Tag Archives: Access

The concept of ‘Value Based Pricing (VBP)’ gaining ground to reduce cost of healthcare and improve access…but India is quite different

Posted on by
Reply

So far as the pharmaceutical pricing and increasing access to healthcare are concerned, year 2010 perhaps will be remembered as one of the very significant years, at least, in the recent times. In this year with new healthcare reform, President Obama expanded access to Health Insurance to additional around 40 million Americans, the Government in Japan brought in, not much talked about, “premium for the development of new drugs and elimination of off-label drug use” and the Governments in UK and European Union, including the largest market in the EU – Germany, introduced stringent cost containment measures for pharmaceutical products.

Pharmaceutical pricing model is changing across the world:

Overall scenario for pharmaceutical pricing model has undergone significant changes across the world. The old concept of pharmaceutical price being treated as almost given and usually determined only by the market forces with very less regulatory scrutiny is gradually but surely giving away to a new regime.

It started, especially in the developed world, with the generation and submission of pharmacoeconomics data to the regulators for pharmaceutical pricing, by the pharmaceutical companies. However, shortcomings in that system gradually became subject of a raging debate. The newer concepts of Health Technology Assessment (HTA), Health Outcomes Analysis (HOA) and Value Based Pricing (VBP), have started gaining grounds.

Value Based Pricing (VBP):

Value based pricing is basically offering the best value for the money spent. It ‘is the costs and consequences of one treatment compared with the costs and consequences of alternative treatments’.
For pharmaceutical players, VBP perhaps would mean not charging more than the actual value of the product.

On the other hand, price being a function of value that a product would offer, it is also important for the regulators to understand what value in totality that the product would offer, not just for the patients’ treatment in particular, but for the civil society at large.

However, in India, the regulators are still far behind and groping in the dark to find out an appropriate solution to this critical issue. They seem to be quite contended with taking arbitrary, non-transparent populist decisions.

The concept is gaining ground:

The concept of ‘evidence-based medicine’ , as stated earlier, is gaining ground in the developed markets of the world, prompting the pharmaceutical companies generate requisite ‘health outcomes’ data using similar or equivalent products. Cost of incremental value that a product will deliver is of key significance. Some independent organizations like, the National Institute for Health and Clinical Excellence (NICE) in the UK have taken a leading role in this matter.

VBP could help in ‘freeing-up’ resources to go to front-line healthcare:

On November 11, 2010 ‘Pharma Times’ in a news item titled, “Government (UK) to consult on drug pricing in December’ reported the following:

“Consultation on the government’s plans to introduce value-based pricing (VBP) for medicines will begin next month, the Department of Health has announced.
The consultation will run until next March, the Department reveals in its newly-published business plan for 2011-15. The plan sets out the coalition government’s structural reform priorities for health care, which are to: – create a patient-led NHS; – promote better healthcare outcomes; – revolutionize NHS accountability; – promote public health; and -reform social care.
These reforms ‘will help to create a world-class NHS that saves thousands more lives every year by freeing up resources to go to the front line, giving professionals power and patients choice, and maintaining the principle that healthcare should be delivered to patients on the basis of need, not their ability to pay,’ says the Department”.

Global pharmaceutical companies using more ‘health outcome’ data to set pricing strategies:

Some global pharmaceutical majors have already taken pro-active measures on the subject. In early 2009, reported agreements between Sanofi-Aventis, Procter & Gamble and Health Alliance as well as Merck and Cigna vindicate this point. These agreements signify a major shift in the global pharmaceutical industry’s approach to gathering and using ‘health outcomes’ data

In the Sanofi-Aventis/Procter & Gamble-Health Alliance agreement, the concerned companies agreed to reimburse Health Insurance companies expenses incurred for patients suffering from non-spinal bone fracture while undergoing treatment with their drug Actonel.

In the Merck/Cigna agreement, Cigna will have the flexibility to price two diabetes drugs based on ‘health outcomes’ data.

‘Outcomes-based’ pricing strategies are expected to become the order of the day, in not too distant future, all over the world.

The ground realities in India are very different:

Medicines are very important and constitute a significant cost component of modern healthcare systems, across the world. In India, overall healthcare system is fundamentally different from many other countries, even China. In most of those countries around 80% of expenses towards healthcare including medicines are reimbursed either by the Governments or through Health Insurance or similar mechanisms. However, in India situation is just the reverse, about 80% of overall healthcare costs including medicines are private or out of pocket expenses incurred by the individuals/families.

Since 1970, the Government of India (GoI) has been adopting various regulatory measures like cost based price control and price monitoring to make medicines affordable to the common man. For those products, which are patented in India, it has now been reported that the Government is mulling the approach of price negotiation with the respective companies.

However, we should keep in mind that making drugs just affordable in India, where a large number of population does not have access to modern medicines for non-price related factors, is indeed not a core determinant of either healthcare value or proven health outcomes or both.

Till VBP is considered, cost-effective ‘health outcome’ based medical prescriptions should get priority:

Expenditure towards medicines can be considered as an investment made by the patients to improve their health and productivity at work. Maximizing benefits from such spending will require avoidance of those medicines, which will not be effective together with the use of lowest cost option with comparable ‘health outcomes’.

For this reason, many countries have started engaging the regulatory authorities to come out with head to head clinical comparison of similar or equivalent drugs keeping ultimate ‘health outcomes’ of patients in mind. A day may come in India, as well, when the regulatory authorities will concentrate on ‘outcomes-based’ pricing. However, in the Indian context, it appears, this will take some more time. Till then for ‘health outcome’ based medical prescriptions, working out ‘Standard Treatment Guidelines (STG)’ , especially for those diseases which are most prevalent in India, should assume high importance.

Standard Treatment Guidelines (STG):

STG is usually defined as a systematically developed statement designed to assist practitioners and patients in making decisions about appropriate cost-effective treatment for specific disease areas.

For each disease area, the treatment should include “the name, dosage form, strength, average dose (pediatric and adult), number of doses per day, and number of days of treatment.” STG also includes specific referral criteria from a lower to a higher level of the diagnostic and treatment requirements.

For an emerging economy, like India, formulation of STGs will ensure cost-effective healthcare benefits to a vast majority of population.

In India, STGs have already been developed for some diseases by the experts. These are based on review of current published scientific evidence towards acceptable way forward in diagnosis, management and prevention of various disease conditions. STGs, therefore, will provide:

- Standardized guidance to practitioners.
- Cost-effective ‘health outcomes’ based services.

GoI should encourage the medical professionals/institutions to lay more emphasis and refer to such ‘heath-outcomes’ based evidences, while prescribing medicines. This will ensure more cost effective ‘health outcomes’ for their patients.

Steps necessary for ‘Standard Treatment Guidelines (STG):

1. Get Standard Treatment Guidelines (STG) prepared for the diseases more prevalent in India, based on, among other data, ‘health outcomes’ studies.

