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Indian Pharmaceutical Landscape: Looking back (2011), Looking Ahead (2012)

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2011 witnessed many interesting developments within the pharmaceutical industry of India. All these developments may not be appreciated by all stakeholders alike, nonetheless had an impact on the industry of varying degree both in the qualitative and quantitative terms.

That said, the list of ‘unfinished agenda’ of the government to improve healthcare access and simultaneously to fuel the growth engine of the industry with reform oriented policy initiatives, kept on increasing staggeringly.

The issue of improving access to modern medicines with comprehensive measures continued to remain unaddressed even in the draft National Pharmaceuticals Pricing Policy 2011. Similarly, the Prime Minister’s dedication of the decade of 2010 as the decade of innovation remained a pipe dream for the pharmaceutical industry of the country.  Policy paralysis of the decision makers during the year failed to translate even this praiseworthy intent into reality.

Increasing consumption of medicines in India: 

Indian Pharmaceutical Market (IPM) continued to grow at a scorching pace of around 15% registering a turnover of Rs 59,621 Crore during the year. (Source: Nov 2011- AIOCD/AWACS).

Fast increasing consumption of medicines in the country continued to position IPM not just as another global success story, but also an emerging pharmaceutical force to reckon with, especially in the development and manufacturing of high quality and low cost generic pharmaceuticals together with its world-class  Contract Research and Manufacturing Services (CRAMS).  Indian pharmaceutical players now cater to about 20% of global requirements of high quality and affordable generic medicines of all types.

Consolidation process continues:

At the same time, ongoing consolidation process within the pharmaceutical industry continued in 2011 with Aventis Pharma (Sanofi) acquiring Universal Medicare and Zydus Cadila shopping for Biochem Pharma.

November 30, 2011: Signaled beginning of the end of the blockbuster drug era:

On November 30, 2011, the patent expiry of the world largest ever brand Lipitor (Pfizer), clocking an annual turnover of over US$ 14 billion and accounting for more than 20% of the company’s sales turnover until recently, I reckon, heralds beginning of the end of the blockbuster drug era.  To equal the turnover of Lipitor with another brand will be a huge challenge not only for Pfizer, but also for any other company in the near to medium term.

Patent expiry of Lipitor will now help opening up the super size Atorvastatin market of the developed world to the Indian generic players.

Launch of innovative products:

Launch of several innovative and patented products in India by the global players during 2011, reconfirmed the attractiveness of the IPM to the global innovator companies. Some of these innovative products are Revolade (Eltrombopag) , Votrient (Pazopanib Hydrochloride) of GlaxoSmithKline, Flexbumin solution of Baxter and BD Ultra-Fine III Nano of Becton Dickinson.

Looking back (2011):

During 2011, the industry witnessed a number of initiatives from the government as an ongoing process, some of which are as follows:

  • Establishment of dedicated Pharma Zones in Mumbai, Hyderabad and Delhi airports, including cold rooms to help achieving world-class cold-chain logistics in India in the medium term.
  • For the first time in 2011, the government initiated steps to put the ‘Biosimilar Guidelines’ in place to ensure high safety standards for follow-on biologics in India. The Department of Biotechnology (DBT) and the Central Drugs Standard Control Organization (CDSCO) prepared these guidelines in consultation with the industry, the effective implementation of which is keenly awaited. This important step will also help Indian biosimilar drug manufacturers to prepare themselves well to explore the opportunity of gradually opening-up biosimilar drugs markets in the western world, like the USA and EU.
  • The Department of Pharmaceuticals (DoP) came out with a draft Uniform Code of Pharmaceutical Marketing Practices (UCPMP) in 2011 to curb alleged unethical practices of ‘bribing doctors’ by pharma companies. The code initially is expected to be of voluntary in nature and its effective implementation will be ensured by the pharmaceutical companies and the industry associations over a period of six months. Thereafter, if the implementation level of UCPMP does not measure up to the expectations of the DoP, it will be made mandatory under strict regulatory control.  However, the final UCPMP has not been announced by the government, as yet.
  • The Ministry of Health and Family Welfare constituted a twelve member task force to evolve a long term strategy to address various issues faced by the Indian Pharmaceutical Industry. Unfortunately, tangible outcome from this committee is still awaited.
  • Following the Supreme Court directive to the government to bring essential drugs under price control, after a very long time, the Government came out hurriedly with a draft National Pharmaceuticals Pricing Policy 2011 (Draft NPPP 2011) by increasing the span of effective price control to over 65% of the IPM. This flawed draft policy, if implemented, could stifle the growth of the industry.
  • During the year the Ministry of Health and Family Welfare finalized the National Vaccine Policy to strengthen the institutional framework required for the universal immunization program. The policy is also expected to streamline the decision-making process on new and underutilized vaccine introduction, besides addressing issues of vaccine security, management, regulatory guidelines and vaccine research and development.
  • The Ministry of Health and Family Welfare also came out with the National Health Research Policy in 2011 to overcome the weaknesses of the publicly funded health structures, which restrict research in the priority health areas. This policy is expected to help maximizing the returns on investments in health research through creation of a robust health research system.
  • New National Manufacturing Policy (NMP), which ultimately saw the light of the day during the year, is expected to promote the productivity of the pharmaceutical sector, as well. The policy will help enhancing the share of total manufacturing of all industrial sectors put together from the current level of 15% to 25% of the GDP within a decade and would also help creating 100 million jobs in the country.
  • 100% FDI in the Pharmaceuticals sector of India remained unchanged, which will attract more foreign investments in this sunrise sector of India.
  • ‘Universal Health Converge’, announced during the year by the Planning Commission of India, will help reducing significantly the ‘out of pocket’ expenses incurred towards healthcare, improving its access to all.

