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Arresting continuous job losses in the global pharma industry call for innovation across the value chain

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In not too distant past, the stocks of the global pharmaceutical companies, by and large, used to be categorized as ‘blue-chips’ for their high return to investors, as compared to many other sectors.

Unfortunately, the situation has changed significantly since then. Most of those large players now appear to be under tremendous pressure for excellence in performance.

The issues of ‘Patent Cliff’, coupled with patent expiries, price and margin pressures from payors’ group in the developed world, have already started haunting the research based pharmaceutical companies and are assuming larger proportions day by day.

The situation continues to be grim:

Collective impact of all the above factors has prompted the major pharma players to resort to huge cost cutting exercises leading to employee layoffs, quite often, in a massive scale.

According to a study done by Challenger, Gray & Christmas, Inc., which was also quoted in the Forbes Magazine, April 13, 2011, 297,650 employees were laid off by the global pharma industry between the years 2000 and 2011.

Year

Number of Job cuts

2000

2,453

2001

4,736

2002

11,488

2003

28,519

2004

15,640

2005

26,300

2006

15,638

2007

31,732

2008

43,014

2009

61,109

2010

53,636

Total

297,650


Source: Challenger, Gray & Christmas, Inc. ©/Forbes Magazine, April 13, 2011

Top of the list layoffs:

Forbes, Pharma and Healthcare, June 10, 2011 reported ‘top of the list layoffs’ in the Global Pharmaceutical Industry from 2004 to 2011. This number reported to be comparable to as many people working at the three largest drug companies combined namely, Pfizer, Merck and GlaxoSmithKline GSK in 2011.

Company No of layoffs
Pfizer 58,071
Merck 44,400
Johnson & Johnson 9,900
Eli Lilly 5,500
Bristol-Myers Squibb 4,600

More recently ‘Mail online’ dated February 3, 2012 reported that ‘Pharmaceutical giant AstraZeneca announces 7,300 job losses as it pares back staff to save money’. Immediately, thereafter, on February 24, 2012 Reuters reported that ‘German drugs and chemicals group Merck KGaA has announced plans for a cost-cutting program across all its businesses that may include job cuts’.

The old paradigm is no longer relevant:

To get insight into the future challenges of the pharmaceutical industry in general ‘Complete Medical Group’ of U.K had conducted a study with a sizable number of senior participants from the pharmaceutical companies of various sizes and involving many countries. The survey covered participants from various functional expertise like, marketing, product development, commercial, pricing and other important areas. The report highlighted that a paradigm shift has taken place in the global pharmaceutical industry, where continuation with the business strategies of the old paradigm will no longer be a pragmatic option.

Learning from the results of the above study, which brought out several big challenges facing the pharmaceutical industry in the new paradigm, my submissions are as follows:

Collaborative Research to overcome R&D productivity crisis: The cost of each new drug approval has now reached a humongous proportion and is still increasing. This spiraling R&D cost does not seem to be sustainable any longer. Thus there emerges a need to re-evaluate the R&D model of the pharmaceutical companies to make it cost effective with lesser built-in risk factors. Could there be a collaborative model for R&D, where multiple stakeholders will join hands to discover new patented molecules? In this model all involved parties would be in agreement on what will be considered as important innovations and share the ‘risk and reward’ of R&D as the collaborative initiative progresses. The Translational Medicine Research Collaboration (TMRC) partnering with Pfizer and others, ‘Patent Pool’ initiative for tropical diseases of GSK and OSDD for Tuberculosis by CSIR in India are examples of steps taken towards this direction. Surely such collaborative initiatives are not easy and perhaps may also not be acceptable to many large global players as on date, but they are not absolutely uncommon either. The world has already witnessed such collaborative research, especially in the sectors, like Information Technology (IT). Thus, it remains quite possible, as the industry moves on, that the world will have opportunities to take note of initiation of various cost effective collaborative R&D projects to create a win-win situation for all stakeholders in the global healthcare space. Greater access to fast growing markets: The increasing power of payors in the developed world and the interventions of the Government on the ground of ‘affordability of medicines’ in the developing countries are creating an all pervasive pricing/margin pressure for the pharmaceutical players.

These critical emerging developments can be effectively negotiated with significant increase in market access, especially in the emerging economies of the world, with each country specific business strategies. ‘One size fits all’ type of standardized approach, currently adopted by some large global players in the markets like India, may not be able to fetch significant dividend in the years ahead.

Better understanding of the new and differential value offerings that the payors, doctors and patients will increasingly look for, much beyond the physical products/brands, would prove to be the cutting edge for the winners for greater market access in the emerging economies.

Current business processes need significant re-engineering: Top management teams of many global pharma companies have already started evaluating the relevance of sole dependance on the current R&D based pharmaceutical business model. They will now need to include in their strategy wider areas of healthcare value delivery system with a holistic disease management focus.

Only treatment of diseases may no longer be considered enough with an offering of just various types of medications. Added value with effective non-therapeutic/incremental disease management/prevention initiatives and appropriately improving quality of life of the patients, especially in case of chronic ailments, will assume increasing importance in the pharmaceutical business process in the emerging markets. Continuous innovation required not just in R&D, but across the value chain: Continuous innovation across the pharmaceutical value chain, beyond pharmaceutical R&D, is the most critical success factor. The ability to harness new technologies, rather than just recognize their potential, and the flexibility to adapt to the fast changing and demanding regulatory environment together with patients’ newer value requirements, should be a critical part of the business strategy of  the pharmaceutical companies in the new paradigm. Avoidance of silos, integrating decision making processes: More complex, highly fragmented and cut throat competition have created a need for better, more aligned and integrated decision making process across various functional areas of the pharmaceutical business. Creation of silos, duplication of processes and empire building have long been a significant trend, especially, in the larger pharmaceutical companies. Part of a better decision making will include more pragmatic and efficient deployment of investments and other resources  for organizational value creation and jettisoning all those activities, which are duplications, organizational flab producing and will no longer deliver differential value to the stakeholders. Finding newer ways of customer engagement: Growing complexity of the business environment is making meaningful interactions with the customers and decision makers increasingly challenging. There is a greater need for better management of the pharmaceutical communication channels to strike a right balance between ‘pushing’ information to the doctors, patients and other stakeholders and helping them ‘pull’ the relevant information whenever required. Questioning perceived ‘fundamentals’ of the old paradigm:

Despite a paradigm shift in the business environment, fundamental way the pharmaceutical industry appears to have been attempting to address these critical issues over a decade, has not changed much.

