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An image makeover is in progress in the global pharmaceutical industry.

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At the beginning of 2009, Andrew Witty, the young head honcho of Glaxo SmithKline (GSK) initiated a one CEO tirade to recognize the global poor as a stakeholder of the global pharmaceutical industry. The industry that has been much maligned over a period of time, despite its yeoman contribution to the mankind, for aiming its drug discovery and delivery more often at the rich patients and not at the sick poor of mostly the developing and underdeveloped nations of the world.
Walking the talk:
Witty perhaps wondered and questioned why the poor population must share disproportionately the disease burden of the world. As the saying goes, ‘the proof of the pudding is in the eating’. Witty walked the talk and announced:

1. GSK medicines will be available in the least developed countries (LDC) of the world at 25% of their price in the United Kingdom (U.K).

2. 20% of profits from these medicines will be re-invested for various projects in those countries.

3. GSK will put 800 potential drug patents in a ‘patent pool’ to find cures of neglected, mainly, tropical diseases.

4. Scientists will be able to share the Research Center of GSK located at Tres Cantos in Spain for this purpose.

Will other global pharmaceutical players join in?

Andrew Witty, it appears, nurtures a very keen and very real desire to change the public image of the global pharmaceutical industry through transformation of its decade long culture and setting some of these path breaking examples, which only bravehearts can follow. However, many still feel, “Improving the greedy and uncaring image of the pharmaceutical industry is indeed a tough call.”

It has been reported in the media, during his announcement for the ‘patent pool’, the GSK CEO, in fact threw a challenge to other global pharmaceutical players to join him. What resulted thereafter was a bit of an anti-climax though with a very lukewarm response from others and Andrew with a sense of perhaps despair commented, “It has caught them a bit by surprise because we didn’t go around talking to people at the time, and they’ve had to come up this curve from zero.”

The Guardian in a very recent article on Andrew Witty, quoted him in the same context of extending access to modern medicines to the poor of LDCs, “he’s encouraging Indian companies to knock off its on-patent meds for sale in poor countries, as long as they make quality products and asks GSK for a license, which it will give royalty-free.”

In the same article, The Gurdian wrote, “He’s calling on every foreign company that makes profits in Uganda to cut its prices there”. “I don’t just mean drug companies,” Witty told the newspaper -”everybody.”

It does not cost much:

The GSK CEO admits that he is not losing much on his price cuts in the least developed countries. Uganda market of GSK is very small with turnover of about £9 million a year. The total profit from the LDCs is less than £5 million. “Those sorts of sums are like the 1p coins people don’t trouble to pick up off the pavement for a company with revenue of £24bn and a stock market valuation of £60bn,” he commented.

Conclusion:

Despite not too many encouraging responses being forthcoming from others, it is indeed admirable that a top global pharma company head honcho is setting such tough goals for himself in particular and the industry in general. The question that flows from here, even reading all these:

Are you kidding Andrew Witty? Do you really mean all these? Or it is another smart global pharma CEO hankering for just cheap publicity?

Seeing you Andrew Witty, though long ago, in flesh and blood, my heart says, you are possibly not made of that stuff to befool the world on this pressing issue of the world, being at your wit’s end.

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.

Managing expectations of the emerging markets of the world, proactively, will differentiate winners from the rest, in the Global Pharmaceutical Industry.

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Change or Perish:In Mid 2007, PricewaterhouseCoopers (PwC) recommended to the research-based global pharmaceutical companies that for sustainable business performance they should move a part of their expenditure from marketing to research. They also recommended that the drug prices should be related to incremental efficacy that the products would provide. That global pharmaceutical business model is “economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets” as a challenge of change, was forecasted in 2007 by PwC in their ‘Pharma 2020: The vision’, report.Fast evolving scenario:

The global pharmaceutical industry scenario is fast evolving. More drugs are going off patent than what the innovator companies can replace with the new products. The research is undoubtedly failing to deliver.

At the same time, the business growth in the developed markets of the world has been declining over a period of time. The growth in the top two pharmaceutical markets of the world viz, USA and Japan has gone negative. IMS predicted in their recent ‘CEO Conclave’ in Mumbai that negative trends in these markets will continue even beyond 2013.

In the same conclave IMS predicted that ‘Pharmerging’ markets and Venezuela will drive the growth of the global pharmaceutical industry in the next five year period. Within ‘Pharmerging’ markets, China is expected to record highest CAGR growth of over 25%, followed by India and Turkey around 12-14% each. With such a scorching pace of growth China is expected to become third largest pharmaceutical market in the world in 2013 with India holding its 2008 ranking of no. 13. Venezuela is expected to register highest CAGR growth of around 40% during this period placing itself as the eleventh largest pharmaceutical market of the world, comfortably overtaking India.