Looking Ahead (2012):

  • The good news for 2012 is that the Planning Commission has decided to increase the national spending on health to 2.5% of the GDP in the 12th Five Year Plan starting from 2012.
  • In 2012, if the ‘NPPP 2011’ is implemented as in its current draft form, it could seriously impede the court of the vibrant pharmaceutical industry of India.
  • Introductions of DTC and GST: The ‘Discussion Paper’ on the draft ‘Direct Taxes Code Bill, 2009’ highlighted the possibility that the GST regime could have multiple rates based on classification of goods that are to be listed under the exempted category, like goods which would attract lower rate and another category of goods qualifying for standard rate. This concept of multiple rate of tax under GST regime could impact the pharma/health science industry as the business models followed by this industry typically involves import/manufacture and sale of life saving drugs, medical devices and other formulations, which presently attract either NIL rate of duty under central excise/VAT or lower rate of excise duty at 4%. Presently clinical trial services/R&D services attract service tax at 10.30%.
  • The growth trajectory of the IPM is expected to continue to go north despite slowdown in the US and European economies in 2012.

Conclusion:

Like many other sectors, the pharmaceutical industry of India also witnessed the reform oriented policy paralysis of the government in 2011, barring some superficial, half- hearted and incomplete initiatives, as indicated above.

Key areas of general public health interest, encouraging innovation, fostering R&D and improving access to medicines to alleviate healthcare related problems of the common man and at the same time to propel the industry to the inclusive high growth trajectory, have still remained unanswered.

Faster recovery from reform-oriented policy paralysis of the government and effective translation into reality of the seemingly good intent of the policy makers, is now eagerly awaited in 2012.

By: Tapan J Ray

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

The domestic API players are fast losing their dominance in the Indian API market

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There are two broad categories of markets for the Active Pharmaceutical Ingredients (API) across the world namely, highly regulated and semi regulated markets. Countries like, USA, Europe and Japan will fall under highly regulated category with high entry barriers for the global API players like, robust Intellectual Property (IP) regime and stringent regulatory requirements to meet their product quality standards. Such an environment prompts a premium price for the APIs. On the other hand, the semi regulated markets, which offer low entry barriers with not so stringent IP and regulatory requirements, attract more number of API players engaging in cut throat price competition.

The top three markets for Active Pharmaceutical Ingredients (APIs) are the US, Europe and Asia Pacific. According to ‘Business Wire (July 13, 2011), the API market in the Asia-Pacific is expected to grow from 6.7% between 2005 and 2010 to 9.6% between 2010 and 2016.

Currently a perceptible shift in API manufacturing is being noticed from the western markets to the emerging markets like, India and China. In the Asia Pacific region Japan and China enjoy the highest market share for API with 42.8% and 20.8%, respectively. India accounts for 10.3%, while South Korea holds an 8.1% share of the market. To avoid price erosions now seen in the US, Indian manufacturers have started exporting more APIs to Japan.