In their attempt to unleash the future growth potential, the pharmaceutical players are still moving around the same old dictums like, innovative new product development, scientific sales and marketing, satisfying customer needs, application of information technology (IT) in all areas of strategy making process including supply chain, building blockbuster brands, continuing medical education, greater market penetration skills, to name just a few. Unfortunately, despite all such resource intensive initiatives, over a period of time, nothing seems to have changed fundamentally, excepting, probably, some sort of arrest in the rate of declining process.

Conclusion:

Such incremental focus over a long period of time on the same areas, far from being able to ride the tide of change effectively, does ring an alarm bell to some experts. More so, when all these initiatives continue to remain their prime catalysts for change even today to meet new challenges of a different paradigm altogether.

The moot question therefore remains: what are the companies achieving from all heavy investments being continuously made in these areas since long…and why have they not been able to address the needs of the new ball game for business excellence, effectively, thus far?

When results are not forthcoming despite having taken all such measures, many of them have no options but to resort to heavy cost cutting measures including job losses to protect the profit margin, as much as one possibly can.

If the issues related to declining rate of global pharmaceutical business performance is not addressed sooner moving ‘outside the box’ and with ‘lateral thinking’, one can well imagine what would its implication be, in the endeavor towards arresting continuous job losses through business excellence, in the years ahead.

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.

‘Empowered Patients’: The changing dynamics of the pharmaceutical industry

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In good old days, at the time of someone falling sick in the family, a friendly local general medical practitioner, who was also known as a ‘family doctor’, used to be called to provide relief to the patient from pain and agony of the ailment.

Thorough knowledge of the patient’s medical history gained over a period of time, of these almost vanishing breed of caring doctors, was very common and used to come very handy to them while treating the patients. Their smiling or at times admonishing look at the patients for falling sick due to avoidable reasons, a caring approach – just like or even more than a family member and willingness to answer all questions related to sickness, used to instill a great confidence and hope in the minds of the patients for getting well soon, quite often even before the treatment had started.

Today the situation is very different. The concept of a family doctor mostly does no longer exist, even in the urban families of India. Though the elite groups belonging to the creamy layer of the society still talk in terms of ‘my dentist’ – ‘my cardiologist’ – ‘my physician’, patients by and large have started experiencing that their healthcare needs have been greatly compromised.

However in future, may not exactly be like a ’family doctor’, one can perhaps hope to call a doctor home for treatment in India, which will not cost a bomb as it happens today. ‘Times Of India’’, January 18, 2012 edition reports that “IIM-A student to deliver doctors at your door step.” This service is expected to provide both doctors and medicines at our doorstep at a phone call.”

Changing doctor-patient relationship:

The doctor–patient relationship has undergone a vast change over a period of time. The healthcare environment now very often smacks of commercial gain and loss of the service providers.

In India, even recently the government had to intervene to help restoring the ethical standards of both the medical profession and the pharmaceutical industry. That said, medical ethics and compliance, for all practical purpose, are still confined mostly in the text books, codes or in the carefully crafted ‘Standard Operating Procedures (SOPs)’ as a ‘show piece’, as it were, more for bending them at the least possible opportunity for hard commercial gains, rather than their conformance in terms of both letter and the spirit.

Individual ‘Patient Empowerment’:

Under the prevailing scenario, the civil society should encourage individual ‘Patient Empowerment’ by making him/her understand how the healthcare system is currently working on the ground, what and who are the key obstacles in getting a reasonably decent healthcare support and what should be done to uproot these obstacles in civilized ways.

It started in America:

The movement for ‘Patient Empowerment’ started in America in the 70’s, which asserts that for truly healthy living, one should get engaged in transforming the social situation and environment affecting their lives, demanding a greater say in their treatment process and observing the following tenets:

  • Patients’ choice and lifestyle cannot be dictated by others.
  • ‘Patient empowerment’ is necessary even for preventive medicines to be effective.
  • Patients, just like any other consumers, have the right to make their own choices.

The ‘Empowered Patient’ should always play the role of a participating partner in the healthcare process.

The essence of ‘Patient Empowerment’:

‘Natural Health Perspective’ highlighted ‘Patient Empowerment’ as follows:

  • Health, as an attitude, can be defined as being successful in coping with pain, sickness, and death. Successful coping always requires being in control of one’s own life.
  • Health belongs to the individual and the individuals have the prime responsibility for their own health.
  • The individual’s capacity for growth and self-determination is paramount.
  • Healthcare professionals cannot empower people; only people can empower themselves.

‘Patient empowerment’ prompts the ‘Patient-Centric’ postures:

In today’s world, the distrust of patients on the healthcare system, pharmaceutical companies and the drug regulators, is growing all over the world. This situation makes an ‘Empowered Patient’ resolve to actively participate in his/her medical treatment process.