2. Put the STG in place for all government establishments and private hospitals to start with.

3. Gradually extend STG in private medical practices.

4. Make implementation of STG a regulatory requirement.

Conclusions:

Till VBP concept is considered appropriate for India by the regulators, STG model for drug usage would help both the doctors and the patients equally to contain the cost of treatment in general and the total cost of medicines in particular. Encouraging implementation of STGs in India, as a first step towards VBP, especially for prescription medicines, the country will require, above all, a change in the overall mindset of all concerned. The use of an expensive drug with no significant improvement in ‘health outcome’ should be avoided by the prescribers at any cost, initially through self-regulation and if it does not work, stringent regulatory measures must be strictly enforced for the same… for patients’ sake.

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.

Non-Communicable Diseases (NCD) are hitting the poor even harder, economically: a time to ponder and a time to act

Posted on by
Reply

November 11, 2010 edition of ‘The Lancet’ published an article titled, “Raising the priority of preventing chronic diseases: a political process”. The article enumerated the following:

“Chronic diseases, especially cardiovascular diseases, diabetes, cancer, and chronic obstructive respiratory diseases, are neglected globally despite growing awareness of the serious burden that they cause. Global and national policies have failed to stop, and in many cases have contributed to, the chronic disease pandemic. Low-cost and highly effective solutions for the prevention of chronic diseases are readily available; the failure to respond is now a political, rather than a technical issue.”

The situation is no different in India. The disease pattern in India is also showing a perceptible shift from age old ‘Infectious Diseases’ to ‘Non-infectious Chronic Illnesses’. As reported by IMS, incidence of chronic ailments in India has increased from 23 percent in 2005 to 26 percent in 2009. It has been estimated that chronic illnesses will be the leading cause of both morbidity and mortality by the next decade.

As a consequence of such findings healthcare needs and systems of the country should need to undergo a paradigm shift with the emergence of a carefully planned concept of ‘Preventive Healthcare’ in the country.

It is a myth that non-infectious illnesses are more prevalent in higher socio-economic strata:
There is a common perception that non-communicable diseases are more prevalent within higher socio-economic strata of the society, a national survey done in India shows that diseases related to misuse of alcohol and tobacco are higher in the poorest 20 percent quintile of our society.

Current healthcare system in India:

Currently the medical alleviation of the acute symptoms and the disease that a particular patient is suffering from is the key concern of all concerned starting from the doctor to the patient and his/her family. The process of the medical treatment revolves round symptom relief, diagnostic measures and appropriate treatment protocols and procedures conforming to the proper diagnosis of the ailments. While addressing the acute problems of the patients’ ailments is very important, proper assessment of the underlying diseases or evaluation of their risk factors do not get as much or no attention. As a result the important advice on preventive healthcare from the doctor properly highlighting its importance is not available to most of the patients.

Keeping such common practices in view and noting that ‘Preventive Healthcare’ is significantly different from ‘Curative Healthcare’, developing an appropriate protocol for ‘Preventive Healthcare’ has become the crying need of the hour.

‘Preventive Healthcare’ in India should be made mandatory:

The ‘Preventive Healthcare’ system in India is in its very nascent stage. If appropriate measures are taken in this area, like learning to reduce the impact of stress, avoiding sedentary life style, taking healthy diet, avoidance of tobacco and alcohol consumption, leading healthy sex life etc., it can in turn help the population to remain disease free and thereby to improve their respective work productivity in a very significant way.

Taking all these points into consideration, through policy initiative, The Medical Council of India (MCI) should make ‘Preventive Healthcare’ an integral part of each interaction of a patient with a doctor through appropriate regulations.

Chronic illnesses will significantly increase the disease burden of the country:

Many of the diseases like cancer, chronic respiratory disorders, cardiovascular, diabetes can be identified with preventable risk factors and. Therefore, such diseases can be prevented effectively, provided the healthcare policy of the country supports the ‘Disease Prevention’ process, program and initiatives through adequate resource allocation.

Role of a medical professional in customized ‘disease prevention plan’:

Role of medical professionals in the disease prevention process is also very important. The interaction of the patients with the doctors when they meet to address any ailment provides huge opportunity to the doctors to advice the patients about the ways of specific disease prevention, for which the individual patients have high exposure.

Need to raise general public and political awareness towards ‘Preventive Healthcare’:

Raising the level of awareness for ‘Preventive Healthcare’ is indeed very important. It requires a change in the mindset of the community in general together with healthcare policy makers, medical profession, employers, patients and their families.

National Non-Communicable Disease (NCD) prevention program of the government:

As per the Planning Commission, the government of India has reported to have initiated structured measures for the prevention of NCD, the main features of which are as follows:

• “Health education for primary and secondary prevention of NCDs through mobilizing community action
• Development of treatment protocols for education and training of physicians in the prevention and management of NCDs
• Strengthening/creation of facilities for the diagnosis and treatment of CVD and stroke, and the establishment of referral linkages
• Promotion of the production of affordable drugs to combat diabetes, hypertension, and myocardial infarction
• Development and support of institutions for the rehabilitation of people with disabilities
• Research support for: Multispectral population-based interventions to reduce risk factors
• The role of nutrition and lifestyle-related factors
• The development of cost effective interventions at each level of care”

Conclusion:

Many diseases in India with proper ‘Disease Prevention’ measures can be effectively averted. Some common measures which can be easily practiced through community initiatives are maintenance of proper hygiene, sanitation, adequate physical activities, moderation in alcohol and tobacco consumption, healthy sexual activities, avoidance of unhealthy food etc.

To address this issue ‘The Lancet’ November 11, 2010, in the article, as mentioned above, prescribed three specific strategies as follows:

1. “Reframe the debate to emphasize the societal determinants of disease and the inter-relation between chronic disease, poverty, and development
2. Mobilize resources through a cooperative and inclusive approach to development and by equitably distributing resources on the basis of avoidable mortality
3. Build on emerging strategic and political opportunities, such as the World Health Assembly 2008—13 Action Plan and the high-level meeting of the UN General Assembly in 2011 on chronic disease”.

The government should spearhead the paradigm shift towards this direction with appropriate regulation, generating increased societal and political awareness within the country and through mobilization of adequate resources. All these will ultimately help us to translate the well-known dictum into reality, ‘prevention is better than cure’.

Otherwise, especially the poorer section of the society will continue to get caught in the vicious cycle of debt and illness, seriously jeopardizing the economic progress of the country.

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.

 

Prescribing 10 steps for comprehensive Healthcare Reforms in India

Posted on by
Reply

Recently President Barack Obama, by enacting historic healthcare reform legislation, fulfilled his election campaign pledge to provide healthcare to all in the United States of America. This piece of legislation will provide health insurance benefits to another around 34 million poor and uninsured Americans. The key highlight of this health insurance scheme is that it will compel the insurers to extend insurance to even those with any pre-existing illness and impose stringent criteria on expenditure towards medical treatment to cut healthcare costs. The new healthcare reform will cost around US $940 billion over 10 years to the US Government. To partly recover this cost, President Obama administration will levy new fees to the healthcare and pharmaceutical companies along with a new tax for the high income groups.

