State funded ‘Universal Healthcare’ in India: A laudable initiative of the Government

Posted on August 29, 2011 by Tapan Ray

January 11, 2011 edition of ‘The Lancet’, in the article authored by Prof. K. Srinath Reddy et al titled, “Towards achievement of universal health care in India by 2020: a call to action”, proposed creation of an Integrated National Health System in India through provision of universal health insurance, establishment of autonomous organizations to enable accountable and evidence-based good-quality health-care practices and at the same time reduce the high out-of-pocket expenditure on health care through a well regulated integration of the private sector within the national health-care system of India, by 2020.

About six months later, in its August 16, 2011 issue ‘The Times of India’ reported that the Planning Commission of India is currently framing up the blue print for a universal health insurance scheme which would provide a minimum cover to everyone in the country. It is expected that a surcharge will be levied for this Universal Health Care (UHC) initiative.

Though UHC is indeed a very commendably initiative for India as a nation, some dubious and self-styled ‘healthcare crusaders’ have already started raising the bogey of ‘the inadequacy’ of the scheme as a diversionary measure to misguide the easily vulnerable common man of the country.

Efforts being made to sensationalize the current status of the Indian healthcare system:

Even in the backdrop of UHC initiative, the following sensational headlines could be fallacious at times, which more often than not are being misused by the vested interests:

“About 1.8 million children under age of 5 die in India every year; 68,000 mothers die due to maternal causes, and 52 million children in the country are stunted”.
“With 70% people living in more than 600,000 villages across rural India, not more than an estimated 30% have access to modern medicine”.

It is unfortunate that many key stakeholders, interested in improved healthcare system, are continuously engaged in an eternal blame game of ‘it is not my monkey’. At the same time, taking advantage of this confused situation, some other groups plan to facilitate their vested interests by projecting a ‘weaker India’ with contentious planted reports both overtly and covertly.

In this prevailing scenario, which has been continuing since the last several decades, there is no dearth of people who would attempt to hijack the health interest of the nation to harvest mega commercial benefits.

While all concerned should keep a vigil on such sinister design, let me now try to place some hard facts before you on the current healthcare scenario in India in the context of UHC.

The facts on access to ‘round the year’ healthcare facilities in India:

As reported by the Government of India in 2004, access to healthcare infrastructure and services for the rural villages in terms of percentages were as follows (Source: India Health Report 2010) :

Primary Health Centers: 68.3
Sub-Centers: 43.2
Government Dispensaries: 67.9
Government hospitals in urban areas: 79
Private Clinics: 62.7
Private Hospitals: 76.7

I reckon, after implementation of National Rural Health Mission (NRHM) and National Urban Health Mission (NRUM), this situation prevailing in 2004 has improved. However, the scope for further improvement in all these areas still remains very high. UHC could be a key facilitator.

In any case, the shrill voice highlighting around 65% of population of India does not have access to healthcare or medicines seem to be highly misplaced.

‘Access to Modern Medicines’ is improving in India, slowly but surely:

Contrary to the above propaganda, in the real life situation the access to modern medicines by the common man in the country even in the rural India is steadily increasing.

This is evidenced by the facts, CAGR (volume) of the pharmaceutical industry since the last ten years has been around 13%, leaving aside another robust growth factor being contributed through the introduction of newer brands, every year. Encouraging growth of the Indian Pharmaceutical Market (IPM), since the last decade, both from the urban and the rural areas, certainly signals towards significant increase in the domestic consumption of medicines in India.

IPM maintained a scorching pace of 16.5% growth in 2010. A recent forecast of IMS highlights near similar growth trend in 2011, as well.

In addition, extension of focus of the Indian pharmaceutical Industry, in general, to the fast growing rural markets, which are currently growing at a much faster pace than ever before, clearly supports the argument of increasing ‘Access to Modern Medicines’ even in rural India. The improvement in access may not exactly be commensurate to the volume growth of the industry during this period, but a major part of the industry growth could certainly be attributed towards increase in access to modern medicines in India.