Emerging markets will drive global growth:

IMS health reported that last year the global pharmaceutical market recorded a turnover of US$712 billion, which is an increase of US$178 billion over last five years. However, the growth rate has come down to 6.4% compared to 11.8% in 2001. Emerging markets like India, China, Russia, Turkey and South Korea have recorded a growth of 13%, 25.7%, 20.2%, 17.2% and 10.7%, respectively against just 3.8% growth of the US market.

Making up sales revenue of world’s top 10 products:

World’s 10 top selling prescription drugs, as reported by IMS, which will be difficult to replace in terms of single-product value turnover after they go off patent, are as follows:

- Lipitor, US$13.5 billion (Pfizer)

- Plavix, US$7.3 billion (Sanofi-Aventis)

- Nexium, US$7.2 billion (AstraZeneca)

- Seretide/Advair, US$7.1 billion (GlaxoSmithKline)

- Enbrel, US$5.3 billion (Amgen and Wyeth)

- Zyprexa, US$5 billion (Eli Lilly)

- Risperdal, US$4.9 billion (Johnson & Johnson)

- Seroquel, US$4.6 billion (AstraZeneca)

- Singulair, US$4.5 billion (Merck)

- Aranesp, US$4.4 billion (Amgen)

Focus on the emerging markets and other measures are expected to more than offset the loss of revenue and profit for these products.

Key business issues in the emerging markets:

Governments of many of these emerging markets expect some local benefits out of the evolving growth opportunities of the global pharmaceutical companies from their respective countries. Various reports indicate that there will be mainly the following two key issues in these markets:

• Local manufacturing of products
• Pricing

Local manufacturing:

Out of these emerging markets, Indonesia has clearly spelt out its intention by specifying that the pharmaceutical companies marketing their products in Indonesia will need to establish local manufacturing facilities. The new rule is directed towards local job creation.

The Health Minister of Indonesia has said, “If they want to get licenses (to sell their products) they have to invest here also, not just take advantage of the Indonesian market.” The Minister further added, “they can’t just operate like a retailer here, with an office that’s three meters by three, and make billions of rupiah. That’s not fair.” It has been reported that India and China may also come out with similar requirements for their respective countries.

U.S. Chamber of Commerce has registered a strong protest in this matter with the President of Indonesia and has urged a reversal of this decision. However, the country appears to have taken a firm stand in this matter. This is evident when in response to the report that some global pharmaceutical companies have threatened withdrawal of their business from Indonesia because of this reason, the Health Minister retorted, “If they want to go away, go ahead.”

Pricing:

Anticipating such moves in the emerging markets, GlaxoSmithKline (GSK) has already started reducing the prices of its products in the emerging markets.

The visionary CEO of GSK, Andrew witty strongly believes that such price reduction will enable more patients in the emerging markets to afford GSK products. Consequently the increased sales volume will not only be able to offset the price loss but will also create a substantial goodwill for the company in these markets.

Quoting Andrew Witty the ‘Wall Street Journal’ (WSJ) reported that in Philippines, GSK has reduced the price of 28 products by 30% to 50%. In other emerging markets in Asia including India, Malaysia and Thailand the company has reduced the prices of Cervarix, its cervical cancer vaccine, substantially.

Price reductions made by GSK in Philippines in March have started paying rich dividends to the company with 15% to 40% increase in sales revenue.

Conclusion:

To achieve the growth objectives in the emerging markets of the world, global pharmaceutical companies will need to find out a win-win solution. Andrew Witty of GSK has set examples in this area with various path breaking initiatives. Pricing and local manufacturing of products, in that order, are expected to be the key issues in the business model for emerging markets of the global pharmaceutical companies. Witty has responded to such expectations proactively and in an exemplary way. His vision is widely expected to be emulated by many others, as we move on, in the interest of all stakeholders.

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.

Global ‘Contract Research and Manufacturing Services’ (CRAMS) – a new growth opportunity for mid-cap Indian pharmaceutical companies… Are we ready?

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Intense competition within global pharmaceutical industry, patent expiries of blockbuster drugs, ballooning R&D costs together with low R&D productivity, more and more stringent regulatory standards coupled with intense cost containment measures are exerting intense pressure on the bottom lines of the global pharmaceutical companies. The situation, which is continuing for quite some time from now has triggered two important strategic business considerations:1. A rapid consolidation process through ‘mega mergers’ and ‘mega acquisitions’ while medium to smaller M&As continued mostly with an intent to bridge strategic business gaps.2. Increase in interest towards ‘Business Processes Outsourcing’ initiatives of various scales and types, which include contract manufacturing and contract research to lower cost countries with clear objectives of saving both cost and time.