So far as healthcare reform in the US is concerned, President Obama, has therefore, ‘walked the talk’.

Closer home, just prior to the US healthcare reform, our Prime Minister Dr. Manmohan Singh reiterated in his speech delivered at the 30th Convocation of PGIMER, Chandigarh on November 3, 2009, the dire need of the country to strike a right balance between preventive and curative healthcare for the common man. The Prime Minister articulated his thoughts as follows:

” We must also recognize that a hospital centered curative approach to health care has proved to be excessively costly even in the advanced rich developed countries. The debate on health sector reforms is going on in US is indicative of what I have mentioned just now. A more balanced approach would be to lay due emphasis on preventive health care”.

However, the Prime Minister has not walked the talk, not just yet.

The key issues of Indian healthcare system:

Access: mostly due to inadequate healthcare infrastructure and affordability issues
Affordability: Socio-economic complexities and lack of adequate healthcare financing model in the country

Some key research findings on ‘Public Health’:

Interesting research studies on public health highlight two very interesting points:

- Health of an individual is as much an integral function of the related socio-economic factors as it is
influenced by the person’s life style and genomic configurations

- Socio-economic disparities including the educational status lead to huge disparity in the space of
healthcare.

Tweaking of the existing system is not enough:

An increase in allocation of Rs. 27,000 for healthcare, over the previous year, in the Union Budget 2010-11 covering as large as 1.13 billion population, is just not enough. The public expenditure towards healthcare, as indicated by Dr. Manmohan Singh should be around 2.5% – 3% of the GDP, against the current expenditure on the same of just 1%. To effectively address the key issues of affordability and access to healthcare the country will need a radical reform in its healthcare space with a sharp focus on preventive healthcare of the population of the country, education and related critical socio-economic issues, as has already been enunciated by the Prime Minister of our country.

Where does India stand in the ‘World’s Health Systems’:

The WHO ranking of the ‘World’s Health Systems’ was last produced in 2000. This report is no longer produced by the WHO due to huge complexity of the task.

In this interesting report, the number one pharmaceutical market of the world and the global pioneer in pharmaceutical R&D, the USA features in no. 37, Japan in no. 10, UK in no.18 and France tops the list with no.1 ranking. Among emerging BRIC countries, India stands at no. 112, Russia in no.130 and China in no. 144.

In a relative yardstick, although India scored over the remaining BRIC countries in year 2000, one should keep in mind that China has already undertaken a major healthcare reform in the last year. As stated before, earlier this year, we all have seen how President Obama introduced a new healthcare reform for the USA, despite all odds. India’s major reform in its healthcare space is, therefore, long overdue, which will require similar leadership passion to make it happen.

No need to reinvent the wheel:

When we look at the history of development of the developed countries of the world, we observe that all of them had invested and are continuously investing to improve the social framework of the country where education and health get the top priority. Continuous reform measures in these two key areas of any nation have always proved to be the most effective drivers of economic growth. This is a work in continuous progress. Recent healthcare reforms both in China and the USA will vindicate this argument. In India we, therefore, do not require to reinvent the wheel, any more.

It has been observed that reduction of social inequalities ultimately helps to effectively resolve many important healthcare issues. Otherwise, the minority population with adequate access to knowledge, social and monetary power will always have necessary resources available to address their concern towards healthcare, appropriately.

A recent report from KPMG also reiterates “One of the major challenges remains the need to develop scalable and sustainable healthcare delivery models to deal with India’s diversity and changing socio-economic population profiles”.

Path breaking medicines are desirable, but just not enough:

Regular flow of newer and path breaking medicines in India to cure and effectively treat many diseases, have not been able to eliminate either trivial or dreaded diseases, alike. Otherwise, despite having effective curative therapy for malaria, typhoid, cholera, diarrhea/dysentery and venereal diseases, why will people still suffer from such illnesses? Similarly, despite having adequate preventive therapy, like vaccines for diphtheria, tuberculosis, polio, hepatitis and measles, our children still suffer from such diseases.

Reducing socio-economic inequalities is equally important:

All these continue to happen in India, over so many decades, because of socio-economic considerations, as well. Thus, together with comprehensive healthcare reform measures, time bound simultaneous efforts to reduce the socio-economic inequalities will be essential to achieve desirable outcome for the progress of the nation.

Proper focus on education is critical for a desirable health outcome:

Education is of key importance to make any healthcare reform measure to work effectively. Very recently we have witnessed some major reform measures in the area of ‘primary education’ in India. The right to primary education has now been made a fundamental right of every citizen of the country, through a constitutional amendment process.

Sharp focus on both education and healthcare is very important to realize the economic potential of any nation. India will not be able to realize its dream to be one of the economic superpowers of the world without this focus and significant resource allocation in these two critical areas – Health and Education, simultaneously.

Progress in the healthcare space of India:

It sounds quite unfair, when one comments that nothing has been achieved in the area of healthcare in India, as is usually done by vested interests with a condescending attitude in various guises. Since independence, India has made progress, may not be highly significant though, with various government sponsored and private healthcare related initiatives, as follows:

- Various key disease awareness/prevention programs across the country, for both communicable and
non-communicable diseases.
- Eradication of smallpox
- Excellent progress in polio eradication program
- Country wide primary vaccination program
- Sharp decline in the incidence of tuberculosis
- Significant decrease in mortality rates, due to water-borne diseases.
- Good success to bring malaria under control.
- The mortality rate per thousand of population has come down from 27.4 to 14.8 percent.
- Life expectancy at birth has gone up to 63 years of age.
- Containment of HIV-AIDS
- India has been recognized as the largest producers and global suppliers of generic drugs of all
categories and types.
- India has established itself as a global outsourcing hub for Contract Research and Contract
Manufacturing Services (CRAMS).
- The country has now been globally recognized as one of the fastest growing emerging markets for
the pharmaceuticals

Recent healthcare initiatives in India:

There are various hurdles though, to address the healthcare issues of the country effectively. However, these are not definitely insurmountable. ‘National Rural health Mission (NRHM)’ is indeed an admirable scheme announced by the Government. Similar initiative, like, ‘Rashtriya Bima Yojana (RBY)’ to provide health insurance program for below the poverty line (BPL) population of the country, is also equally commendable. However, effectiveness of all such schemes will warrant effective leadership at all levels of their implementation.
Per capita public expenditure towards healthcare is inadequate:

Per capita public expenditure towards healthcare in India is (please see below) much lower than China and well below other emerging countries like, Brazil, Russia, China, Korea, Turkey and Mexico.

Although spending on healthcare by the government gradually increased in the 80’s, overall public spending as a percentage of GDP has remained quite the same or marginally decreased over last several years. However, during this period private sector healthcare spend has increased to around 4.5 per cent of the GDP.

It appears, the government of India is gradually changing its role from the ‘healthcare provider’ to the ‘healthcare enabler’.