In 2010, contribution of generic API from the Asia-Pacific market was at 71.5%, with patented APIs contributing for the rest, where Japan enjoys a larger share than India and China. 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 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 Pharmaceuticals, 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 end 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 125 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 competition 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. MSD, USA: 39 6. BASF: 37 7. DSM: 26 8. EON AG: 16 9. Kyowa Hakko: 23

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

China an emerging global force to reckon with in the API market:

An economy of scale leading to cost leadership is fast establishing China in the global API market as a force to reckon with. Dominant presence of China even in the bulk intermediate category with high level of technical expertise, especially in the fermentation technology, strong manufacturing base, supported by increasing standard of regulatory compliance and better IP protection, as perceived by the global pharmaceutical community, are helping the API manufacturers of China to gradually increase their presence even in the highly regulated markets of the world.

In this emerging scenario, when China throws a tough competition to the API producers of India,  developing and manufacturing niche APIs will be the key differentiating factors for the Indian players to maintain their global presence in future, especially with APIs involving non-fermentation technology.

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 of technology as well as 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 arbitrage of 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 spiraling 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, if not Pfizer are perhaps catering to the API demand of their respective formulations manufacturing plants in the country.

Apprehension of counterfeit APIs from the emerging markets:

Growing apprehensions of counterfeit APIs from the emerging markets like, India and China must also be addressed expeditiously by all concerned.

‘The New York Times’ dated August 15, 2011 reported that APIs from India, China and elsewhere now constitute 80% of the active ingredients in US drugs. The US FDA Commissioner Margaret Hamburg was quoted saying, “Supply chains for many generic drugs often contain dozens of middlemen and are highly susceptible to being infiltrated by falsified drugs.”

Conclusion:

Be that as it may, some key global players mainly China, as mentioned above, 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 and some global collaboration for the pharmaceutical formulations sourcing from India, are expected to drive the growth of API business of the global players in India. However, the moot question still remains: will the Indian API players be able to thrive or even survive the tough competition from the global players, especially China?

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

A National Regulatory Standard is necessary for MRs of the Indian Pharmaceutical Industry

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Medical Representatives (MR) form the bedrock of business success, especially for the pharmaceutical industry in India. The Job of MRs is tough and high voltage one, laced with moments of elation and sprinkles of frustration, while generating prescription demand for selected products in an assigned business territory. Though educational qualifications, relevant product and disease knowledge, professional conduct and ethical standards vary widely among them, they are usually friendly, mostly wearing a smile even while working in an environment of long and flexible working hours.

Currently, there is a huge challenge in India to strike a right balance between the level and quality of sales pitch generated for a brand by the MRs, at times even without being armed with required scientific knowledge and following professional conduct/ ethical standards, while doing their job.

It is critical for the MRs to understand scientific details of the products, its mode of action in a disease condition, precautions and side-effects in order to be fair to the job and be successful. As MRs are not just salesmen, they must always be properly educated in their respective fields and constantly hone their knowledge and skills to remain competitive.

A qualitative study:

Indian J Med Ethics, 2007 Apr-June; 4(2) reported a qualitative study to determine a wide range of pharmaceutical promotional practices by the MRs influencing prescription of medicines in Mumbai. The study highlighted:

“An unholy alliance: Manufacturers, chemists and doctors conspire to make profits at the expense of consumers and public health, even as they negotiate with each other on their respective shares of profits”.

The paper identified misleading information, incentives and unethical trade practices as methods to increase the prescription and sale of drugs. It reported, besides other points that MRs provide incomplete medical information to influence prescribing practices.

‘Code of Pharmaceutical Marketing Practices’ is necessary, but just not enough:

Gift-giving, ethical vs. unethical promotion, transparency and self-regulation appear to be the main issues in the pharmaceutical industry right across the globe. Owing to inadequate national legislation and the lack of universally accepted self-regulatory codes, the pharmaceutical industry in India has yet to tackle the problem of alleged “Unethical drug marketing practices”.

After a protracted debate on this subject by the pharmaceutical companies, in May 2011, the Department of Pharmaceuticals (DoP) came out with a draft ‘Uniform Code of Pharmaceutical Marketing Practices (UCMP)’ to address this issue squarely and effectively in India.