Such a situation has given rise to the evolution of Contract Research and Manufacturing Services, popularly known as CRAMS, especially in countries like India and China.

India is fast emerging as one of the key outsourcing hubs for contract research and global formulations manufacturing activities by improving its manufacturing standards through global benchmarking and simultaneously honing its competitive edge.

CRAMS market – Global and Local:

In 2006 the global market for CRAMS was reported to be of US$52 billion, which is expected to grow to US$76 billion by 2010.

However, the CRAMS market in India was just around US$1.00 billion in 2006, which is expected to grow to around US$3.50 billion by 2010, with an estimated CAGR of around 38% during the period.

Contract Research Market:

In 2006, including clinical trials with data management, contract research market in India was estimated to be around US$370 million with an annual growth of around 45%. In that year out of total contract research market, clinical trials activities contributed over 50%, closely followed by pre-clinical trials with a contribution of around 30%. Custom synthesis together with chemistry and biology related R&D activities contributed balance 18% of the contract research market.

Contract Manufacturing market:

In 2007, the global market for contract manufacturing was around U.S$26 billion. The market is estimated to be of U.S$40 billion in 2011 registering a CAGR of around 12%.

Contract manufacturing market in India was reported to be of U.S$ 660 million with an annual growth of 48% in 2007. However, both India and China are expected to grow faster during this period with a CAGR of around 20% because of availability of skilled human resource and world class manufacturing facilities.

The global market for contract manufacturing is highly fragmented. The market share of top 10 companies in this field is just around 30%. As Catalent Pharma Solutions, USA is the largest contract manufacturer of the world with a turnover of U.S$1.8 billion in 2007; Piramal Healthcare is the largest contract manufacturer in India, which has registered a growth of over 30% in 2007-08. In the field of biotechnology Lonza of Switzerland is the largest contract manufacturer with a growth of over 75% in 2007.

Key Services provided by the CRAMS in India:

Contract Manufacturing Organizations:

They provide mainly:

• Manufacturing capacities to the global pharmaceutical companies
• Formulations development
• Value-added services like process development and process optimization

Contract Research Organizations:

They provide services mainly related to:

• Drug discovery
• Pre-clinical and clinical trial management

The Growth Divers for CRAMS business:

• Collaboration with global pharmaceutical companies in various areas of manufacturing, like local country-specific packaging of finished formulations from bulk packs imported from the originator, to complete manufacturing of the finished formulations, including supply of indigenously made raw material as per originators specifications.

• Outsourcing of formulations of off-patent molecules by the global companies to effectively compete with generics, as has happened between Pfizer and Aurobindo Pharma of Hyderabad, India.

• Expertise in cost-effective custom synthesis for global innovator companies of various scales of operation.

• Clear and sharp focus on CRAMS business by constantly improving manufacturing and supply chain management efficiencies. As is currently being practised by Piramal Healthcare. They have already spun off their R&D activities into a separate legal entity to unleash its commercial potential.

• Anytime readiness for audit of the approved site/s by any global regulator.

CRAMS space in India offers an emerging growth opportunity of global scale, especially to mid-cap domestic pharmaceutical companies. Many of these companies are still engaged in their old business model of the old paradigm of pre-IPR regime – manufacturing and marketing of generic brands and Active Pharmaceutical Ingredients (API). This business model can still work. But not without its huge inherent risk of continuous heavy pressure on the bottom lines due to intense cut-throat competition.

A strategic shift in the business model by those mid cap Indian pharmaceutical companies, who have wherewithal of creating world class CRAMS facilities for their global collaborators, would, to a great extent, be able to insulate their current high risk generic brands or API manufacturing and marketing business. At the same time, it will be quite possible for them to register a decent business growth by availing the emerging opportunities of the new paradigm of post IPR regime-CRAMS.

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.

Global API manufacturers are poised to penetrate the Indian market in a bigger way – will the API ‘marketing warfare’ be even more intense, in future?

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India currently plays a relatively dominant role in the Global Active Pharmaceutical Ingredient (API) Market with China being ahead of India. While this is the current scenario, many experts in this field contemplates that important players from the regulated markets will soon start making significant inroads in India.Current API Market situation in India:In 2007 the API output value in India was around US $4.1 billion registering a 5 year CAGR of around 19% and ranking fourth in the world API output. According to the Tata Strategic Management Group, Indian API export value is expected to increase to US $12.75 billion in 2012.

