Author Archives: Tapan Ray

Could M&As in Pharma create significant stakeholder value?

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At the very outset, I pay my homage to the departed soul of our industry colleague respected Amar Lulla, former joint managing director of Cipla, who passed away on Friday, April 22, 2011 after a prolonged battle against cancer.

As we know, “Merger and Acquisition (M&A)” is an inorganic growth tool of any business. In this model growth in business operations arise from value creation through mergers or takeovers of other companies, rather than from increase in the company’s own existing business activities.

On April 13, 2011, quoting a study released by Burrill & Co, a noted life sciences investment firm, ‘Fierce Pharma’ reported that “drug makers’ deal making over the past 10 years has utterly and completely failed to build value in the industry. Big Pharma has actually lost almost $1 trillion in value during the past decade.”

Big Pharmas lost value in the past decade through deal making:

Burrill argued: “The drug industry’s 17 most active buyers had a combined market value of $1.57 trillion at the end of 2000. By the end of 2010, that value had shrunk to $1.04 trillion–notwithstanding the $425 billion in acquisitions these companies made during the decade with a total loss of $955 billion.”

The report commented that global pharma majors could not make up non-delivery of innovative products through these acquisitions.

M&As triggered by in-market blockbuster products, were successful in the past:

It was observed that those M&As, which were triggered by in-market blockbuster products were successful in the past. Like for example:

Year M&A Product/Products
2000 Pfizer and Warner Lambert Lipitor
2006 Eli Lilly-ICOS Cialis
2008 Eli Lilly- ImClone Erbitux

However, when a company was acquired for products in development or R&D pipelines, it was observed that acquirer could not derive full benefits of their respective inorganic growth plans, as many of those projects did not fructify or could not be continued in the long run for various different reasons. I am not trying to go into those details in this article.

It is usually believed that healthcare companies with diversified interests along with pharmaceuticals and biotech business, like, diagnostic, devices and generic pharmaceuticals encountered much lesser growth pangs in the past. I reckon, it is for this reason, companies like, Abbott, J&J, Roche and Novartis registered overall better business performance than their pure pharmaceutical business counterparts like, Merck, Pfizer etc.

Only future will tell us whether high takeover prices, such as US$ 68 bn paid by Pfizer for Wyeth or US$ 46 bn of Roche for Genentech or US$ 41 bn of Merck for Schering-Plough, mainly to acquire the drug pipelines of the respective companies, can ultimately be justified or not. At this stage, it is indeed extremely difficult to quantify the transaction value of phase III drugs that Pfizer, Roche and Merck acquired with these mega deals.

However, about a couple of years ago ‘Forbes’ in its article titled, “Will Pfizer’s Merger Hurt Innovation?” published in January 26, 2009 commented as follows:

“Between 1998 and now, Pfizer has launched only one medicine with annual sales surpassing $1 billion, despite ploughing more than $60 billion into research and development. That drug, the pain med Lyrica, was already in development at Warner-Lambert when Pfizer bought it.” 

Other significant global M&A initiatives in 2010 were as follows:

Global Companies Value (US $ billion)
Sepracor by Dainippon Sumitomo 2.6
77% of Alcon (the eye care unit of Nestle) by Novartis 50
Millipore by Merck KGA 6
OSI Pharma by Astellas 4
King Pharma by Pfizer 3.6
BioVex by Amgen 1
Ratiopharm by Teva 5

In addition, work is in progress for some more M&A initiatives, like the hostile bid of US $ 20 billion of Sanofi Aventis for Genzyme in 2011. J&J’s offer of US $2.3 billion for vaccines of Crucell; Valeant’s hostile bid for Cephalon of US $ 5.7 billion, and J&J’s talk with Synthes for an acquisition with US $20 billion.

Emerging markets: the Eldorado:

At the same time, IMS Health reports that emerging markets will register a growth rate of 14% to 17% by 2014, significantly driven by generic pharmaceuticals, when the developed markets will be growing by 3% to 6% during this period. It is forecasted that the global pharmaceutical industry will record a turnover of US$1.1 trillion by this time.

Probably prompted by this overall market scenario, the global pharmaceutical majors are still trying to keep their heads above water through deal making and various collaborative initiatives. India, being one of the fastest growing global pharmaceutical markets, has also started experiencing this consolidation process.

Real consolidation process in India commenced in 2006: The consolidation process in India started gaining momentum from the year 2006 with the acquisition of Matrix Lab by Mylan, although 2009 witnessed the biggest merger in the Pharmaceutical Industry of India, thus far, in value terms, when the third largest drug maker of Japan, Daiichi Sankyo acquired 63.9% stake of Ranbaxy Laboratories of India for US $4.6 billion.
This was widely believed to be a win-win deal for both the companies with Daiichi Sankyo leveraging the cost arbitrage of Ranbaxy effectively, while Ranbaxy benefiting from the innovative products range of Daiichi Sankyo. This deal also established Daiichi Sankyo as one of the leading pharmaceutical generic manufacturers of the world, making the merged company a force to reckon with, in the space of both innovative and generic pharmaceuticals business.
Another mega acquisition soon followed:
In May 2010, the Pharma major in the US Abbott catapulted itself to number one position in the Indian Pharmaceutical Market (IPM) by acquiring the branded generics business of Piramal Healthcare with whopping US$3.72 billion. Abbott acquired Piramal Healthcare at around 9 times of its sales multiple against around 4 times of the same paid by Daiichi Sankyo.

According to Michael Warmuth, senior vice-president, established products of Abbott the sales turnover of Abbott in India, after this acquisition, will grow from its current around US$ 480 million to US$2.5 billion by the next decade. 

Was the valuation right for the acquired companies?
Abbott had valued formulations business of Piramal Healthcare at about eight times of sales, which is almost twice of what Japan’s Daiichi Sankyo paid for its US$4.6 billion purchase of a controlling stake in India’s Ranbaxy Laboratories in June 2008.

On the valuation, Warmuth of Abbott has reportedly commented “If you want the best companies you will pay a premium; however, we feel it was the right price.”

This is not surprising at all, as we all remember Daiichi Sankyo commented that the valuation was right for Ranbaxy, even when they wrote off US$3.5 billion on its acquisition.
In my opinion, considering the fact that not too many attractive acquisition targets are available within the domestic pharmaceutical industry, the valuation of any well performed Indian Pharmaceutical Company will continue to remain high, at least in the short to medium term… and why not, when the domestic pharmaceutical industry is growing so well, consistently?

M&As in India from 2006 to 2010:

Year

Indian Companies

Multinational Companies

Value ($Mn)

 Type
2006
Matrix Labs Mylan

736

 Acquisition
Dabur Pharma Fresenius Kabi

219

 Acquisition
Ranbaxy Labs Daiichi Sankyo

4,600

 Acquisition
Shantha Biotech Sanofi-aventis

783

 Acquisition
2009
Orchid Chemicals Hospira

400

 Business Buyout
2010
Piramal Healthcare Abbott

3,720

 Business Buyout
Paras Pharma Reckitt Benkiser

726

 Acquisition

Collaborative deals in India from 2009 to 2011:

Year

Multinational Companies

 Indian Companies
2009
GSK Dr. Reddy’s Lab
Pfizer Aurobindo Pharma
2010
AstraZeneca Torrent
Abbott Cadila Healthcare
Pfizer Strides Arcolab
AstraZeneca Aurobindo Pharma
Pfizer Biocon
2011
Bayer Cadila Healthcare
MSD Sun Pharma

The Key driver for acquisition of large Indian companies:
Such strategies highlight the intent of the global players to quickly grab sizeable share of the highly fragmented IPM – the second fastest growing and one of the most important emerging markets of the world.
If there is one most important key driver for such consolidation process in India, I reckon it will undoubtedly be the strategic intent of the global companies to dig their heel deep into the fast growing Indian branded generic market, contributing over 99% of the IPM. The same process is being witnessed in other fast growing emerging pharmaceutical markets, as well, the growth of which is basically driven by the branded generic business.
Important characteristics to target the branded generic companies:
To a global acquirer the following seem to be important requirements while shortlisting its target companies:
• Current sales and profit volume of the domestic branded generic business • Level of market penetration and the rate of growth of this business • Strength, spread and depth of the product portfolio • Quality of the sales and marketing teams • Valuation of the business
Faster speed of consolidation process could slow down the speed of evolution of the ‘generics pharmaceutical industry’ in India: Though quite unlikely, if the moderate valuation of large Indian companies starts attracting more and more global pharmaceutical majors, the speed of evolution of the ‘local generic pharmaceutical industry’ in the country could slow down, despite entry of newer smaller players in the market.