For arguments sake, out of this rapid growth of the IPM, year after year consistently, if I attribute just 5% growth per year, for even the last nine years over the base year of 1998 (as reported in 2004 by WHO) to improved access to medicines, it will indicate, at least, 57% of the population of India currently has access to modern medicines and NOT just 35%, as I wrote in my blog earlier, quoting the numbers from the above WHO report of 2004.

Unfortunately, even the Government of India does not seem to be aware of this gradually improving trend. Official communications of the government still quote the outdated statistics, which states that 65% of the population of India does not have ‘Access to Modern Medicines’ even today. No wonder, why many of us still prefer to live on to our past.

Be that as it may, around 43% of the population will perhaps still not have ‘Access to Modern Medicines’ in India. This issue needs immediate attention of the policy makers and can be resolved with a holistic approach. UHC initiative together with improvement of healthcare infrastructure and delivery systems are the needs of the hour.

So called ‘Diseases of the Poor’ are no longer the ‘Leading Causes of Death’ in India:

As stated above, the disproportionate diversionary focus on the diseases of the poor by the vested interests, being the leading causes of death in India, should be re-validated with the data available with the office of the Registrar General of India (2009). This report highlights a totally different scenario, where the top five leading causes of death in terms of percentage, have been reported as follows:

Cardiovascular diseases: 24.8
Chronic Obstructive Pulmonary Disease (COPD): 10.2
Tuberculosis: 10.1
Cancer: 9.4
Ill-defined conditions: 5.3

Thus the diseases of the developed world, like cardiovascular diseases, COPD and Cancer cause over 45% of the total deaths in India, whereas Tuberculosis, Malaria, Diarrhea and digestive diseases cause around 23% deaths in the country. I reckon, UHC will take care of this emerging disease pattern in India.

The key reasons for not seeking medical treatment are not always poor ‘Access to Healthcare’:

While promoting the UHC, the government should take note of the key reasons for not seeking medical treatment, across socioeconomic milieu in the country. These reasons are not predominantly due to ‘Poor Access to Healthcare ‘. The following data will vindicate this point:

Reason	Rural Poorest 20%	Rural Richest 20%	Urban Poorest 20%	Urban Richest 20%
*Financial Reasons*	39.7	21.2	37.2	2.3
*Ailments not considered serious*	27.2	45.6	44.3	84.4
No Medical facilities	12.8	10.0	1.6	_
Others	20.3	23.2	16.9	13.3
Total	100	100	100	100

(Source: India Health Report 2010)

All these are happening probably because we do not have, as yet, any ‘well-structured healthcare financing system’ for all section of the society. The UHC initiative could well be a very significant part to the solution of this long standing problem together with other specific important measures, some of which I have already deliberated above.

While addressing the healthcare financing issue of India, January 11, 2011 edition of ‘The Lancet’ in its article titled, “Financing health care for all: challenges and opportunities” commented:

“India’s health financing system is a cause of and an exacerbating factor in the challenges of health inequity, inadequate availability and reach, unequal access, and poor-quality and costly health-care services. The Government of India has made a commitment to increase public spending on health from less than 1% to 3% of the gross domestic product during the next few years…. Enhanced public spending can be used to introduce universal medical insurance that can help to substantially reduce the burden of private out-of-pocket expenditures on health.”

I reiterate in this context, UHC initiative brings a breadth of fresh air to the prevailing rather gloomy healthcare financing scenario in India.

A comparison of private (out of pocket) health expenditure:

Look at it from, any angle, the general population of India is most burdened with high’ out of pocket healthcare expenses’ compared to even all of our neighboring countries:

1. Pakistan: 82.5% 2. India: 78% 3. China: 61% 4. Sri Lanka: 53% 5. Thailand: 31% 6. Bhutan: 29% 7. Maldives: 14%

(Source: The Lancet)

This factor itself, in case of just one or couple of serious illnesses, could make a middle class household of India poor and a poor could be pushed even Below the Poverty Line (BPL). UHC initiative of the Government is expected to change this scenario significantly in the years ahead.

The key unresolved issue of ‘affordability’ will get partially unresolved with UHC:

The above edition of ‘The Lancet’ highlighted that outpatient (non-hospitalization) expenses in India is around 74% of the total health expenses and the drugs account for 72% of this total outpatient expenditure. The study has also pointed out that 47% and 31% hospitalization in rural and urban areas respectively, are financed by loans and sell off assets.