Currently in India about 400 different types of APIs are manufactured in around 3000 plants, Ranbaxy Laboratories, Lupin, Shasun Chemicals, Orchid Chemicals, Aurobindo Pharma, Sun Pharmaceuticals Ipca Laboratories and USV being the top API manufacturers of the country. Indian domestic companies source almost 50 percent of their API requirements from China, because of lower cost in that country.

In terms of global ranking, India is now the third largest API producers of the world just after China and Italy and by 2011 is expected to be the second largest producer after China. However, in Drug Master File (DMF) filings India is currently ahead of China.

In addition, India scores over China in ‘documentation’ and ‘Environment, Health and Safety (EHS)’ compliance. All these have contributed to India having around 100 US FDA approved world class manufacturing facilities, which is considered the largest outside the USA.

Indian API manufacturers are facing a cut throat competition from their Chinese counterparts mainly because of lower costs in China. Considerably higher economies of scale and various types of support that the Chinese API manufacturers receive from their Government are the main reasons for such cost differential.

Growing competiton from the regulated markets:

We now observe a new trend within the API space in India. Many of the global innovators and generic companies are keen to enter into the API space of India.

It is known that API manufacturers from the regulated markets are already selling their products in India. However, at present, the numbers of Indian registrations for API applied by some of the large global companies, as reported by ‘Thomson Reuters Newport Horizon Premium’, are quite significant, which are as follows:

1. Novartis, Switzerland:20
2. Pfizer, USA:16
3. Sanofi-Aventis, France: 26
4. Teva, Israel: 45
5. Schering-Plough, USA:39
6. BASF: 37
7. DSM: 26
8. E.ON AG: 16
9. Kyowa Hakko: 23

All these companies who are entering into the API business space in India, I am sure, have worked out a grand design to compete not only with the the low cost domestic API manufacturers, but also with the cheaper imports, particularly from China.

What will then be the competitive edge of these companies in India?

It appears that each of these companies has weighed very carefully the existing strategic opportunities in the API sectors of India, both in terms up technology and also in terms of domestic demand.

Strategic gap in API manufacturing technology:

India, undeniably, is one of the key global hubs in the API space, with competitive edge mainly in ‘non-fermentation technology’ product areas. This leaves a wide and perceptible technological gap in the areas of products requiring ‘fermentation technology‘.

Significant demand from domestic formulations manufacturing :

India is much ahead of China in pharmaceutical formulations manufacturing, especially in the area of exports to the regulated markets like, the USA and EU. Over 25 domestic Indian companies are currently catering to exports demand of the U.S market. However, it is interesting to note that the global manufacturers like Sandoz, Eisai, Watson, Mylan have already set up their formulations manufacturing facilities in India and some more are expected to follow suit over a period of time. Hence, fast growing domestic demand for APIs, especially for exports, will drive the business plan of the global API players for India.

Is the cost advantage in India sustainable?

Indian API manufacturers although currently have a cost advantage compared to their counterparts in the regulated market, this advantage is not sustainable over a period of time because of various reasons. The key reason being sharp increase in cost related to more stringent environmental and regulatory compliance, besides spiralling manpower and other overhead costs.

Indian regulatory requirements for the global API players:

To sell their APIs into India, global companies are now required to obtain the following regulatory approvals from the Indian authorities:

1. Foreign manufacturing sites for the concerned products
2. APIs which will be imported in the country

The Drug Controller General of India (DCGI) has stipulated a fee of U.S$1,500 to register the manufacturing premises and U.S$1,000 to register each individual API. Since January 2003, around 1,200 registration certificates have been issued in India. Large number of Indian registrations is attributed by many to the strategic technology gap in India, as stated above, demand of high-quality API for finished formulations required by the regulated markets like the U.S and EU, and relatively cheaper product registration process.

As we see above Teva has gone for maximum number of Indian registrations, so far and most probably selling the APIs to their contract formulations manufacturers in India. Similarly, Schering-Plough and Sanofi-Aventis, if not Pfizer are perhaps catering to the API demand of their respective formulations manufacturing plants in the country.

Whatever may be the reasons, these global players are now exporting APIs at a much larger scale to India and in that process have started curving out a niche for themselves in the Indian API market. Impressive growth of the domestic pharmaceutical formulations manufacturing market fueled by increasing domestic consumption and exports to the regulated markets, coupled with gradual improvement in the regulatory environment of the country, is expected to drive the growth of API business of the global players.