High ‘out of pocket’ expenditure towards healthcare in India:

According to a study conducted by the World Bank, per capita healthcare spending in India is around Rs. 32,000 per year and as follows:

- 75 per cent by private household (out of pocket) expenditure
- 15.2 per cent by the state governments
- 5.2 per cent by the central government
- 3.3 percent medical insurance
- 1.3 percent local government and foreign donation

Out of this expenditure, besides small proportion of non-service costs, 58.7 percent is spent towards primary healthcare and 38.8 percent on secondary and tertiary inpatient care.

Role of the government:

In India the national health policy falls short of specific and well defined measures.

Health being a state subject in India, poor coordination between the center and the state governments and failure to align healthcare services with broader socio-economic developmental measures, throw a great challenge in bringing adequate reform measures in this critical area of the country.

Healthcare reform measures in India are governed by the five-year plans of the country. Although the National Health Policy, 1983 promised healthcare services to all by the year 2000, it fell far short of its promise.

Underutilization of funds:

It is indeed unfortunate that at the end of most of the financial years, almost as a routine, the government authorities surrender their unutilized or underutilized budgetary allocation towards healthcare. This stems mainly from inequitable budgetary allocation to the states and lack of good governance at the public sector healthcare delivery systems.

Encourage deep penetration of ‘Health Insurance’ in India:

As I indicated above, due to unusually high (75 per cent) ‘out of pocket expenses’ towards healthcare services in India, a large majority of its population do not have access to such quality, high cost private healthcare services, when public healthcare machineries fail to deliver.

In this situation an appropriate healthcare financing model, if carefully worked out under ‘public – private partnership initiatives’, is expected to address these pressing healthcare access and affordability issues effectively, especially when it comes to the private high cost and high quality healthcare providers.

Although the opportunity is very significant, due to absence of any robust model of health insurance, just around 3 percent of the Indian population is covered by the organized health insurance in India. Effective penetration of innovative health insurance scheme, looking at the needs of all strata of Indian society will be able to address the critical healthcare financing issue of the country. However, such schemes should be able to address domestic and hospitalization costs of ailments, broadly in line with the health insurance model working in the USA.

The Government of India at the same time will require bringing in some financial reform measures for the health insurance sector to enable the health insurance companies to increase penetration of affordable health insurance schemes across the length and the breadth of the country. It is encouraging that the Deputy Chairman of the Planning Commission of India, Mr. Montek Singh Ahluwalia has recently commented to the media that the commission is working on it.

A 10 pronged strategy prescribed:

In my view, the country should adopt a ten pronged approach towards a new healthcare reform process:

1. Government should assume the role of provider of preventive and basic primary healthcare across the
nation to ensure adequate access to healthcare for the entire population of the nation.

2. At the same time, the government should play the role of enabler to create public-private partnership
(PPP) projects for secondary and tertiary healthcare services at the state and district levels.

3. The issue of affordability of medicine can best be addressed by putting in place a robust model of
healthcare financing for all sections of the population of the country. Through PPP a strong and
highly competitive health insurance infrastructure needs to be created through innovative fiscal
incentives.

4. These insurance companies will be empowered to negotiate all fees payable by the patients for getting
their ailments treated including doctors/hospital fees and the cost of medicines, with the concerned
persons/companies, with a key objective to ensure access to affordable high quality healthcare to all.

5. Create an independent regulatory body for healthcare services to regulate and monitor the operations
of both public and private healthcare providers/institutions, including the health insurance sector.

6. Levy a ‘healthcare cess’ to all, for effective implementation of this new healthcare reform process.

7. Effectively manage the corpus thus generated to achieve the healthcare objectives of the nation
through the healthcare services regulatory authority.

8. Make the regulatory authority accountable for ensuring access to affordable high quality healthcare
to the entire population of the country.

9. Make operations of public healthcare services transparent to the civil society and cost-neutral to the
government, through innovative pricing model based on economic status of an individual. The US
model of Medicare and Medicaid could be examined in this regard..

10. Allow independent private healthcare providers to make reasonable profit out of the investments
made by them

Conclusion:

A comprehensive healthcare reform in India is long overdue. The magnitude of the task is equally daunting. The pace of change in the healthcare space of the country has been very slow over the last six decades, despite sharp ascending GDP growth trend of the nation. Private sector can play the role of the game changer, provided government plays the role of an effective enabler through various policy measures, fiscal/ other incentives and by creating enough competition within the healthcare providers. Such healthy competition will trigger introduction of innovative healthcare solution models, the ultimate beneficiary of which will be none other than the patients. Health being a state subject in India and as the respective state governments control healthcare spending, quality of involvement of all the states in this reform process will determine its success or failure.

Right to education has now become a fundamental right of the citizens of the country. Will right to health continue to remain far behind?

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.

 

Why does the Government divert focus on to fringe issues to address critical healthcare concerns of the nation?

Posted on by
Reply

The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry of the Government of India has recently initiated a public debate through a ‘Discussion Paper on Compulsory Licensing (CL) of Patented Pharmaceutical Products’.

The key intent of the discussion is presumably to improve access to quality medicines at an affordable price to the people of the country.

Could such debate serve any meaningful purpose?

Since the issue of CL involves only patented products, I wonder, whether this debate would in any way help sorting out the issue of poor access to modern medicines in our country or this is just another ‘hog wash’ or ‘diversion ploy’ of the decision makers to divert the attention of the stakeholders from the core issues of poor access to healthcare for the common man of India.

Will CL be able to address abysmally poor access to medicines issues in India?

A quick analysis of the prevailing situation related to access to modern medicines in India suggests that the usage of patented pharmaceutical products account for much less than 1% of the sum total of all medicines consumed in India in value terms. In volume terms it will be even more miniscule in terms of percentage.

As per IMS (MAT July, 2010) Indian Pharmaceutical Market size is Rs. 44,476 Crore, even 1% market share of the patented pharmaceutical products will mean Rs. 445 Crore, which is quite far from reality.

Thus, CL of patented medicines would have no sustainable and meaningful impact on improving access to modern medicines for the common man of the country. Moreover, around 40% of the population of India live below the poverty line (BPL). These ‘Children of a lesser God‘ very unfortunately, will not be able to afford any price of medicine, however cheap these could be. Vast majority of the such population who lack the financial capability to pay for even the cheapest off-patent generic medicines, which comprise more than 99% of the total medicines consumed within the country, will continue to be left in the lurch.

65% of Indians do not have access to WHO list of essential medicines, which surpasses even the African countries:

Our government also admits that 65% of Indians do not have access to even WHO list of essential medicines, none of which holds a valid patent in the country. This should be the key concern in the country. Moreover, the World Health Organization (WHO) reported that during 2000-2007, India had poorer access to essential medicines than even many African countries. It is worth noting that many of these African countries has a patent life for pharmaceuticals for around 30 years, against of 20 years in India. What are we then talking about?