This critical issue of ‘affordability’ of modern medicines is expected to get, at least partially resolved with the UHC scheme of the Government.

Around 32% of Indian BPL population can’t afford to spend on medicines:

While framing the UHC scheme, the government should keep in mind that a population of around 32% in India, still lives below the poverty line (BPL) and will not be able to afford any expenditure, however minor it may be, towards medicines. Proper implementation of the RSBY scheme with military precision, will be the right approach to this marginalized section of the society.

National Health Entitlement Card:

According to the Planning Commission, to enable the citizens availing the facilities provided by the ‘Universal Healthcare,’ the government will issue a ‘National Health Entitlement Card’, which will guarantee free access to relevant healthcare packages designed for the primary, secondary and tertiary healthcare for all. This scheme will be fully funded by the Central Government and cover both inpatient and outpatient services.

Conclusion:

Thus in the current scenario, the initiative of ‘Universal healthcare’ to provide access to healthcare to all citizens of India by addressing the critical issue of high incidence of ‘out of pocket’ expenses towards health care, is indeed a laudable initiative and ushers in a breadth of fresh air, despite all motivated comments against it.

We need also to keep in mind, although the ‘Universal healthcare’ is a fascinating mega initiative by the Planning Commission of India, this may not resolve all health related maladies of the country in one stroke.

Even in the changed scenario, a large section of the population both rich and poor and from both urban as well as rural India, may continue to not seek medical treatment assuming initially many of their ailments are not serious enough. Such a situation will definitely not materially improve the healthcare scenario of India, quite adversely affecting the economic progress of the country.

Such a situation, if continues, will necessitate continuous disease awareness campaigns with active participation of all stakeholders, including the civil society across the country, sooner than later, in tandem with all other measures as may deem necessary from time to time.

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.

Family owned pharma business: Separate ownership from management for long term organization interest

Posted on August 22, 2011 by Tapan Ray

A study recently conducted by ‘ASK Investment Managers’ reported, “Family Owned Businesses (FOB)” account for 60% of market cap among the top 500 companies in India and comprise 17% of the IT Industry, 10% of refineries, 7% of automobiles and 6% of telecom, in the country. Within the domestic pharmaceutical sector similar percentage, I reckon, will be much higher.

July 31, 2011 edition of ‘The Times of India’ published an article titled, “Keep dynasties out of India Inc.” The article described the dynastic management succession of India Inc. as:

“Family-run businesses in India have rudimentary succession plans. Most follow a set formula: the heir receives an MBA from a good American university, joins the family business in mid-management, rises rapidly up the ranks and eventually takes the top job”.

Many, however, believe that, especially, for medium to large Indian companies, the financial interest of the owners will be better served if they separate ownership from management, as we find even today that just below the founder Chairman, many big Indian corporations like, Reliance, Tata, Aditya Birla Group, Godrej and even Dabur, are run by strong team of professionals. However, such a scenario has not emerged in the domestic pharmaceutical industry of India, not just yet.

In this context, it is worth mentioning that while interacting at a CII event in New Delhi on April 9, 2011, Mr. Adi Godrej, Chairman of Godrej Group said:

“I expect that my successor will be someone from the family. Though the heads of the Group Companies are all professionals… If a family member is to be chosen, external assessment is also very important.”

On a different note, Mr. Rahul Bajaj, Chairman of Bajaj Group had earlier announced that their businesses will continue to be managed by Bajaj family members.

This brings us to the moot question, ‘is there any institution more enduring or universal than a family business?’ Before the multinational corporations, there were FOBs. Before the Industrial Revolution, there were FOBs. Before the enlightenment of Greece and the empire of Rome, there were FOBs.