However, the moot question is how significant will this competition be?

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.

To reap rich harvest from emerging global opportunities, Indian Biotech sector needs a ‘lifeline’ from the new Government… Now.

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Growth of Biotech Industry in India took a dip in 2008. It registered a turnover of U.S $2.56 billionwith a growth of 20%, over the previous year. The industry was clocking an annual growth of over 30%, before this period.According to the Association of Biotech Led Enterprises (ABLE)this growth rate can still be considered as encouraging. Some industry experts endorsed this view by commenting that 10% drop in the growth rate was mainly due to exchange rate variations impacting exports earning.However, many other do not subscribe to this explanation. They argue that global financial meltdown has caused an all-round liquidity crisis and lower demand in the biotech sector, leading to sharp decline in income generation.

It appears that even 2009 will continue to be a challenging year for the Biotech sector. As is known to many, continuous innovation is the growth driver of this sector and the main fuel for this growth driver is continuous infusion of capital, the pipeline of which is drying up during the current period of global financial crisis.

ABLE Survey on Biotech sector:

A recent survey, conducted by ABLE, reported as follows for the biotech sector:

1. 56% of revenue (U.S$ 1.44 billion) was generated from exports

2. Bio-pharma accounted for about 70% of exports

3. Bio-services are about 26% of exports with an encouraging growth of 46% followed by bio-informatics with 31% growth rate

4. The top 20 Indian firms accounted for 48 % of the total biotech market

5. Last year investments in Biotech were reported to have grown by around 21%.

ABLE expects a decent growth of the bio-pharma segment over the next five years. Bio-services and bio-generic exports to the regulated markets are expected to be the key growth drivers during this period. However, the moot question is: will the current global financial crisis act as a dampener to such bullish expectations?

Market forecast for Biotech sector:

‘Bio-spectrum’, in one of its recent reports, highlighted that with the new biotech policy of the Government of India (GoI), the sector is expected to grow to U.S$ 13-$16 billion by 2015. Serum Institute of Pune is at the top of the league table with a turnover of Rs. 9.87 billion followed by Biocon and Panacea Biotech.

Some analysts feel that the Indian biotech sector has the potential to register a turnover of U.S$5 billion by 2010 and U.S$20 billion by 2020. This is mainly due to increasing global demand for more affordable medicines in general and biotech medicines in particular. Recent introduction of ‘The Promoting Innovation and Access to Life-Saving Medicine Act’ in the US House of Representatives vindicates this point.

It is envisaged that this bill will enable the US Food and Drug Administration (USFDA) to create regulatory pathways for marketing approval of ‘bio-similar’ drugs in the USA. Many Indian biotech companies, analysts feel, are preparing themselves to make full use of this golden opportunity as soon as it comes.

How is the ‘Global Financial Meltdown’ affecting the Biotech sector?

The impact of ‘Global Financial Meltdown’ is all pervasive in the Biotech sector, all over the world, India is no exception.

Because of global liquidity crunch, availability of capital to fund the growth of this sector has become scarce, leading to most of the growth plans, if not all, are being put on hold. Fear among the Indian Biotech companies of turning an easy prey for the predators in search of a good biotech portfolio, is looming large. It was recently reported in the media that GlaxoSmithKline and Sanofi-Aventis are interested to acquire a majority stake of Shantha Biotech of Hyderabad.

In abroad, we have witnessed such instances when Roche acquired Genentech, Astra Zeneca bought MedImmune, Eli Lilly acuired Imclone and Merck took over Serno.

Why is the impact of global ‘liquidity crunch’ more on the Biotech sector?

The impact on ‘liquidity crunch’ on the Biotech sector is more pronounced because all over the world this sector is dominated mainly by much smaller companies, engaged in the drug discovery and development research. Continuous flow of fund is of utmost importance not only to fund growth of these organizations, but for their survival, as well. Private equity funding is also dwindling up pretty fast.

GoI initiatives to encourage growth of Biotechnology sector:

Mr. Kapil Sibal outgoing Minister of Science and technology of the erswhile UPA government, not too long ago, announced the plan of the GoI to build 20 more biotech parks in India, in order to provide the required infrastructural facilities to this sector and promote high quality R&D initiatives related to biotechnology.

It is indeed encouraging to note that the Department of Biotechnology (DBT) has already signed a 10-year contract with the Welcome Trust towards developing human resources of high quality, for the sector.

Emerging outsourcing opportunities:

Despite such pessimistic scenario, Indian biotech sector is bullish on the business opportunities from various types of emerging outsourcing opportunities being offered by the global pharmaceutical companies, because of their business compulsions, particularly in Contract Research and Manufacturing services (CRAMS) space.

