Tag Archives: Pharmaceuticals

Unlike China, IPR issues in India are being hijacked by the issue of ‘Access to Affordable Modern Medicines’.

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‘Incremental innovation’, related to the pharmaceutical industry, has become a point of raging debate in India. Over a period of time ‘not really a breakthrough’ but ‘incremental inventive steps’ to discover New Chemical Entities (NCE), which would offer significant benefits to the patients, are being considered as of critical importance by the stakeholders of the pharmaceutical industry, the world over. Such types of innovations are being termed as ‘incremental innovation’ , with underlying implied meaning of ‘frivolous’ nature of the innovation, to some section of people.

Most innovations in the pharmaceutical industry have always been ‘incremental’ in nature:

We have been observing such ‘incremental innovation’ from ‘Penicillin era‘ with different derivatives of penicillins, right through to ‘Quinolone era’ with ciprofloxacin, ofloxacin, sparfloxacin etc to ‘H2 receptor antagonists’ with cimetidine, ranitidine, roxatidine to ‘proton pump inhibitors’ with omeprazole, esomeprazole, rabeprazole etc.

We see such important ‘incremental innovation’ with many successful drugs across various disease areas. How many different varieties of ‘statins’, ‘betablockers’, ‘ace inhitors’ etc we have been prescribed by the medical profession over so many years with amazing results? This trend continues to offer better and better treatment options to the patients through the medical profession, across the world.

Unfortunately ‘incremental innovation’ has become a contentious issue in India. Section 3d of the Indian Patents Act 2005 has become a key barrier to continue with this process of innovation, in search of better and better medicines. ‘Breakthrough innovations’, which are very important though, are not as frequent in the pharmaceuticals industry, just as in many other industries, including Information technology (IT). ‘Incremental innovations’ are, therefore, the bedrock to improve the types of medications to treat various disease conditions.

A quick comparison with China:

As reported by the Department of Commerce of the U.S Government, domestic consumption of medicines both in India and China is around 70% of the domestic productions of the respective countries. These medicines are available at a very reasonable price to the local populations.

Fuelled by strong domestic demand, coupled with exports to other countries, the pharmaceutical industry in both India and China are showing impressive growth, China being ahead of India in both pace of growth, as well as in terms of market size.

Why some key IPR issues, like ‘incremental innovation’, are facing stiff opposition in India when it is not so in China?

Intellectual Property Regime (IPR) is now in place in both the countries. However, criteria of ‘patentability’, as mentioned above, still remain a contentious issue in India. The issue of ‘access to affordable modern medicines’ is being unnecessarily dragged into the discussion of IPR related issues, where resolution of each of these two issues warrants totally different types of approaches.

The issue of ‘access’ and ‘affordability’ of medicines must be addressed with all earnestness by all concerned, but surely, I repeat, with a different kind and sets of measures. Mixing IPR issues with the issue of ‘access to affordable modern medicines’ sends a wrong message, which would mean that IPR is the cause of this problem in India or in other words, IPR has aggravated this problem since January 1, 2005, the day the new Patents Act came into force in India. This definitely is not the reality in our country.

As I have been saying repeatedly, why then from 1972 to 2005, when pharmaceutical products patents were not being granted, the access to affordable modern medicines were denied to 650 million population of India? The solution to this problem, in my view, lies in effectively addressing the issue of healthcare infrastructure, healthcare delivery and healthcare financing (health insurance for all strata of society) with an integrated approach and in tandem through Public Private Partnership (PPP) initiatives.

Is this issue cropping up because of intense pressure and public opinion created by over 20,000 small to medium scale producers of generic drugs, who have grown within the industry in a much protected environment created by the Government of India and had thrived in business by introducing copycat versions of innovators drugs for over three decades, during the old paradigm?

Large Indian companies are by and large in favour of IPR:

The large Indian Pharmaceutical Companies like Piramal Healthcare support the new IPR regime, envisaging the benefits that it will bring to the country in general and the domestic pharmaceutical industry in particular, in medium to longer term. These benefits will not only come from the fruits of their R&D initiatives, but also through various emerging opportunities of business collaboration in areas of their respective strengths, with the Multi National Corporations (MNCs) across the globe.

The Indian pharmaceutical industry, which had registered a double digit CAGR growth rate over the past decade, is poised to record a turnover of U.S$ 20 billion by 2015, as reported by Mckinsey & Co. Even at that time patented products are expected to contribute just about 10% of the total market and balance 90% of the market will continue to be dominated by low cost branded generic drugs.

