Driving Fair Play: The Competition Commission Of India's Impact On The Pharmaceutical Sector

1. Introduction

India is known as the "pharmacy of the world" due to the low cost and high quality of its medicines, cementing its important position in the global pharmaceutical industry. The Indian pharmaceutical sector supplies over 60% of global demand for various vaccines, with Indian pharmaceuticals contributing ~40% of generic demand in the United States of America (USA) and ~25% of all medicine in the United Kingdom (UK).¹ In fact, the pharmaceutical industry in India is the 3^rd largest in the world in terms of volume and 14th largest in terms of value.²

The Indian pharmaceutical industry is expected to rapidly grow to US$ 450 billion (i.e., approx. INR 39,09,139.03 crore) by 2047³ and is an important contributor to India's growth as it currently constitutes around 1.72% of the country's GDP.⁴

As the sector evolves, regulatory bodies such as the Competition Commission of India (CCI), bear the responsibility to ensure fair competition and safeguard consumer interests. Through a series of orders and a market study, the CCI has addressed issues in the pharmaceutical sector that range from alleged cartelization and abuse of dominance to mergers and acquisitions that may stifle competition.

The evolving nature of the pharmaceutical sector demands a keen understanding of the intricacies involved, as market players navigate challenges related to intellectual property rights, pricing strategies, and entry barriers. This article aims to assess whether the CCI's actions promote fair competition, foster innovation, and ensure affordable access to life-saving drugs. Further, this article will highlight the delicate balance the CCI must strike between the promotion of industry growth and to prevent the occurrence and continuation of anticompetitive behavior. As the pharmaceutical sector continues to push technological boundaries, react to regulatory change, and responds to the new challenges, the CCI's approach will be a crucial factor in shaping the industry's trajectory.

2. CCI's decisional practice in the pharmaceutical sector

I. CCI assessment of trade association practices

In India, the All India Organization of Chemists and Druggists (AIOCD) and its various member associations at the state and district levels play a significant role in the supply of pharmaceutical products across the country.⁵ The AIOCD and its state and district level members are not statutory bodies but are professional bodies that have been established to protect and advocate for the interests of its members (i.e., stockists and druggists).⁶

However, while the AIOCD and its members do not play any statutory role, they entered into memoranda of understanding with organizations such as the Indian Drug Manufacturers' Association (IDMA) and Organisation of Pharmaceutical Producers of India (OPPI).⁷ In this context, the AIOCD and its members exercised a great deal of influence on the stockist or wholesaler who is appointed by a pharmaceutical company.

With this factual matrix in mind, one of the earliest cases brought against the stockists and druggists involved allegations that through the guidelines and policies imposed by the Chemists and Druggists Association of Goa (CDAG), there was a restriction on the number of stockists who could operate, which impacted the bidding involved in the supply of goods by the wholesaler to the Government.⁸

The impugned guidelines and policies of the CDAG included: (i) requiring a no-objection certificate (NOC) from the CDAG to be appointed as a stockist, distributor or wholesaler; (ii) preventing participation in Government tenders unless they were an "authorised stockist", as determined by the CDAG; (iii) obtaining a NOC from the CDAG before becoming a stockist or wholesaler of that company; and (iv) payment of a fee known as the Product Information Service (PIS) as a condition for introducing pharmaceutical products in the market.

In addition to the above requirements, the CDAG also introduced policies and guidelines that had the effect of effectively fixing the trade margins for wholesalers and retailers, which would impact the sale price of drugs in the market. Failure to adhere to these guidelines and policy would result in sanctions being imposed in the form of boycotts from the members of the CDAG or imposition of fines on the stockist or wholesaler.

Therefore, through the CDAG's policies and guidelines, mandatory conditions were imposed on pharmaceutical companies to introduce new pharmaceutical products, and the CDAG would fix the price of drugs in the market. As a result, the CDAG was restricting the supply of pharmaceutical products and fixing the price of the products in the market. Accordingly, the CCI held that the CDAG had violated Sections 3(3)(a) and (b) of the Competition Act, 2002 (Act).

