Pills And Penalties: The Role Of Competition Law In Regulating Drug Prices

Excessive pricing is a contentious issue within competition regulation, often viewed as a symptom of underlying market irregularities rather than a standalone problem

The availability of pharmaceutical items, including treatments, vaccines, and diagnostics, is essential to health systems around the world, making access to healthcare a critical concern¹. These items’ accessibility and affordability issues have lasted for a long time and are pertinent to a variety of illnesses and healthcare systems, impacting nations of different economic levels. The COVID-19 epidemic has highlighted how important prompt access to necessary drugs is. Excessive pricing is a contentious issue within competition regulation, often viewed as a symptom of underlying market irregularities rather than a standalone problem. In many cases, excessive prices result from a lack of competitive pressure, which can be exacerbated by structural issues within the market. For instance, dominant firms may exploit their position to impose unfair prices on consumers, thereby necessitating regulatory intervention to restore competitive conditions.

The Indian Competition Act of 2002 exemplifies this approach, prohibiting abuses of dominant positions that lead to excessive pricing and emphasizing conduct over firm size. Price controls are usually implemented by governments to guarantee that essential medicines are affordable for the population. However, these controls can unintentionally encourage anti-competitive behaviour among pharmaceutical companies. Studies have shown that price ceilings can create conditions that facilitate collusion, enabling firms to coordinate their pricing strategies indirectly². This can ultimately undermine the very benefits that these regulations aim to achieve. For example, the Drug Price Control Orders (DPCOs) in India establish maximum costs for necessary medications according to a specified formula. Although the goal is to maintain the affordability of medications, this has also been linked to higher costs in a market that is cartelised³. These dynamics draw attention to a paradox whereby consumer protection regulations might result in higher costs because they limit competition.

EXCESSIVE PRICING- EU, UK & INDIA

Even with established rules, there are still many obstacles to overcome when it comes to applying competition law in pharmaceutical markets. Pricing fairness is difficult to evaluate because of the complexity of pricing tactics and information asymmetries between suppliers and customers. Regulators must also strike a careful balance between providing access to cheap medications and encouraging an atmosphere that encourages innovation. The European Union’s 1978 United Brands case marked a dramatic shift in defining exorbitant/excessive pricing⁴. In order to assess charges of excessive pricing, the European Court of Justice (ECJ) developed a two-prong test: (a) the price must be substantially higher than the expenses incurred by the dominant enterprise and (b) the price, either by itself or in relation to the costs of competing goods, must be deemed unjust.

Similarly in United Kingdom, Napp Pharmaceutical was found to have abused its dominance by the UK Competition Appeal Tribunal (CAT) for overpricing its drug in the community segment compared to its sale price in the hospital segment, where it was sold at an unreasonably low price⁵. The case originated in January 2002 when the Competition Commission Appeal Tribunal upheld findings from the Office of Fair Trading (OFT) that Napp Pharmaceuticals had engaged in anti-competitive behaviour concerning its morphine painkiller, ‘MST Continus’. The Tribunal determined that Napp charged excessively high prices for MST in the community segment while offering substantial discounts—up to 90%—to hospitals. This pricing strategy was viewed as predatory, effectively blocking potential competitors from entering the market. The Tribunal’s key findings highlighted two main issues: predatory pricing and excessive pricing. Napp’s aggressive discounting to hospitals was seen as a tactic to secure contracts, thereby limiting competition in that segment. Once established in hospitals, Napp was able to charge significantly higher prices in the community segment without facing competitive pressure to lower them. Furthermore, Napp held a dominant position in both hospital and community markets for sustained-release morphine tablets, with a market share exceeding 90%.

For the Indian context, the grounds of ‘excessive pricing’ falls under the ambit of section 4 of the Competition Act, 2002. In the case of Kapoor Glass (India) Private Limited v. Schott Glass (India) Private Limited, CCI expressed its difficulties in establishing a clear framework for assessing excessive pricing allegations, particularly in relation to the pharmaceutical sector and other industries. One of the primary issues highlighted by the CCI was the necessity for concrete proof regarding various cost factors and pricing strategies. The complexities involved in analysing demand-side and supply-side factors further complicated the assessment process. As a result, the CCI found it challenging to sustain excessive pricing as a legally valid ground for action in India.