Indian Pharmaceutical Industry has potential to emerge as an international force to reckon with. But will it..?

Within knowledge based industries, after meteoric success of the Information Technology (IT), Indian pharmaceutical industry armed with its fast growing biotech sector, has all the potential to be a major global force to reckon with. It just needs to foster the culture of innovation. One will feel happy to note that the Department of Pharmaceuticals (DoP) of the Government of India has started taking, at least, some initiatives towards this direction.

The key issues of ‘patentability‘ together with lack of a strong regulatory framework for effective patent enforcement and data protection are becoming barriers to development of international collaboration in the space of pharmaceutical research and development in India.

Why is China different?

From the beginning of 90’s China initiated its reform processes in the IPR area, which may not be perfect though, as yet. However, since 1998 with stricter regulations on pharmaceutical manufacturing and introducing Drug Management Law, China to a great extent regulated entry of ‘fringe players’ in the pharmaceutical business. It enacted TRIPS compliant patent laws in 2002, extending pharmaceutical product patent for 20 years and regulatory data protection (RDP) for 6 years.

Currently China is focusing more on biotech drugs and has wheezed past India in terms of success in this important sector of the healthcare industry, though they have still miles to go to catch up with the developed world in this space. With the creation of innovative environment within the country, China is fast getting international recognition and collaboration, in genomic and stem cell research and technology.

In the pharmaceutical sector also China has brought in significant regulatory reforms since 2001. Because of its stronger IPR regime than India and other important regulatory reform measures that the country has been undertaking, China is racing past India to become one of the largest markets of the global pharmaceutical industry. In this process, China is attracting far more foreign direct investments (FDI) than India, almost in all verticals of the pharmaceutical industry, from R&D, clinical trials to contract research and manufacturing.

Where India scores over China:

Quality of co-operation and relationship between global pharmaceutical companies and the domestic Chinese pharmaceutical industry is believed to be not as good as what is prevailing in the Indian pharmaceutical industry. There are many reasons for such difference, language being the key reason. In China, English is still not a very popular language, in sharp contrast to India. This limits effective human interaction with the foreigners in China. In the area of, especially, pharmaceutical chemistry, Indian scientists are considered to have a clear edge over their Chinese counterparts.

Chinese policy makers are gradually trying to shed off their protectionist’s attitude in the globalization process.

Steps taken by China to encourage innovation are far more encouraging than what is being done in India. Global pharmaceutical companies are finding China more attractive than India to expand their business. As the saying goes, ‘proof of pudding is in its eating’, predominantly because of this reason, FDI for the pharmaceutical sector is coming more in China than in India.

Instead of creating drivers, is India creating barriers to innovation?

It is indeed unfortunate that the Indian law differentiates innovation based on its types and denies grant of patent for ‘incremental innovation’, which is the bedrock of progress for the pharmaceutical industry. For this reason section 3d of Indian Patent Acts 2005 does not consider the ‘salts, esters, polymorphs and other derivatives of known substances unless it can be shown that they differ significantly in properties with regard to efficacy’, patentable.

Strong propaganda campaign unleashed by the vested interests alleging rampant violation of section 3d by the Indian Patent Office (IPO) is another case in point. Interestingly the aggrieved parties decided to fight this issue through media, avoiding the legal route for redressal of their grievances. They on record cited a hilarious reason for the same that no lawyer in India is coming forward to fight their cases, at the behest of the MNCs.

The way forward:

To encourage innovation within a TRIPS compliant IPR regime, as one sees in China,
stereotyping innovations as ‘breakthrough’ or ‘incremental’ will dampen the spirit of innovative culture within the country. Inventive steps in an innovative process of a pharmaceutical product are directed to satisfy some important needs of the patients. As I said before, most innovations, which are an integral part of the progress of this industry, have been ‘incremental’ in nature. Thus ignoring ‘incremental innovation’ in India could be counterproductive, in more than one way.

Investments required towards R&D that a ‘breakthrough type’ innovation would warrant are very high. Indian pharmaceutical industry will have a serious limitation in that direction. The path of ‘incremental innovation’ ably backed by a strong IPR enforcement process, would, I reckon, be the best way forward for the Indian players to compete effectively with global innovator companies, leave aside their Chinese counterparts.

Any innovation, which has gone through inventive steps, even if it is ‘incremental’ in nature, should not be considered ‘frivolous’. It demeans the very process of innovation.

