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

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

GSK, as Witty said, will:

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

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

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

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

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

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

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

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

Definition of ‘Patent Pool’:

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

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

The rationale for ‘Patent Pool’ system:

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

GSK appears to have kick started the process:

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

Key requirements for the ‘Patent Pool’:

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

Key issues with the ‘Patent Pool’ concept:

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

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

Conclusion:

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

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

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

By Tapan Ray

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

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

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

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

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

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

Global pharmaceutical market will register significant growth:

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

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

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

Radical change is envisaged in pharmaceuticals marketing:

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

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

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

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

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

“Better late than never”:

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

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

By Tapan Ray

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

Why is China surpassing India almost in all the verticals of Pharmaceutical industry?

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To make India a major hub for Pharmaceutical outsourcing of all types, the country has all the required ingredients. India has indeed the potential to be a contender for global supremacy, in these fast growing sectors. However, despite all these, China is racing ahead to effectively avail these global opportunities and in that process fast distancing itself from India, widening the competitive performance gap between the two countries.Why is it happening? In this article, I would like to focus on some of these areas to assess the progress made so far, in a comparative yardstick, by these two countries and the key factors responsible for such growing disparity.China is ahead of India in country ranking both in value and growth terms:

In global ranking, China is currently the seventh largest pharmaceutical market and is expected to be the fifth largest market by 2010 and the third largest by 2020. The Chinese pharmaceuticals market is expected to grow by around 15% per annum at least in the next five years.

China is also ahead of India in healthcare coverage of its population:

In China, out of a population of 1.3 billion, 250 million are covered by insurance, another 250 million are partially covered by insurance and balance 800 million are not covered by any insurance. Against these statistics of China, in India total number of population who have 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. India is fast losing grounds to China mainly due to better response to healthcare infrastructure and regulatory challenges by China.

Strong commitment of the Chinese Government in globalization process:

A very high level of commitment of the Chinese Government to make China a regional hub of pharmaceutical R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is paying rich dividends.

Department of Pharmaceuticals (DoP) of the Government of India (GoI)recently expressed its intention to make India a R&D hub in not too distant future. This cannot be achieved just by good intent of investments of couple of million U.S$ through public Private Partnership (PPP), as announced by the DoP recently through the media . A strong commitment of the GoI to hasten regulatory reform processes with visble action, will be the deciding success factor. IPR regime in the pharmaceutical industry has been put in place, but in half measure. While product patent is in place, regulatory data protection (RDP) both against disclosure and unfair commercial use is yet to see the light of the day.

Regulatory data protection and better infrastructural facilities make China a better destination for Clinical Trials:

In China, the local law provides for 6 years regulatory data protection (RDP). Drug Registration Regulation (DRR) September 2007 of China is based on common technical data standards and allows only use of published data during protection period. In preclinical testing and animal experimentation, China is far ahead of India, because of regulatory constraints in our country. The report from ‘Biospectrum, Asia edition, Resource Guide 2009’, the number of Clinical trials being conducted in China was 961 against 834 in India. As a result, towards clinical trials China is attracting more foreign direct investments (FDI) than India.

‘Country Attractiveness Index’ for clinical trials:

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

China is ahead of India in pharmaceutical patent filing:

In patent filing also China seems to 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.

China will replace India as country with largest pharmaceutical exports, by 2010:

Both India and China used to be the preferred pharmaceutical outsourcing destinations across the globe. Though pharmaceuticals exports of India are currently ahead of China, PriceWaterhouseCoopers (PWC) reports that China may reverse this trend by 2010, establishing itself as the largest country in the world for Pharmaceutical exports. In API exports, China already overtook India 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. In 2010, China is expected to widen this gap further with API exports of U.S$ 9.9 billion against India’s U.S$ 2.8 billion.