However, with today’s fast changing corporate business dynamics, the same question haunts again, ‘will the FOBs prevail in this new millennium, as well?
Families are the developmental foundation for new business and future prosperity:
In many of the most productive countries, like, the United States, Germany, Spain and China, to name just a few, families control up to 90 percent of the businesses and contribute more than 50 percent of the gross domestic product. In the emerging economies, families are the developmental foundation for new business and future prosperity. Until now, the focus on ensuring prosperity through family businesses was to help them preserve wealth and survive from one generation to the next. But with changing times, the families have come to understand the requirements for long-run growth and productivity that can generate prosperity for many generations to come. A critical facet of all thriving businesses and growing economies is no secret entrepreneurship.
Need to differentiate between a family and business interest: Even in India a large number of businesses are owned and managed by families, which though always may not be considered as a weakness, as long as the families are able to:
• Differentiate between a family and business interest • Bring in a strategic focus in business, instead of trying to do everything that appears lucrative • Strike a right balance between their short and long term strategic business goals with a sharp customer focus • Build a human capital for the organization and appoint the best professionally-fit person for the key positions • Decentralize the decision making process with both authority and accountability. (Unfortunately many Indian entrepreneurs still feel that an organization can be termed as a professional one just by hiring outside professionals and keeping all major decision making authority within the family and close friends) • Institute good corporate governance within the organization.

In India, almost all of the domestic Pharmaceutical companies are family run:
Almost hundred percent of the domestic Pharmaceutical companies in India are currently family run. As most of these companies started showing significant growth only after 1970, we usually see the first or second generation entrepreneurs in this family run businesses. In most of these companies, ownership is well defined and has been very clearly established. Unfortunately, in few others, internal squabbles within the family members, make the Board of Directors irrelevant and consequently seem to be on a disastrous tail spin.

The most successful Indian Pharmaceutical Company, so far, with global foot prints is Ranbaxy. Unfortunately, in the very early third generation of entrepreneurship, the business was sold off to Daichi-Sankyo, probably for some very valid business reasons.
Even in the second generation of entrepreneurship, we have witnessed some well known Pharmaceutical Companies, like Glenmark, Elders etc. getting split up between brothers. Perhaps in future we shall see more of such splits and consolidations.
What could possibly be the reason of such changes within the family managed Indian Pharmaceutical Business? Could it be due to an overlap between family and business interests? Could it be that a professional manager at the helm, devoid of the concerned business family interest and reporting to a professional board of directors could have managed the business better? Is it then an issue of business leadership? Most probably it is.
‘Family Councils’ or ‘Super Board’?
Many ‘family owned’ companies in India irrespective of the types of business, after the organization attains a critical mass, create an informal or even formal “Family council” consisting of the family members. The “Family Councils” act as a primary link between the business family and the Board. They also play a key role in the appointments of the Board Members, the CEO and his direct reports.
Some feel that these ‘Family Councils’ with the sweeping decision making authority at the highest level that they have vested on themselves, could at times tend to act as a ‘Super Board’. When it happens, it seriously impedes the independent functioning of the Board, which may in turn prove to be counter- productive to overall governance of the business.
The situation could get further complicated, if there is a discord within the members of these all-powerful “Family Councils.”
Should a family business be professionalized in true sense?
Let us now try to deliberate, if the family decides to hand over the reign of business to a professional CEO, reporting directly to a professional board of directors, while retaining majority of voting rights, how could the family address this situation?
It is reported that at the close of 2007, the Chairman of Eli Lilly & Co. said publicly what many industry observers have been saying privately for some time, “I think the industry is doomed if we don’t change”. The accompanying statistics painted a grim picture of the traditional big pharma business model going from blockbuster to bust. The old business model – sprawling organizations, enormous capital investments, and spiraling costs, underwritten by a steady stream of multibillion blockbuster products – is simply no longer feasible.
In search for a new and more viable business models, some boards of directors have been selecting CEOs of substantially different backgrounds to lead their companies through the current industry crisis.
It’s a bold new direction and being adopted by a number of leading companies. However, entails significant risk that boards should fully understand and take steps to mitigate.
The family run Pharmaceutical Companies in India should take a note of the changing dynamics of the professionally managed global pharmaceutical business while selecting the helmsman and may wish to get some message out of those newer trends, as and when they would decide to pass on the baton to a professional CEO reporting directly to a well competent professional board of directors.
Changing dynamics of the Big Pharma . . .
Although some global pharmaceutical companies are still following the traditional succession planning model, many leading pharmaceutical companies have started adopting different new models for succession planning. I have tried to classify those models into 4 categories, as follows:
GenNext Insiders: Preferring to seek leaders with pharma experience but with new perspectives, some boards have selected youthful industry insiders to take the reins:
• GlaxoSmithKline, Europe’s largest drug maker, has designated Andrew Witty to succeed Jean-Pierre Garnier as chief executive officer in May 2008. At 43, the new CEO, who has been with the company since 1985, will be its youngest-ever leader.
• One month before Witty took over at Glaxo, Severin Schwan, 40, became the youngest-ever CEO of Roche Holding AG, where he has spent his entire career.
Dare Devils: Other boards, also seeking the combination of pharmaceutical experience and new perspectives, have sought industry insiders from functions that don’t ordinarily lead to the top job:
• In 2006, Pfizer named Jeffrey Kindler, the company’s general counsel, to succeed Henry McKinnell. Kindler in his rather short tenure as the head honcho of the company, oversaw the company’s mega cquisition of Wyeth. However, in mid December, 2010 Jeffrey Kindler retired, rather all of a sudden, reportedly not being able to cope with the work pressure and Pfizer veteran Ian Read, Head of its Biopharmaceutical operations, immediately assumed the role of President, CEO and director in the Board of the Company.