Raising various public sensitive and emotive issues on product patents and combining it with issues of ‘access’ and ‘affordability’ of modern medicines, some powerful lobby of vested interests may seriously retard the progress of India. The Government of India should recognize that it will very adversely affect the country in its pursuit of excellence in the field of research and development, in medium to longer term.

Such emotive misconceptions are compelling the policy makers to divert their attention from the root cause, which I have enumerated above, of the issue of ‘access to affordable modern medicines’ to the vast majority of Indian population.

In my earlier article, I suggested a public private partnership (PPP) model to address these critical healthcare issues. Examples of such PPP are already there in India in states like Tamil Nadu, Andhra Pradesh and Karnataka.

Astute policy makers of the Government of India, I am sure, will soon realize that encouraging, rewarding and protecting patents through a robust TRIPS compliant IPR framework would enable India to place itself ahead of China, as the choicest destination for the global pharmaceutical industry.

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.

From ‘Blockbuster Drugs’ to ‘Personalized Medicines’ – will it revolutionize the way the patients will be treated tomorrow?

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Financial Times quoted Jeff Kendler, the CEO of Pfizersaying, “the era of dependence on a single or a couple of blockbuster drugs should be over. Lipitor sells U.S$ 12 billion a year. You can’t build a company predicted on the belief that you are going to find such a drug.”The argument is robust, what then are the alternatives?Rapid strides in pharmacogenomic bring in a promise of radically different way of treating diseases, as major pharmaceutical companies of the world make progress in developing much more effective medicines designed to target smaller populations. These medicines are termed as ‘personalized medicines’ and are expected to be an effective alternative to now quite unwieldy ‘blockbuster drugs’ business model.

In what way ‘Personalized Medicines’ will be different?

With ‘Personalized Medicines’ the health of a patient will be managed based on personal characteristics of the individual, including height, weight, diet, age, sex etc, instead of defined “standards of care”, based on averaging response across a patient group. Pharmacogenomic tests like, sequencing of human genome will determine a patient’s likely response to such drugs.

These are expected to offer more targeted and effective treatment with safer drugs, and presumably at a lesser cost. Such medicines will also help identify individuals prone to serious ailments like, diabetes, cardiovascular diseases and cancer and help physicians to take appropriate preventive measures, simultaneously. ‘Personalized medicines’ in that process will focus on what makes each patient so unique, instead of going by the generalities of a disease.

To give a quick example, genetic differences within individuals determine how their bodies react to drugs such as Warfarin, a blood thinner taken to prevent clotting. It is of utmost importance to get the dosing right, as more of the drug will cause bleeding and less of it will not have any therapeutic effect.

‘Personalized medicines’, therefore, have the potential to bring in a revolutionary change the way patients are offered treatment by the medical profession. Genomic research will enable physicians to use a patient’s genetic code to arrive at how each patient will respond to different types of treatments.

In the field of cancer, genetic tests are currently being done by many oncologists to determine which patients will be benefitted most, say by Herceptin, in the treatment of breast cancer.

What is then the aim of ‘Personalized Medicines’?

The aim of ‘personalized medicines’ is to make a perfect fit between the drug and the patient.
It is worth noting that genotyping is currently not a part of clinically accepted routine. However, it is expected to acquire this status in the western world, by 2010.

Expected benefits from ‘Personalized Medicines’:

1. More Accurate dosing: Instead of dose being decided based on age and body weight of the patients, the physicians may decide and adjust the dose of the medicines based on the genetic profiling of the patients.

2. More Targeted Drugs: It will be possible for the pharmaceutical companies to develop and market drugs for patients with specific genetic profiles. In that process, a drug needs to be tested only on those who are likely to derive benefits from it. This in turn will be able to effectively tailor clinical trials, expediting the process of market launch of these drugs.

3. Improved Health care: ‘Personalized Medicines’ will enable the physicians to prescribe ‘the right dose of the right medicine the first time for everyone’. This would give rise to much better overall healthcare.

Role of Pharmaceutical and Biotech companies:

Many research based pharmaceutical and biotechnology companies have taken a leading role towards development of ‘personalized medicines’ in line with their key role as healthcare enterprises. India is also taking keen interest in this science.

Some important issues:

However, there are some ethical and social issues in the development of ‘personalized medicines’ primarily in the area of genetic testing and consideration of race in the development of such medicines, which need to be effectively addressed, sooner.

Can it replace the‘Blockbuster Drugs’ business model?