Other stakeholders will have no other option but to take a ‘Patient-Centric’ posture, under the circumstances, which has already started happening. In India, as ‘out-of-pocket’ healthcare expenses are skyrocketing in the absence of a comprehensive and affordable universal health  coverage, ‘Empowered Patients’ will increasingly demand to know more of not only the available treatment choices, but also about the medicine prescription options.

‘Patient empowerment’ as the change agent:

Not so long ago, to generate increasing prescription demand and influence the prescription decision of the doctors, the pharmaceutical players used to provide product information to the medical profession through various persuasive means of the sales forces along with samples and a variety gifts, besides meeting their unmet needs with innovative medicines.

The above approach though still working very well in India, is no longer fetching the desired results to the pharmaceutical companies, especially in the developed markets of the world. ‘Empowered Patients’ have already started demanding much more from the pharma players. As a result, many global companies are now cutting down on their sales force size to try to move away from just hard selling by gaining more time from the doctors.  They have started taking new initiatives to open up a chain of direct communication with their primary and secondary customers with an objective to know more about them to satisfy them better.

In future with growing ‘Patient Empowerment’ the basic sales and marketing models of the pharmaceutical companies are expected to undergo a radical change. At that time, so called  ‘Patient-Centric’ companies of today will have no choice but to walk the talk. Consequently, they will have to willy-nilly switch from the ‘hard-selling mode’ to a new process of achieving business excellence through constant endeavor to satisfy both the expressed and the un-expressed needs of the patients, not just with innovative products, but more with innovative and caring services.

Role of ‘Empowered Patients’ in healthcare decision making process:

In the years ahead, more and more ‘Empowered Patients’ are expected to play an important role in their healthcare decision making process, initially in the urban India, ensuring further improvement not just in the  public and private healthcare systems, but also in inviting the pharmaceutical industry to be a part of that changing process.

In the book titled, “The Empowered Patient: How to Get the Right Diagnosis, Buy the Cheapest Drugs, Beat Your Insurance Company, and Get the Best Medical Care Every Time”, Elizabeth Cohen articulated as follows:

“The facts are alarming. Medical errors kill more people each year than AIDS, breast cancer or car accidents. A doctor’s relationship with pharmaceutical companies may influence his choice of drugs for you. The wrong key word on an insurance claim can deny you coverage.”

‘USA Today’ dated August 31, 2010 in an article titled, “More empowered patients question doctors’ orders,” reported:

‘In the past, most patients placed their entire trust in the hands of their physician. Your doc said you needed a certain medical test, you got it. Not so much anymore.’

Unfortunately in India, the situation has not changed much as on date.

‘Empowered Patients’ can influence even the R&D process:

Reinhard Angelmar, the Salmon and Rameau Fellow in Healthcare Management and Professor of Marketing at INSEAD, was quoted saying that ‘Empowered Patients’ can make an impact even before the drug is available to them.

He cited instances of how the empowered breast cancer patients in the US played a crucial role not only in diverting funds from the Department of Defense to breast cancer research, but also in expediting the market authorization and improving market access of various other drugs.

Angelmar stated that ‘Empowered Patients’ of the UK were instrumental in getting NICE, their watchdog for cost-effectiveness of medicines, to change its position on the Age-related Macular Degeneration (AMD) drug Lucentis of Novartis and approve it for wider use than originally contemplated by them.

Meeting the challenge of change:

To respond to the challenge posed by the ‘Empowered Patients’ pharmaceutical companies, especially in the US are in the process of developing a more direct relationship with the patients (consumers). Creation of ‘Patient Empowered’ social networks may help to address this issue effectively.

For example, to respond to this challenge of change companies like, Novo Nordisk is developing a vibrant patient community named ‘Juvenation’, which is a peer-to-peer social group of individuals suffering from Type 1 diabetes. This program was launched by the company in November 2008 and now the community has over 16,000 members, as available in its ‘Facebook’ page.

To cite one more example, Becton, Dickinson and Co. created a web-based patient-engagement initiative called “Diabetes Learning Center” for the patients, not just to describe the causes of diabetes, but also to explain its symptoms and complications. From the website a patient can also learn how to inject insulin, along with detailed information about blood-glucose monitoring. They can even participate in interactive quizzes, download educational literature and learn through animated demonstrations about diabetes-care skills.

Some other Pharmaceutical Companies, who are in the process of engaging with the customers through social media like Twitter, are Pfizer, Johnson & Johnson, Novartis, Boehringer Ingelheim, AstraZeneca, Bayer, GlaxoSmithKline, Sanofi, Roche and Merck.

Conclusion:

Since so many years from now, especially in the developed countries of the world, pharmaceutical companies have been talking about being ‘Patient-Centric’ to ride squarely the increasingly powerful tide of ‘Patient Empowerment’ in their endeavor to satisfy the assertive demands of the new generation of healthcare consumers – the patients or the patient groups.

However, in many cases the prevailing healthcare provisions, the structure and culture together with stiff resistance of the regulators to let the industry engage directly with the patients, have inhibited the ‘Patient-Centric’ intent of the stakeholders in general, to take off the ground in a meaningful way.

At the same time, the aggressive marketing focus of the pharmaceutical industry and blatant commercialization of the system by the healthcare professionals, have more often than not failed to translate the good intent of ‘Patient-Centric’ healthcare process into reality.

Increasing general awareness and rapid access to information on diseases, products and the cost-effective treatment processes through internet, in addition to fast communication within the patients/groups through social media like, ‘Twitter’ and ‘Facebook’ by more and more patients, I reckon, are expected to show the results of ‘Patient Empowerment’ initiatives… ultimately.

By: Tapan J Ray

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

A 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.

‘India Taskforce’ takes the first step in an arduous task to bridge the trust deficit.