The global companies will then acquire a cutting edge on both sides of the pharmaceutical business, discovering and developing innovative patented medicines while maintaining a dominant presence in the fast growing emerging branded generics market across the world.
An alarm bell in the Indian Market for a different reason:
It has been reported that being alarmed by these developments, some industry insiders feel, “Lack of available funding is the main reason for the recent spurt in the sale of stakes in domestic companies”.
They have reportedly urged the Government to adequately fund the research and development (R&D) initiatives of the local Pharmaceutical Companies to ensure a safeguard against further acquisition of large Indian generic players by the global pharmaceutical majors. It is a fact that the domestic Indian companies do not have adequate capital to fund cost-intensive R&D projects in India even after having a significant cost arbitrage.
Will such consolidation process now gain momentum in India?
In my view, it will take some more time for acquisitions of large domestic Indian pharmaceutical companies by the Global Pharma majors to gain momentum in the country. In the near future, we shall rather witness more strategic collaborations between Indian and Global pharmaceutical companies, especially in the generic space, as indicated above.
The number of high profile M&As of Indian pharma companies will significantly increase, as I mentioned earlier, when the valuation of the domestic companies appears quite attractive to the global pharma majors. This could happen, as the local players face more cut-throat competition both in Indian and international markets, squeezing their profit margin.
It won’t be a cake walk either…not just yet:
Be that as it may, establishing dominance in the highly fragmented and fiercely competitive IPM will not be a ‘cakewalk’ for any company, not even for the global pharmaceutical majors. Many Indian branded generic players are good marketers too. Companies like, Cipla, Sun Pharma, Alkem, Mankind, Dr.Reddy’s Laboratories (DRL) have proven it time and again, over a period of so many years.
The acquisition of Ranbaxy by Daiichi Sankyo did not change anything in the competition front. Currently the market share of Abbott, post M&A, including Solvay and Piramal Healthcare, comes to just around 6.2% followed by Cipla at 5.5% (Source: AIOCD). This situation in no way signifies domination by Abbott in the IPM, far from creating any oligopolistic pharmaceutical market in India.
Thus the pharmaceutical market in the country will continue to remain fragmented with cut-throat competition from the existing and the newer tough minded, innovative and determined local branded generic players having cost arbitrage, cerebral power and untiring spirit of competitiveness with a burning desire to win.
Simultaneously, some of the domestic pharmaceutical companies are in the process of creating a sizeable Contract Research and Manufacturing Services (CRAMS) sector to service the global pharmaceutical market.
Conclusion:
In my view, it does not make long term business sense to pay such unusually high prices for the branded generics business of any Indian company. Besides the report of Burrill & Co., we also have with us examples of some of the Indian pharmaceutical acquisitions in the overseas market are not working satisfactorily as the regulatory requirements for the low cost generics drugs were changed in those countries.
Most glaring example is the acquisition of the German generic company Betapharm by DRL for US$ 570 million in 2006. It was reported that like Piramals, a significant part of the valuation of Betapharm was for its trained sales team. However, being caught in a regulatory quagmire, the ultimate outcome of this deal turned sour for DRL.
Could similar situation arise in India, as well? Who knows? What happens then to such expensive acquisitions, if for example, prescriptions by generic names are made mandatory by the Government within the country, despite intensive lobbying efforts?

Be that as it may, in India also, a study like, ‘Burrill Report” could be quite useful to ascertain whether or not the deal making of global and local drug majors in the country over a ten year period commencing from 2006 onwards, has succeeded to create desired stakeholder value.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

‘Frugal Innovation’ in Healthcare: Ahoy!

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Patented new products have been the prime growth driver of the research based pharmaceutical companies, the world over. Probably because of this reason the world has seen over a period of time about four different molecules of H2 Blockers and six different molecules of proton pump inhibitors to treat peptic ulcers, nine varieties of statins to treat lipid disorders, ten variants of calcium channel blockers to treat hypertension, three new compounds of similar drugs to address erectile dysfunction and the list could go on. Most of these molecules attained the blockbuster status, backed by cutting edge innovative marketing strategies.

Whether all these patented molecules met significant unmet needs of the patients could well be a contentious point. However, the key point is that all these drugs did help fueling growth of the global pharmaceutical industry very significantly, including our own Indian Pharmaceutical companies, though through immaculate copying during pre-product patent regime of before January, 2005.

Since last few years, because of various reasons, the number of market launch of such patented products has greatly reduced. To add fuel to the fire, 2011-12 will witness patent expiries of many blockbuster drugs, including the top revenue grosser of the world, depleting the growth potential of many large research-based global pharmaceutical companies.

Blockbuster drug ‘Business Model’ is no longer sustainable:

The blockbuster model of growth engine of the innovator companies effectively relies on a limited number of ‘winning horses’ to achieve the business goal and meeting the Wall Street expectations. In 2007, depleting pipeline of the blockbuster drugs hit a new low in the developed markets of the world. It is estimated that around U.S. $ 140 billion of annual turnover from blockbuster drugs will get almost shaved-off due to patent expiry by the year 2016.  IMS reported that in 2010 more than U.S. $ 30 billion was adversely impacted because of patent expiry.  Another set of blockbuster drugs with similar value turnover will go off patent in 2011.  It will not be out of context to mention, that the year before last around U.S. $ 27 billion worth of patented drugs had reportedly gone off-patent.

Decline in R&D productivity with a thin silver lining though:

The decline in R&D productivity has not been due to lack of investments.  It has been reported that between 1993 and 2004, R&D expenditure by the pharmaceutical industry rose from U.S. $ 16 billion to around U.S. $ 40 billion.  However, during the same period the number of applications for New Chemical Entities (NCEs) filed annually to the U.S. FDA grew by just 7%.

It was reported that total global expenditure for pharmaceutical R&D reached U.S. $ 70 billion in 2007 and is estimated to be around U.S $ 90 billion by the end of the year just gone by.  75% of this expenditure was incurred by the U.S alone. It is interesting to note that only 22 NMEs received marketing approval by the US FDA during this period against 53 in 1996, when expenditure was almost less than half of what was incurred in 2007 towards R&D.

The silver linings:

There seem to be following two silver linings in the present scenario, as reported by IMS:

  1. Number of Phase I and Phase II drugs in the pipeline is increasing.
  2. R&D applications for clinical trials in the U.S. rose by 11.6% to a record high of 662 last year.

Funding high cost R&D will be a challenge:

Patent expiry of so many blockbusters during this period will obviously fuel the growth of generic pharmaceutical business, especially in the large developed markets of the world. The market exclusivity for 180 days being given to the first applicant with a paragraph 4 certification in the U.S. is, indeed, a very strong incentive, especially for the generic pharmaceutical companies of India.

In a scenario like this, funding of high cost R&D projects is becoming a real challenge.

Cut in R&D Expenditure has already begun:

Following its acquisition of Wyeth in 2008, Pfizer announced plans to reduce their R&D budget from the US $11 billion to between $8 and $8.5 billion by 2012. Similarly, GSK also announced a reduction of £500 million from its costs by 2012 and half of these costs are from their R&D budget.

As reported by Chemistry World in January 2010, “AstraZeneca announced its plans to reduce around 1800 R&D positions as part of a restructuring process that will see 8000 jobs go as it looks to reduce its costs by $1 billion a year by 2014”.