• James M. Cornelius, who was named CEO of Bristol-Myers Squibb in September 2006, spent 12 years as CFO of Eli Lilly.
Youthful Outsiders: Pursuing a leadership model that represents both the promise of youth and of outside perspectives, some companies have selected young leaders from other industries, initiating them into the pharma industry and then promoting them to CEO:
• In 2000, Thermo Electron (now Thermo Fisher Scientific) named as COO the then 41-year-old Marijn E. Dekkers, who had previously held several executive positions at Honeywell International, and who became CEO of Thermo in 2002.
• In 2007, Novartis brought 47-year-old Joseph Jimenez aboard to lead the Novartis Consumer Health Division and named him CEO of Novartis Pharmaceuticals shortly after. He brought with him extensive experience in consumer products at ConAgra, Clorox, and Heinz.
Seasoned Outsiders: Although a 50-something executive from outside the industry would offer an attractive combination of an established record of leadership and fresh perspectives, this model has rarely been tried. The scarcity of examples is surprising, given that such a strategy is less risky than bringing in youthful outsiders, and I expect to see this new model adopted in upcoming nominations.
Enabling it to work… One will observe that the risk in all of these new representations is high but doing nothing is inherently riskier. In the meantime, I would recommend that Indian Pharmaceutical Companies who may contemplate to examine one of these models should try to explore the following three steps to ensure long-term success:
1. Employ the most sophisticated assessment techniques available:
In all four versions, the most difficult challenge is evaluation of talent.
GenNext Insiders lack the extensive leadership background that might indicate how well they will perform over the long term.
Dare Devils are difficult to assess for competencies they’ve rarely been required to exhibit.
Youthful Outsiders not only lack extensive leadership backgrounds but also pose the question of how well their talents will apply to pharma.
Seasoned Outsiders pose the same challenge.
Arguably, these new leadership models have expanded the pool of potential CEO candidates, but they clearly require boards to exercise great diligence in assessment.
2. Continually plan for succession:
After installing a new CEO, the Indian entrepreneur along with its professional Board of Directors shouldn’t assume that the company is set for the next five to ten years. In the event that the new leader fails to produce over the first 24-36 months, the board should have a Plan B already in place, as the markets will not be as patient. Defining skill sets, aligning search committees, and recruiting a new leader takes time, and the average length of CEO tenure continues to shrink. Thus through ongoing succession planning, the board can be ready for any eventuality. It is wise to engage in constant succession planning at the top in any industry, but it’s essential in an industry searching for fundamental shifts in its business models, through new leadership.
3. Create a talent pool:
For an Indian Pharmaceutical Company, in a short span – the search for CEO talent will become even more challenging. The professional board of directors will understand this today and insist that their companies take action to create a talent bench now, by bringing in executives from other industries and providing them with development plans that can potentially lead to the top job. Stakeholders and markets are unlikely to wait patiently for success in this period of profound transformation in the industry. Whichever leadership models the boards will choose, they should take every precaution to get it right the first time.
Family-run Indian Pharmaceutical Businesses will now face even a more challenging future:
The glorious history of the family run Indian Pharmaceutical Business will now face even a more challenging future. The valor and resolve of these entrepreneurs would be tested by the product-patent regime, the ever evolving product portfolios, the environment of intense competition and consolidations.
Crossing the second generation of a ‘family-run’ business is critical:
In most of the family-run pharmaceutical businesses, successfully crossing the second generation of promoters appears to be critical for the ongoing success of the organizations. A large majority of family-run pharmaceutical businesses in India is still run by the first generation of promoters. Those companies, including very large ones like Ranbaxy or even the medium to smaller size promoter driven pharma businesses, who are or were with their second generation of promoters, had faced or could face their own problems in various areas including the ownership issues or in passing on the baton to a competent successor. In that process some of these very successful companies have even changed hands.
In addition, some other well-reputed promoter driven pharmaceutical businesses are ‘going south’ in their business performance, mostly because the second generation of promoters are not collectively pulling on to the same direction and in that process creating confusion within the management of the organization. Upcoming third generation, though not yet ready to run the businesses, tend to throw their weight in the critical decision making process, endangering very survival of the business. This could put the organization in a difficult to control deadly ‘tail-spin’, as it were.
Conclusion:
In a situation like this, with increasing global business opportunities, together with the new IPR regime, Indian Pharmaceutical entrepreneurs should separate the ‘business interest’ from the ‘family interest’, appoint a professional CEO, reporting directly to a competent and professional board of directors, to face squarely the “Challenge of Change” and be accountable to deliver the agreed deliverables to the stakeholders of the business.