Realization of deficiencies in the economics of ‘block buster drugs’ R&D business model, has made ‘personalized medicines’ a reality today.

Improved efficacy and safety of treatment with ‘personalized medicines’ will prove to be cost-effective in healthcare systems. Smaller and exclusive markets for ‘personalized medicines’ are expected to be profitable for the pharmaceutical companies. But such smaller segmentation of the market may not leave enough space for the conventional ‘blockbuster model’, which is the prime mover of the global pharmaceutical industry, today.

Reports indicate that some renowned global pharmaceutical companies like, Roche, AstraZeneca, GlaxoSmithKline are making good progress towards this direction through collaborative initiatives.

Approximate cost of ‘Genome Sequencing’:

When human genome was first sequenced, the reported cost was staggering U.S$ 3 billion. However, with the advancement of technology, it came down to U.S$ 1 million, last year. Currently, the cost has further come down to U.S$ 60,000. With the rapid stride made in the field of biotechnology, combined with the economies of scale, cost of such genetic tests is expected to be around U.S$ 1,000 in near future, making it possible for people to obtain the blue print of their genetic code.

Savings on cost of Clinical trials with ‘Personalized Medicines’:

Genome sequencing will help identifying a patient population, which will be far more likely to respond positively to the new treatment. In that process, if it reduces costs of clinical trial by even 5%, expected net savings for the industry towards clinical trial have been reported to be around U.S$ 5 billion.

With ‘personalized medicines’ the innovator companies will be able to significantly reduce both time, costs and the risks involved in obtaining regulatory approvals and penetrating new markets with simultaneous development of necessary diagnostic tests. Such tests will be able to identify patients group who will not only be most likely to be benefitted from such medicines, but also will be least likely to suffer from adverse drug reactions.

Therefore, considerable cost advantages coupled with much lesser risks of failure and significant reduction in the lead time for clinical trials are expected to make ‘personalized medicines’ much more cost effective, compared to conventional ‘blockbuster drugs’.

Innovative and cost effective way to market ‘Personalized Medicines’:

With ‘personalized medicines’ the ball game of marketing pharmaceuticals is expected to undergo a paradigm shift. Roche’s model of combining necessary diagnostic tests with new drugs will play a very important role in the new paradigm.

Roche is ensuring that with accompanying required diagnostic tests, the new oncology products developed at Genentech can be precisely matched to patients.

Can ‘Personalized Medicines’ be used in ‘Primary Care’ also?

To use ‘personalized medicines’ in a ‘primary care’ situation, currently there is no successful model. However, it has been reported that in states like, Wisconsin in the U.S, initiative to integrate genomic medicines with ‘primary care’ has already been undertaken. Scaling-up operations of such pilot projects will give a big boost to revolutionize the use of ‘personalized medicines’ for precision and targeted treatment of the ailing population.

In my view, there does not seem to be any possibility of looking back now. The robust business model of ‘personalized medicines’, is now the way forward, as much for the industry as for the patients. It is a win-win game.

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.

Healthcare services in India … growing disparity between urban and rural population – can ‘Telemedicine’ play a significant role?

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Healthcare Industry in India is currently valued at US$ 35 billion. This industry is expected to record a turnover of US$ 75 billion in 2012 and US$ 150 billion in 2017, reports Technopak Advisors in their report titled “India Healthcare Trends 2008”.Growing Middle Class Population – the key growth driver:This growth is not expected to come from rural India where over 70% of Indian population lives and a vast majority of them do not have ‘access to modern medicines‘. The key driver of growth of this sector will be growing 150 million strong middle class population with increasing health awareness. Out of this population, 50 million have a disposable income of US$ 4,380 – US$21, 890,, reports McKinsey. Technopak Advisors report recommends an immediate investment of US$ 82 billion to meet this growing demand.

Medical Tourism - another potential growth driver:

Another growth driver is expected to be ‘Medical Tourism’. With a slogan: ‘First World Treatment at Third World Prices’, Medical Tourism is expected to become a US$ 2 billion industry by 2012 from US$ 350 million in 2006, reports a study done by McKinsey and CII. In 2008-09, over 200,000 foreigners, mainly from Middle East and South Asian countries came for medical treatment in India. Hospitals in India are now trying to attract patients from Afro-Asian countries who spend around US$ 20 billion outside their respective countries, towards medical treatment. Thus, the current number of patients visiting India for medical tourism is expected to grow by around 25 percent during next few years.