This decision of the government is the culmination of a series of events, covered widely by the various sections of the media, since 2004. Be that as it may, the UCMP, in my view, is just not enough to address the issue of alleged, “Unethical drug marketing practices” holistically.

A mandatory ‘accreditation/certification’ program for MRs is the need of the hour:

Countries like United Kingdom (UK) and Australia with much longer experience of dealing with pharmaceutical industry than India, have appropriate mechanisms, safeguards and legislation in place to deal with the pharmaceutical marketing practices. Even the pharmaceutical industry in the UK and Australia have controlling authorities with comprehensive standards in place to deal with proper education, professional conducts and ethics for the MRs. Similar mandatory ‘accreditation/certification’ program for MRs, in my view, is also necessary in India without any further delay.

India should learn from others to work out a robust process:

Even with such systems and regulations in place, both in the UK and Australia, some ethical issues still remain unresolved. In Australia the largest consumer organization highlights, “that it is a conflict of interest for the Code to be administered by the industry peak body.” and “it is also concerned that the sanctions available in the Code do little to prevent breaches”. United Kingdom is no exception in this regard.

Other markets are fast catching up:

Very recently in Turkey, Turkish Ministry of Health published a new pharmaceutical promotion regulation, which specifies for the first time a certification obligation for the MRs.

In Philippines, ‘MR Accreditation Program (MRAP)’ started about 8 to10 years ago. MRAP is administered by the Pharmaceutical and Healthcare Association of Philippines. The certifying examination is accredited by the Professional Regulation Commission (PRC) under its Board of Pharmacy of the Government of Philippines.

In Japan there is a certification program for the MR since 1997, which is administered by the MR Education and Accreditation Center of Japan, a public service corporation. One has to receive over 450 hours education and training in Japan to be qualified for the examination. Even after being qualified in the certification examination, at least 50 hours of continuing education is required every year to keep the certification updated that expires after 5 years.

In Germany, under German law and practice, MRs have either the status of “pharma advisors” (“Pharmaberater”) as specified in German Drugs Act or they have to pass the examination for certified MRs (“Pharmareferent”), which is accessible online.

“Pharma Advisors” have science background as a pharmacist, chemist, physician, veterinarian etc. whereas other MRs are required to obtain scientific and medicinal knowledge through suitable education and training program, which will lead to an examination for certification by the German authorities. All MRs are required to start the program within 6 months of employment in the industry and complete the five modules within 2 years.

In Canada ‘the Code of Ethical Practices’ requires the MRs to complete an accreditation course offered by the Council for Continuing Pharmaceutical Education within two years of commencing their employment.

In USA, there is no official MR certification program.

In Hungary, the MR certification program is administered officially by the Health Authority of the country.

In Indonesia, this is administered officially by the state/ governmental bodies or by the industry through an outside consulting organization, which issues certificates after successful completion of the examination.

In Argentina, MR Certification Program is required by the law of the land. In order to include the name in the ‘Registry of MR’, a qualifying degree as medical sales representative, issued by a tertiary educational institution and/or officially acknowledged training institutions, is essential.

In South Africa, they have certification only for marketing code training, which is administered by an independent Marketing Code Authority.

In Sweden, this course is administered by an external course organizer on behalf of LIF Sweden.

However, Swedish companies nowadays prefer to employ pharmacists, who do not need to take the examination.

A National regulatory standard for MRs is necessary in India:

India is now one of fastest growing emerging pharmaceutical markets of the world with 3rd global ranking in volume of production and 13th in value terms. Domestic turnover of the industry is around US$ 12.1 billion in June 2011 (IMS) representing just over 1% of the global pharmaceutical industry turnover of US$ 850 billion (IMS). Since 1970, Indian pharmaceutical Industry has rapidly evolved from almost a non-entity to meeting around 20% of the global requirements for high quality and low cost generic medicines.

Unfortunately, despite a fast evolving scenario, appropriate regulations in various areas of the industry in India have not been worked out, as yet, to derive the best mileage out of this scorching pace of growth of the industry. India still does not have a national code of conduct or regulatory standards applicable to MRs.

Only the clause 4 of ‘The Magic Remedies (Objectionable Advertisement) Act, 1954’ deals with misleading advertisements. It is about time to formulate not just a national code on pharmaceutical marketing practices, but also a mandatory accreditation program and qualifying criteria for the MRs for entire pharmaceutical industry in India, like many other countries of the world.