Brain drain from India to China:

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

Where India is regarded as a preferred destination:

However, India is globally considered as a more mature venue for chemistry related drug-discovery activities than China. Probably, because of this reason companies like, Ranbaxy, Aurigene, Advinus, Piramals and Jubilant Organosys could enter into long-term collaborative arrangements with Multinational Companies (MNC) to discover and develop New Chemical Entities (NCEs).

As I said earlier and as reported by Korn/Ferry that China’s infrastructure in the pharmaceutical space is better than India, primarily due to firm commitment of the Chinese government to accelerate reform measures to fetch maximum benefits of globalization process in the country.

Government of India seems to have fallen short of this commitment and is embracing more protectionists policies, which have been proved counterproductive almost all over the world to bring forth rapid progress to the nation and make the industries globally competitive.

Just a wishful thinking sans prudent regulatory policy reforms processes will helplessly make us see the gap between the Chinese and Indian pharmaceutical industry, fast widening.

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.

Growing menace of counterfeit drugs in India: why is the domestic pharmaceutical industry still so apprehensive with the new Amendments of the ACT?

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The growing menace of Counterfeit drugs has remained a serious threat to the healthcare space of India.
Do we have any credible data to assess the magnitude of this menace in India?

No we do not have, as yet. At this stage, the magnitude of the problem is anybody’s guess. Earlier a study sponsored by the World Health Organization (WHO) and conducted by SEARPharm reported that only 0.3% drugs were spurious and 3% of drugs were counterfeits.

Government of India has initiated the largest study in the world to quantify the problem:

To scientifically assess the magnitude of the problem in terms of real size of counterfeit drugs market in India , the Drugs Controller General of India (DCGI) India’s, for the first time ever, has initiated one of the largest studies in the world, as reported by the Times of India May 14, 2008.

The study has already identified 61 popular drug brands from nine therapeutic categories for testing 24000 samples. These include drugs prescribed for tuberculosis, malaria, allergic disorders, diabetes cardiovascular conditions, vitamins etc. This study is expected to cost 50 million rupees or about U.S$1.0 million and is expected to be published, soon.

Making provisions for stricter penalties through amendment of the Drugs and Cosmetics Act, 1940:

To bring into effect stricter penalties for those involved in counterfeit drugs, the process of amendment of the Drugs and Cosmetics Act, 1940 was proposed by the Ministry of Health in October, 2007. These amendments are expected to make the drug-related offences, cognisable and non-bailable.

The latest amendment to the Drugs and Cosmetics Act, 1940 became a law in 2008. The punishment for selling or distributing spurious drugs, which are likely to cause death and grievous hurt to the patients, is now imprisonment for a term not less than 10 years and fine not less than Rs 10 lakh or three times the value of drugs confiscated, whichever is more.

The Minister of Health of India announced in November 2008, that with this amendment the Government of India will “go all out to do away with spurious drugs.”

India working closely with WHO Anti-counterfeiting Taskforce:

India being a part of ‘International Medical Products Anti-Counterfeiting Taskforce’ (IMPACT), established under WHO in 2006, decided to work together to combat the growing menace of counterfeit medicines.

The Drugs Controller General of India (DCGI) was reported to have several discussions with the convenor of the IMPACT to effectively address the issue of such serious threats to the patients at large. Many people believe that China and India are the main source of counterfeit drugs in the world.

Apprehensions of the Indian Pharmaceutical Industry with new Amendments in the Law:

Indian Pharmaceutical Industry although welcomed the stricter punitive provisions in the law, expressed its apprehensions due to lack of clear demarcation between the definitions of spurious drugs and those which can lose their original potency because of improper transportation and storage.

If the law-enforcing authorities pick up such medicines from retail outlets, those can easily get categorised as spurious medicines under Section 17A and 17B of the Drugs and Cosmetics Act, 1940. Consequently the concerned manufacturers could be put behind bars with, presumably, no fault at their end.

While stringent punishment is essential for those involved in such heinous crime, the Government should take enough measures to ensure that genuine drug manufacturers are not harassed by the law enforcing authorities, as the courts will have no judicial discretion to award less than minimum punishment, as prescribed under this Act.