Zinnov management consulting recently reported that outsourcing opportunities of over U.S. $ 2.5 billion will come to the Indian Pharmaceutical Industry, including its Biotech sector by 2012. This will indeed help the domestic pharmaceutical companies in a big way, as many players are now finding the transition from manufacturing ‘copy cat’ generic drugs to devising new therapies, pretty difficult.

Conclusion:

To reap a rich harvest from of all these emerging global and local opportunities, the biotech sector of India now needs a ‘lifeline’ from the new Government. Ensuring easy availability of capital will be the ‘lifeline’, at this moment of global financial crisis.

In the battle against disease let the Biotech parks of India be seen as the ‘Armageddon’, as it were, global hub to cater to the needs of poor and needy – a symbol of scientific supremacy.

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.

‘Patent Pool’ – is GSK setting a new trend for the global pharmaceutical industry?

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On February 13, 2009, The Guardian reported that Andrew Witty, CEO of GlaxoSmithKline (GSK) announced some significant changes to the way his company will operate in the developing countries of the world.

GSK, as Witty said, will:

• “Cut its prices for all drugs in the 50 least developed countries to no more than 25% of the levels in the UK and US – and less if possible – and make drugs more affordable in middle- income countries such as Brazil and India.

• Put any chemicals or processes over which it has intellectual property rights that are relevant to finding drugs for neglected diseases into a “patent pool”, so they can be explored by other researchers.

• Reinvest 20% of any profits it makes in the least developed countries in hospitals, clinics and staff.

• Invite scientists from other companies, NGOs or governments to join the hunt for tropical disease treatments at its dedicated institute at Tres Cantos, Spain.”

Quoting Andrew Witty, The Guardian reported, “his stance may not win him friends in other drug companies, but he is inviting them to join him in an attempt to make a significant difference to the health of people in poor countries”.

“We work like crazy to come up with the next great medicine, knowing that it’s likely to get used an awful lot in developed countries, but we could do something for developing countries. Are we working as hard on that? I want to be able to say yes we are, and that’s what this is all about – trying to make sure we are even-handed in terms of our efforts to find solutions not just for developed but for developing countries,” Witty envisioned.

“I think the shareholders understand this and it’s my job to make sure I can explain it. I think we can. I think it’s absolutely the kind of thing large global companies need to be demonstrating, that they’ve got a more balanced view of the world than short-term returns,” he expressed Knowing full well that his comments will be considered as quite radical within the global pharmaceutical Industry.

The unorthodox young CEO of GSK continued, “I think it’s the first time anybody’s really come out and said we’re prepared to start talking to people about pooling our patents to try to facilitate innovation in areas where, so far, there hasn’t been much progress.”

Definition of ‘Patent Pool’:

The ‘Patent Pool’ is defined as, “an agreement between different owners, including companies, governments and academic bodies to make available patent rights on non-exclusive basis to manufacturers and distributor of drugs against payment of royalties”

Thus one of the often repeated key benefits of the ‘Patent Pool’, as considered by its proponent, is that the system enables the use of innovation against payment of royalties, without the risk of patent infringement.

The rationale for ‘Patent Pool’ system:

Many experts in this area feel that the conventional patent system does not really work for the diseases of the poor, all over the world. Though the concept of ‘Patent Pool’ is quite new in the global pharmaceutical industry, this system is being very successfully and widely practised within the Information Technology (IT) industry. ‘Patent Pool’ system, if effectively used, can also help the global pharmaceutical companies to improve their access to many more developing countries of the world.

GSK appears to have kick started the process:

Andrew witty of GSK is undoubtedly the first CEO of a global pharmaceutical company to announce a ‘Patent Pool’ system for research on 16 neglected tropical diseases like, tuberculosis, malaria, filariasis leprosy and leishmaniasis. GSK has, in a real sense, kick started the process by putting more than 500 granted pharmaceuticals patents and over 300 pending applications in the ‘Patent Pool’.

Key requirements for the ‘Patent Pool’:

Careful identification of various patents, which will be essential for the pool, will be one of the key requirements to initiate a ‘Patent Pool’ system. It makes the need to obtain individual patents, required in the process of a drug discovery, less important.

Key issues with the ‘Patent Pool’ concept:

It has been reported, from a WHO conference held in April, 2006 ‘Innovation Strategy Today’ worked out that the start-up costs of a ‘Patent Pool’ for vaccines will be economically viable only if more than 25 participants holding relevant patents join the initiative.