Provisions of CL in the Indian Patents Acts are robust enough:

In any case, the provisions of CL in the Indian Patents Acts are not only quite clear and well articulated, but also at the same time offer flexibility in the decision making process to the Indian Patent Offices (IPOs) to invoke CL in a justifiable situation. Thus proposed guidelines related to CL would possibly invite more questions than answers. Consequently, it will be an extremely complicated process for the IPOs to categorize all the situations related to CL. Therefore, in my view, such initiatives, as initiated by the DIPP to frame guidelines for CL could prove to be totally counterproductive, as such guidelines, as stated above, would seriously limit the flexibility of the IPOs to take appropriate action, even when it would require to do so.

Moreover, it is absolutely imperative for the Government to ensure that the primacy of the patent statutes is not disturbed in any way, as such guidelines related to CL would only be consistent with the appropriate provisions within the statute and cannot be used beyond the Patent Law of the land. It goes without saying that any dispute between the parties related to the interpretation of the provisions within the statute related to CL, should only be resolved by the judiciary.

Conclusion:

How could then CL possibly offer answers to the vexing healthcare access issues of the nation? Is the Government not wasting its precious little time, instead of trying to ‘take the bull by the horns’ and resolve the critical ‘access to affordable quality medicines’ issue of India through Public Private Partnership (PPP) initiatives?

By Tapan 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.

Exploring a new ‘Business Model’ to improve access to healthcare in rural India with the industry participation

Posted on by
Reply

Rural India – the home of around 72% of 1.12 billion population of India is undergoing a metamorphosis, as it were. Disposable income of this population is slowly but steadily rising, as evidenced by rapid market penetration of the ‘Fast Moving Consume Goods (FMCG)’ industry in general and companies like Hindustan Unilever Limited (HUL) and Dabur in particular.

Size of the Healthcare Sector in India:

It has been reported that the current size of the healthcare industry in India ia around US $ 23 billion or around 5.2% of the GDP. Though the sector is showing an overall healthy growth of around 13%, public expenditure towards healthcare is just around 0.9% of the GDP of the country. As per WHO (2005) per capita government expenditure on health in India was just around US $7, against US $31 of China, US $24 of Sri Lanka, US $11 of Kenya and US $12 of Indonesia.

Currently the number of Government Hospitals/Healthcare centers in India are grossly inadequate and are as follows:

  • Medical Colleges: 242
  • Community Health centers: 3346
  • District Hospitals: 4400
  • Other Public Hospitals: 1200
  • Primary Health Centers: 23236
  • Subcenters: 146026
  • Number of Hospitals in rural areas: 53400
  • Population to rely on Public Hospitals: 43%

Even with the above network of public healthcare centers in India, overall effectiveness of public healthcare delivery system is very poor in the country. Increasing penetration of Information Technology could perhaps partially address this problem.

Growth drivers of rural India?

I reckon, mainly the following reasons attribute to the growth of the rural economy:

- Gradual increase in procurement prices of food grains by the government and waiver of agricultural loans to the tune of US$13.9 billion

- Growing non-farm income: Currently more than 50% of rural income is through non-farm sources, fuelled by various non-farm activities like food-processing, manufacturing, trading, in addition to the income flow from the rural migrants.

– Increased spending by the Government, which is expected to be around US$ 20 billion by March 2010, in the rural areas through various projects and schemes, like National Rural Employment Guarantee Scheme (NREGS), Bharat Nirman Program etc. coupled with easier access to requisite loans and credits, have improved the spending power of rural households significantly.

Though the government is making heavy budgetary allocations in rural India to improve the basic infrastructural facilities, healthcare and education, the implementation of most of these schemes still remains far from satisfactory, as of now.

A gaping hole in the rural healthcare space:
In the healthcare space of rural India there is still a gaping hole in various efforts of both the government and the private players to create a robust primary healthcare infrastructure for the common man. Thus poor access to healthcare services, coupled with lack of ability to pay for such services and medicines round the year, are the key challenges that the country will need to overcome. Lack of disease awareness and poor affordability towards healthcare services, still account for 60% of rural ailments not getting treated at all.

Key shortcomings of the current rural healthcare infrastructure:

Despite the numbers quoted above, following shortcomings continue to exist in the healthcare infrastructure of the country:
- Number of Primary Health Centers (PHC) are far less than the budgetary estimate/allocation
- Inadequate treatment facilities even where the PHCs exist
- Shortage of doctors, nurses and paramedics
- Very high rate of absenteeism

Pharmaceutical companies in India should now explore fortune at the ‘Bottom of the Pyramid’ to reap a rich harvest, creating a win-win situation:

If the pharmaceutical companies operating within the country, partner with the government and other key stakeholders, as a part of their corporate business strategy, to make a fortune from the ‘bottom of the pyramid’, this critical issue can be effectively resolved, sooner. Novartis India has already ventured into this area and has tasted reasonable success with their ‘Arogya Parivar’ program.

However, in my view additional sets of the following value delivery objectives need to be considered to make this the rural healthcare mission with PPP initiatives successful:

- Affordable medicines of high quality standard
- Increase in health awareness by collaborating with the NGOs and rural institutions for various common diseases.
- Continuing Medical Education (CME) for the rural doctors and para-medics
- Arranging microfinance for the healthcare professionals to create small micro- level healthcare infrastructure and also for the patients to undergo treatment
- Help reducing the transaction cost of medicines and healthcare services through fiscal measures by collaborating with the government
- The product portfolio to be tailor made to address the common healthcare needs of rural India

Private healthcare facilities are preferred to public healthcare facilities even in the rural India:

Irrespective of rich or poor, around 80% of the population in India prefer private domiciliary treatment facilities and 50% of the same prefer private hospital treatment services. However, let me hasten to add that even within the private healthcare space in rural India, a lot needs to be done. Many so called ‘doctors’, who are practicing in rural India, have no formal medical qualifications. Moreover, even such doctors are not available in villages with a population of around 300 to 500 households.

The key success factors of the rural marketing ‘Business Model’:

Urban pharmaceutical marketing model, I reckon, should not be replicated for ‘rural pharmaceutical marketing’, as the success factors required for each of them, is quite different. In rural marketing the stakeholders’ needs and wants are quite different. If these are not properly identified and thereafter adequately addressed, mostly through collaborative initiatives, the rural pharmaceutical marketing ‘Business Model’ may not fly at all.

Partnership with Microfinance Institutions will be a key requirement:

Interested pharmaceutical companies will need to collaborate with the rural microfinance institutions for such business initiatives. This will ensure that appropriate loans can be extended to doctors and retailers, wherever needed, to help them create requisite local healthcare infrastructure to make such projects viable and successful. At the same time, such institutions will also require to help the needy rural population with requisite loans to help meeting their cost of medical treatment.

Conclusion:

From a ‘back of the envelope calculation’ it appears that such projects can definitely be made profitable with a modest gross margin of around 40% – 50% and operating profit of around 6% to 8% . The high volume of turnover from over 650 million population of India, will make these ‘rural pharmaceutical marketing projects’ viable. Simultaneously, such corporate business initiatives will help alleviating pain and suffering from diseases of a vast majority of the rural population of India.

By Tapan 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.