Central Drugs Standard Control Organization (CDSCO) of the Ministry of Health and Family Welfare of the Government of India in its website lists the “Laws Pertaining to Manufacture and Sale of Drugs in India”. However, it does not specify any regulation for the MRs nor does it recommend any standard of qualification and training for them, which is so critical for all concerned.

Conclusion:

In the above scenario, the moot question is without any comprehensive and formalized uniform national standards of educational qualification, knowledge, ethics and professional conduct being in place for the MRs, are they getting right uniform inputs, across the board, to appropriately interact with the medical profession in a manner that will benefit the patients and at the same remain within the boundary of professional conduct and medical ethics?

Thus, a National regulatory standard for MRs, I reckon, is absolutely necessary in India… sooner the better.

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.

Biosimilar Drugs: The Roadblocks and the Road Ahead

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Unlike commonly used ‘small molecule’ chemical based drugs, ‘large molecule’ biologic drugs are developed from living cells and using very complex processes. These groups of drugs could range from simpler insulin to therapy for treating complex ailments like, cancer and almost invariably attract a high price tag, which could run even in thousands of dollars.

It is virtually impossible to replicate these protein substances, unlike the ‘small molecule’ drugs. One can at best develop a biologically similar molecule with the application of high degree of biotechnological expertise. These drugs are usually much less expensive than the original ones and called ‘Biosimilar Drugs’. It is expected that ‘biosimilar drugs’ will have lesser market competition than the conventional ‘small molecule’ generic drugs, mainly because of complexity and costs involved in their developmental process.

Future growth potential:

In most of the developed countries, besides regulatory issues, ‘Biosimilar drugs’ are considered to be a threat to the fast growing global biotech industry. At the same time, it is widely believed that in the rapidly evolving global concern for cheaper and more affordable medicines for patients across the world, relatively smaller biotech companies, given the required wherewithal  at their disposal, could emerge as winners in this new ball game as compared to traditional generic pharmaceutical players.

Novartis (Sandoz) – first to launch a ‘Biosimilar drug’ in the US:

In mid-2006, US FDA approved its first ‘Biosimilar drug’- Omnitrope of Sandoz (Novartis) following a court directive. Omnitrope is a copycat version of Pfizer’s human growth hormone, Genotropin. Interestingly, Sandoz had also taken the US FDA to court for keeping its regulatory approval pending for some time in the absence of a well-defined regulatory pathway for ‘Biosimilar drugs’ in the USA. The CEO of Sandoz had then commented, “The FDA’s approval is a breakthrough in our goal of making high-quality and cost-effective follow-on biotechnology medicines like Omnitrope available for healthcare providers and patients worldwide”. Despite this event, none at that time expected the US FDA to put regulatory guidelines in place for approval of ‘Biosimilar drugs’ in the country.

Merck’s entry was through an acquisition:

Merck announced its entry into the ‘Biosimilar drugs’ business on February 12, 2009 with its acquisition of Insmed’s portfolio for US$ 130 million in cash. Rich pipeline of follow-on biologics of Insmed is expected to help Merck to hasten its entry into global ‘Biosimilar drugs’ markets.

Other recent global initiatives:

  • Merck paid US$ 720 million to Hanwha for rights to its copy of Enbrel of Amgen
  • Samsung of South Korea has set up a biosimilars joint venture with Quintiles to create a contract manufacturer for biotech drugs.
  • Celltrion and LG Life Sciences have expressed global ambitions in biosimilar drugs.
  • Dr Reddy’s Laboratories (DRL) has already been marketing a biosimilar version of Rituxan of Roche since 2007.
  • According to Reuter (June 22, 2011), Merck, Novartis (Sandoz), Teva and Pfizer are expected to be strong players in the biosimilar market.
  • Reliance Life Science though has faced a setback in Europe with the regulators asking for more data for its copy of EPO prompting them to withdraw their application for now, is also a potential player in the biosimilar market.

Many other developments are also now taking place in the space of ‘Biosimilar drugs’, the world over. To fetch maximum benefits out of this emerging opportunity, India has started taking steps to tighten its regulatory process for marketing approval of such drugs. This is absolutely necessary to allay general apprehensions on drug safety with inadequate clinical data for similar protein substances.