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To prepare a comprehensive long term strategy to unleash the growth potential of the Pharmaceutical Industry of India considering all its current issues, the Ministry of Health and Family Welfare announced constitution of a taskforce on March 15, 2011 involving all the stakeholders, as mentioned below. As per reports, the first meeting of the committee was held on June 6, 2011 to deliberate on the mandated goals.

Within 3 months the taskforce, under the chairmanship of V.M. Katoch, Secretary, Department of Health Research and Director-General, Indian Council of Medical Research (ICMR), is expected to work out and submit a short, medium and long term strategic path and goals to the Government, highlighting the key and specific policy measures required to achieve these objectives.

The taskforce will have members drawn from:

  1. National Pharmaceutical Pricing Authority,
  2. Department of Industry Policy and Promotion,
  3. Indian Drug Manufacturers Association, Mumbai,
  4. Indian Pharmaceutical Alliance, Mumbai,
  5. Organization of Pharmaceutical Producers of India, Mumbai,
  6. Federation of Pharmaceutical Entrepreneurs, Gurgaon,
  7. Confederation of Indian Pharmaceutical Industry,
  8. Bulk Drug Manufacturers’ Association, Hyderabad,
  9. SME Pharma Industry Confederation, New Delhi
  10. Drug Controller General of India as the Member Secretary.

The focus areas:

The report has been mandated to cover the following critical areas:

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

Estimates and Perspectives:

  • The pharma industry is growing at around 1.5-1.6 times the Gross Domestic Product growth of India
  • Currently, India ranks third in the world of volume of manufacturing pharmaceutical products
  • The Indian pharmaceutical industry is expected to grow at a rate of around 15 % till 2015
  • The retail pharmaceutical market in India is expected to cross US$ 20 billion by 2015
  • According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion market for MNCs selling patented drugs in India by 2015
  • The number of pharmaceutical retailers is estimated to grow from 5,50,000,  to 7,50,000 by 2015
  • At least 2,00,000 more pharma graduates would be required by the Indian pharmaceutical industry by 2015
  • The Indian drug and pharmaceuticals sector attracted Foreign Direct Investments to the tune of US$ 1.43 billion from April 2000 to December 2008 (Ministry of Commerce and Industry), which is expected to increase significantly along with the policy reform measures and increased Government investment (3%-4%) as a percentage of GDP towards healthcare, by 2015
  • The Minister of Commerce estimates that US$ 6.31 billion will be invested in the domestic pharmaceutical sector
  • Due to low cost of R&D, the Indian pharmaceutical off-shoring industry is expected to be a US$ 2.5 billion opportunity by 2012

Key growth drivers: Local and Global:

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

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

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

  • Unfortunate “Trust Deficit” between the Government and the Industry to improve access to affordable modern medicines.
  • Regulatory red tape and lack of initiative towards international harmonization.
  • Inadequate infrastructure and abysmal public delivery system.
  • Lack of adequate number of qualified healthcare professionals.
  • Inadequate innovation friendly ecosystem to encourage R&D and other non-product related innovation in the pharmaceutical value chain.
  • Myopic Drug Policies have failed to deliver.
  • Addressing needs of over 350 million BPL families who cannot afford to buy any healthcare products and services.
  • ‘80% out of pocket expenditure’ of the common man towards healthcare.
  • Inadequate Public Private Partnership (PPP) initiatives in most of the critical areas of healthcare.

Urgent need to bridge the ‘Trust Deficit’ and improve public perception of the Industry:

Like many other countries of the world, in India too there is a negative public perception about the pharmaceutical industry. Recent reports on ‘clinical trials related patient’s compensation’ or the government intervention on allegedly gross ‘unethical’ marketing practices by the pharmaceutical companies, further strengthen such belief.  Unfortunately, despite meteoric success of the generic pharmaceutical industry of India in the global arena, public perception of the industry still remains as one, which is being driven by profiteering motive at the cost of the precious lives of ailing common population of the country. This is indeed acting as a strong retarding force. As a result the regulators are also compelled to introduce more of growth stifling measures at a fairly regular pace.

A new ‘Harris Poll’ conducted in the US between November 8 and 15, 2010 reports as follows:

Top industries that largest numbers of people believe should be more regulated

Industry % of respondents
Oil

47
Pharmaceuticals

46
Health Insurance

42
Tobacco

38
Banks

34
Managed Care

34

That an overwhelming 46% respondent in the US feels that the Pharmaceutical Industry should be regulated, only reflects a poor public perception of the industry in the USA.

Industries trusted by the fewest people

Industry % of respondents
Tobacco

2
Oil

4
Telecommunication

7
Managed Care

7
Life Insurance Companies

10
Pharmaceuticals

11

(Source: Harris Poll 2010) 

It is indeed an irony that a miniscule 11% respondents trust pharmaceutical industry in the USA.

Thus in the prevailing scenario globally, the Indian Pharmaceutical Industry should take more demonstrable self-regulatory measures to improve its public perception and make its growth more inclusive, in the best possible way that it can. Without active support of the government, media and other stakeholders, through conscious efforts to improve its image, all the efforts of the taskforce may ultimately get converted into a zero sum game.

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

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

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

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

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

This trend needs to be encouraged and be given further boost.

Conclusion:

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

So the ball game for the taskforce is to recommend strategy and policy measures to improve access to modern medicines by reducing ‘out of pocket’ expenses significantly through public/private health insurance initiatives, protect public health interest and foster a climate for innovation, simultaneously, and certainly not one at the cost of the other.

By: Tapan J Ray

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

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.