Shortly after this decision, in 2013, the CCI examined similar allegations against the AIOCD itself. In particular, the CCI examined allegations that the AIOCD required a stockist / wholesaler / distributor to obtain a NOC from the state and district level associations, affiliated with the AIOCD, as a mandatory pre-condition to be appointed as a stockist / wholesaler / distributor of a pharmaceutical company.⁹

The AIOCD also required the payment of PIS for the introduction of new products. If a NOC was not obtained or PIS was not paid, then the state / district level association would boycott the pharmaceutical companies. As was the case with the CDAG, such guidelines and policies of the AIOCD were found to violate Sections 3(3)(a) and (b) of the Act.

In addition to the above cases, the CCI has investigated and taken action against several state and district level chemist and druggist associations. This includes those chemist and druggist associations of Baroda, Ferozepur, Assam, among others.¹⁰ In fact, in 2014, the CCI published a public notice that the compulsory payment of PIS charges by pharmaceutical firms/manufacturers to associations for release of new drug/new formulation is anti-competitive (2014 Public Notice).¹¹ On the other hand, the voluntary payment of PIS charges would not be anti-competitive.

This approach was followed in 2022 where the imposition of PIS was not a mandatory pre-condition for the distribution of pharmaceutical products and the introduction of new products was not hindered by the voluntary imposition of PIS. In line with the 2014 Public Notice, the CCI held that there was no contravention of Section 3 as the PIS charges were voluntary in nature.¹² Therefore, the key decisive factor is whether or not the PIS charge is mandatory in nature.

However, despite such progress, the CCI has recently penalized trade associations in the context of boycotts. In 2023, the Chemists Association, Raisingh Nagar and Sri Ganganagar Chemists Association (City) would boycott pharmaceutical companies who failed to offer higher margins and incentives to them.¹³ As a result, the pharmaceutical companies were, under the threat of boycott, compelled to offer higher margins and incentive schemes to these associations.

As such, the CCI has taken action where conduct has adversely affected the distribution of pharmaceutical products to the detriment of the end consumer. The difference in the conduct identified in earlier cases and the more recent cases are a useful indicator of the effectiveness of CCI's past intervention.

II. CCI's definition and assessment of the relevant market in this sector

Another important aspect of the assessment of the pharmaceutical sector is the manner in which the CCI has defined the relevant market. Proper identification and definition of the relevant market is crucial to identify the competitors of the undertaking in question and for understanding the degree of competitive constraint exercised on them. Without proper definition of the relevant market, competition authorities may erroneously identify a narrower market in which the concerned undertaking appears to have more market power than they do in reality. Similarly, competition authorities may fail to correctly understand which products and/or services compete with those products/services of the concerned undertaking. For instance, a narrow market definition may result in exclusion of relevant bio-similar that would exercise competitive constraint on the concerned pharmaceutical product and a wide market definition would erroneously include other products that do not exercise any competitive constraints on the concerned pharmaceutical product.

The pharmaceutical sector poses interesting questions in relation to market definition due to the presence of bio-similars (i.e., drugs that are found to be very similar to the reference biological drug and may have different characteristics than the reference biological drug).¹⁴

Further, pharmaceutical products are classified at 5 different levels by the World Health Organization. This classification system is referred to as the Anatomical Therapeutic Chemical (ATC) classification.¹⁵ Under the ATC classification, the active substances are divided into different groups according to the organ or system on which they act and their therapeutic, pharmacological and chemical properties. Helpful guidance on the CCI's approach to market definition in this industry can be primarily found in the CCI's assessment of combinations.

In this context and given the unique characteristics of pharmaceutical products, market definition is extremely important in the pharmaceutical industry.

A. Market definition in merger control

In Sun / Ranbaxy, the CCI examined the presence of the notifying parties at the ATC-4 level.¹⁶ The CCI observed that the ATC-4 level is the most suitable for assessment of the combination as the various generic brands of a given molecule are chemical equivalents and are therefore considered to be substitutable.