Current status in the US:

President Barak Obama administration of the US has been expressing for quite some time a strong intent to pave the way for ‘Biosimilar drugs’ in the US. To facilitate this process, a new draft legislation titled, “Promoting Innovation and Access to Life Saving Medicine Act” was introduced by the legislators of the country. This legislation came into force with the announcement by US-FDA the outline of how biopharmaceutical players can submit their application for marketing approval of ‘Biosimilar drugs’ in the country. Many industry players have since then been gearing up, across the world, to have a share of the potentially large ‘biosimilar drugs’ market in the US.

Challenging clinical data requirements in the US:

According to ‘Biologics Price Competition and Innovation Act of 2009 (BPCI Act)’, which was enacted in the US on March 23, 2010, any biological substance to be “biosimilar” will require to be “highly similar to the reference product, notwithstanding minor differences in clinically inactive components”. BPCI also specifies that there should be “no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product”. It is interesting to note that the Act emphasizes on ‘clinical similarity’ rather than ‘biological or structural similarity’ between the original and ‘biosimilar drugs’.

The New England Journal of Medicine dated August 4, 2011 reported that US-FDA is in the process of establishing very challenging clinical requirements from the makers of ‘biosimilar drugs’ for obtaining marketing approval in the country. Such stringent regulatory requirements are expected to push up the cost of development of ‘biosimilar drugs’ significantly, seriously limiting the number of players in the market.

12 years Exclusivity in the US:

In the US, the innovator companies get 12 years exclusivity for their original biologic drugs from the date of respective marketing approvals by the FDA.

The BPCI Act clearly specifies that applications for ‘biosimilar drugs’ to the FDA will not be made effective by the regulator before 12 years from the date of approval of the innovators’ products. In addition, if the original product is for pediatric indications, the 12-years exclusivity may get an extension for another six months.

However, the key point to note here is, if the FDA starts its review process for the ‘biosimilar drugs’ only after the 12 year period, the innovator companies in that case, will effectively get, at least, one more year of exclusivity over and above  the 12 years period, when the applicants for ‘biosimilar drugs’ will keep waiting for marketing approval from the FDA.

The market:

According to Datamonitor the global market for ‘biosimilars drugs’ is expected to grow from US$ 243 million in 2010 to around US $3.7 billion by 2015.

Another report points out that only in the top two largest pharmaceutical markets of the world, the USA and EU, sales of ‘biosimilar drugs’ will record a turnover of US$ 16 billion in the next couple of years when about 60 biotech products will go off-patent.

The Indian biotech players:

Such a lucrative business opportunity in the west is obviously attracting many Indian players, like, Biocon, Dr. Reddy’s Labs, Ranbaxy, Wockhardt, Shantha Biotech, Reliance Life Science etc., who have already acquired expertise in the development of ‘Biosimilar drugs’ like, erythropoietin, insulin, monoclonal antibodies, interferon-Alfa, which are not only being marketed in India but are also exported to other non/less-regulated markets of the world.

Ranbaxy in collaboration with Zenotech Laboratories is engaged in global development of Granulocyte Colony-Stimulating Factor (GCSF) formulations. Wockhardt is expected to enter into the Global ‘Biosimilar drugs’ market shortly. Dr. Reddy’s Laboratories and Biocon are also preparing themselves for global development and marketing of insulin products, GCSF and streptokinase formulations.

Funding by the Government of India:

It has been reported that the Department of Biotechnology (DBT) of the Government of India has proposed funding of US$ 68 million for ‘biosimilar drugs’ through Public Private Partnership (PPP) initiatives, where soft loans will be made available to the Indian biotech companies for the same. Currently DBT spends reportedly around US$200 million annually towards biotechnology related initiatives.

Key success factors for rapid acceptance in the developed markets:

According to a new research finding from ‘The Decision Resources’, one of the key success factors for any such new drugs is how quickly the specialists will accept them. So far as biosimilar drugs are concerned they noted a high level of concern, if such drugs are not supported by robust sets of clinical data on the claimed treatment indications.

Conclusion:

With increasing global cost-containment pressures within the healthcare space, the emergence of a lucrative global ‘biosimilar drugs’ market now appears to be inevitable.