Medical expertise and facilities – a sharp contrast between the urban and rural India:

India Brand Equity Foundation (IBEF) reports that over a period of last few years besides cost advantage, high success rate, especially in the following areas has been attracting the medical tourists towards India:

• Over 500,000 major surgeries and over a million other surgical procedures including cardio-thoracic, neurological and cancer surgeries have been performed by the Indian specialists, with success rates at par with international standards.

• The success rate of cardiac bypass in India is 98.7 per cent against 97.5 per cent in the U.S.

• India’s success in 110 bone marrow transplants is 80 per cent.

• The success rate in 6,000 renal transplants is 95 per cent.

• India has the 2nd highest number of qualified doctors in the world.

It is worth noting, the centre of excellence of all these outstanding statistical records are located mainly in the urban areas. In sharp contrast to these most of the rural populations are denied of basic healthcare facilities services. Despite being second highest growing economy in the world after China and having world class healthcare facilities available in the country, a vast majority of rural population is denied of basic healthcare services. Even in those places where primary healthcare establishments are available, poor maintenance, understaffing, non-availability of medicines and antic medical equipment, deny the basic and standard healthcare services to the local population.

India is still the home for world’s ‘largest number of poor people in a single country’, even after 61 years of Independence. A study indicates that in India around 260 million people live below the poverty line (BPL). Out of this number about 193 million people live in rural areas and about 67 million live in urban areas. Over 75% of these poor people live in rural India.

The point to note here, although over 700 million people live in rural India, only 193 million of them belong to BPL families. Therefore, even those who can afford proper medical treatment in rural areas, do not have access to modern healthcare facilities, due lack of healthcare infrastructure and services.

Quoting Oxford University of the United Kingdom (UK), The Economic Times (ET) dated February 2, 2009 reported that due to lack of basic healthcare facilities, around one million women and children die every year in India. This is, once again, mainly because 700 million people in rural India have no access to specialists. 80% of medical specialists live in urban areas. ‘India Knowledge, Wharton’ reported recently that India would require an investment of US$ 20 billion over next 5 years to address this problem.

National Health Policy 1983 promised healthcare services to all by 2000 – has it delivered?

The National Health Policy 1983 announced commitment of the Government of India to provide ‘health care services to all by year 2000′. Unfortunately, even today only 35% of Indian population have access to affordable modern medicines, despite an appreciable growth of this sector during last four decades.

Per capita expenditure towards healthcare in India is one of lowest among Asian countries outside South Asia. The expenditure of the Government for healthcare has progressively grown over the years though, healthcare expenditure as a percentage of total government spending has decreased considerably. Only silver lining is that the private sector spending towards healthcare is steadily increasing at a much higher pace.

Can ‘Telemedicine’ improve access to healthcare in rural India?

Would creation of a cost-effective ‘Telemedicine’ infrastructure in rural areas be able to address this problem? In my view, this area is worth exploring seriously and should be tried out by the Government with Public Private Partnership (PPP) model, initially with pilot projects.

‘Telemedicine’ has been defined as the use of electronic information and communication technologies to provide health care support to patients from distant locations. Thus ‘Telemedicine’ could be used to provide healthcare services where it does not exist at all and at the same will help to improve healthcare services considerably, where something already exists.

With the advancement in telecommunication and satellite communication technology in the recent years, the scope of creating and gradually expanding the ‘Telemedicine’ facilities in India indeed throw open a new avenue to improve ‘access to quality healthcare services’, in rural India.

Besides lack of basic primary healthcare services in rural areas where over 70% of Indian population live, 90% of secondary and tertiary healthcare facilities are also located in large cities and towns.

Thus, in addition to primary healthcare services, even secondary and tertiary healthcare needs of a large number of rural populations can be successfully met locally through consultations with the experts located in distant cities and towns without anyone having to travel to those far off cities and towns.

‘Telemedicine‘, therefore, could also offer solutions to the problem of expert medical assistance during serious or critical illness of people living in rural India. The role of ‘Telemedicine’ on healthcare services will be very meaningful under such circumstances.

‘Telemedicine’ services have already started in a smaller scale though, in Kerala, West Bengal and North-eastern states of India. It is slowly coming up in some other southern states, as well. What is required now is a concerted and integrated approach, spear-headed by the Government of India, taking all State Governments on board, with a robust policy initiative.

However, there are some key concerns with this initiative, as well. The most important of which is related to costs of such treatment for the rural households, besides other regulatory issues.