The CCI did consider defining the market at the therapeutic group level only. However, the CCI held that this would not be appropriate as drugs within a group may not be substitutable because of differences in the intended use, mechanism of action of the underlying molecule, mode of administration, contra-indications, side effects etc. It further observed that, in generics markets, competition primarily takes place between different brands based on the same molecule. Therefore, in this case, the CCI held that the definition of the market at the ATC-4 level would be most appropriate.

In subsequent cases, however, the CCI has defined the market at the ATC-3 level as well as the ATC-4 level and has assessed the markets accordingly. Therefore, it is clear that any analysis of the horizontal overlaps that may exist must be done at the ATC-3 and ATC-4 levels.¹⁷

In the context of transactions involving vertical relationships, the CCI has considered and assessed the supply chain that exists in the pharmaceutical industry. Broadly, the key aspects of the pharmaceutical supply chain are: (i) pharmaceutical intermediates; (ii) active pharmaceutical ingredients (APIs); (iii) final dose formulations (FDFs); and (iv) contract development and manufacturing operations (CDMO).¹⁸

Pharmaceutical intermediates which are chemical compounds which serve as the building block for APIs. APIs can be manufactured by the enterprise itself or can be purchased from third parties. APIs are then used to manufacture FDFs for consumption by the end consumers. CDMOs are third parties who manufacture APIs or FDFs for pharmaceutical companies, under their brand names.¹⁹

In its decisional practice, the CCI has examined the presence of the notifying parties who are active in manufacturing of the above-mentioned pharmaceutical products and the provision of CDMO services to third parties.²⁰ Within the broader markets for manufacturing and provision of CDMO services and segmentation of pharmaceutical intermediates, the API and FDF level has been considered as well. Therefore, the CCI has taken a proactive stance in examining the structure of the pharmaceutical industry as well as the competitive dynamics at the appropriate level.

B. Market definition and market dynamics in enforcement cases

In the assessment of combinations, the CCI's manner of defining the market seems to focus primarily on the manufacturing capability of the transacting parties. Whether it be pharmaceutical intermediates, APIs, FDFs or CDMOs, the CCI's focus is on the presence of the transacting parties and their ability to foreclose competition at the different levels of the supply chain through their combined manufacturing capacity. This approach is consistent with the forward-looking approach in merger control and the emphasis on the future impact on the market, especially in R&D heavy industries such as the pharmaceutical industry.

On the other hand, in the context of enforcement cases (albeit limited in number), the CCI's approach appears to be different. Generally, in enforcement cases, the CCI will adopt a retrospective approach to determine whether certain conduct has already affected the competitive dynamics of that particular market.

In Biocon Limited v. F. Hoffman-La Roche (Biocon), the CCI examined allegations that Hoffman-La Roche, through its dominant position, was engaging in several actions to prevent the entry of the informant's low-cost generic drug that was designed to treat HER-2 positive breast cancer as a cost-effective alternative to Hoffman-La Roche's drug, Trastuzumab.²¹ Although only a prima facie order, Biocon provides important insight into the approach of the CCI to allegations of abuse of dominance in the pharmaceutical sector.

In this context, the CCI observed that in this industry, the end-consumer i.e., the patient, is not the final decision maker.²² With respect to specific diseases (such as, breast cancer), the course of treatment is determined by the doctor. As such, the CCI observed that the demand for drugs / medicines / therapy prescription is induced by the course of treatment chosen by a doctor, which is often viewed as sacrosanct by consumers.²³ Due to this, the price sensitivity of consumers is also more limited in nature. As the health of the patient is of utmost importance, the intended use of the drug in question is more relevant which, for purposes of substitutability, is governed by its quality, safety and efficacy.

While there are several different treatment methods for HER-2 positive breast cancer such as, surgery, radiotherapy, chemotherapy, targeted therapy etc. These treatment methods were not considered to be substitutable with each other as they may be used in conjunction with one another (rather than as substitutes to each other), have different side effects and levels of effectiveness. As such, the market was not defined to include other such treatments for HER-2 positive breast cancer.