The time for ‘Frugal Innovation’:

In a new and fast evolving scenario when the erstwhile ‘Blockbuster Drugs Business Model’ with commensurate huge R&D spends does no longer seem to be a practical proposition. Unmet needs in the healthcare space should now be met with cost efficient ‘Frugal Innovation’, which has already dawned in the healthcare space of India.

April 15, 2010 issue of ‘The Economist’ in an article titled, “First break all the rules – The charms of frugal innovation” has described some of health related ‘Frugal Innovations’ as follows:

  • Bangalore Center of General Electric (GE) has come out with a low cost hand-held electrocardiogram (ECG) called ‘Mac 400’, which has reduced the cost of an ECG test to just US $1 per patient.
  • Tata Consultancy Services (TCS) has come out with lower-tech, yet robust, portable and relatively cheap water filter, which uses rice husks to purify water. This water filter could provide even to a large family an abundant supply of bacteria-free water for an initial investment of about US $24 and a recurring expense of about US $4 for a new filter every few months. Tata Chemicals, which is making the devices, is planning to produce 1m over the next year and hopes for an eventual market of 100m.

11th Five Year Plan of India and ‘Frugal Innovation’:

The panel set up for the appraisal of the 11th Five Year Plan of India observed that innovation needs to be “inclusive” and “frugal”.

To accelerate growth of the nation and to meet the unmet needs particularly in healthcare and education, besides others, India needs more ‘frugal innovation’ that produces more ‘frugal cost’ and high quality products and services, quite affordable to the common man of the country.

It also highlighted that a paradigm which bases its assessment of innovativeness on the quantum of expensive inputs deployed, like the numbers of scientists, expenditures on R&D etc. will always tend to produce expensive innovations because the cost of innovation must be recovered in the prices of the products it produces.

The above appraisal report goes on saying:

“This is indeed the dilemma of the ‘innovative’ companies in the pharmaceutical industry. They find it economically difficult to justify development of low cost solutions for ailments that affect poor people.”

‘National Innovation Council’ moots ‘inclusive growth’ through innovation:

To encourage the culture and process of ‘inclusive growth’ through innovation in India, Mr. Sam Pitroda , the Chairman of the ‘National Innovation Council’ had mooted a proposal for creation of a Rs 1,000 Crore corpus in the country, where the Government of India should initially take 10% to 20% share of the corpus and then its equities will be bought by the public. 

Conclusion:

The R&D model of companies like GE and TCS, as mentioned above, are taking the affordability of the common man as a starting point and then working backwards to satisfy unmet needs of the people, just as what Tata Motors did for the ‘Nano Car’ in India.

In an environment of continuous diminishing return from the big ticket R&D expenditure of the global pharmaceutical companies, across the world, I sincerely hope and pray that the world witnesses increasing number of cost effective ‘Frugal Innovation’ in healthcare, including medicines, sooner than later…just for the sake of humanity.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Deadly ‘Superbugs’: The larger issues

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Every year, April 7 is observed as ‘World Health Day’ across the globe. This year, 2011, is no exception. However, interestingly considering the increasing debate on the antibiotic resistance ‘Superbug’, the theme of this year has been very aptly coined as “No action today, no cure tomorrow”.

April 2011 issue of ‘The Lancet’ reported again the presence of drug-resistant bacteria NDM-1 in the public water system of Delhi.

Some observers in this area commented that this report is clearly aimed at raising alarm by recycling an old claim that has been found to be contentious, clearly suggesting indirectly that foreigners who visit India for medical and cosmetic treatments may carry back the deadly microbes with them to their respective countries.

The new report attempts to establish that the ‘Superbug NDM-1′ is no longer a hospital-born infection but can also spread through contaminated water and food. Understandably, this has raised a hue and cry in India.

Ministry of Health ridicules ‘The Lancet’ April study:

Last week the Ministry of Health rejected the above study observing that it was not only conducted with “motivated intentions”, but is illegal too. As transport of  water samples for such study out of the country requires prior permission from regulatory authorities. The authenticity of the samples also appears to be questionable, as these were reportedly to have been collected by a TV reporter.

However, just a day after the government rejected ‘The Lancet’ report, it formed a committee to look into the findings of the study, as announced by Dr R K Srivastava, Director General of Health Services, Government of India.

However, ‘The Lancet’ stands by this study report.

August 2010 report of ‘The Lancet’:

One will perhaps recall that on August 11, 2010, “The Lancet” published similar article highlighting that a new antibiotics-resistant “Superbug” originating from Pakistan has taken its first life. This happened when a patient brought to a hospital in Belgium died in June 2010 after having met with a car accident in Pakistan, where from the person got infected with this “Superbug”.

The above article was written by a team of international researchers including an Indian. The study elaborated that a new variety of enzyme named after India’s national capital New Delhi, called, “New Delhi Metallo beta lactamase” in short “NDM 1” turns any bacteria into a deadly “Superbug”, making it resistant to all types of antibiotics, leaving virtually no cure in sight. This deadly “Superbug” was reported to have already reached the United Kingdom through patients who acquired it from the hospitals in India and has the potential to precipitate serious health issues across the world. “The New Delhi Superbug” was discovered even earlier: The ‘The Lancet’ report generated a sharp reaction in India and from some of its authors regarding its authenticity. Some experts even termed this study as the ‘Western plot to undermine medical tourism in India’. A leading daily of India reported, “Indian medical journal first documented Superbug”. It stated that that the first ever formal documentation of this ‘Superbug’ was made in 2009 at the P.D. Hinduja National Hospital and Medical Research Centre located in Mumbai. This finding was published in the ‘Journal of the Association of Physicians in India (JAPI’) in March 2010. The reason for the emergence of the ‘Superbug’ was attributed to the ‘worrisome outcome of the indiscriminate use of antibiotics’. “Unfair to blame the country for the ‘New Delhi’ Superbug”: Reacting to the August article, Indian health authorities opined at that time, “It is unfortunate that this new bug, which is an environmental thing, has been attached to a particular country.” The reasons being, “Several superbugs are surviving in nature and they have been reported from countries like Greece, Israel, the U.S., Britain, Brazil and there is no public health threat and no need to unnecessarily sensationalize it”.

Some experts, however, feel, “such drug resistant pathogens, is a global phenomenon and is preventable by sound infection prevention strategies which are followed in any good hospital.”

Based on this report the ‘National Center for Disease Control of India’ started working on guidelines for appropriately recording these types of nosocomial (hospital acquired) infections.

“Superbug Hype” and Medical Tourism:

Many people of both India and Pakistan felt since then that in absence of an effective response by the health authorities, especially in India, the fast evolving Medical Tourism initiatives providing medical services ranging from complicated cardiovascular, orthopedic and cerebrovascular surgery to other life-threatening illnesses, may get adversely impacted.

The ‘blame game’: Experts have opined that overuse, imprudent or irrational use of antibiotics without any surveillance protocol is the root cause for emergence of “Superbugs”, though some Indian parliamentarians had termed the August article as the propaganda by some vested interests.

It has been alleged that the study was funded by the Wellcome Trust and Wyeth, the two global pharmaceutical companies who produce antibiotics to treat such conditions, together with the European Union.

In this context it is worth mentioning that ‘The Lancet’ article of August 2010 in its disclosures says:

“Kartikeyan K Kumarasamy has received a travel grant from Wyeth… David M Livermore has received conference support from numerous pharmaceutical companies, and also holds shares in AstraZeneca, Merck, Pfizer, Dechra, and GlaxoSmithKline, and, as Enduring Attorney, manages further holdings in GlaxoSmithKline and Eco Animal Health. All other authors declare that they have no conflicts of interest.” Not a first time reported incidence: This type of situation has indeed some precedents. When ‘MRSA’ was reported for the first time, it caused similar scare. However, this time many experts feel that it is too early to conclude whether or not ‘NDM-1’ will eventually prove to be more dangerous than ‘MRSA’. Several such “Superbugs”, as stated earlier, have already been reported from countries like Greece, Israel, USA, UK, and Brazil. As I know, in the battle against infectious diseases involving both the scientists and the bacteria, the later had  to succumb mostly, in the long run. ‘NDM-1′ perhaps will be no exception. All concerned must continue to make it happen, not by mere wishful thinking but by establishing a strong procedural mechanism to keep a careful vigil on the reasons for emergence of drug resistant bacterial strains in the country.