Appropriate regulatory and policy frameworks should be thoughtfully worked out to extend such innovative services to rural India, under PPP. If the concept of ‘Telemedicine’ can be made to work effectively in rural areas, leveraging world class expertise in information technology available within the country, India will emerge as a role model in the field of ‘Telemedicine’ for the developing nations of the world.

Moreover, over a period of time the ‘Telemedicine’ platform can also be effectively utilized for many other healthcare initiatives, like for example, disease prevention programs, medical/para medical staff training etc.

When ‘e-chaupal’ initiative of ITC for rural farmers of India could be so successful, why not ‘Telemedicine’ for rural patients of India?

The promise of “Healthcare services to all by year 2000” as enunciated in the National Health Policy, 1983 of the Government of India, could still be achievable, albeit late, by the next decade of this new millennium with ‘Telemedicine’.

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.

Improving ‘Access to Modern Medicines’ in India –Public Private Partnership (PPP) is the way forward.

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Despite various measures being taken by the Government of India (GoI) from time to time, around 65% of Indian population are not having access to modern medicines. It appears, GoI is of the view that the reason for poor ‘access to modern medicines’ to a vast majority of our population is intimately linked to the issue of ‘affordability of medicines’.To make medicines affordable to the common man, the Government took a radical step in 1972 by passing a law to abolish products patent in India. The change in paradigm at that time, encouraged domestic pharmaceutical players to manufacture and market even those latest and innovative drugs, which were protected by patents, n many countries of the world. The new ball game enabled the domestic players to highly specialize in ‘reverse engineering’ and launch generic versions of most of the New Chemical Entities (NCEs)at a fraction of the innovators price, in India.This shift in Paradigm in 1972, catapulted the Indian domestic pharmaceutical industry to a newer orbit of success. India in that process, over a period of time, established itself as a major force to reckon with, in the generic pharmaceutical markets of the world. Currently, the domestic pharmaceutical industry in India caters to around one third of the global requirement of generic pharmaceuticals.

From 1972 to 2005 domestic Indian pharmaceutical companies focused on replicating all most all blockbuster drugs, like for example, major Cox2 inhibitors (Merck and Pfizer), Viagra and Lipitor (Pfizer) etc, to low price generic substitutes and that too just within a year or two from the date of first launch of these products in the developed markets of the world.

In 1972, the Market share of the Indian domestic companies, as a percentage to turnovers of the total pharmaceutical industry of India, was around 20%. During the era of ‘reverse engineering’, coupled with many top class manufacturing and marketing strategies, domestic Indian pharmaceutical players wheezed past their multinational (MNCs) counterparts in the race of market share, exactly reversing the situation in 2009.

‘Reverse engineering’ was one of the key growth drivers of domestic pharmaceutical industry during this period. In its absence, during post IPR regime, the growth rate of branded generic industry is not expected to be as spectacular. However, the low cost ‘essential medicines’ will continue to be produced and marketed in India in future, as well.

Be that as it may, from 1972 to 2005, India could produce and offer even the latest NCEs, at a fraction of their international price, to the Indian population. There were as many as 40 to over 60 generic versions of each successful blockbuster drug of the world, in India. Cut-throat competition was intense and still it is, which keeps the average price of such medicines well under control. To further tighten its grip over pharmaceutical products pricing, GoI imposed stringent price control and price monitoring mechanism simultaneously, which are in place even today. Despite competitive pricing pressure coupled with Government price control, over nearly four decades, with a key policy focus on ‘affordability of medicines’, why then ‘access to modern medicine’ remained abysmal for a vast majority of the population of India?

To address this vexing problem, Industry Associations reported to have suggested a policy shift towards public-private-partnership (PPP) model to the Ministry of Chemicals and fertilizers in 2006-07. At that time, the Associations seem to have offered that the Pharmaceutical Industry will supply to the GoI the essential medicines at 50% of their Maximum Retail Price (MRP), to cater to the need of the common man, especially those who are below the poverty line (BPL).

However, to make this proposal effective there is a fundamental need for the Government to quickly initiate significant ‘capacity building’ exercise, initially in our primary and then in the secondary healthcare value chain. Towards this direction, the Federation of Indian Chambers of Commerce and Industry (FICCI) reported to have suggested to the Government for an investment of around US$ 80 billion to create over 2 million hospital beds.