Need for clear guidelines for implementation of the amended ACT:

To allay the major apprehension of the industry regarding possible misuse of some provisions of the Act, the Ministry of Health is expected to work out and quickly announce clear guidelines for implementation of the act by the law enforcement agencies in different parts of India.

Will this amendment help to win the fight against counterfeit drugs?

Only time will be able to give that answer. However, by amending the Act, the Government of India has demonstrated its resolve to address the threat of counterfeit drugs with iron hand. Through enunciation of above guidelines, all concerned are expected to be taken on board to effectively curb, if not totally eliminate this growing menace, for the sake of humanity.

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.

Recent appetite of Global Pharmaceutical Majors for Generic Pharmaceutical Business: can it pose a threat to pure generic players?

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Last year Lehman Brothers estimated that by 2012 over 25% of the global pharmaceutical market will face competition from generics. Higher demand of generics is mainly due to the following reasons:1. Increased number of patented drugs is going off-patent.2. Cost containment and pricing pressure, especially from the Government, in the developed markets of the world.

3. Increasing number of patents is being challenged, especially in the U.S courts, on the ground of “obviousness”.

“Obviousness” is becoming a key reason of patent challenges in the U.S:

In first quarter of the last year we read about the U.S trial court making void the key patent of Yasmin, the contraceptive drug of Bayer for ‘obviousness’. This incident had compelled Bayer to revise its profit forecast downwards, for 2008.

‘Obviousness’ is increasingly becoming one of the key reasons for challenging Patents in many countries of the world, including India. Financial Times reported recently that keeping protection to all patents intact, could eventually pose to be a key challenge for the R&D based global pharmaceutical companies. Many analysts feel that the issue of “obviousness” could indeed be a threat to many U.S pharmaceutical patents, especially those, which will be considered by the court just as a ‘tweaked-up’ version of existing drugs.

As reported by ‘Chemical Weekly’, March 2008, total 338 patent challenges were recorded globally in 2008. India ranks only next to USA with a share of 21% pharmaceutical patent challenges.

Global generic pharmaceutical market is growing at a faster pace:

Prescription market in the U.S grew by just 1.3% last year to U.S$291 billion. Key factors believed to be responsible for slower growth in the U.S market are as follows:

1. Higher prescriptions for less expensive generic medicines.

2. Lower sales of higher priced new products.

3. Economic downturn has made more patients to move to generics and large number of consumers to lose their health insurance.

Similarly in the United Kingdom (U.K) generics industry supplies 64% of medicines dispensed by the National Health Scheme (NHS), though they contribute just around 30% of NHS expenditure towards medicines.

Recent reports indicate that the generic global pharmaceutical market is expected to record a turnover of U.S$ 520 billion by 2012. This market size is too lucrative to ignore by any big global pharmaceutical player.

Based on sales turnover of 2007, Teva tops the list of global generic players with a turnover of U.S$ 9.1 billion, followed by Sandoz with U.S$ 5.8 billion and Mylan/Merck with U.S$ 4.6 billion.

From India, Ranbaxy registered a turnover of U.S$ 1.7 billion, Dr.Reddy’s U.S$ 1.4 billion, Cipla U.S$ 1 billion and Sun Pharma/Taro U.S$ 900 million, during that year.

48% of the total 422.6 million prescriptions written in Canada in 2007 were for generic medicines, which registered an annual growth of 14%, reports IMS Canada. Compared to this performance, branded products in Canada recorded a growth of meager 0.2%, during this period. As a consequence, generic Canadian pharmaceutical companies like Novopharm (Teva) and Apotex recorded impressive growth of 46.8% and 18.5%, respectively, in that period.

Despite such outstanding performance of generic pharmaceuticals, overall growth of prescription drugs in Canada was at just 6.3%, the lowest in the last ten year period.