The World Health Organization (WHO) perspective:

On Saturday, August 21, 2010 the WHO commented, “while multi-drug resistant bacteria are not new and will continue to appear, this development requires monitoring and further study to understand the extent and modes of transmission, and to define the most effective measures for control”.

International Cooperation:

US based Center for Disease Control and Prevention (CDC), which is known as one of the world’s best-known institute for handling ‘Superbugs’, will help India in its capacity building efforts to better detect pathogens like NDM-1.

In India, the National Center for Disease Control (NCDC) with state of art facilities is expected to commence working from the next year. The facility is expected to be equipped with highly-advanced bio-safety level-II and BSL-III laboratories and would cost around Rs 382.41 Crore.

The larger issue:

The larger issue is that antibiotic resistance is fast becoming a global health concern as drug-resistant bacteria can turn a simple infection life threatening. According to the World Health Organization, ‘some 440,000 new cases of tuberculosis resistant to different types of drugs were detected last year in 60 countries across the world.’

Thus the emergence of drug-resistant ‘Superbug’ is being seen by many experts as a natural process of evolution of organisms. However, it goes without saying that indiscriminate use of antibiotics is hastening this deadly process.

R&D focus shifted more towards chronic illnesses:

Besides the reasons attributed to emergence of such “Superbugs”, as discussed earlier, one more important issue I could foresee in today’s environment compared to the past decades.

This issue possibly lies in the drastic shift in focus of pharmaceutical R&D from discovery of novel drugs for short term treatment of infectious diseases to discovery of potentially greater money spinner drugs for life-long treatment of non-infectious chronic illnesses like, metabolic disorders (diabetes), hypertension, cardiovascular diseases, psychiatric disorders, cancer, vaccines etc. This shift in the R&D focus has obviously been prompted by the tilt in the prevalence of the disease pattern towards the same direction. As a consequence, one notices hardly any significant and novel molecules in the research pipelines of either global or local pharmaceutical companies to treat  antibiotic-resistant infections.

As reported by the ‘Infectious Diseases Society of America’ between 1983 and 1987 sixteen new patented antibiotics were approved by the US FDA, while from 2003 to March 2011 only seven patented antibiotics were launched in the international market.

It is understandably not an ‘either/or’ situation so far as R&D target molecules are concerned. However, as we all know, in life-threatening conditions both types of drugs have their respective places to save precious lives.

Conclusion:

Let the global innovators ponder over the issue for newer antibiotics to counter the emerging ‘Superbugs’.

In India, the Ministry of Health should consider strictly implementing the measures suggested by the task force set up last year to prevent indiscriminate use of antibiotics. Such measures include a ban on sale of antibiotics without prescriptions and simultaneously regular audits of prescriptions of the doctors to stop irrational use of such drugs.

The need of the hour is a well-orchestrated effort by the Government, members of the civil society and the medical fraternity to have full control on this growing menace, through tangible, prudent and truly patient-friendly action .

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Tapan Ray in ‘Focus Reports’, March 2011

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FR: Our last report on India dates back to 2006, right after the Patent Law was passed. What developments have you seen happening in the industry since then?

TR: There has been a paradigm shift with the Product Patent Regime coming in place in 2005. The era from 1970 to 2005 has been a very successful era of reverse engineering, when Indian manufacturers were copying and marketing innovative products in India at a fraction of their international price. Nevertheless, this also required talent, for which India had brilliant process chemists. However, the country eventually realized that reverse engineering model would not truly serve the longer term advancement of the economy in creating a conducive ecosystem to foster innovation. This realization process started in 1990 and was reinforced after signing the WTO Agreement in 1995. After the ten-year transition period, the patent law came into force in January 2005.

Since around 2005 Indian companies, which had mainly been relying on cost efficient processes, started investing in the drug discovery research. There are now at least 10 Indian companies engaged in basic research, while around 32 New Chemical Entities (NCEs) are at various stages of development.

This significant step that the country has taken so far, could not have been possible without a conscious decision to move away from the paradigm of replication to the new paradigm of innovation. More importantly, this shift has not happened at the cost of fast growing generic pharmaceutical industry in the country. Branded generics continue to grow rapidly in the new paradigm.

Today, branded generics constitute over 99% of the domestic pharmaceutical market. Of course, according to McKinsey (2007), the share of patented medicines is expected to increase to 10% by 2015. Even in that scenario 90% of the market will still constitute with branded generics in value terms.

FR: At the same time, companies are still only spending some 4% of their revenues on R&D, while internationally these numbers amount up to 12%. Many of the people in the industry seem to still see the future of India for the next 10 years to remain in manufacturing. Is innovation really the story of India right now?

TR: As I mentioned earlier, around 32 NCEs are at various stages of development from pre-clinical to Phase III. Thus, what Indian companies have achieved since 2005, is, indeed remarkable. If you now look at the investments made by the Indian pharmaceutical companies in R&D, as a percentage of turnover, you will notice an ascending trend. Though the R&D ecosystem in India cannot be compared with the developed world just yet, India is catching up.

FR: In some previous interviews we have conducted, concerns were raised over the Indian industry, saying that the local companies are selling off to international players. What is your take on this?

TR: In India, we all express a lot of sentiments and are generally emotional in nature. These are not bad qualities by any standard. However, such expressions should ideally be supported by hard facts. Otherwise these expressions cannot be justified.

Consolidation process within the industry is a worldwide phenomenon and is also taking place in India. One of the apprehensions of such consolidation process in India is that drug prices would go up, as a consequence. In my view, all such apprehensions should be judged by what has already happened in our country by now, in this area.

One example we can cite is the Ranbaxy-Daiichi-Sankyo deal, an acquisition which has not at all led to an increase in Ranbaxy’s product prices. Similarly, the acquisition of India-based Shantha Biotech by the French pharmaceutical major, Sanofi-Aventis did not lead to any increase in product prices either. It is difficult to make out how could possibly the drug prices go up when we have an effective national price regulator called National Pharmaceutical Pricing Authority (NPPA) in India? Currently, 100% of the pharmaceutical market in the country is regulated by NPPA in one way or the other.

India is currently having a drug policy which came into force way back in 1995. As per this drug policy, any company which increases its product price which are outside price control, by more than 10% in a year, will be called for an explanation by the NPPA. Without a satisfactory explanation, the concerned product – not the product category – will be brought under price control, that too for good. In addition, intensive cut-throat competition has made pharmaceutical product prices in India the cheapest in the world, even lower than in the neighboring countries such as Bangladesh, Pakistan and Sri Lanka. Moreover, if the potential to increase prices exists, why would any company wait for an acquisition in a highly fragmented pharmaceutical market in India?

Many of the concerns are, therefore, difficult to justify due to lack of factual data. In fact, on the contrary, the presence of multinational pharmaceutical companies in India is good for the country. These companies with their international expertise and resources would help India to build capacity in terms of training and creating a world-class talent pool. Indian companies, therefore, should consider to take more and more initiatives to partner and collaborate with these MNCs to create a win-win situation for India.

Another key advantage is in the area of market penetration. Market penetration through value-added innovative marketing has happened and has been happening all over the world; India should not let go this opportunity.

FR: In that case, how do you feel about some of the proposed protectionist measures such as a 49% cap on Foreign Direct Investment (FDI)?