Moreover, various types of litigations, related to patents, which we are currently witnessing within the global pharmaceutical industry, could also be impediment in getting more patents in the pool.

Conclusion:

The initiative to create a ‘Patent Pool’ system in the global pharmaceutical industry, especially for the diseases of the poor, as enunciated by the CEO of GSK, is indeed a path breaking one. Such initiatives are likely to have very positive contribution in solving the problem of access to affordable medicines, especially in the developing world.

In fact, the Council of Science and Industrial Research of the Government of India, lead by its Director General, Dr. Samir Brahmachari has already undertaken similar initiatives in the country where global experts including academia are actively participating.

Though ‘Patent Pool’ is still an untested model in the global pharmaceutical industry, the recent announcement of GSK towards this direction does appear to offer a realistic and practical approach to address the critical global issue of improving ‘access to affordable innovative modern medicines’ to a vast majority of population in the developing countries of the world.

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.

Key business strategies of global pharmaceutical industry are undergoing a radical change, while in India we are still thinking within the box. Who cares about the global clue?

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One of the leading consulting companies, PricewaterhouseCoopers (PwC) in its report of June 2007 titled “Pharma 2020: The vision –Which path will you take?” postulated that the business model followed by the global pharmaceutical companies is, “economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets”.
R&D is failing to deliver:Datamonitor highlighted that drugs worth U.S$ 140 billion will go off patent by 2016. Thus the value turnover that will be lost because of number of drugs going off-patent will be almost impossible to replace by this time. Many analysts have been expressing concerns about gradual but steady decline in pharmaceutical R&D productivity since quite some time. During this period, most of the research based companies could afford only a small increase in their R&D budget, while marketing and other overhead expenditures registered a significant increase.

Single global process of Drug Regulatory approval…is possible…but is it probable?

PwC in the same report touched upon another interesting possibility within the R&D space of the global pharmaceutical industry. It indicated that the research based pharmaceutical companies will gradually switch over from, “Classic model of drug development that ends in regulatory approval to ‘live licenses’ that allow for narrow product launches followed by gradually expanding approvals as drugs are continuously tested.”

Most interestingly, the report also forecasted that by 2020, the drug regulators across the world will work together under a collaborative framework to arrive at uniform and single global process of drug regulatory approval. If it materializes, the process will indeed be path breaking in every sense.

Global pharmaceutical market will register significant growth:

Following this trend, the report highlighted, that the global pharmaceutical sales will touch U.S$ 1.3 trillion by 2020, almost double of what it is today. High growth of emerging markets and the aging global population are expected to be the key growth drivers.

During this period E7 countries like, Brazil, Russia, India, China, Mexico, Turkey and Indonesia are expected to contribute around 20% of Global Pharmaceutical turnover. Keeping pace with the economic progress, the disease pattern of these countries are also changing, from infectious diseases to non-infectious chronic illnesses, like diabetes, hypertension, just as we now observe in the developed world.

Together with this change, many predict that ‘greenhouse effect’ arising out of global warming process will have significant impact on health of the global population, resulting in large scale re-emergence of diseases like malaria and cholera together with various types of respiratory disorders.

Radical change is envisaged in pharmaceuticals marketing:

In April 2009, PwC came out with another interesting report titled, “Pharma 2020: Challenging business models, which path will you take?” on the future of the global pharmaceutical industry.

As the time progresses global pharmaceutical companies will need to understand the shift in ‘perceived value’ that is taking place within patients, medical profession and the community as a whole towards healthcare delivery. Just an innovative medicine will no longer be able to satisfy their ‘value expectations’. Pharmaceutical companies will have to offer a ‘bundle of benefits’, combining the innovative products with related health services, for which the market will not hesitate to pay a reasonable premium.

Thus in future, global pharmaceutical companies will need to collaborate with disease management specialists for a “holistic offering” to address an ailment rather than just treatment of the disease with medicines. Such “value added and innovative” marketing strategies will differentiate business success from failure, in 2020.

In the recent report PwC advocates that to be successful, in future, global pharmaceutical companies will need to change their ball game almost radically. The future strategy will focus on collaborative arrangements between various allied healthcare establishments and the pharmaceutical companies to offer a “holistic solution” to the patients in all disease areas.

That means, global manufacturer of an anti-diabetic drug will need to offer along with the innovative drug, counseling on diet regimen, suggesting exercise programs and their follow-up, reminders for regular and timely intake of medicines and many more. Who knows?