Within the definition of the relevant market, the CCI also did not include drugs that were used in conjunction with Trastuzumab or as a follow up to Trastuzumab. As a result of their non-substitutability, the CCI did not consider these as part of the same relevant market.

Finally, the CCI examined Trastuzumab at the molecular level (i.e., the ATC5 level) and observed that drugs based on Trastuzumab, i.e., the reference biological drug as well as its bio-similars, would also form part of the same relevant product market due to their substitutability. Accordingly, the CCI observed that despite not being identical to the reference biological product, a biosimilar is highly analogous to an already approved biological product and may not have any meaningful differences from the reference product. Further, the CCI noted that bio-similars also serve the same intended use as that of the reference biological drug and can be said to be posing a competitive constraint to it.

The market was defined very narrowly as the "market for biological drugs based on Trastuzumab, including its biosimilars". The CCI then examined Hoffman La-Roche's position in the market, and found that Hoffman La-Roche had high market shares of more than 61% in 2014 and 2015 (both in terms of value and volume).

Hoffman La-Roche position was also strengthened by the fact that it had the first mover advantage in this market and that there was limited countervailing buyer power given the nature of the disease and treatment. The significant cost, time and expertise involved in the development of biosimilar Trastuzumab also formed barriers to entry, which contributed to Hoffman La-Roche's position in the market.

After establishing that Hoffman La-Roche held a dominant position in the relevant market, the CCI carefully examined the conduct and held that a prima facie case exists. Accordingly, an investigation was directed to be conducted. It will be interesting to see how the DG and the CCI consider the theories of harm in the pharmaceutical industry and the assessment of the abuse, if any, as well as the impact on competition in the markets identified. This case will be especially important as, in its decisional practice, the CCI has not found that a prima facie case has been established.²⁴

In 2023, the Division Bench of the High Court of Delhi held that the jurisdiction of the CCI is ousted because the Controller of Patents under the Patents Act, 1970 (Patents Act) has sufficient powers to address any competition concerns from patent licensing and alleged abuse of patent rights.²⁵ It also held that, as a settlement was entered into between the informant and the patent holder, there was no requirement for an investigation under the Act. The Supreme Court of India chose not to interfere with the Division Bench's judgment as the original informants had settled their dispute; however, it left the questions of law open to be reassessed in an appropriate case.²⁶ Therefore, cases relating to patents would not fall under the CCI's purview at this stage. However, it is yet to be seen if this position will be challenged in the future.

3. CCI's market study on the Pharmaceutical Sector

As part of its continuing advocacy efforts, the CCI also conducted and published the CCI Market Study in 2021. In its market study, the CCI broadly examined: (i) the prevalence of branded generic drugs in India and its implications for competition; and (ii) pharmaceutical distribution and the role of trade associations, trade margins and drug pricing. The study had the overarching objective of understanding the factors that influence price competition in the pharmaceutical sector.

Broadly speaking, the CCI made the following observations:

1. Competition among brands of generic drugs is more important for consumers than competition on the price of the generic drugs. The CCI reviewed the prices of various generic drugs and branded drugs and concluded that there is a significant markup across brands, with markups reaching even >100%. This large disparity in the prices across brands is despite the effect that generic drugs have on drug prices.
2. The importance of brand competition over price competition is evidenced by the fact that the market leaders for some drugs would price their drugs significantly higher than manufacturers of generic drugs. As such, from the perspective of consumers, the brand recognition and perception seemed to be more important than the price of the drug.
3. With respect to trade association practices, the CCI acknowledged the impact of the CCI's intervention on competition as well as prices of drugs. The CCI recommended an increase in price competition among retailers through price discounts and the margins that are fixed.
4. The CCI recognised the emergence of online pharmacies and the impact they can have on price competition in the pharmaceutical industry. However, the CCI maintained that Indian competition law is sufficient for any competition law concerns that may arise in the future.
5. The CCI also recommended that all trade associations introduce the necessary measures to ensure compliance with the Act.