TR: This may, once again, be related to the strong local sentiments. India needs financial reforms and wants to attract more and more FDI. The country wants to liberalize the process of FDI and, to the best of my knowledge, any step to move backward in this area should not be contemplated.

It is also worth mentioning that the acquisitions that have taken place were not of any hostile nature. Both Indian companies and MNCs have their own sets of skills, competencies and best practices. Both cost revenue and value synergy through such consolidation process could be made beneficial for the country.

Without commenting on any specific cases, I believe India has taken significant steps to encourage and protect innovation by putting in place the product patent Act in 2005. However, there are some additional steps that the Government should take to further strengthen the process, such as fast-track courts that can quickly decide on the cases of patent infringements. Another example is that when any company will apply for marketing approval for a product, the regulator will upload the same on its website. This is an easy way for other players to detect patent infringement and start taking counter-measures at an early stage. These are examples of steps that can be taken to create a proper ecosystem without amending the law.

FR: You mentioned the paradigm shift towards innovation earlier, to some extent a similar path as China. How innovative has India become in this respect and is it sufficient in terms of clinical trials and other related aspects of the sector?

TR: With regards to attracting FDI in areas such as R&D and clinical trials, India at present is far behind China. The reason for this, as said earlier, is that the country should try to analyse why the innovator companies are not preferring India to China in these areas. Simultaneously, there is a need to assess the expectations of the innovative companies from India in various areas of IPR. One such factor that is bothering the global innovative companies is the absence of regulatory data protection in India. The Government should seriously ponder over this need and take active steps towards this direction as was proposed by ” Satwant Reddy Committee in 2007.”

FR: In your view, what is the industry going to look like in the coming years?

TR: I do not expect a radical shift in the way the Pharmaceutical Industry will be operating in the next few years. Changes will take place gradually and, perhaps, less radically. The increase of the share of patented medicines to 10% of the market share by 2015 as was forecasted by McKinsey in 2007, in my opinion, is rather ambitious. We will certainly see more and more patented products in the market, but it will be slow and gradual unless corrective measures are taken to tighten the loose knots in the Patent Amendment Act 2005, as stated earlier. As more and more Indian companies will start embracing an innovation-driven business model, the strengths and the international experience of the MNCs in this area should be leveraged to catapult the Indian pharmaceutical industry to a much higher growth trajectory.

The interview is available at the following link:

http://www.pharma.focusreports.net/#state=Interview&id=0

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Fostering ‘Innovation’ and protecting of ‘Public Health Interest’: A formidable task for the new TF (taskforce)

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‘The Lancet’, March 19, 2011 in its article titled “India: access to affordable drugs and the right to health”, where the authors reiterated:

‘The right to health is a fundamental right in India, judicially recognized under article 21 of the Constitution…Access to affordable drugs has been interpreted to be a part of right to health’.

Keeping in view of this ‘fundamental right’ of the citizens, public health related issues will continue to be treated as a subject of ‘Public Interest’ in the country.

At the same time, no one can wish away the fact that unmet medicinal needs of the ailing patients can only be met through discovery of innovative drugs. Hence, an innovation friendly ecosystem must necessarily be created in the country, simultaneously. This throws open the dual challenge to the government in the healthcare space of the nation – charting an appropriate pathway to foster a climate for innovation and at the same time protecting ‘Public Health Interest’ of its citizens.

The recent admirable response of the Ministry of Health:

Considering this dual healthcare related needs of the country, on March 15, 2011, Mr Ghulam Nabi Azad, the Minister of Health and Family Welfare, announced the formation of a 12-member task force that will evolve the following strategies under the chairmanship of V.M. Katoch, Secretary, Department of Health Research and Director-General, ICMR and will submit its report within three months.

  1. Evolving a short, medium and long-term policy and strategy to make India a hub for drug discovery, research and development.
  2. Evolving strategies to further the interests of Indian pharma industry in the light of issues related to intellectual property rights and recommend strategies to capitalise the opportunity of $60 to $80 billion drugs going off-patent over the next five years.
  3. Evolve policy measures to assure national drugs security by promoting indigenous production of bulk drugs, preventing takeover of Indian pharma industry by multi-national corporations, drug pricing, promotion of generic drugs
  4. Recommend measures to assure adequate availability of quality generic drugs at affordable prices.

Indian Pharmaceutical Industry is on a growth spree:

The pharmaceutical industry of India is currently playing a key role in promoting and sustaining development in the healthcare space of India. Due to significant cost arbitrage, educated and skilled manpower and cheap labor force among others, the industry is set to establish itself as a global force to reckon with, especially in the areas of generic formulations business, Contract Research and Manufacturing Services (CRAMS).

Estimates and Perspectives:

  • The pharma industry is growing at around 1.5-1.6 times the Gross Domestic Product growth of India
  • Currently, India ranks third in the world in terms of volume of manufacturing pharmaceutical products
  • The Indian pharmaceutical industry is expected to grow at a rate of around 15 % till 2015
  • The retail pharmaceutical market in India is expected to cross US$ 20 billion by 2015
  • According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion market for MNCs selling patented drugs in India by 2015
  • The number of pharmaceutical retailers is estimated to grow from 5.5 lakh to 7.5 lakhs by 2015
  • At least 2 lakh more pharma graduates would be required by the Indian pharmaceutical industry by 2015
  • The Indian drug and pharmaceuticals sector attracted foreign direct investment to the tune of US$ 1.43 billion from April 2000 to December 2008 (Ministry of Commerce and Industry), which is expected to increase significantly along with the policy reform measures and increased Government investment (3%-4%) as a percentage of GDP towards healthcare, by 2015
  • The Minister of Commerce estimates that US$ 6.31 billion will be invested in the domestic pharmaceutical sector
  • Due to low cost of R&D, the Indian pharmaceutical off-shoring industry is expected to be a US$ 2.5 billion opportunity by 2012

Key growth drivers: Local and Global:

Local:

• Rapidly growing middle class population of the country with increasing disposable income.
• High quality and cost effective domestic generic drug manufacturers are achieving increasing penetration in local, developed and emerging markets.
• Rising per capita income of the population and inefficiency of the public healthcare system will encourage private healthcare systems of various types and scales to flourish.
• High probability of emergence of a robust healthcare financing/insurance model for all strata of society.
• Fast growing in Medical Tourism.
• Evolving combo-business model of global pharmaceutical companies with both patented and generic drugs is boosting local outsourcing and collaboration opportunities.
Global:
Global pharmaceutical industry is going through a rapid process of transformation. The moot question to answer now is how the drug discovery process can meet the unmet needs of the patients and yet remain cost effective.

Cost containment pressure due to various factors is further accelerating this process. CRAMS business, an important outcome of this transformation process, will be the key growth driver for many Indian domestic pharmaceutical players in times to come. 

Key Challenges:

Like all other industries, Pharmaceutical Industry in India has its own sets of Challenges and opportunities under which it operates. Some of the challenges the industry faces are:

  • Unfortunate “Trust Deficit” between the Government and the Industry, especially in pharmaceutical pricing area
  • Regulatory red tape and lack of initiative towards international harmonization
  • Inadequate infrastructure and abysmal public delivery system
  • Lack of adequate number of qualified healthcare professionals
  • Inadequate innovation friendly ecosystem to encourage R&D
  • Myopic Drug Policies have failed to deliver. The needs of over 350 million BPL families who cannot afford to buy any healthcare products and services, have not been effectively addressed, as yet
  • Inability of the government to address the critical issue of ‘80% out of pocket expenditure’ of the common man towards healthcare
  • Inadequate Public Private Partnership (PPP) initiatives in most of the critical areas of healthcare

Job Creation:

Pharmaceutical sector in India has created employment for approximately 3 million people from 23,000 plus units. Accelerated growth in job creation, will not only open up more opportunities to pharmaceutical professionals, but will also fuel growth opportunities in allied business segments like Laboratory, Scientific instruments, Medical Devices and Pharma machinery manufacturing sectors.