A fair and transparent succession model is a crucial element of good corporate governance in the family run pharmaceutical businesses in India, just as any other industry sectors. Someone in this context said, “the market is a ruthless arbiter: it will reward companies that rise above family’.

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.

Pharmaceutical R&D in India: Issues and Challenges

Posted on August 15, 2011 by Tapan Ray

Research and Development (R&D) initiatives, though very important for most of the industries, is the life blood for the pharmaceutical sector, across the globe, to meet the unmet needs of the patients. Thus, very rightly, the Pharmaceutical Industry is considered as the ‘lifeline’ for any nation, in the battle against diseases of all types.

Drugs and Pharmaceuticals not only cure diseases and improve the quality of life of patients, but also help reducing the ‘burden of disease’ significantly. A study on five illnesses like AIDS, Cardiovascular, Cancer, Alzheimer’s and Rheumatoid-arthritis showed that drug research will save more than US$ 750 Billion in the treatment costs alone _[1].

Similarly, treatment with drugs for schizophrenia can save more than US$ 70,000 per patient per year, due to avoidable hospitalization _[2]. All these highlight the critical role that R&D could play in the healthcare system of any country.

R&D is not a threat to cheaper generic medicines:

More number of incoming patented medicines from the R&D labs will ensure faster growth of the generic pharmaceutical industry too, after the former will go off-patent. Even in the USA, which offers the highest number of innovative medicines across the globe, has a vibrant high growth generic pharmaceutical industry in place. The market penetration of cheaper generic drugs in the US is amongst the highest in the world and stands at more than half of all prescription medicines.

R&D process:

Over the years, pharmaceutical R&D process, though has evolved into a highly sophisticated and complex science, it still calls for enormous resources in terms of money, materials and skilled manpower, besides years of precious time.

Over a period of so many years, the small-molecule blockbuster drugs business model made pharmaceuticals a high-margin industry. However, it now appears that the low hanging fruits to make blockbuster drugs have mostly been plucked.

These low hanging fruits involved therapy areas like, anti-ulcerants, anti-lipids, anti-diabetics, cardiovascular, anti-psychotic etc. and their many variants, which were relatively easy R&D targets to manage chronic ailments. Hereafter, the chances of successfully developing drugs for cure of these chronic ailments, with value addition, would indeed be a very tough call. Even in this environment, India’s investment in R&D still remains very modest by the international standard.