Creating an IPR friendly robust ‘Echo-System’ and ‘Improving Access to Affordable Medicines’ are not either/or situation in India

Posted on by
Reply

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 18% with a turnover of US$ 8.1 billion (IMS 2009).

Need to invest more in R&D:

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.

Robust IPR regime and addressing the needs of the poor both are equally important:

The Prime Minister of India, Dr Manmohan Singh in his address at the Fortune Global Forum in New Delhi in October, 2007 clearly enunciated, “We have affirmed our commitment to the protection of intellectual property rights. But, the global economy, the global community cannot afford the complete privatization of research, of knowledge generation, especially in fields like medicine. We need to evolve mechanisms that protect intellectual property and at the same time, address the needs of the poor”.

Thus encouragement, reward and protection of IPR and addressing the crying needs of the poor are definitely not an either/or situation. The country needs to address both with equal importance and focus.

‘Vision 2020’ of the Department of Pharmaceuticals:

It is encouraging to note that the Department of Pharmaceuticals (DoP) 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.

The Primary role of the 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 affordable medicines. This role can be fulfilled by developing newer medicines through painstaking, time-consuming, risky and expensive basic research initiatives. To help translate this vision into reality appropriate echo-system needs to be created in the country, urgently, for the Pharmaceutical Industry in India to commit themselves to its one of the prime functions of discovering and developing newer medicines not only for the patients in India but for all across the world.

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.

Need to tighten the loose knots:

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 nation, in the longer term perspective.

Uncertainty over weak enforcement of patent in the country should be dispelled, with efficient administration of the new patent regime. Regulatory Data Protection should be introduced to spur R&D investment and global collaborative opportunities. This will, in turn, help improving the competitiveness of India vis-à-vis countries like China to attract appreciable investments towards R&D of pharmaceutical and bio-pharmaceutical products. It is believed that the capacity of our judiciary should be expanded and specialized courts that can enforce Pharmaceutical patents be provided with requisite technical expertise.

How to address the core issue of ‘availability of quality medicines at affordable prices’?

India needs to address the root cause of the ‘pricing issue’ affecting ‘access to quality medicines at affordable prices’ to a vast majority of its population, in a holistic way, rather than superficially with a piecemeal approach, as is being done since long.

The policy of ‘stringent price control of medicines’ of the government since 1970, has certainly enabled India to ensure availability of medicines at the lowest price in the world, lower than even the neighbouring countries like, Pakistan, Bangladesh and Sri Lanka. However, the core issue of ‘affordability of medicines’ has still remained elusive and will remain so, if we continue to tread this much beaten path, though not so successful in the perspective of the core issue, even today.

This is mainly because, around 40% of our population still costitutes of ‘Below the Poverty Line (BPL)’ families, who, very unfortunately, will not be able to afford any price of medicines. This is vindicated by the WHO report, quoted by even our government that 65% of Indian population has no access to modern medicines, as against 15% in China and 47% in Africa, despite medicines prices being the cheapest in India.

In such a situation, even if prices of all drugs featuring under the National List of Essential Medicines (NLEM), anti-cancer and other drugs are brought under stringent price control, the same ‘affordability of medicines’ issue will continue to linger.

Moreover, the recent announcement by the National Pharmaceutical Pricing Authority (NPPA), “as per the Secondary Stock Audit Report of ORG-IMS for the month of April 2010, which covers 60,000 packs, in the non-schedule category, the percentage of packs whose prices have increased on monthly basis during 2009-10, is only in the range of 0.0003 to 4.75%, while the remaining have shown stable to declining prices,” clearly vindicates that unusual price increase of medicines is also not a problem either, in India.

Considering all these points, as I have been suggesting since long, the government should, at least now, allocate adequate fund to cover all BPL families under “Rashtriya Bima Yojona’ and ensure its effective implementation by creating adequate healthcare infrastructure and measurable/transparent delivery systems. Similarly, the rest of the population of the country should be covered by encouraging opening-up and deep penetration of a variety of medical insurance products to suit all pockets together with appropriate tax incentives, as is currently being extended to the ‘Mediclaim’ policy holders.

In all developed countries and many emerging markets like China (where about 85% of the population are covered by different types of healthcare expenditure reimbursement schemes), the issue of ‘affordability of medicines’ has been addressed with such type of approach and other social security measures by their respective governments.

 

“Employers must take health cover for staff or lose tax gains”: Montek Singh Ahluwalia

It is indeed quite encouraging to note from the report of The Hindu Business Line dated September 9, 2010, as this critical issue is being regularly deliberated through this column, the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, has “mooted denial of tax deductibility on wage payment if the employer in the organised sector does not take steps to enrol the employee in a group health insurance scheme. Mr Ahluwalia said employers in the organised sector should be encouraged to make it compulsory for their employees to join a group health insurance scheme, in which the employer and the employee make contributions. As an incentive for this, the insurance premium that is paid can be exempt from tax as India will never be able to expand insurance for which people pay unless an element of incentive-cum-compulsion is introduced”. Mr. Ahuluwalia further commented, “If you leave it to people, only rich people will buy insurance, even middle class people will not buy insurance,” He insisted that “his proposal is feasible and the Government should give it a very serious consideration”.
High incidence of mortality and morbidity burden of India can only be addressed by improving ‘Access to Healthcare’:

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. Thus, Pharmaceutical Industry in India should be committed to actively support all efforts from all corners towards this direction to improve Access to Medicines to a vast majority of population in India. Although sporadic, efforts to this direction are being made through various laudable Corporate Social Responsibility (CSR) Initiatives by both local and global pharmaceutical companies within the country.

Pharmaceutical Industry also needs to behave as a responsible corporate citizen:

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

Conclusion:

It is obvious that the Pharmaceutical Industry alone will have a limited role to address the key healthcare issues of our nation. All stakeholders like the government, corporate and the civil society in general must contribute according to their respective capabilities, obligations and enlightened societal interests to effectively address these pressing issues.

However, it is worth reiterating that the Pharmaceutical Industry in India should continue to act responsibly and demonstrate commitment to work closely in collaboration with all stakeholders to make newer innovative medicines both preventive and therapeutic available and accessible adequately at an affordable price to the ailing population of the nation. Thus, in my view, for the progress of the nation, creating a robust IPR friendly ‘Echo System’ and ‘Improving Access to Quality Medicine at an Affordable Price’, are certainly not an either/or situation for the astute policy makers in India, as is being made out to be at some quarters.

By Tapan 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.

Making quality medicines available at an affordable price – Are we ‘missing woods for the trees’?

Posted on by
Reply

On August 4, 2010 the Parliamentary standing committee for Health and Family Welfare in its 45th report, recommended the following to the ‘Rajya Sabha’ of the Parliament of India for ‘Making quality medicines available at an affordable price’ to the common man:

1. Blanket caps on the profit margins of all medicines across the board, as these are the ‘only items’ where the purchasing decision is taken by a doctor – a third party and not by the patients who will actually pay for such medicines. In such a situation, a possible’ unholy nexus’ between the prescribing doctors and the pharmaceutical companies could put the patients at a disadvantage and in a helpless situation.