Despite all these, it is worth noting that the Indian pharmaceutical industry is confronting with a major challenge in getting employable workforce with the required skill sets. This issue will grow by manifold, as we move on, if adequate vocational training institutes are not put in place on time to generate employable workforce for the industry.

Government Initiatives are inadequate:

The government of India has started working out some policy and fiscal initiatives, though grossly inadequate, for the growth of the pharmaceutical business in India. Some of the measures adopted by the Government are follows:

  • Pharmaceutical units are eligible for weighted tax reduction at 175% for the research and development expenditure obtained.
  • Two new schemes namely, New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program have been launched by the Government.
  • The Government is contemplating the creation of SRV or special purpose vehicles with an insurance cover to be used for funding new drug research
  • The Department of Pharmaceuticals is mulling the creation of drug research facilities which can be used by private companies for research work on rent

Encouraging Pharmaceutical Export:

In the recent years, despite economic slowdown being witnessed in the global economy, pharmaceutical exports in India have registered an appreciable growth. Export has emerged as an important growth driver for the domestic pharmaceutical industry with more than 50 % of their total revenue coming from the overseas markets. For the financial year 2008-09 the export of drugs is estimated to be around US $8.25 billion as per the Pharmaceutical Export Council of India (Pharmexil). A survey undertaken by FICCI reported 16% growth in India’s pharmaceutical export during 2009-2010.

Five ‘Strategic Changes’ envisaged:
Five new key strategic changes, in my view, will be as follows:
1. As the country will move towards an integrated and robust healthcare financing system:
• Doctors will no longer remain the sole decision makers for the drugs that they will prescribe to the patients and also the way they will treat the common diseases. Healthcare providers/ medical insurance companies would play a key role in these areas by providing to the doctors well thought out treatment guidelines. • Tough price negotiation with the healthcare providers/ medical insurance companies will be inevitable for a significant proportion of the products that the pharmaceutical companies will sell related to these areas.

• Health Technology Assessment (HTA) or outcome based pricing will play an important role in pricing a healthcare product.
2. An integrated approach towards disease prevention will emerge as equally important as treatment of diseases.
3. A shift from just product marketing to marketing of a bundle of value added comprehensive disease management processes along with the product will be the order of the day
4. More affordable innovative medicines will be available with increasing access to a larger population, as appropriate healthcare financing model is expected to be in place.

5. Over the counter medicines, especially originated from rich herbal resources of India, will curve out a larger share of market, as appropriate regulations will be put in place.

Conclusion:

With the all these evolving trends in the healthcare sector of India, the ball game of the successful domestic Indian pharmaceutical industry is expected to undergo a rapid metamorphosis, as they will require to  compete with the global players on equal footing. Those Indian Pharmaceutical companies, who are already global players in their own rights, are already well versed with the nuances of this new game and are expected to offer a tough competition to the global players, especially, in the branded generic space, initially.

However, for some domestic players, the new environment could throw a major challenge and make them vulnerable to the consolidation process, already set in motion within Indian pharmaceutical industry.

The newly formed taskforce will hopefully be able to address all these issues in an integrated way to guide this life-line industry to a much higher growth trajectory to compete effectively not only in the global generic space, but also with the global innovator companies, sooner than later.

So the name of the game is to ‘Foster Innovation’ and protect ‘Public Health Interest’ simultaneously and not one at the cost of the other.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

A Disruptive Innovation in Healthcare – Personalized Medicines

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Tufts Center for the Study of Drug Development (Tufts University) in its publication named ‘Impact Report’, November/December 2010 articulated, “Biopharmaceutical companies are committed to researching and developing personalized medicines and within their development pipelines, 12%-50% of compounds are personalized medicines.”

Thus the disruptive innovation process towards ‘Personalized Medicines’ have already begun. Over a period of time ‘Personalized Medicines’ will be targeted to the biological/genomic profile of an individual to significantly improve the quality of healthcare to the patients.

This paradigm shift in the healthcare space would prompt similar changes in various disease diagnostic technologies, which will not only be able to detect a disease well before the appearance of symptoms, but would also  indicate which patients will best respond to or be adversely affected by which medications.

‘Personalized Medicines’ will in that process ensure a critical shift from the disease oriented treatment to a patient oriented treatment, which can be initiated much before the clinical manifestations of a disease are detected.

The technological march towards this direction is indeed risky and arduous one. However, the benefits that the humanity will accrue out of this disruptive innovation will far outweigh the risks in all forms.

Personalized Medicines:

Rapid strides in pharmacogenomics bring in a promise of radically different ways of treating diseases, as major pharmaceutical companies of the world make progress in developing much more effective medicines designed to target smaller populations.

The above ‘Impact Report’ defines Personalized Medicines as:

“Tailoring of medical treatment and delivery of health care to the individual characteristics of each patient—including their genetic, molecular, imaging and other personal determinants. Using this approach has the potential to speed accurate diagnosis, decrease side effects, and increase the likelihood that a medicine will work for an individual patient.”

‘Personalized Medicines’ are expected to be an effective alternative to quite unwieldy current ‘blockbuster drugs’ business model.

What is then the aim of ‘Personalized Medicines’?
The aim of ‘personalized medicines’ is, therefore, to make a perfect fit between the drug and the patient. It is worth noting that genotyping is currently not a part of clinically accepted routine. However, it is expected to acquire this status in the western world, very shortly.

Some interesting recent developments:

  1. The Economist, March 12-18, 2011 in its article titled “Toward the 15-minute genome” reported that ‘nanopore sequencing’ of human genome is now gaining momentum. This could make sequencing of entire genomes of cancerous and healthy cells possible to accurately point out what has exactly changed in individual patients, enabling the oncologists to determine patient specific drugs for best possible results in each case, separately.
  2. New cancer marker has been reported to aid earlier detection of the disease, where repetitive stretches of RNA are found in high concentrations in cancer cells.
  3. A new blood test will accurately detect early cancer of all types with an accuracy of greater than 95%, when repeated the accuracy will even be even greater than 99%.
  4. ‘Breast On A Chip’ will test nano-medical detection and treatment options for breast cancer
  5. A brain scan will detect the telltale “amyloid plaques,” the protein fragments that accumulate between nerves in Alzheimer’s disease

In what way ‘Personalized Medicines’ will be different?

With ‘Personalized Medicines’ the health of a patient will be managed based on personal characteristics of the individual, including height, weight, diet, age, sex etc. instead of defined “standards of care”, based on averaging response across a patient group. Pharmacogenomics tests like, sequencing of human genome will determine a patient’s likely response to such drugs.
These are expected to offer more targeted and effective treatment with safer drugs, and presumably at a lesser cost. Such medicines will also help identify individuals prone to serious ailments like, diabetes, cardiovascular diseases and cancer and help physicians to take appropriate preventive measures, simultaneously. ‘Personalized medicines’ in that process will focus on what makes each patient so unique, instead of going by the generalities of a disease.
To give a quick example, genetic differences within individuals determine how their bodies react to drugs such as Warfarin, a blood thinner taken to prevent clotting. It is of utmost importance to get the dosing right, as more of the drug will cause bleeding and less of it will not have any therapeutic effect.
‘Personalized medicines’, therefore, have the potential to bring in a revolutionary change the way patients are offered treatment by the medical profession. Genomic research will enable physicians to use a patient’s genetic code to arrive at how each patient will respond to different types of treatments.
In the field of cancer, genetic tests are currently being done by many oncologists to determine which patients will be benefitted most, say by Herceptin, in the treatment of breast cancer.
Expected benefits from ‘Personalized Medicines’:

The expected benefits from the ‘Personalized Medicines’, besides very early diagnosis as stated above, are the following:
1. More Accurate dosing: Instead of dose being decided based on age and body weight of the patients, the physicians may decide and adjust the dose of the medicines based on the genetic profiling of the patients.
2. More Targeted Drugs: It will be possible for the pharmaceutical companies to develop and market drugs for patients with specific genetic profiles. In that process, a drug needs to be tested only on those who are likely to derive benefits from it. This in turn will be able to effectively tailor clinical trials, expediting the process of market launch of these drugs.
3. Improved Health care: ‘Personalized Medicines’ will enable the physicians to prescribe ‘the right dose of the right medicine the first time for everyone’. This would give rise to much better overall healthcare.
Role of Pharmaceutical and Biotech companies:
Many research based pharmaceutical and biotechnology companies have taken a leading role towards development of ‘personalized medicines’ in line with their key role as healthcare enterprises. India is also taking keen interest in this science.
Some important issues:
However, there are some ethical and social issues in the development of ‘personalized medicines’ primarily in the area of genetic testing and consideration of race in the development of such medicines, which need to be effectively addressed, sooner.
Can it replace the ‘Blockbuster Drugs’ business model?
Realization of deficiencies in the economics of ‘block buster drugs’ R&D business model has made ‘personalized medicines’ a reality today.
Better efficacy and safety profile of ‘personalized medicines’ will prove to be cost-effective in the overall healthcare systems. Smaller and exclusive markets for ‘personalized medicines’ are also expected to be quite profitable for the pharmaceutical companies. However, such smaller segmentation of the market may not leave enough space for the conventional ‘blockbuster model’, which is the prime mover of the global pharmaceutical industry, even today.
Reports indicate that some renowned global pharmaceutical companies like, Roche, AstraZeneca, GlaxoSmithKline are making good progress towards this direction through collaborative initiatives.
Approximate cost of ‘Genome Sequencing’:
When human genome was first sequenced, the reported cost was staggering U.S$ 3 billion. However, with the advancement of technology, it came down to U.S$ 1 million, last year. Currently, the cost has further come down to U.S$ 60,000. With the rapid stride made in the field of biotechnology, combined with the economies of scale, cost of such genetic tests is expected to be around U.S$ 1,000 in near future, making it possible for people to obtain the blue print of their genetic code.
Savings on cost of Clinical trials with ‘Personalized Medicines’:
Genome sequencing will help identifying a patient population, which will be far more likely to respond positively to the new treatment. In that process, if it reduces costs of clinical trial by even 5%, expected net savings for the industry towards clinical trial have been reported to be around U.S$ 5 billion.
With ‘personalized medicines’ the innovator companies will be able to significantly reduce both time, costs and the risks involved in obtaining regulatory approvals and penetrating new markets with simultaneous development of necessary diagnostic tests. Such tests will be able to identify patients group who will not only be most likely to be benefitted from such medicines, but also will be least likely to suffer from adverse drug reactions.
Therefore, considerable cost advantages coupled with much lesser risks of failure and significant reduction in the lead time for clinical trials are expected to make ‘personalized medicines’ much more cost effective, compared to conventional ‘blockbuster drugs’.
Innovative and cost effective way to market ‘Personalized Medicines’:
With ‘personalized medicines’ the ball game of marketing pharmaceuticals is expected to undergo a paradigm shift. Roche’s model of combining necessary diagnostic tests with new drugs will play a very important role in the new paradigm.
Roche is ensuring that with accompanying required diagnostic tests, the new oncology products developed at Genentech can be precisely matched to patients.
Can ‘Personalized Medicines’ be used in ‘Primary Care’ also?
To use ‘personalized medicines’ in a ‘primary care’ situation, currently there is no successful model. However, it has been reported that in states like, Wisconsin in the U.S, initiative to integrate genomic medicines with ‘primary care’ has already been undertaken. Scaling-up operations of such pilot projects will give a big boost to revolutionize the use of ‘personalized medicines’ for precision and targeted treatment of the ailing population.

Conclusion:

In my view, there does not seem to be any possibility of looking back now. The robust business model of ‘personalized medicines’, will now be the way forward, as much to the industry as to the patients. It is a win-win game.

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

A time to keep our nose to the Grindstone – Competition Act will take care of M&As, come June 2011

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Full control of powers on Mergers and Acquisitions of the Competition Commission of India (CCI) effective June 1, 2011, has now been notified.

In this evolving scenario, it is indeed difficult to understand, why is the FDI issue on M&A in the Pharmaceutical space of India is still catching headlines of both national and international media. Instead, should we not now keep our nose to the grindstone and take strategic measures to accelerate the inclusive growth of this life-line industry of the nation?

Stipulations for M&As under the Competition Act:

Section 6(1) of the Act prohibits any person or enterprise from entering into a combination which has an “appreciable adverse effect” on competition in India. It also stipulates that any enterprise which intends to enter into such M&A, shall give notice to the CCI furnishing details of the proposed M&A within thirty days of:

(i)  Approval of the merger by the Board of Directors of the concerned enterprise

or

(ii) Execution of any agreement relating to acquisitions referred to in clause 5(a) & (b) of the Act. S.6(2A) provides a period of 210 days to the CCI to complete the investigation relating to such combinations (if the CCI is unable to come to any conclusion within this period then the combination is deemed to be approved)

S.5 of the Act lays down the transactions which will qualify as combinations for the purposes of the Act. The following is the threshold limit for Mergers and Acquisitions:
• Transactions among Indian companies with combined assets of Rs. 1000 Crores or Rs 3000 Crores in turnover of the merged entity
• Cross-border transactions involving both Indian and foreign companies with combined assets of US $500 million or US $1.5 billion in turnover

• Transactions that have a territorial nexus with India, where the acquirer has US $125 million in assets or US $375 million in turnover in India.

Once any transaction reaches the threshold limit as specified in S.5, the enterprise has to take recourse to the procedure as specified in the Competition Act.

A time to keep our nose to the Grindstone:

Last year, though the growth of the Global Pharmaceutical Industry with a turnover of US$ 752 billion significantly slowed down to just 6.7% due to various contributing factors, the Indian Pharmaceutical Industry continued to maintain a robust of growth of 19% with a turnover of US$ 10.1 billion (IMS October, 2010).

R&D will fuel future growth:

However, on a longer term perspective, the domestic industry growth will be significantly driven by the newer products, which will be the outcome of painstaking innovative research and development initiatives. Keeping this point in mind, the fact that today India accounts less than one per cent of over US$130 billion of the worldwide spending on research and development for pharmaceuticals, despite its known strength in process chemistry and abundant talent pool, has started attracting attention of the government.

Government taking appropriate measures:

It is encouraging to note that the Department of Pharmaceuticals of the Government of India through its ‘Vision 2020’ initiatives is planning to create a new echo-system in the country to promote new drug discovery platforms. This is expected to catapult the country as one of the top five global pharmaceutical hubs, by 2020 attracting additional investments of around US$ 20 billion to the GDP of the country.

Primary role of the industry:

The Primary role of the Research based Pharmaceutical Industry in India, like in many other countries of the world, is to make significant contribution to the healthcare objectives of the nation by meeting the unmet needs of the ailing patients, with innovative medicines. This role can be fulfilled by developing newer medicines through painstaking, time-consuming, risky and expensive basic research initiatives. The research based Pharmaceutical Industry in India is committed to its prime function of discovering and developing new medicines not only for the patients in India but all over the world.

Encouraging innovation will be critical:

Despite immense progress made over the past decades in developing new medicines for numerous acute and chronic illnesses, innovation still remains critically important in the continuous and ever complex battle between disease and good health. Ongoing efforts in Research & Development (R&D) would require a robust national policy environment that would encourage, protect and reward innovation. Improving healthcare environment in partnership with the Government remains a priority for the Research based Pharmaceutical Companies in India, both global and local.

Continuous improvement in ‘Access to Medicines’ is critical:

Therefore, improving access to healthcare in general and medicines in particular should be on the top priority agenda of the policy makers in our country. High incidence of mortality and morbidity burden in a country like ours can only be addressed by improving Access to healthcare through a concerted partnership oriented strategy.

Some concerns still linger:

However, in the new paradigm, which has been designed to foster innovation in the country, there are still some loose knots to be tightened up to achieve the set objectives for the inclusive growth of the nation, in the longer term perspective.