4. Positive and negatives of the CCI's assessment so far

I. Efficacy of the CCI's market study

While the CCI's market study is a step in the right direction with broad recommendations on how different players should conduct themselves to ensure compliance with the Act. The CCI also recognises that any assessment of the theories of harm and / or competition concerns arising from the conduct of various players in the pharmaceutical industry will be addressed on a case-to-case basis.

II. Impact of the CCI's decisions in relation to trade association practices

Through its decisions on the conduct of AIOCD and the state and district level chemists and druggists' associations, the CCI has ensured that conduct that would prevent the entry of goods or reduce consumer access to drugs, is discontinued. In fact, in its market study on the pharmaceutical sector, the CCI has noted that the stakeholder feedback has suggested a significant positive impact of the CCI's orders and advocacy initiatives, in terms of discontinuation of the NOC and mandatory PIS norms.²⁷ Therefore, the CCI, through its decisions, has ensured healthy competition in the pharmaceutical industry.

III. CCI's approach to market definition in the pharmaceutical industry

In its various orders, in particular the enforcement and merger control decisions, the CCI has taken a prudent and practical approach to market definition. This is a crucial step for assessment of competition concerns, if any, and to properly understand the competitive dynamics of the concerned markets. A market definition which is too wide would not be practical in the pharmaceutical industry given that different APIs and FDFs have different biological effects and are designed for different purposes.

While it can be argued that from the supply side perspective there is minimal switching cost in the manufacture of different pharmaceutical products, the CCI has correctly given more weightage on the end use and demand side perspective when delineating the market. This has helped ensure that for each API and FDF, there is an appropriate assessment of the competitive dynamics.

This balanced approach has not only preserved the competitive landscape but has also instilled confidence among stakeholders, fostering an environment where businesses can thrive, and consumers can benefit from choice and quality. This approach is underscored by the CCI's emphasis on evidence-based decision-making, where thorough examination of market dynamics informs regulatory actions. By avoiding unnecessary intervention, the CCI has effectively balanced the need to prevent anti-competitive behavior with the imperative of allowing market forces to operate freely.

IV. CCI's lack of decisional practice in abuse of dominance cases

The CCI has very limited decisional practice on the adjudication of allegations under Section 4 (i.e., on the abuse of a dominant position). In fact, the CCI's prima facie order in Biocon is seemingly the most detailed guidance provided on how the dominance of a pharmaceutical product manufacturer is to be assessed. However this provides very limited guidance for other players in the market.

In other cases, the CCI has found that there are no concerns of abuse dominance because in those markets, the parties in question did not hold a position of dominance. These markets include the markets for anti-TB drugs in India²⁸ and the market for anti-retroviral drugs in India.²⁹ Therefore, for players in the pharmaceutical industry to assess their conduct under Sections 3(4) and 4 there is very limited guidance. Players in this industry would be constrained to rely on other enforcement cases and apply those principles to their own facts and circumstances. However, these cases are unlikely to adequately capture and account for the nuances of the pharmaceutical industry and as such, would provide imperfect guidance to assess the conduct of players in this industry.

The absence of proper guidance will reduce certainty for players in this industry and makes it trickier to assess whether their conduct runs afoul of the Act.

To remedy the lack of guidance in the form of judicial precedents, the CCI could consider using the powers conferred on it under Section 64B of the Act, which was introduced under the Competition (Amendment) Act, 2023. Under Section 64B, the CCI has the power to publish guidelines on the provisions of the Act. Accordingly, the CCI should combine its experience and knowledge of the pharmaceutical industry with this new power to provide clear, detailed guidance for competition issues specific to this industry.

5. Suggestions for the road ahead and conclusion

Moving forward, continued diligence and adaptability will be key in upholding the integrity of India's markets and promoting a thriving ecosystem where competition persists and consumers benefit. While the CCI decisional practice with respect to trade association practices is commendable, there are several opportunities for the CCI to provide clearer and more concrete guidance to businesses in the pharmaceutical industry. The lack of proper guidance and intervention may inadvertently hamper growth in this industry (as was identified in the trade association practices cases).