Social Media – an evolving new-age powerful communication tool for the Pharmaceutical Industry, both global and local

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David Edelman in his article titled, “Branding in the Digital Age:You’re Spending your Money in All the Wrong Places”, published in the ‘Harvard Business Review’  dated December 2010, commented the following:

“Consumers today connect with brands in fundamentally new ways, often through media channels that are beyond manufacturers’ and retailers control. That means traditional marketing strategies must be redesigned to accord with how brand relationships have changed.”

I reckon, broadly, this is applicable to the Pharmaceutical Industry, as well, in the current scenario.

Today, we all are witnessing that the opportunities to share information within the communities and groups with effective use of social media like ‘Twitter’, ‘YouTube’, ‘Facebook’, ‘Linked-in’, blogs etc. are increasing by manifold, every passing day, with amazing speed. A very significant number of internet users across the world, are now quite actively taking part through social media in various areas of their interest.

The social networking site ‘Facebook’ claimed a few months back that it has connected over 400 million users all over the world and over 9.6 million users just in India with 20 million Indians using Internet every day. It is also interesting to note that each day about 68.5% of online population in the country visits social networking sites.

With 80% of the internet users currently searching for medical, health and product related information through cyber media, the importance of these powerful channels to engage interested stakeholders and groups in a meaningful dialogue on relevant products, services and issues, has increased by manifold. The pharmaceutical industry can no longer afford to ignore or even remain indifferent to this emerging trend.

Many global pharmaceutical majors having realized the future potential of cyber connectivity, have already started experimenting with social media, which are indeed outstanding byproducts of a disruptive innovation of the millennium, called ‘Internet’. In not too distant future, the pharmaceutical players are also expected to make the best use of social media not only to promote their products and services, but also to fulfill their obligation towards corporate social responsibilities.

The new-age marketing tool:

With more and more doctors not giving adequate time and even showing reluctance to meet the medical representatives and the important hospitals following suit, the global pharmaceutical companies are now in search of new and even more effective marketing tools.

To get the marketing communications across, to important target audiences, many of them have started experimenting, quite seriously, with the digital world. Effective networking media like ‘Facebook’ , ‘YouTube’, ‘MySpace’ and ‘Twitter’ are showing promises to become powerful online pharmaceutical marketing tools.

Global pharmaceutical companies have already started ‘testing the water’:

Examples of global pharmaceutical giants who have already started using this new age media for pharmaceutical marketing, in varying scale, are as follows:

1. Bayer uses ‘Facebook’ page to promote its Aspirin for women. For young people of the UK, suffering from diabetes, the company has also come out with an online blood glucose monitoring system.

2. Merck is using ‘Facebook’ to promote its cervical cancer vaccine, Gardasil

3. GlaxoSmithKline is using ‘YouTube’ for ‘restless-legs syndrome’ awareness film. The popularity of this video spot perhaps has prompted the company to come out with its own ‘YouTube’ channel last year with a name, ‘GSKvision’.

4. AstraZeneca is also using ‘YouTube’ for a program called ‘My Asthma Story’ related to their anti-asthma drug Symbicort.

5. Johnson & Johnson’s ‘You Tube’ channel has now over 90 videos

6. Novartis is using the social media dedicated to Chronic Myeloid Leukemia (CML) to connect to healthcare professionals, patients groups and even individual patients.

7. Recent report of Pfizer’s new RSS feed and the plan for a unique ‘Pfacebook’ site for internal communication perhaps is an important step towards this direction. The company has also been reported to have teamed up with Private Access to create a social networking website to bring clinical researchers and the patients together.

8. Boehringer Ingelheim has also started using the ‘Twitter’ since 2008

The reasons for using the social media as a marketing tool:

Social media like, ‘Facebook’, ‘Twitter’, ‘YouTube’ etc. provide a very important platform towards patients’ outreach efforts of the pharmaceutical companies exactly in a format, which will be preferred by the target group.

With the help of new-age social media these companies are now joining communities to begin a dialogue with them. It has been reported that some of these companies have already created un-branded sites like, silenceyourrooster.com or iwalkbecause.org, to foster relationship with patients’ group through online activity, the contents of which have been generated by the users themselves of the respective social medium. With the help of click-through links these sites lead to the branded sites of the concerned companies.

As reported by TNS Media Intelligence, internet media spending of the global pharmaceutical companies increased by 36% to US$137 million, in 2008, which is significantly higher than their spending in Television advertisements.

Why is the entry in the new-age social media so slow?

Pharmaceutical companies are currently delving into marketing through cyber media with a very cautious approach, though the new social media will become more central to many global marketing strategies in not too distant future. The cautious approach by the pharmaceutical companies is primarily due to evolving regulatory requirements in this new space

In the USA, very recently the FDA cautioned the major players in the industry to refrain them from publishing any misleading communication through social media. This is primarily because of absence of any published guidelines for online pharmaceutical marketing. How to use this powerful social media for maximum marketing and other benefits will indeed be quite a challenging task, at this stage. Many pharmaceutical companies are, therefore, slow to use the social media to the fullest extent.

Not only in India, even in the developed countries like, the USA, there are no specific regulatory guidelines to promote pharmaceutical brands or create brand awareness through these media. This scenario holds good for most of the countries of the world, including Europe, Japan. Thus, in this much uncharted territory, as there are not enough foot-steps follow, the pharmaceutical companies are currently just ‘testing the water’. Most probably to fathom how far regulatory authorities will allow them to explore with this new media.

Effective use of social media is expected to be financially attractive:

Low costs associated with creating internet promotional inputs will make social media quite attractive to pharmaceutical and bio-pharma companies, not only as an effective marketing tool, but also in their other outreach program for the stakeholders. Various types of social media are expected to be significantly cost-effective in creating and executing successful pharmaceutical brand awareness and brand marketing campaigns, aiming at well-defined and the specific target groups.