These measures, in turn, will help improving the competitiveness of India vis-à-vis countries like China to attract appreciable investments towards R&D related to pharmaceutical and bio-pharmaceutical products. The Government has already initiated measures to expand the capacity of Indian judiciary and setting- up of fast-track specialized courts that can more effectively enforce Pharmaceutical patents with requisite technical expertise.

Industry should set examples in ‘Good Corporate Governance’ and ‘Global Good Manufacturing Practices’:

Another area of focus should be on corporate good governance. This encompasses adherence to high ethical standards in clinical trials, regulatory and legal compliance, working to prevent corrupt practices, high ethical standard in promotion of medicines and addressing all other issues that support good healthcare policies of the Government. In addition, Pharmaceutical Industry should take active measures to involve all concerned to fight the growing menace of counterfeit and spurious medicines, which significantly affect the lives of the ailing patients, all over the country.

All stakeholders should work in tandem:

It is obvious that the Pharmaceutical Industry alone will have a limited role to address key healthcare issues of our nation, especially when around 400 million Below the Poverty Line (BPL) population will not be able to afford any expenses towards healthcare, at all. All stakeholders like the government, corporate and the civil society in general, must work together according to their respective abilities, obligations and enlightened societal interests to effectively address such pressing issues.

Let us move ahead from ‘Price Control’ to ‘Price Monitoring’:

Despite Medicine Prices in India being one of the lowest in the world, mainly because of stiff competition within the industry and watchful eye of an effective price regulator, 100% of the Pharmaceutical market in the country is currently being price regulated by the Government even with the growth restrictive and ‘draconian’ ‘Third Schedule’ of the DPCO 95.

To enable the Industry to be globally competitive in all aspects of its operations, the government should move ahead from ‘Price Control’ to effective ‘Price monitoring’ mechanism and scrap the growth restrictive measures like, ‘third schedule’ of the current DPCO.

Transaction costs of medicines are too high:

Current transaction costs (all taxes) on medicines in India including trade margins is as high as over 50% of the ex-factory cost of a product.

This cost has been further increased in 2011-12 Union Budget proposal. The government should reduce exorbitantly high transaction costs to make medicines even more economical to the common man.

Conclusion:

I am confident, the entire Pharmaceutical Industry in India would continue to act responsibly with demonstrable commitment to help achieving the healthcare objectives of the nation.

Global players will keep on searching for their suitable targets in the emerging markets like India, just as Indian players are searching for the same in the global markets. This is a process of consolidation in any industry and will continue to take place across the world. Adverse impact of M&A on competition, if any, will now be effectively taken care of by the CCI.

So far as the ‘Financial Reform’ process is concerned, India has always been a slow starter, but it never walked backwards. This tradition, I reckon, will continue in the vibrant democracy of the country, in future too.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Explore the Emerging Markets with the ‘Wings of Courage’.

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Overall growth rate of the global pharmaceutical industry is currently hovering around 5%. Similar situation has been prevailing since last several years. There is no indication of acceleration of growth rate from any of the top 3 regions of the world namely the USA, EU and Japan, at least in the near future.

According to IMS, the global pharmaceutical market is expected to grow around 5%-7% in 2011 to US$ 880 billion, as compared to around 4%-5% of 2010.

The reasons of the slowdown, I have discussed several times in the past through this column and do not intend to dwell on that, at least, in this Article.

The Emerging Markets of the World:

Unlike developed markets, emerging pharmaceuticals market of the world, like, India, China, Brazil, Russia, Mexico, Turkey and Korea, are showing a robust growth rate, quite commensurate to the ascending GDP growth trend of these countries.

According to IMS, the projected CAGR trend of the developed and Emerging Markets for the period of 2007–11, are as follows:

Mature Markets

CAGR 2007-11

Emerging Markets

 CAGR 2007-11
USA 4-7% China 13-16%
Canada 6-9% Korea 8-11%
Japan 2-5% Brazil 9-12%
Germany 3-6% Russia 17-20%
France 2-5% Mexico 6-9%
Italy 3-6% India 11-14%
UK 4-7% Turkey 9-12%
Spain 5-8%

(Source IMS)

Branded Generics/Generics are now key growth drivers in the Emerging Markets:

It is worth noting, unlike the developed markets of the world, where high priced branded patented drugs drive the value growth of the industry, in the emerging markets, where investment towards R&D is relatively less, branded generic and the generic products are the key growth drivers.

Such an evolving situation has prompted large global majors like Pfizer, GSK, Sanofi-aventis, Daiichi Sankyo and Abbott Laboratories, to name a few, either to acquire large generic or Biosimilar drug companies or ink various interesting and win-win collaborative deals, in these markets, to maintain their respective business growth with the branded generic and generic products in the fast growing emerging markets of the world.

Will Emerging Markets be lucrative enough only with Generic and Branded Generic products, in the long run?

Some experts do feel that, in the long run, the emerging pharmaceutical markets, like India, may not prove to be as lucrative to the global pharmaceutical majors.

The key reason being, around 80% ‘out of pocket’ expenditure for medicines in India, could be the key impediment to expanded access to higher priced innovative medicines, in general. Such a situation could seriously limit the success of branded patented drugs in India following their global strategy, compared to the developed markets of the world. The issue of affordability of such medicines will continue to be a key factor for their improved access in India, if the ground reality remains unchanged. Top line business growth only with Generics and Branded Generics in the emerging markets may not be sustainable enough, in the long run, for the innovator companies to adequately fund their R&D initiatives to meet the unmet needs of the patients.

The other school of thought:

The other school of thought, however, argues that ‘out-of pocket” characteristic of  India is indeed more sustainable in terms of cost containment pressure, than those  markets where the government or health insurance companies cover a large part of the medical expenses for the population.

Every year around 1% of population comes above the poverty line in India together with a growing ‘middle income’ segment with increasing purchasing power. This cycle, in turn, will keep fueling the growth of healthcare space, contributing significantly to the progress of the pharmaceutical industry of the country.

‘One size fits all’ global strategy unlikely to succeed in the ‘Emerging Markets’:

In my view ‘One size fits all’ type of strategy, especially in the area of pricing, is unlikely to succeed in the emerging markets of the world. Pharmaceutical Companies will need to have  different types of ‘tailor made’ strategic approaches for markets like Brazil, Russia, India, China, South Africa, Mexico, Korea and Turkey.

Pricing Strategy will be a key determinant to success:

For better access to medicines, ‘differential pricing strategy’ has been the stated policy of large global companies like, GSK and MSD. If this trend continues, a win-win situation could be created, when unmet needs of a large number of patient groups could be met with innovative medicines, paving the way for the innovator companies to register a healthy, both top and bottom line, business growth in these markets to effectively fund their R&D projects, besides others.

The most successful brand launch in India, so far:

The credit for the most successful new patented product launch (launched in 2008) in the recent times, I reckon, should go to Januvia (Sitagliptin), an oral anti-diabetic molecule from the global major MSD. The reported global sales of Januvia in 2008 was US $1.4 billion and the sales reported in India was around Rs. 77 Crore (around US $17 million) in just over two years with around 2.4% market share in the large and fragmented Oral Ant-Diabetic segment (IMS, MAT March 2010). This could happen, in my view, not only due to a brilliant business strategy executed with military precision but also because of a differential pricing strategy adopted by the company for this particular product in India.

In recent times, it has not been difficult to record a turnover of around US $ 20 – 25 million by a large pharmaceutical brand either in India or China.

Conclusion:

If this does not happen, due to one reason or the other, it would arguably be quite challenging for the global innovators to be able to keep engaged in the high-cost and high-risk R&D initiatives, by driving their business growth mainly with generic and branded generic medicines in the fast growing emerging markets of the world.

Thus the name of the game for the global innovator companies will be to Explore the Emerging Markets with the ‘Wings of Courage’.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.