“Better late than never”:

In any case, to excel in business at a time when the global pharmaceutical business model is undergoing a fundamental shift; there is a need to keep on investing more towards R&D, which will continue to remain the ultimate growth engine of pharmaceutical business, the world over. At the same time, there will be a dire need to prune expenditure in innovative ways and that opens the door for global outsourcing of various business processes from most cost efficient countries having world class facilities.

Domestic pharmaceutical players, if start mustering all resources to avail these global opportunities, India can soon become a global hub for pharmaceuticals outsourcing, outracing China which is currently placed ahead of India, in this field. As the good old saying goes, I shall always wish, “better late than never”.

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.

Is the world now moving towards ‘Global Patent’ system?

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A brief background:
In June 19, 1970 an International patent law treaty was signed in Washington, initially with 18 contracting states. This treaty is called ‘The Patent Co-operation Treaty’ (PCT), which came into force on January 24, 1978 and was subsequently amended in 1979 and further modified in 1984 and 2001.In August, 1998 India joined the Patent Cooperation Treaty (PCT) by acceding to the Paris Convention on Intellectual Property. As on March 7, 2009, 141 states including all major industrialized countries, are signatories to the PCT.

PCT system, as we know, facilitates filing of patent applications under one roof with simpler procedure for search and examination of applications. This allows innovators of a PCT member country to obtain the effect of patent filings in any or all of the PCT countries.

The procedure currently followed by PCT is as follows:

“A single filing of an international application is made with a ‘Receiving Office’ (RO) in one language. It then results in a ‘search’ performed by an ‘International Searching Authority’ (ISA), accompanied by a written opinion regarding ‘patentability’ of the invention, which is the subject of application. This is optionally followed by a preliminary examination performed by an ‘International Preliminary Examination Authority’ (IPEA). Finally, the examination (if provided by national law) and grant procedures are handled by the relevant national and regional authorities.”

Currently the PCT does not lead to the grant of an ‘International Patent’.

WIPO recognizes Indian Patent Office as an ISA and IPEA:

Recently under PCT, ‘The World Intellectual Property Organization’ (WIPO) has recognized the Indian Patent Office (IPO) as an International Searching Authority (ISA) and International Preliminary Examining Authority (IPEA).

Besides India, other countries which have this recognition are Austria, Australia, Canada, China, EU, Spain, Finland, Japan, Korea, Russia, Sweden and the USA.

This recognition will help India the following ways:

1. Through PCT route India will now receive international patent applications from WIPO for search and preliminary examinations. This will enable IPO to generate revenue in form of fees paid to ISA and IPEA.

2. This recognition would help the innovators of the country to avail patentability search, obtain IPER and written opinions much faster and at a cheaper rate.

Is the world now moving towards ‘Global Patent’ system?

Recently a document has been published by WIPO for the meeting of PCT working group scheduled at Geneva from May 4 to May 8, 2009. The outcome of the meeting is not known to me, as yet. This document includes a proposal from the United States Patent and Trade Mark Office (USPTO) for having a relook at the existing international patent system. This relook and discussion could translate into development of an entirely new Patent Cooperation Treaty (PCT), which perhaps would be termed as PCT II.

The key feature of the proposed PCT II is that all patent applications, which will successfully pass through scrutiny of both international/national processing system would automatically receive patent grants in all the member countries.

While discussing this process within the PCT working group, it is anticipated that following two key issues will crop up for an intense debate:

1. Harmonization
2. Sovereignty

However, many feel that an appropriate protocol system could be put in place to take care of both these concerns, where after release of an affirmative international patentability report, each member country will be given certain period of time to refuse the grant patent in that particular country, clearly specifying the reasons for the same.

In true sense it may not mean grant of a global patent, but definitely could be considered as a bold step towards that direction. PCT II, if sees the light of the day, is expected to create a much easier type of patent granting procedure.

To make it effective, existing PCT structure will need to undergo some significant changes. The new structure is expected to ensure a very high quality output. The member countries, who will work in tandem, should find the new procedures and systems much more user-friendly and at the same time efficient in ensuring comprehensive search between multiple offices that incorporate prior art submissions by the applicants and third parties.

However, if PCT II gets accepted in principle by all the member countries, a detail mechanism to effectively operate such a complex system to be worked out with great precision, ensuring full satisfaction to all concerned.

In India, this new development will certainly be examined with a ‘tooth comb’ and rightly so. It is expected that all pros and cons will be carefully examined by the country, getting fully involved in this international debate, before arriving at a final decision. On the face of it ‘PCT II’ appears to be a novel concept, which deserves due consideration by all the stakeholders and in no case to be summarily brushed aside following the shrill voices of some skeptics.

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.