Use of social media in India:

In India though the social media are currently growing at around 35% annually, their overall utilization as an important marketing tool has remained rather limited, thus far, with practically no significant usage by the Indian pharmaceutical industry. I reckon, it is about time that the important pharmaceutical players in the country start creating their own network of loyalists and engage them with this important communication tool to meaningful dialogues, involving their respective brands and/or services and related issues.

‘Proof of the pudding is in the eating’:

A recent report indicates that in 2007, well reputed computer maker Dell’s ‘Twitter’ activity brought in US$ half-million in new business to the company.

Thus the innovative use of the new-age social cyber-media promises immense potential to open a goldmine of opportunities for the global pharmaceutical industry.

Conclusion:

I reckon, the use of social media as an effective business communication tool, will start growing at a scorching pace in India, shortly.

Some large and even Small and Medium Enterprises (SMEs) have just initiated appropriate processes towards ‘Social Media Optimization’ involving their respective brands and related services. This is primarily aimed at improving awareness and increasing market share through significantly higher share of voice and more intense customer engagement.

With rapid increase in the numbers of such initiatives, there will probably be a sea change in the way stakeholder engagement plans are worked out by the industry in general and the pharmaceutical industry in particular, ushering a new dawn in the communication space of the business.

At the same time, we should realize that in this new ball game customers will really be the king and the quality of innovative usage of all powerful social media could well draw the decisive line between business communication success and failure.

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.

Pfizer and Biocon deal – heralds dawn of a new era for the Biopharmaceuticals Industry of India

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On October 19, 2010, home grown Biotech Company Biocon, based in the IT heartland – Bangalore created a stir in Industry by inking an interesting international corporate business deal with the largest global pharmaceutical company – Pfizer. The deal will bring to Biocon a total sum of US $350 million and enable Pfizer to globally commercialize Biocon’s biosimilar (generic versions of biotechnology medicines) human recombinant insulin and three insulin analogues.

Before this deal, Sanofi-Pasteur, the vaccine business unit of the global major Sanofi-aventis had acquired Shantha Biotech, located at Hyderabad for a sum of Rs 3,750 Crore, in July 2009.

Just a year before the above acquisition in india, on December 11, 2008, Reuters reported, just two days after Merck announced a major push into biosimilar medicines; Eli Lilly signaled similar aspirations. This report, at that time, raised many eyebrows in the global pharmaceutical industry, as it was in the midst of a raging scientific debate on the appropriate regulatory pathways for biosimilar drugs. Be that as it may, many felt that this announcement ushered in the beginning of a new era. An era of intense future competition with biosimilar drugs in the global market, with immense commercial interest. On October 19, 2010 the biosimilar deal between Biocon and Pfizer vindicated this point.

Increasing global interest on biosimilar drugs:

Globally, the scenario for biosimilars started heating up when Merck announced that the company expects to have at least 5 biosimilars in the late stage development by 2012. The announcement of both Merck and Eli Lilly surprised many, as the largest pharmaceutical market of the world – the U.S.A, at that time, was yet to approve the regulatory pathway for biosimilar medicines. However, along with the recent healthcare reform by the Obama administration, the regulatory pathway for biosimilar drugs has now been clearly charted by the US FDA. In the developed world, European Union (EU) had taken a lead towards this direction by putting a robust system in place, way back in 2003.

What then prompts the research based global pharmaceutical companies like Pfizer, Sanofi-aventis, Merck and Eli Lilly to step into the arena of Biosimilar medicines? Is it gradual drying up research pipeline together with skyrocketing cost of global R&D initiatives?

The future global business potential of Biosimilar medicines:

Currently, over 150 different biologic medicines are available in the global pharmaceutical market. However, the low cost biosimilar drugs are available in just around 11 countries of the world, India being one of them. Supporters of biosimilar medicines are indeed swelling as time passes by. At present, the key global players are Sandoz (Novartis), Teva, BioPartners, BioGenerix (Ratiopharm) and Bioceuticals (Stada). With the entry of pharmaceutical majors like, Pfizer, Sanofi-aventis, Merck and Eli Lilly, the global biosimilar market is expected to develop at a much faster pace than ever before. Removal of regulatory hurdles for the marketing approval of such drugs in the US – the largest pharmaceutical market of the world, will be the key growth driver.

Recently, the EU has approved Sandoz’s (Novartis) Filgrastim (Neupogen brand of Amgen), which is prescribed for the treatment of Neutropenia. With Filgrastim, Sandoz will now have 3 Biosimilar products in its portfolio.

Global Market Potential of Biosimilar Drugs:

The biosimilar drug market in the world is estimated to be around U.S. $ 16 billion by 2011. Currently, off-patent biologic blockbusters including Erythropoietin offer an excellent commercial opportunity in this category. By 2013, about 10 branded biologics with a total turnover of around U.S. $ 15 billion will go off-patent, throwing open greater opportunity for the growth of biosimilar drugs internationally.

Biosimilar Drugs in India:

Sales of biosimilar drugs in India are estimated to be around U.S. $ 4 billion by 2011 with scorching pace of growth driven by both local and global demands.

Recombinant vaccines, erythropoietin, recombinant insulin, monoclonal antibody, interferon alpha, granulocyte cell stimulating factor like products are now manufactured by a number of domestic biotech companies like Biocon, Panacea Biotech, Wockhardt, Emcure, Shantha Biotech, Bharat Biotech, Serum Institute of India, Dr. Reddy’s, Ranbaxy, etc. The ultimate objective of all these Indian companies will be to get regulatory approval of these products in the US and the EU either on their own or through collaborative initiatives.