Frugal budget allocation (1.12%) of the GoI towards healthcare as % of GDP of the country, suggests that Government is gradually shifting its role in this very important area, primarily from healthcare provider to healthcare facilitator for the private sectors to develop it further. In such a scenario, it is imperative for the government to realize that the lack of even basic primary healthcare infrastructure, leave aside other incentives, impede effective penetration of private sectors into semi-urban and rural areas. PPP model should be worked out to address such issues, effectively.

I have highlighted the remedial measures to be taken to address this situation in my article, which can be read by clicking on the following link:

http://www.tapanray.in/profiles/blogs/65-of-indians-do-not-have

Over 70 percent of our population are located in rural India. A relatively recent study indicates that despite some major projects undertaken by the Governments, like National Rural Health Mission (NRHM), about 80 percent of doctors, 75 percent dispensaries and 60 percent of hospitals are located in urban India. Another recent initiative taken by the Department of Pharmaceuticals (DoP) called ‘Jan Aushadhi’ is also orientated towards urban and semi-urban India.

I had deliberated upon the ways to increase penetration of ‘Jan Aushadhi’ in rural India, in another article, which can be read by clicking on the following link:

http://www.tapanray.in/profiles/blogs/jan-aushadhi-medicines-for

The net result of such policy initiatives, denies over 65 percent of Indian rural population from having access to quality healthcare services. Such lack of focus on rural areas, perhaps will explain the reason why only 35 percent of Indian population is having access to modern medicines.

Instead of trying to find a solution for this alarming ‘access to medicines’ problem, by limiting focus mainly on the issue of ‘affordability’ of medicines, for several decades, the Government is doing a great disservice to the common man, mainly located in the rural and semi-urban India. It is now high time that the GoI analyzes the available data to address the root cause of poor healthcare delivery, infrastructure and almost total lack of healthcare financing for all strata of Indian society.

Let me hasten to add that in no way I am trying to say that ‘affordability of medicines’ is no issue in India. All I am saying is that an integrated approach towards the root causes will quite effectively take care of ‘affordability’ issue and NOT the vice versa.

Even a problem of such magnitude can be converted into an opportunity. India can certainly be made a global hub for quality and affordable healthcare services, flashes of which we see in medical tourism initiatives.

Therefore, to address the acute problem of ‘access to modern medicines’ to a vast majority of the Indian population, GOI should reach all out to attract significant private and even foreign direct investments (FDI) through innovative Private Public Partnership initiatives. A strong will to have an ‘out of box’ solution to this critical problem is the crying need of the hour.

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.

Simmering discontentment in the functioning of the Indian Patent Office (IPO) – urgent need to tighten the ‘loose knots’ in the system.

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Indian Patent office (IPO) though is headquartered at Kolkata, because of some unknown reason, the office of the Controller General of Patents, Designs and Trade Marks (CGPDTM)is located in Mumbai with other two offices at New Delhi and Chennai. Moreover, the office of the ‘Patent Information System’ is located at Nagpur. Scattered location of the IPO, many believe, could be an impediment in ensuring uniformity in operations between all its units. Such an opinion is debatable though, I shall not deliberate on this issue in this article.The point that I shall argue upon is the crying need in the IPO to tighten 15 identified ‘loose knots’in its operation, which are causing considerable concern within stakeholders, who are casting serious aspersions in its efficiency.There are some areas where our IPO is doing quite well. I shall also dwell upon those areas before highlighting the areas of improvements.

The new IPR regime came into force from January 1, 2005. Even 4 years down the line, the IPO still remains grossly understaffed. Growing dissatisfaction with the current functioning of the IPO is fast sapping initial enthusiasm of the innovators on the new IPR regime in the country. ‘The glass’ now perpetually looks as ‘half empty’, as it were and will continue to do so, if corrective measures are not taken, forthwith.

The information available from the IPO website indicates that all the four centers put together, there are just 134 Examiners, 31 Assistant Controllers, 4 Deputy Controllers and 1 Joint Controller. Staff attrition rate within the IPOs has been reported to be reasonably high, which incidentally appears to be one of the key issues of their inefficiency. These trained IPO personnel are being poached mainly by the private sector enterprises, offering significantly higher remuneration. At the same time, there appears to be 3 times increase in the number of applications filed in the last five years, complicating the situation further.

The silver lining is, despite all these, the performance of IPO quantitatively speaking, is really not as poor. Around 11,000 patents were granted by the IPOs in 2007-08. This number, when translated into average number of patents granted per day, works out to be 50. This figure, when viewed in terms of number of patents granted against the number of applications made, compares reasonably well with the developed nations of the world like, USA and EU. It is worth noting that in those countries the product patent regime is in place, since long.