2. This blanket cap on profit for ALL drugs will discourage pharmaceutical companies to shift the balance of their product portfolio from schedule (price control) to non-schedule (outside price control) formulations.

3. This action will make the administration of the ‘Price Control’ mechanism by the Government much simpler by eliminating the current practice of price monitoring and the government preference of substitution of generic drugs for the branded pharmaceuticals

4. MRP of ALL medicines should be determined by the NPPA based on an open and transparent process and considering interests of all stake holders, as is currently being followed in other areas like, electricity tariff, bus, auto rickshaw and taxi fares, insurance premiums and various interest rates.

5. The Department of Health and Family Welfare and the Department of Pharmaceuticals should work out a system through the Inter-Ministerial Coordination Committee to put a blanket cap on profit margins of ALL drugs across the board, immediately.

6. Despite amendment of the MCI guidelines for the doctors in December 2009, banning the acceptance of all kinds of gifts, trips to foreign destinations and availing various types of hospitality by them from the pharmaceutical companies, nothing much has changed on the ground related to such ’unethical practices’. Since MCI has no jurisdiction over the pharmaceutical companies, the government should formulate similar punitive steps through the DCGI, CBDT etc. against the erring pharmaceutical companies.

7. The Committee indicated that it desires to be kept apprised of the action taken in this regard by the Government.

The key factors influencing affordability of medicines:

All the above steps will remain as good intent by the policy makers, if the issue of access to medicines is not addressed simultaneously. As we know that affordability will have no meaning, if one does not have even access to medicines.

In my view, there are five key factors, which could ensure smooth access to medicines to the common man across the country; affordable price being just one of these factors:

1. A robust healthcare infrastructure
2. Affordable healthcare costs including pharmaceuticals
3. Rational selection and usage of drugs by all concerned
4. Availability of healthcare financing system like, health insurance
5. Efficient logistics and supply chain support throughout the country

High out of pocket expenditure could push a section of population below the poverty line:

In India ‘out of pocket expenditure’ as a percentage of total healthcare expenses is around 80%, being one of the highest in the world.

A study by the World Bank conducted in May 2001 titled, “India – Raising the Sights: Better Health Systems for India’s Poor” indicates that out-of-pocket medical costs alone may push 2.2% of the population below the poverty line in one year.

‘Missing woods for the trees’?

Affordability is indeed a relative yardstick. What is affordable to an average middle class population may not be affordable to the rest of the population even above the poverty line. Similarly, below the poverty line population may not be able to afford perhaps any cost towards medicines. In a situation like this, putting a blanket profit cap on all medicines will not be just enough. There is a crying need to put in place an appropriate healthcare financing model by the policy makers, covering all sections of the society. Are we then ‘missing woods for the trees’?

Create a robust healthcare provider group through Public Private Partnership (PPP) initiatives to offer quality healthcare at an affordable price:

To resolve the issue of affordability of healthcare in general including medicines, the policy makers should take immediate steps to put in place the ‘Healthcare Financing’ initiatives through a robust PPP model in the country. A highly competitive ‘Health Insurance’ sector, created through PPP, could emerge as a powerful and key healthcare provider in the country. The power that such stakeholders will then assume in deciding for their respective clientele, types of doctors, hospitals, diagnostic labs and even what types of medicines that will be dispensed to them to offer quality healthcare at an affordable price, could indeed be a game changer having an immense influence in bringing the cost of overall healthcare for the common man, including medicines, very significantly.

The ‘Health Insurance’ companies can then decide through the Third Party Administrators (TPA), based on public interest, what types of fees should be charged by the following to offer quality healthcare services at an affordable price to their clientele, if these groups would like to avail the huge business potential for a long period of time:

1. Doctors
2. Hospitals
3. Diagnostic laboratories
4. Other related service providers

For making centralized purchase of medicines, these insurance companies or payors may enter into a hard negotiation with the pharmaceutical companies directly to bring down the price of medicines for the use of their respective clientele.

A recent incident:

To illustrate the above point let me quote an important and related news item, which was published in almost all the leading national daily newspaper, just in the last month.

In July 2010, it was reported that about 18 health insurance companies, who were providing cashless services to the policy holders at over 3,000 hospitals across India, found out that only 350 of them constituting around 11% of the total, were consuming more than 80% of the total claims.

It was also reported that the patients were overcharged by these hospitals for each hospitalization irrespective of the treatment provided and were left with them very little funds for their next treatment. This prompted the said insurance companies to bring some order out of the chaos, as it were.

As a result, at least 150 hospitals only from Delhi and the National Capital region were taken out of their designated list for the cashless facility, keeping the facility available at around 100 hospitals where none belonged to any corporate chain. Similar action was taken against hospitals in other cities, as well.

Thereafter, these insurance companies also decided to convey to the invidual policy holders the fresh list of hospitals for cashless facilities, working out new treatment packages depending on the quality of available healthcare infrastructure of each hospital and a lower or a higher rate was worked out for implementation, accordingly.

This illustration will vindicate how powerful and assertive the health insurance companies could be with the effective use of the TPAs for the sake of public health interest, if they wish to and at the same time to protect their respective bottom lines, creating a win-win situation for all.

Conclusion:

It is indeed an irony that despite being the 4th largest producer of pharmaceuticals and catering to the needs of 20 per cent of the global requirements for the generic medicines, India is still unable to ensure access to modern medicines to around 650 million population of the country (The World Medicine Report, WHO 2004). Like in many other emerging economies of the world, in India too, access to modern medicines along with their affordability, is the key macro healthcare issue of the nation.

In a situation like this, as stated above, when the payors or health insurance companies will start exerting immense performance pressure to all concerned to provide quality healthcare at an affordable price, even the alleged ‘unholy nexus’ between the pharmaceutical companies and the medical profession, perhaps will not have any practical relevance.

It is worth pondering, whether the Government is now sending confusing signals to the civil society at large by propagating ‘non-regulated pricing’ for Petroleum Products and ‘regulated pricing’ for pharmaceutical products?

By Tapan 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.

 

The traditional ‘Business Models’ of R&D focused Global Pharmaceutical majors are undergoing a metamorphosis

Posted on by
Reply

Mounting pressure on the P&L account, as the products go off patent:

Patented new products are the prime growth driver of the research based pharmaceutical companies of the world. Since last few years, because of various reasons, the number of launch of such products has been greatly reduced. To add fuel to the fire, 2010-12 will witness patent expiries of many blockbuster drugs, depleting the growth potential of the most of the research based pharmaceutical companies.

The existing model of growth engine needs a relook:

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 shaves off due to patent expiry by the year 2016. IMS reports that in 2010 more than U.S. $ 30 billion will be adversely impacted because of patent expiry. Another set of blockbuster drugs with similar value turnover will go off patent the year after i.e. 2011. It will not be out of context to mention, that last year around U.S. $ 27 billion worth of patented drugs had gone off-patent.