It is worth mentioning here that to give a fillip to the Biotech Industry in India; the National Biotechnology Board was set up by the Government of India under the Ministry of Science and Technology way back in 1982. The Department of Biotechnology (DBT) came into existence in 1986. The DBT now spends around US$ 200 million annually to develop biotech resources in the country and have been making reasonably good progress. The DBT is reported to have undertaken an initiative for quite some time to prepare regulatory guidelines for Biosimilar Drugs, which is expected to conform to international quality and patients’ safety standards.

Steps taken by the Indian pharmaceutical companies:

Biosimilar version of Rituxan (Rituximab) of Roche used in the treatment of Non-Hodgkin’s lymphoma has already been developed by DRL in India. Last year Rituxan clocked a turnover of over US$ 2 billion. DRL also has developed filgastrim of Amgen, which enhances production of white blood-cell by the body, and markets the product as Grafeel in India. Similarly Ranbaxy has collaborated with Zenotech Laboratories to manufacture G-CSF.

On the other hand Glenmark is planning to come out with its first biotech product by 2011 from its biological research establishment located in Switzerland.

The focus is on Oncology:

Many domestic Indian pharmaceutical companies are targeting Oncology disease area for developing biosimilar drugs, which is estimated to be the largest segment with a value turnover of over US$ 55 billion by the end of 2010 growing over 17%. As per recent reports about 8 million deaths take place all over the world per year due to cancer. May be for this reason the research pipeline of NMEs is dominated by oncology with global pharmaceutical majors’ sharp R&D focus and research spend on this particular therapy area. About 50 NMEs for the treatment of cancer are expected to be launched globally by 2015.

Current size of the Indian oncology market is around US$ 18.6 million, which is expected to be over US$ 50 million by the end of 2010; the main reason being all these are and will be quite expensive products.

A trigger point for more collaborative initiatives:

It is expected that the recent Pfizer – Biocon deal will trigger many other collaborative initiatives between the global and the local pharmaceutical companies.

Among India biotech companies, Reliance Life Sciences has already marketed Recombinant Erythropoietin, Recombinant Granulocyte Colony Stimulating Factor, Recombinant Interferon Alpha and Recombinant tissue plasminogen activator. This company has been reported to have the richest pipeline of biosimilar drugs in India. Companies like Wockhardt, Lupin, DRL and Intas Biopharmaceuticals are also in the process of developing an interesting portfolio of biosimilar drugs in India to fully encash the fast growing global opportunities.

Biosimilar global business model will fast gain ground:

Many large research-based global pharmaceutical companies, after having encountered the ‘patent cliff’, are now looking at the generic and biosimilar businesses, in a mega scale, in the emerging markets of the world, like India. Our country has witnessed major acquisitions like, Ranabaxy, Shantha Biotech and Piramal Healthcare by Daiichi Sankyo of Japan, Sanofi-aventis of France and Abbott of USA, respectively. We have also seen collaborative initiatives of large global companies like, GSK, AstraZeneca, and Pfizer with Indian companies like DRL, Aurobindo, Claris, Torrent, Zydus Cadilla, Strides Arcolab and now Biocon to reach out to the fast growing global generic and biosimilar drugs markets.

This trend further gained momentum when immediately after Biocon deal early this week, on October 21, 2010, Pfizer strengthened its footprints in the global generics market with yet another acquisition of 40% stake in Laboratorio Teuto Brasilieiro of Brazil with US $240 million to develop and globally commercialize their generic portfolio.

Conclusion:

All said and done, the recent international deal of Pfizer and Biocon to globally commercialize four biosimilar insulin and analogues, developed by the later in India, does signal a new global status for the Indian biosimilar drugs to the pharma MNCs, who were vocal critics of such drugs developed in India, until recently.

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.

Indian Pharmaceutical Industry could well be a contender for global supremacy by the next decade, competing effectively with China

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By the next decade of this millennium both India and China are expected to be the top two emerging markets of the world in the pharmaceutical sector, registering a scorching pace of growth all around. The quality of consistency and sustainability of growth, will determine who will be the main contender of supremacy and the ultimate winner in this game of wealth creation for the respective countries and be the ‘Eldorado’ of the global pharmaceutical companies.

The financial reform measures in the run up to the process of globalization started earlier in China, in 1980 as against 1990 in India. In that sense China took a plunge to be an active member of the ‘global village of commerce’ at least a decade earlier than India.

Reform process started earlier in China:

The Product Patent regime in India was reintroduced in January 1, 2005. Well before that China started creating and encouraging a large number of independently funded pharmaceutical R&D institutions to create an environment of innovation within the country. Many of these institutions are now viable profit centres, creating wealth for the country.

At the same time, focusing on global ‘economies of scale’, Chinese pharmaceutical players have now become globally competitive, may be a shade better than India. Clear dominance of China in the business of ‘Active Pharmaceutical Ingredient (API)’ among many other, will vindicate this point. On the other hand in the formulations business, India is miles ahead of China, catering to over 20% of the global requirements for the generic pharmaceuticals. Moreover, in ANDA and DMF filings, as well, India is currently much ahead of China.

FDI in India and China:

The Pharmaceutical Industry in India has now started attracting increasing Foreign Direct Investments (FDI). As per the reply to question No. 615 tabled in the Parliament of India (Rajya Sabha) on November 25, 2009 by Mr. Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, from the year 2006-07 up to September 2009, India attracted FDI of US $ 817.30 million for Drugs and Pharmaceuticals with a compounded growth rate of around 60%. USA, Canada, Singapore, UAE and Mauritius contributed 82% to this FDI, which in turn helped significantly to fuel further development and growth of the Industry.