Indian Patent Act 2005 is believed to be more stringent than the prevailing Patent Acts in the USA or EU. It is good to note that quoting the Department of Industrial Policy and Promotion (DIPP) it has been reported that each Indian Patent Examiner examines about 100 applications per annum against 50 to 80 in the USA and the EU. This is indeed laudable.

Indian Patent Office is currently going through ‘capacity building’ exercises. The efforts being made towards this direction are expected to make the IPOs more efficient, hopefully, in pursuit of excellence.

India has recently been approved as an International Searching and Preliminary Examining Authority under the Patent Cooperation Treaty (PCT). This, in turn, will significantly increase the workload of the IPO.

When we are mentioning about the PCT, perhaps it will not be out of place to say that some section in India argues in favour of the need to include the International Nonproprietary Names (INN) in the title of pharmaceutical patent applications by the IPO. However, as INNs are not required in the title of patent applications under Article 27(1) of the PCT, such a requirement, in my view, could appear to conflict with the PCT.

Thus, it has now become more essential that the Controller General of Patents, Designs and Trade Marks (CGPDTM) tightens the ‘loose knots’ in the IPO system, immediately, to make it efficient and effective.

In this article I shall not go into much debated and discussed, ‘Indian Patent Manual’ issue. I shall only submit the following 15 suggestions towards achieving the above objective:

1. To effectively cope with its growing workload, the Patent office should upgrade its IT facilities and ensure that patent examiners are trained to handle the filing and prosecution of patent applications.

2. Electronic-filing of patent applications has been introduced, but there is no facility of paying the fees online by credit card. This facility should be introduced to make it more convenient for applicants to file patent application online. This will also add speed to the process.

3. Electronic prosecution of patent applications should be introduced to make the patent prosecution paperless and more efficient.

4. To encourage applicants to file applications electronically, incentives such as reduced fees should be offered to applicants who file their applications electronically.

5. The Patent Office has in the past experienced problems in locating and managing physical application files. It is therefore recommended that the Patent Office introduce systems for better management and storage of physical files. Using a system of bar codes on the physical files could be one such system.

6. The Patent Office should digitize all of its physical files so that file histories of each application will be available online.

7. The Indian Patents Database and the Indian Designs Database to be released without further delay.

8. An efficient system to be introduced to ensure timely publication of all patent applications and proceedings that are eligible for publication in the technical journal of the IPO. Currently there is inordinate delay, for example Delhi Patent Office is now publishing applications for 2005

9. Patent applications that are published in the official gazette have minimal information. It is therefore recommended that the official gazette include more details of the applications in order to avoid any frivolous or unnecessary oppositions being filed.

10. The Patent office does not have any centers, which provide assistance to applicants for filing or prosecuting applications. It is therefore recommended that assistance centers should be established to help applicants to file and prosecute applications in India.

11. Clear guidelines to be issued for conducting pre-grant and post grant opposition proceedings. Presently they are being handled in an arbitrary manner

12. In order to avoid any frivolous pre-grant opposition during the prosecution of the application, the Patent Office should introduce a fixed fee that has to be paid to the Patent Office at the time of filing of a pre-grant opposition. This will help to avoid frivolous delays in the grant of the patent.

13. In order to introduce an efficient system of patent prosecution, it is recommended that the Patent Office adjust patent term to compensate patentees for any delay in the grant of the patent that reduces the term of the patent, when such delay is caused solely by the Patent office.

14. Decision making and its communication to all concerned to be made faster at the IPO. A system to be instituted for issuing the operative part of the decision first, followed by details of the decision taken. These should be advertised immediately in the technical journal to close proceedings at the earliest. Delays are leading to extensive delays in the grant of patents even if the proceedings have been concluded (opposition or otherwise) attracting serial and frivolous pre-grant oppositions. Such delays are also preventing the patent applicants to get their grants and are, therefore, unable to initiate infringement proceedings against infringers quickly, defeating the very purpose of the patent and trademark system.

15. The timeline for an application to be taken up for examination to be clearly defined. Currently, there is no time defined for taking up the applications for examination.

It will indeed be great, if the DIPP and the IPO take note of these suggestions and formalize a process within the IPO to address these issues. A growing discontentment in several areas of operation within the IPO is brewing, both in India and abroad. If such discontentment increases further, it may have serious impact on the credibility of the new IPR regime in India.

Will the Government of India want that to happen? I hope not.

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.