands that command the highest or relatively higher prices,”, the competition regulator observed. The study cited the example of the highest selling anti-diabetic drug which costs Rs 9.97 per tablet, over six times the price of the chemically identical drug with the least market share which costs Rs 1.53 per tablet.

The report noted that other manufacturers focus on increasing sales volume bidding up trade margins for retailers thereby incentivising them to push for the sale of their brands.

What has the CCI recommended?

The report stated that effective price competition in generics can benefit consumers and improve access to affordable healthcare.

The CCI noted that the enforcement and interpretation of quality regulations was not uniform across states and different regulatory and testing capacities had led to different quality standards being followed.

“A mechanism may be devised under the aegis of the CDSCO (Central Drugs Standard Control Organisation) to create awareness on quality issues, build capacity, and harmonise training and practices across the country with a view to ensure uniform and consistent application of quality…