With so many different aspects of the pharmaceutical industry, the CCI has many opportunities to intervene to ensure that fair and healthy competition is taking place at various stages and in different segments of the pharmaceutical industry. Therefore, it is strongly recommended that the CCI be more proactive in the enforcement of competition laws in this industry to achieve the objectives set out in the preamble of the Act: "...to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India...".

Footnotes

1. Invest India, Sector Overview of Pharmaceuticals.

2. Indian Brand Equity Foundation, Indian Pharmaceutical Industry.

3. ibid.

4. ibid.

5. AIOCD, Vision and Mission.

6. ibid.

7. Santuka Associates Pvt. Ltd. v. AIOCD and Ors., Case No. 20 of 2011 (19 February 2013) (Santuka Associates).

8. Varca Druggist & Chemist & Ors. vs Chemists and Druggists Association, Goa, MRTP C-127/2009/DGIR4/28 (11 June 2012).

9. Santuka Associates; see also, Peevar Medical Agencies, Kerala v. AIOCD & Ors. Case No. 30 of 2011 (9 December 2013).

10. See Vedant Bio Sciences vs Chemists & Druggists Association of Baroda, C-87/2009/DGIR (5 September 2012); M/s Arora Medical Hall, Ferozepur vs Chemists & Druggists Association, Ferozepur & Ors., Case No. 60 of 2012 (5 February 2014); M/s Sandhya Drug Agency vs Assam Drug Dealers Association and Ors., Case No. 41 of 2011 (9 December 2013).

11. Alleged anti-competitive practices by the Chhattisgarh Chemist and Druggist Association in limiting supply of drugs/medicines in the State of Chhattisgarh, Suo Moto 04 of 2020 (5 July 2022).

12. ibid.

13. Solar Life Sciences Medicare Private Limited And Chemist Association, Raisingh Nagar & Others, Case No. 20 of 2020 (23 August 2023).

14. ibid.

15. World Health Organization, Anatomical Therapeutic Chemical (ATC) Classification.

16. Sun Pharmaceutical Industries Limited / Ranbaxy Laboratories Limited, C-2014/05/170 (5 December 2014).

17. Sanofi / Boehringer Ingelheim International GmbH, C-2016/07/413 (21 September 2016); see also, Platinum Jasmine A 2018 Trust / Intas Pharmaceuticals Limited, C-2022/09/965 (10 October 2022); GlaxoSmithKline plc / Pfizer Inc., C-2019/03/654 (22 May 2019).

18. Mankind Pharma / Bharat Serums and Vaccines Limited, C-2024/08/1171 (1 October 2024); and Berhyanda / ADIA, C-2024/05/1147 (18 July 2024).

19. ibid.

20. ibid.

21. Biocon Limited v F. Hoffman-La Roche AG & Others, Case No. 68 of 2016 (21 April 2017).

22. ibid.

23. ibid.

24. Mr. Ambalal V. Patel v. Central Medical Service Society & Ors., Case No. 02 of 2020 (10 February 2020). See also Manoj Hirasingh Pardeshi v. Gilead Sciences Inc., USA, Case No. 41 of 2012 (5 March 2013).

25. Telefonaktiebolaget LM Ericsson (Publ) and Ors v. CCI & Anr., LPA 150/2020 (13 July 2023).

26. Competition Commission of India v. Monsanto Holdings Private Limited, Special Leave to Appeal (c) No 25026/23 (2 September 2025).

27. Competition Commission of India, Market Study on the Pharmaceutical Sector in India (18 November 2021).

28. Mr. Ambalal V. Patel v. Central Medical Service Society & Ors., Case No. 02 of 2020 (10 February 2020).

29. Manoj Hirasingh Pardeshi v. Gilead Sciences Inc., USA, Case No. 41 of 2012 (5 March 2013).

The views expressed in this article are those of the authors and do not reflect the views of the Firm.

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