According to ‘The Survey of Foreign Investments in China’s Medicine Industry’ of the Government of China, the FDI in the pharmaceutical industry of the country for the three year period commencing from 2006 to 2008 was around US $ 1772 million, over one third of which coming from Hong Kong and around 11% from the USA.

It is worth noting that the financial and policy reform measures were initiated in China much earlier, as compared to India, which in turn have enabled China to attract more FDIs in the pharmaceutical sector, thus far. In the new paradigm of the post product patent regime both the countries are expected to grow at a scorching pace attracting more and more FDIs for their respective countries.

In this article, I would like to focus on some of these comparisons to assess the progress made so far by both the countries, in a comparative yardstick and the key factors, which will decide the pace-setter.

Country ranking both in value and growth terms:

In global ranking, China is currently the seventh (India: 14) largest pharmaceutical market and is expected to be the fifth (India: 10) largest market by 2015 and the third largest by 2020. Chinese pharmaceutical market is expected to grow by over 15% per annum in the next five years, which is higher than India.

Healthcare coverage of population:

China is racing ahead and gradually but surely distancing itself from India, widening the performance gap with rapid increase of domestic consumption of modern medicines. It is worth mentioning that as per WHO, the access to modern medicines in China is around 85% as against just 35% in India. Of a population of 1.3 billion, 250 million of Chinese are covered by health insurance, another 250 million partially covered by insurance and balance 800 million are not covered by any insurance. In India total number of people who are having some sort of healthcare financing coverage will be around 200 million and penetration of health insurance will be just around 3.5% of the population.

Currently India is losing grounds to China mainly in healthcare infrastructure development, with inadequate healthcare delivery systems and delay in rolling out a long overdue comprehensive healthcare reform process in the country.

Strong commitment of the Chinese Government to the globalization process:

Strong commitment of the Chinese Government to make China a regional hub of R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is paying rich dividends.
Department of Pharmaceuticals recently expressed its intention to make India a R&D hub in not too distant future. This cannot be achieved just through investments of couple of million US $ through Public Private Partnership (PPP). A strong commitment of the Government to hasten regulatory reform processes will be the key factor. The new product patent regime for the pharmaceutical industry has ushered in a new paradigm, with the Government planning to strike a right balance between TRIPs compliant IPR regime and the ‘Public Interest’ and NOT one at the cost of the other.

India and China competing well in Pharma outsourcing business:

Since last 5 years both India and China have made rapid strides in the space of pharma outsourcing. Today the evolving business model of ‘Contract Research and Manufacturing Services (CRAMS)’, is shaping up quite well. To make India a global hub for Pharmaceutical outsourcing of all types, the pharmaceutical industry of the country has all the ingredients. India has the potential to emerge as a serious contender for global supremacy, in this fast growing sector, especially in ‘contract manufacturing’ area, having largest number of US-FDA approved manufacturing plants, outside the USA.

According to ‘Global Services”, in 2009 Pharmaceutical outsourcing market in China and India was of US $ 1.77 billion and US $ 1.42 billion, respectively with China growing at a faster pace. The future growth potential for both the countries is huge, as each enjoyed just 2% share of this outsourcing market in 2009.

It has been forecasted that China will have more environmental growth accelerators than India due to greater continuing fiscal stimulus and policy support by their Government, which could catapult the country ahead of India, just beyond 2010.

‘Country Attractiveness Index’ for clinical trials:

‘A.T. Kearney’ developed a ‘Country Attractiveness Index (CAI)’ for clinical trials, for the use of, especially, the pharmaceutical industry executives to make more informed decision on offshore clinical trials. As per this study, the CAI of China is 6.10 against 5.58 of India.

Pharmaceutical patent filing:

In patent filing too China seem to be ahead of India. Based on WIPO PCT applications, it has been reported that 5.5% of all global pharmaceutical patent applications named one inventor or more located in India as against 8.4% located in China. This will give an Indication how China is making rapid strides in R&D areas, as well.

Where India is regarded clearly as a preferred destination:

However, India is globally considered as a more mature arena for chemistry and drug-discovery activities than China. Most probably because of this reason, companies like, DRL, Aurigene, Advinus, Glenmark, Nicholas Piramal and Jubilant Organosys could enter into long-term deals with Multinational Companies (MNCs) to discover and develop New Chemical Entities (NCEs).

Pharmaceutical exports, by end 2010:

India is currently an attractive pharmaceutical outsourcing destination across the globe. Pharmaceutical exports of India is currently far ahead of China. However, PriceWaterhouseCoopers (PWC) reports that China may reverse this trend by the end of 2010, establishing itself as the largest country for Pharmaceutical exports. In API exports China has already overtaken India, way back in 2007. The report titled, “The Changing dynamics of pharmaceutical outsourcing in Asia” indicates that in 2007 against API exports of U.S$ 1.7 billion of India, China clocked a figure of US$ 5.6 billion. By the end of 2010, China is expected to widen the gap further with API export of U.S$ 9.9 billion against India’s U.S$ 2.8 billion.

Korn/Ferry International reports that more and more Indian talent is being pulled to China to fill key roles, especially in the API sector, signaling ‘brain drain’ from India to China.

Conclusion:

As I said earlier and as has been reported by Korn/Ferry, China’s current overall infrastructure in the pharmaceutical space is better than India primarily due to firm commitment of the Chinese government to initiate reform measures to fetch maximum benefits of globalization process in the country. Government of India seems to be lacking in its commitment to play its role both as a provider and also as an effective enabler in this important space of ‘knowledge economy’ of the world.

India has all the potential to surge ahead with more rapid strides in this ball game. To achieve this cherished goal, the government, other stakeholders and the domestic pharmaceutical Industry should play the ball well, effectively, and in tandem.

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.