In the fast evolving scenario, major research based global bio-pharma and even the pure pharmaceutical companies will have two clear choices. The first choice is the conventional one of competing with ‘biosimilar drugs’ in all important markets of the world. However, the second choice of jumping into the fray, keeping undiluted focus on R&D, appears to be more prudent and perhaps will also make a shrewd horse sense. Only future will tell us, which of these two business senses will prevail, in the run up to success, for the global biotech companies.

With the above background, the report from the ‘Business Wire’ highlighting the fact, ‘the manufacture and development of a biosimilar molecule requires an investment of about US$ 10 to 20 million in India, as compared to US$ 50 to 100 million in developed countries’, vindicates the emergence of another lucrative business opportunity for India.

With around 40% cost arbitrage, as indicated above and  without compromising on the required stringent international regulatory standards, the domestic ‘biosimilar’ players  should be able to establish India as one of the most preferred manufacturing destinations to meet the global requirements for ‘biosimilar drugs’.

Experience in conforming to stringent US FDA manufacturing standards, having largest number of US FDA approved plants outside USA, India has already acquired a clear advantage in manufacturing  high technology chemical based pharmaceutical products in India. Significant improvement in conformance to Good Clinical Practices (GCP) standards will offer additional advantages.

In addition to cost efficiency, available skill sets in developing ‘biosimilar drugs’, will offer another critical advantage to the domestic players in reaching out to the international ‘biosimilar drugs’ markets either by themselves or with appropriate collaborative arrangements, just as we have recently witnessed in case of Biocon’s strategic collaboration with Pfizer in this rapidly evolving sector of the world.

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.

Could M&As in Pharma create significant stakeholder value?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emerging markets: the Eldorado:

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

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

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

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

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

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

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

M&As in India from 2006 to 2010:

Year

Indian Companies

Multinational Companies

Value ($Mn)

 Type
2006
Matrix Labs Mylan

736

 Acquisition
Dabur Pharma Fresenius Kabi

219

 Acquisition
Ranbaxy Labs Daiichi Sankyo

4,600

 Acquisition
Shantha Biotech Sanofi-aventis

783

 Acquisition
2009
Orchid Chemicals Hospira

400

 Business Buyout
2010
Piramal Healthcare Abbott

3,720

 Business Buyout
Paras Pharma Reckitt Benkiser

726

 Acquisition

Collaborative deals in India from 2009 to 2011:

Year

Multinational Companies

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

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

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

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

By: Tapan J Ray

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

Tapan Ray in ‘Focus Reports’, March 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The interview is available at the following link:

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

By: Tapan J Ray

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

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

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

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

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

The Emerging Markets of the World:

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

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

Mature Markets

CAGR 2007-11

Emerging Markets

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

(Source IMS)

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

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

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

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

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

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

The other school of thought:

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

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

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

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

Pricing Strategy will be a key determinant to success:

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

The most successful brand launch in India, so far:

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

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

Conclusion:

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

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

By: Tapan J Ray

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

Are Indian patients victims of “unnecessary tests and procedures, rewards for referrals and irrational use of drugs?” A perspective