Similarly in the case of Biocon Limited v. F. Hoffmann-La Roche AG, allegations of excessive pricing were dismissed due to justifications related to research and development costs. In their complaints to the CCI, pharmaceutical companies Biocon and Mylan Pharmaceuticals claimed that Hoffmann-La Roche AG and its group companies, Genentech and Roche Products (India) Pvt Ltd, had violated Section 4(2)(a)(ii) of the Competition Act, 2002. They argued that the cost of Roche’s ‘Trastuzumab-based’ breast cancer therapy medications was too high in comparison to their biosimilars. The CCI did not consider the pricing to be unjust, while acknowledging Roche and its subsidiaries’ aggressive behaviour. Roche’s reputation as an innovator served as the basis for the defence, which stated that significant R&D expenditures required higher beginning prices.

Roche filed for a patent on Trastuzumab on April 5, 2007, under the Herceptin brand. However, the patent was revoked in 2013, causing it to expire. Roche then pulled Herceptin from the Indian market and replaced it with less expensive biosimilars like Herclon and Biceltis. This action seemed calculated, as it seemed to foreshadow India’s practice of granting mandatory licenses for expensive, popular cancer medications. Such licensing was postponed in India due to the lack of Trastuzumab biosimilars, which allowed Roche to position their biosimilars in a competitive market. Interestingly, Roche’s biosimilars lacked patent exclusivity and additional innovation. However, without going further into comparisons or market dynamics, the CCI rejected concerns of exorbitant pricing, citing assertions of R&D expenses.

CONCLUSION

While remedying excessive drug pricing is complex, it is not solely the responsibility of competition authorities in India . Sectoral regulators, such as the National Pharmaceutical Pricing Authority (NPPA), play a pivotal role. The NPPA already regulates the ceiling prices of essential drugs under the Drug Price Control Orders (DPCOs) and monitors non-scheduled drugs to prevent unjustified price hikes. By leveraging the sectoral regulator’s technical expertise and market knowledge, the CCI can more effectively address cases of unfair pricing and foster competition.

To enhance transparency in the pharmaceutical sector, it is imperative that companies are mandated to disclose their cost structures, including detailed accounts of research and development expenditures. The Competition Commission of India (CCI) has consistently emphasized the importance of transparency through a series of policy notes and directives over the years. Starting with the 2010 Study on Competition in Pharmaceuticals, the CCI identified key areas where transparency could improve market dynamics. In 2014, a press release directed trade associations to eliminate anti-competitive practices, such as requiring no-objection certificates for stockist appointments, enforcing compulsory Product Information Service (PIS) charges, and fixing trade margins. This initiative aimed to foster a more competitive environment. The 2018 policy note, titled “Making Markets Work for Affordable Healthcare,” further reinforced the necessity for transparency, urging enterprises to adopt practices that prioritize consumer welfare. This was followed by the 2020 Market Study on Supply Chain, which reiterated concerns regarding the dominance of branded generics in the market, driven by high trade margins and consumer preferences for premium pricing. The report called on trade associations to implement competition compliance programs. These steps reflect a broader commitment to ensuring that pharmaceutical companies operate transparently, ultimately benefiting consumers by promoting fair pricing and access to essential medications.

That said, controlling drug pricing is one component in the entire framework of Health Care. The cost of Hospitalisation and cost for various tests that one must undergo along with the added cost of super specialisation (consultancy) are also burdensome for patients thereby driving the overall cost significantly high in Health Care and such cost cannot be ignored, but generally it is overlooked, and only pharmaceutical manufacturers remain in focus and are subjected to price cuts for drugs manufactured/marketed. It is high time the overall Health Care Framework is examined in a holistic matter that will ultimately benefit the patients.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.