Decline in R&D productivity is not related to investments:

The decline in R&D productivity has not been due to lack of investments. It has been reported that between 1993-2004, 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%.

Total global expenditure for pharmaceutical R&D was reported to have reached U.S. $ 70 billion in 2007 and is expected to be around U.S. 90 billion in year 2010. 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 R&D expenditure was almost less than half of what was incurred in 2007 towards R&D.

Be that as it may, the pressure on the P&L (Profit and Loss) accounts of these companies is indeed mounting.

The silver linings:

However, 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.

Significant growth of generic pharmaceuticals is expected in near future, far surpassing the patented products growth:

Patent expiry of so many blockbusters during this period will 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 companies of India.

Healthcare reform of March/April 2010 in the USA is expected to give a further boost to this trend.

Pressure on traditional Marketing strategies:
The marketing expenditure for pharmaceutical of the global pharmaceutical companies as reported by Scrip is U.S. $ 57.5 billion. However, an industry association reported that research based pharmaceutical companies in the U.S. spent $ 29.4 billion on R&D and $ 27.7 billion on promotional activities.

New Product Differentiation could be a big issue:

Products in R&D pipeline could face problems of ‘differentiation’ in terms of value offering to the patients, once they are launched. This issue is expected to surface especially with products in the oncology disease area. IMS Health reports that about 55 oncology projects are now in Phase III and 8 in the pre-registration stage. Thus about 50 new oncology products are expected to hit the market by end 2010. Many experts anticipate that there may not be significant brand differentiation between the brands of the ‘same basket’, leading to cut-throat competition and further pressure on expenditure towards marketing of brands.

The changing business strategy of global pharmaceutical companies during this trying time:

In this trying time, the global pharmaceutical companies are resorting to an interesting strategy, combing both old and the new ones. I shall touch upon the following seven strategies:

1. Mergers and Acquisitions (M&A):
Mega M&A strategies are still being actively followed by some large Pharmaceutical companies mainly to enrich R&D pipeline and achieve both revenue and cost synergies.
However, some of these large global companies have started realizing that ‘powerhouses’ created through past mega mergers and acquisitions have now become too large to manage effectively for various reasons. Mismatch between two different organization cultures also throws a great challenge to obtain desired output, many a times. Moreover, the merged R&D set up could become too large to manage, impacting the R&D productivity very adversely.

2. Extension of the Product Life Cycle and Effective Product Life Cycle Management:
Many global pharmaceutical companies are now engaged in ‘product life cycle management’ of their existing products by extending the ‘product life cycle’, effectively. In that process they are trying to maximize the brand value of these products in the international markets. For example, AstraZeneca has developed once daily treatment with their anti-psychotic drug Seroquel XR. This extended-release formulation of the same drug will help patients avoid 5 to 7-day titration required with the immediate-release version.
Towards similar initiative, Pfizer has also recently set up a dedicated “Established Product Business Unit” within worldwide pharmaceutical operations, to hasten business growth in the international markets.

3. OTC Switch:
Prescription to ‘Over the Counter’ (OTC) switch is another business strategy that many innovator companies are now imbibing, at a much larger scale.

This strategy is helping many global pharmaceutical companies, especially in the Europe and the U.S to expand the indication of the drugs and thereby widening the patients base.

Recent prescription to OTC switches will include products like, Losec (AstraZeneca), Xenical (Roche), Zocor (Merck), etc.

4. Emerging of Preventive Therapy, like Vaccines:
Many large global companies, like GSK, Sanofi Aventis and Merck are getting attracted by the emerging opportunities in the fast developing vaccines market. This trend has been triggered primarily by heightened awareness and greater focus on preventive medicines almost all over the world. It is estimated that in 2011, the vaccines market will grow from U.S.$ 13 billion to U.S.$ 30 billion registering a growth of 18% each year during this period. PricewaterhouseCoopers (PwC) estimates vaccine market to be U.S. $ 42 billion by year 2015 based on data of 245 pure vaccines and 11 combination vaccines currently under clinical development. It is interesting to note that 90 of these are therapeutic vaccines for cancer.

5. Entry into highly contentious market of Biosimilar drugs:
The Generic Pharmaceutical Association (GPhA) has estimated that it is possible to save US$ 10 billion – 108 billion over a period of 10 years with biosimilars in the top 12 categories of biological drugs. Some of these biological are already off patent and for others the patents will expire shortly.
Only a few biosimilar drugs have reached the global markets as on date because of their regulatory restrictions in most of the developed markets of the world. Even those biosimilar drugs, which have since been launched in Europe like, human growth hormone (HGH) Somatropin and Epoetin alfa for anemia, are yet to make a mark in the market place.

IMS Health reports that Omnitrope (somatropin) of Sandoz, the first biosimilar drug launched in the developed world, has registered less than 1% of the U.S. $ 831 million HGH market in Europe. Moreover, the launch of 3 more biosimilar versions of epoetin alfa in 2007, made almost negligible impact in the market. Such a low acceptance of biosimilars in the western world, so far, could well be due to lingering safety concern of the medical profession with such types of drugs.

Currently, Japan and USA are working on formal guidelines for biosimilar drugs, whereas Health Canada has already issued draft regulatory guidelines for their approval in Canada.

In April 2010, Reliance Life Science has already announced its intent to enter into the Biosimilar market of the EU in not too distant future.

6. Entry into Generic Markets:

Some large global pharmaceutical companies have already made a firm commitment to the generics market. Novartis paved the way for other innovator companies to follow this uncharted frontier, as a global business strategy. Last year the generic business of Novartis (under Sandoz) recorded 19% of their overall net sales, with turnover from generics registering U.S$ 7.2 billion growing at 20%.

Keen business interest of Sanofi Aventis to acquire Zentiva, the generic pharmaceutical company of Czechoslovakia; it’s very recent acquisition of the generic pharmaceutical company Laboratorios Kendrick of Mexico and Shantha Biotech in India and acquisition of Ranbaxy Laboratories of India by Daiichi Sankyo, will vindicate this point.

Pfizer has also maintained its generics presence with Greenstone in the U.S. and is using the company to launch generic versions of its own off patent products such as Diflucan (fluconazole) and Neurontin (gabapentin).

7. Collaboration with the Indian Companies:

Another emerging trend is the collaboration of MNCs with the Indian pharmaceutical companies to market generics in the global market, like, Pfizer with Aurobindo and Claris, GSK with Dr. Reddy’s Laboratories (DRL), Astra Zeneca with Torrent. I guess that similar trend will continue, in future, as well.

Conclusion:
Another ‘new pharmaceutical sales and marketing model’ is gradually emerging in the global markets. This model emphasizes partnership by bundling medicines with services. The key success factor, in this model, will depend on which company will offer better value with an integrated mix of medicines with services. PwC indicates that in this ‘new pharmaceutical marketing model’, besides required medicines, the expertise of a company to effectively deliver some key services like, patient monitoring and disease management could well be the cutting edge for future success.

By Tapan 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.