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Since quite some time, serious concerns have been expressed by the media, government and the civil society at large about the means adopted by the pharmaceutical industry in general to get their respective brands prescribed by the doctors and why do some of the doctors prescribe what they prescribe to the patients out of multiple available choices.
The MCI Guidelines:
Being concerned mainly by the media outcry, the Medical Council of India (MCI), a year ago, amended their related guidelines for the doctor, clearly articulating what they can and cannot do during their interaction and transaction with the pharmaceutical and related industries.
The Ministry of Health believes that these guidelines, if strictly enforced, would severely limit what the doctors can receive from the pharmaceutical companies in terms of free gifts of wide ranging financial values, entertainments, free visits to exotic locations under various commercial reasons, lavish lunch and dinner etc. in exchange of prescribing specific brands of the concerned companies more…more…and more.
“The Lancet” report:
Let me now combine this scenario with a recent report on India dated January 11, 2011, published in ‘The Lancet’, which states in a similar, though not the same context, as follows:
1. “Reported problems (which patients face while getting treated at a private doctor’s clinic) include unnecessary tests and procedures, rewards for referrals, lack of quality standards and irrational use of injection and drugs. Since no national regulations exist for provider standards and treatment protocols for healthcare, over diagnosis, over treatment and maltreatment are common.”
2. “Most people accessed private providers for outpatient care – 78% in rural areas and 81% in urban areas.”
3. “India’s private expenditure of nearly 80% of total expenditure on health was much higher than that in China, Sri Lanka and Thailand.”
Considering the above three critical issues of India, as reported by ‘The Lancet’, the need to follow a transparent code of pharmaceutical marketing practices by the entire pharmaceutical industry is of utmost importance. Recently amended MCI guidelines for the doctors are welcome steps in the right direction.
Are patients just the pawns?
In the absence of all these, the patients of all socio-economic strata will continue to be exploited as pawns by some unscrupulous healthcare players to satisfy their raw greed for making fast bucks at the cost of the intense agony of the ailing patients and their near and dear ones.
As stated earlier, this phenomenon is not new at all. Over a period of time, many stakeholders of the pharmaceutical industry and the public at large have been raising the issue of physicians being influenced in their prescription decisions by various types of payments made to them by the pharmaceutical companies. Such types of significant and seemingly avoidable expenditures, presumed to be considered by the respective companies as a part of their ‘marketing costs’, are believed to be included in the maximum retail price (MRP) of medicines, making them more expensive to the patients.
On the other hand, most physicians believe that free entertainment, gifts, their travel costs and seminar sponsorships in no way influence their prescription decision for the patients.
This is not a just India specific issue. Some skeptics believe that it has now become an all pervasive global scandal.
Self-regulation by the industry is most desirable:
To address this issue effectively, some national and international pharmaceutical associations have come out with their own codes of ethical marketing practices along with appropriate stakeholder grievance redressal mechanism, effectively.
Despite all these, it is an undeniable fact that overall perceptual image of the pharmaceutical industry in this respect to the stakeholders, in general, is not as good as it should have been.
The Government intervened in India:
Being alarmed by various media reports on the alleged pharmaceutical marketing (mal) practices in the country, the Department of Pharmaceutical (DoP) had advised the pharmaceutical industry to develop an ‘Uniform Code of Marketing Practices (UCMP)’, which will be applicable to the entire pharmaceutical industry in India.
It has been reported that the said UCMP with its stakeholder grievance redressal mechanism in a transparent procedural format, was submitted to the government by the major pharmaceutical industry associations in India. However, because of dissent of some section of the industry, the UCMP has not received the ‘green signal’ of the government, as yet. It was expected that all stakeholders will help maintaining the sanctity of the UCMP to address this sensitive global and local issue, effectively.
An emerging trend of public disclosure:
Around third quarter of 2008, in an industry first step, Eli Lilly announced its intent of full disclosure of payments that the company made to the physicians for various commercial reasons. Eli Lilly indicated disclosure of payments of more than US $500 to the physicians for advice and speaking at the seminars. Over a period of time, the company indicated that it will expand such disclosure to include other forms of payments to the physicians like gifts, various entertainment and travel.
Eli Lilly was soon followed in this direction by global pharmaceutical majors like, Merck and GlaxoSmithKline (GSK).
However, in India, such instances have not been reported, as yet.
Skepticism with voluntary disclosure:
Some are still skeptical about announcements of such ‘voluntary disclosure of payment to the physicians’ by the global pharmaceutical majors to bring in better transparency in the functioning of the industry.

This section of people believes, there are hundreds and thousands of other pharmaceutical companies, who will not follow such precedence of voluntary disclosure in the absence of any properly enforced regulation.
Conclusion:
In all the countries and India is no exception, pharmaceutical companies, by and large, try to follow the legal ways and means to maximize turnover of their respective brands. Many follow transparent and admirable stringent self-regulations, stipulated either by themselves or by their industry associations.
‘Self-regulation with pharmaceutical marketing practices’ and ‘voluntary disclosure of payment to the physicians’ by some leading global pharmaceutical companies are laudable steps to address this vexing issue. However, the moot question still remains, are all these good enough for the entire industry?
It is about time that all players in the healthcare space realize, in case these voluntary measures of the industry and the guidelines of the regulators like MCI, do not work effectively for any reason, there will be no other option but for the government to step in with iron hand and ‘fool proof’ regulations.
The popular dictum, especially, used in the healthcare industry, “all these are for the patients’ interest” should not be allowed to be misused or abused, any further, by some unscrupulous elements and greedy profiteers, to squeeze out even the last drop of financial resource from the long exploited population of ailing patients of India.

By: Tapan J Ray

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