President Obama’s Healthcare Policy will encourage generics and biosimilar drugs:

It is widely believed that the new U.S administration under President Barak Obama will try to encourage speedy introduction of generics into the U.S market.

So far as ‘Biosimilar’ drugs are concerned, in 2009 Obama administration is expected to work out the road map to facilitate the introduction of ‘Biosimilar dugs’ in the U.S market. Due to inherent characteristics that biological are ‘grown and not just manufactured’, biosimilar drugs are not expected to be replica of the original products.

To find out a solution to the heated debate, an answer has to be found out regarding the extent of clinical trials that the ‘biosimilar’ manufacturers will require to undertake to satisfy the U.S FDA that these drugs are as safe as the original ones. It is believed by some that the answer to this question lies in the approach that gives regulatory authority the flexibility in ‘what it demands that asks for more evidence than is now required for generic drugs, but something less than the kind of full-blown trials required for products new to the market.’

Global pharmaceutical majors are developing appetite for generics business:

Keeping a close vigil on these developments, as it were, even Pfizer, the largest pharmaceutical player of the world, has started curving out a niche for itself in the global market of fast growing generics, following the footsteps of other large global players like Novartis, GlaxoSmithKline, Sanofi-Aventis and Daiichi Sankyo.

Is Pfizer planning to follow the business model of Abbott and Johnson & Johnson (J&J)?

As reported by the Wall Street Journal (WSJ), Mr. Kindler the CEO of Pfizer very recently commented, “We are breaking the company down into smaller units so we aren’t dependent on any single product… I am a great admirer of J&J and Abbott’s business model.”

It appears what Mr. Kindler perhaps meant by this statement is that smaller business units, like Over the Trade Counter (OTC), Vaccines, Nutrition and Animal Health can be more ‘manoeuvrable and innovative’ for faster business growth. Acquisition of Wyeth could actually help Pfizer to implement this business model.

Coming back to generic business, the recent collaborative arrangement of Pfizer with Aurobindo Pharma in India vindicates Pfizer’s recent appetite on generic global pharmaceutical business. The company is already in this business with some of its off patent products. But now like others, Pfizer seems to be strategizing to reap a rich harvest from fast-growing generic pharmaceutical business through most probably its “Established Products” business division.

Could such business model of Global Pharmaceutical majors pose a threat to pure generic players in the business?

The entry of the global pharmaceutical majors into generic pharmaceutical business, in my view, could pose a serious threat to current generic players in the business, including those who are operating from India in the ‘regulated markets’ of the world, for the the following reasons:

1. Generic pharmaceutical business is usually a high volume, relatively low margin and highly competitive business. To survive in this business of cut-throat competition will require both financial and innovative marketing expertise, as well as financial and marketing muscle, where large global players are expected to easily score over others.

2. Product price of generics of the same or similar molecules being within a price band, prescribers and payors’ preference are expected to be in favour of large global pharmaceuticals, because of corporate brand image.

3. In future, the pharmaceutical marketing model, in my view, is expected to shift from ‘marketing of only medicines’ to ‘marketing of a bundle of medicines and services’. In the changed scenario global pharmaceutical majors are expected to have a distinct strategic advantage.

4. Global Pharmaceutical majors may also use this business model as a ‘preventive strategy’ to restrict market entry of number of players for an off-patent molecule and thereby effectively contain the extent of price erosion, as the brands will go off-patent.

It will, therefore, be quite interesting to watch, what happens in the global generic pharmaceutical business in the next five to ten years. I expect a significant consolidation taking place in this market, both global and local.

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.

Changing Business Model of Global Pharmaceutical Companies – a snapshot.

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Mounting pressure on P&L account, as the products go off patent:
Patented new products are prime growth drivers of research based pharmaceutical companies all over the world. Since last few years, because of various reasons, the number of launch of such products has been significantly reduced. To add fuel to the fire, 2010-12 will witness patent expiries of many more blockbuster drugs, depleting their growth potential even further.

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

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

The global expenditure on R&D was reported to have reached U.S. $ 55.2 billion in 2006. 75% of this expenditure was incurred by the U.S alone. It is interesting to note that only 22 NMEs received marketing approval by the US FDA during this period against 53 in 1996, when R&D expenditure was almost less than half of what was incurred in 2006.

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

The silver linings:

However, there seem to be following two silver linings in the present global R&D scenario, as reported by IMS:

1. Number of Phase I and Phase II drugs in the pipeline is increasing.

2. Applications for clinical trials in the U.S. rose by 11.6% to a record high of 662, last year.

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

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

Pressure on Marketing expenditure:

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

New Product Differentiation could be a challenge:

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

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

In this trying time, the global pharmaceutical companies are resorting to an interesting strategy, combing both traditional and the new business strategies. In this article, I shall touch upon following six strategies:

1. Mergers and Acquisitions (M&A):

Mega M&A strategies are still being actively followed by some large Pharmaceutical companies mainly to enrich R&D pipeline and achieve both revenue and cost synergies.

However, some of these large global companies have started realizing that ‘powerhouses’ created through past mega mergers and acquisitions have now become too large to manage effectively for various reasons. Mismatch between two different organization cultures also throws a great challenge to obtain desired output, many a times. Moreover, the merged R&D set up could become too large to manage, impacting the R&D productivity quite adversely.

2. Extension of Product Life Cycle and Effective Product Life Cycle Management:

Many global pharmaceutical companies are now engaged in ‘product life cycle management’ of their existing products by extending the ‘product life cycle’, effectively. In that process they are trying to maximize the brand value of these products in the international markets. For example, AstraZeneca has developed once daily treatment for their anti-psychotic drug Seroquel XR. This extended-release formulation will help patients avoid 5 to 7-day titration required with the immediate-release version of the same drug.

Towards similar initiative, Pfizer has also recently set up a dedicated “Established Product Business Unit” within worldwide pharmaceutical operations, to hasten business growth in the international markets.

3. Prescription to OTC Switch:

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

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

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

4. Emerging of Preventive Therapy, like Vaccines:

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

5. Entry into highly contentious market of Biosimilar drugs:

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

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

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

6. Entry into Generic Markets:

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

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

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

I guess that similar trend will continue, in future, as well.

Another ‘New Pharmaceutical Marketing Model’ is emerging:

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

By Tapan Ray

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

Global Pharmaceutical Industry: Capturing the micro-trends, having potential to become future mega-trends.

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The situation:Almost the entire developed world is reeling under recession… Slowed down business growth… Gradual drying up of research pipeline… Skyrocketing R&D cost… Pressure on product price …Market capitalization going south… Cut throat market competition… Depressed business sentiments…Past M&As are no longer yielding desired results… Global pharmaceutical companies are to lose nearly US$100 billionin sales as many blockbuster drugs are set to go off-patent over the next five years. Sounds quite like a dooms day! No, in my view, the industry including in India, is going through a transformation process. Is any trend emerging through this process? Yes, of course. Let us now try to capture these micro-trends, which have a potential to become tomorrow’s mega-trends.The response:

Before we delve into that, let us see how the global pharmaceutical industry has been responding to such a situation during this trying time. A strong instinct of survival, in such a situation, will undoubtedly prevail. This instinct is driving some of the large companies, with reasonably deep pocket, towards consolidation. This is happening through mergers, acquisitions and even through hostile takeovers.

Globally, from 2008 to date about 58 mergers and acquisitions have taken place, mega, big or small. Amid the biggest financial crisis since the Great Depression, Pfizer Inc., Merck & Co. and Roche Holding AG could raise a mindboggling amount of US $155 billion to expand and survive in their business.

This month Merck & Co acquired Schering Plough for US$41.1 billion in a cash-and-stock deal that will create the second largest pharmaceutical company in the USA. Richard Clarke, Chairman and CEO of Merck said that the merged company would benefit from the rich R&D pipeline, a significantly broader product portfolio and a wider presence in the global markets.

Besides enriching R&D pipeline and achieving substantial revenue synergy, the merged entity is expected to achieve significant cost synergy of about US$ 3.5 billion by 2011. This deal comes just six weeks after Pfizer Inc swallowed up Wyeth for a record US$68 billion. This move of Pfizer’s is not only expected to enlarge its product portfolio, but also to significantly reduce its dependence on Lipitor, which goes off-patent in 2011.

Just after these, Roche clinched a deal to acquire 44% of Genentech Inc with US$ 46 billion. In 2008 almost 75% of Pharmaceuticals sales of Roche were contributed by the products brought in from Genentech stable. This signifies the importance of acquisition of Genentech by Roche.

Will the M&A strategy be viable in the longer term?

All these companies are basically looking for various avenues to tide over the impending crisis, especially in their R&D pipeline by acquiring other suitable companies. However, looking at the past records, it appears that many of these mega mergers may not fetch a sustainable longer term gain. Insatiable desire to merge or acquire another company for various reasons, keep coming back to these companies after a little while, once again. Pfizer, GlaxoSmithKline (GSK), Sanofi Aventis etc will stand as good examples. Some believe that merging just for the sake of width and depth of the R&D pipeline could have its underlying risks, as business compulsion of two different research cultures to come together may cause a serious adverse impact on ‘the climate of innovation’. Such a congenial environment very often plays a critical role in the process of discovery of breakthrough drugs. Probably because of this reason many questioned whether Genentech’s productive R&D culture can flourish under Roche’s full control.

Let me now deliberate on emerging micro-trends in the global pharmaceutical industry. All these micro-trends, in my view, are having potential to get transformed into mega-trends in not too distant future.

Micro-trend 1: Reorganization of large R&D set-ups into smaller units to foster innovation.

Despite creating large R&D set-up through mega mergers, we have also witnessed that some pharmaceutical majors like, GSK, are reorganizing the large R&D set-ups into smaller units to foster innovation, under the leadership of Andrew Witty, the current CEO. This strategy is expected to reap rich harvest.

Micro-trend 2: From concentrating exclusively on innovative medicines to expansion into low risk generic medicines.

Not so long ago Global R&D companies focused only the business of innovative prescription medicines. Low margin generic business was not their cup of tea. Today the scenario has made a 180 degree shift. Low risk, low cost and high volume turnover of generic business is now attracting many R&D based companies.

We are now witnessing another model of mergers and acquisitions, which was pioneered by Novartis some time back. An increasing number of companies are planning to spread their business in less risky generics pharmaceutical businesses. This business model will not require going through lengthy R&D and ever increasing stringent regulatory approval process for their entire product portfolio, in the developed markets of the world. Following this business model Daiichi Sankyo acquired Ranbaxy, in India. Sanofi-Aventis is in the process of acquiring the generic company of Eastern Europe, Zentiva. GSK acquired Pakistan operations of Bristol Myers Squibb, other generic business in South Africa and Egypt and mature products business of UCB in some selected markets of the world. Pfizer has also recently made somewhat similar move in India by entering into a strategic alliance with Aurobindo drugs for sourcing generic formulations for their global markets.

Micro-trend 3: From only prescription medicine business to businesses like, OTC, Nutrition, Diagnostics, Animal Health products, to reduce the business risk.

Some research based companies are now trying to somewhat insulate themselves from high risk R&D business by focusing on, besides generics, other low risk areas like, over the counter medicines (OTC), nutrition products, diagnostics, animal health businesses etc. Companies like, GSK, Pfizer, Roche will be good examples for such strategy.

Micro-trend 4: From sharp business focus mainly on top 10 markets of the world to extension of focus on key emerging markets of the world.

Not so long ago, large multinational companies (MNCs) used to have major focus on top 10 markets of the world. Now a days many of these companies are extending their business focus on emerging markets, like, India, Brazil, China, Russia, Turkey, Mexico etc, which are riding high on a very strong growth curve, unlike USA, Europe or Japan.

In these markets to gain a critical mass, the MNCs will need to enter the generic business and the best way to do it is by acquiring a good generic company. For this reason, in India we may soon start witnessing MNCs acquiring large to mid-size domestic Indian pharmaceutical companies. Daiichi Sankyo has just shown the way by acquiring Ranbaxy in India. This process has not started in full swing, as yet, probably because of expected very high valuation for their respective companies, by the Indian promoters following Ranbaxy deal.

Micro-trend 5: Gradual shift in R&D focus from infectious to chronic to preventive (vaccines) to personalized medicines.

Global pharmaceutical industry got a head start with the innovative drugs to treat infectious diseases. It gained growth momentum by changing its R&D focus on non-infectious chronic disease areas. We now observe a micro-trend to move towards preventive therapy like vaccines even for cervical cancer. With the emergence of stem cell research in the USA and with the rapid progress of RNAi technology, very soon we may enter into the area of personalized medicines, as well. Thus, in my view preventive and personalized medicines will be the high growth pharmaceutical business of future. At that time, the pharmaceutical business model will change significantly though, to adapt to the changing business environment.

Is the era of Blockbuster drugs over?

Let me now reiterate that contrary to the belief of many, future R&D pipelines of the global pharmaceutical companies are not too dry, either. I am not in agreement with many pontificating that the future of blockbuster drugs is over. Published reports indicate that 581 primary-care driven NCEs covering disease areas like, Central Nervous System (CNS), Cardiovascular, Vaccines, Respiratory, Anti-infective etc, are currently in Phase I and Phase II stages. Similarly 637 specialist-care driven NCEs covering disease areas like, Oncologics, Autoimmune agents, HIV, Immunostimulants, Alzheimer, Immunosuppressive etc, are also in phase II and Phase III clinical trial stages. Altogether 1218 NCEs are currently in Phase II and Phase III stages of clinical trial.

Indian Pharmaceutical Companies – are they in a dilemma?

In sharp contrast to prevailing scenario in the global pharmaceutical industry, in India, after a paradigm shift to a new IPR regime, the domestic pharmaceutical industry seems to be in a great dilemma, to some extent they seem to be in a state of identity crisis. Many domestic companies seem to be getting too overawed by the change in their ‘reverse engineering’ business model, as a fuel for growth.

At this stage, it is very important for all these companies to appropriately change their business model based on their competitive strength and quickly adapt to the new paradigm. Instead of considering the research based global companies as competitors, they should look at them as potential collaborators for various outsourcing opportunities; starting from contract research, contract manufacturing to contract marketing, as well. Why not?

Need to move from fragmentation to consolidation for leveraging the business growth:
Indian pharmaceutical industry is now highly fragmented. This is the high time to move away from fragmentation to consolidation, which will help the domestic pharmaceutical industry to attain adequate scale to invest significantly in their well considered business model to fuel the growth engine.

India is making progress in pharmaceutical R&D:

In India some domestic pharmaceutical companies have made significant progress towards R&D output. Published information indicates that Biocon, Piramal Healthcare, Glenmark, Ranbaxy and Suven Life Sciences have between them 45 NCEs. Most of these fall under oncology, infectious, metabolic and respiratory disease areas. Out of these 19 NCEs are in pre-clinical and the balance are in Phase I& Phase II clinical trial stages.

To sum-up, I witness the following micro-trends globally, which we should keep tracking with interest:

 Reorganization of large R&D set-ups into smaller units to foster innovation.

 From concentrating exclusively on innovative medicines to expansion into low risk generic
medicines.

 From only prescription medicine business to businesses like, OTC, Nutrition, Diagnostics, Animal
Health products, to dilute the business risk.

 From sharp business focus mainly on top 10 markets of the world to extension of focus on key
emerging markets of the world.

 Gradual shift in R&D focus from infectious to chronic to preventive (vaccines) to personalized
medicines.

WILL THE BALL GAME BE QUITE DIFFERENT TOMORROW?

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.

Allegation of ‘Marketing Malpractices’ in the pharmaceutical Industry of India has assumed a huge proportion– who will ‘bell the cat’?

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Sometime back, in its January – March, 2004 issue, ‘Indian Journal of Medical Ethics’ (IJME)in context of marketing practices for ethical pharmaceutical products in India commented:“If the one who decides, does not pay and the one who pays, does not decide and if the one who decides is ‘paid’, will truth stand any chance?”Three year after, in 2007 the situation remained unchanged when IJME (April – June 2007 edition) once again reported:

“Misleading information, incentives, unethical trade practices were identified as methods to increase the prescription and sales of drugs. Medical Representatives provide incomplete medical information to influence prescribing practices; they also offer incentives including conference sponsorship. Doctors may also demand incentives, as when doctors’ associations threaten to boycott companies that do not comply with their demands for sponsorship.”

This situation is not limited to India alone. It has been reported from across the world. ‘The New England Journal of Medicine’, April 26, 2007 reported that virtually, all doctors in the US take freebies from drug companies, and a third take money for lecturing, and signing patients up for trials. The study conducted on 3167 physicians in six specialities (anaesthesiology, cardiology, family practice, general surgery, internal medicine and paediatrics) reported that 94% of the physicians had ‘some type of relationship with the pharmaceutical industry’, and 83% of these relationships involved receiving food at the workplace and 78% receiving free drug samples. 35% of the physicians received re-imbursement for cost associated with professional meetings or continuing medical education (CME). And the more influential a doctor was, the greater the likelihood that he or she would be benefiting from a drug company’s largess.

Even our own ‘The Times of India’ reported the following on December 15, 2008:

1. “The more drugs a doctor prescribes of a company, greater the chances of him or her winning a
car, a high-end fridge or TV set.”

2. “Also, drug companies dole out free trips with family to exotic destinations like Turkey or Kenya.”

3. “In the West, unethical marketing practices attract stiff penalties.”

4. “In India, there are only vague assurances of self-regulation by the drug industry and reliance on
doctors’ ethics.”

Such issues are not related only to physicians. ‘Scrip’ dated February 6, 2009 published an article titled: “marketing malpractices: an unnecessary burden to bear”. The article commented:

“Marketing practices that seem to be a throwback to a different age continue to haunt the industry. Over the past few months, some truly large sums have been used to resolve allegations in the US of marketing and promotional malpractice by various companies. These were usually involving the promotion of off-label uses for medicines. One can only hope that lessons have been learnt and the industry moves on.”

“As the sums involved in settling these cases of marketing malpractices have become progressively larger, and if companies do not become careful even now, such incidents will not only affect their reputation but financial performance too.”

Huge settlement sums involved in such ‘federal misdemeanour’ cases could act as a reasonably strong deterrent in the USA. However, in India, even the written complaints to the Drug Controller General of India (DCGI) about ‘off label’ promotion of drugs attracts no such punitive measure. Marketing malpractices in India seems to have now become a routine, as it were. All stakeholders, in principle, agree that it should stop. But in absence of any strong deterrent, like in the USA, will it remain just as another wishful thinking?

Both the Government and the industry talk about ‘self regulation’ to address this issue. This is indeed a very pragmatic thought. A part of the industry already has such a self regulation system in place. But the moot question that comes in everybody’s mind is it working, effectively?

To effectively address this issue should the entire pharmaceutical industry in India together not form a self regulatory body in line with “Consumer complaint council” of “The Advertising Standards Council of India”, as was created by the Fast Moving Consumer Goods (FMCG) industry? The decisions taken by the ‘pharma council’ against each complaint of marketing malpractice should be disseminated to all concerned, to make the system robust and transparent…and in that process it will act as a strong deterrent too.

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.