Global R&D investment and Asia-Pacific Region:

It has been reported that in the global pharmaceutical industry_[3] 85 % of the medicines are produced by North America, Europe, Japan and Latin America and the developed nations hold 97% of the total patents worldwide.

Unlike the common perception, that China is attracting a significant part of the global investments towards R&D, latest data of MedTRACK revealed that only 15% of all drugs development is taking place in Asia-Pacific, despite the largest growth potential of the region in the world.

The key growth driver of any economy:

Innovation being one of the key growth drivers for the knowledge economy, creation of innovation friendly ecosystem in the country calls for a radical change in the mind set – from ‘process innovation’ to ‘product innovation’, from ‘replicating a molecule’ to ‘creating a molecule’. A robust ecosystem for innovation is the wheel of progress of any nation.

It is encouraging to hear that the Government of India is working towards this direction in a more elaborate manner in its 12^th Five Year Plan.

Indigenous capability for production of the country must give way to indigenous capability for innovation and discovery. Laws and policies need to facilitate, reward, recognise, protect and encourage all those who are or could be a part of this critical process.

Striking a right balance between the cost of research and affordability of medicines:

While the common man expects newer and better medicines at affordable prices, the Pharmaceutical Industry has to battle with burgeoning R&D costs, high risks and increasingly long period of time to take a drug from the ‘mind to market’, mainly due to stringent regulatory requirements. It will indeed be a very proud moment for India, when a drug, especially, for treating Non-infectious Chronic Diseases (NCD) comes out of its home-grown R&D centers.

R&D is an arduous process:

The dynamics of Drug Discovery are shown below:

Despite patent life being 20 years, effective period of exclusivity for the discoverer is only 7.5 – 8.5 years.

Stages of Development	No. of Years
Pre-clinical	3.5
Clinical	6.5
Regulatory	2.5 – 1.5
Total:	12.5 – 11.5

Another report, as depicted in the chart below indicates the investment pattern in R&D by various countries in the developed markets of the world:

Where does the money go? (%)

US	36
Japan	19
Germany	10
France	9
UK	7
Switzerland	5
Sweden	3
Italy	3
Other	8

Where does the R&D investment go? (%)

Synthesis & Extraction	12
Screening & Testing	15
Toxicology & Safety	5
Dosage & Stability	9
Clinical Phase 1-3	26
Phase IV	6
Process Dev. & QA	10
IND & NDA	4
Bioavailability	2
Other	11

Looking at the long lead time before a new drug starts paying back and even if net profitability of 50% on sales are permitted, recovery of the entire R&D cost only from the Indian market would be virtually impossible. Hence, if Indian R&D is to pay back, we need to have access to overseas markets.

Harmonization of regulatory standards is a must for containment of R&D costs. Researchers in the country are currently following the ‘DRL’ or ‘Glenmark’ model of selling /out licensing the discovery for offshore development.

Strengths and weaknesses of India in Pharmaceutical R&D:

Following are the current strengths and weaknesses of the Pharmaceutical Industry of India from the R&D perspective:

Strengths:

Mature Industry with strong manufacturing base
Strengths in (innovative) process chemistry
Abundance of raw talent
Entrepreneurial spirit
Highly talented and skilled Indian scientists working abroad (great potential for networking)
Low cost of Manpower
Cost effective Manufacturing Facilities
Rich Biodiversity
Global Clinical Trials are now being contacted in India

Weaknesses:

Lack of funding and resources
Lack of a ready ‘talent pool’
Low profile of high quality work being carried out
Inadequate regulatory framework / infrastructure
Low investment in R & D
Missing Link between Research and Commercilisation

R&D Expenditure in India:

The following chart gives details of R&D spend of the major players of the Indian Pharmaceutical industry in 2009:

	FY 2009 (USD=INR46)
Company	Sales USD Mn.	R&D USD Mn.	As % of Sales
Ranbaxy Laboratories	1610	90.3	5.6
Dr. Reddy’s Laboratories	1572	83.6	5.3
Cipla	1152	51.2	4.4
Sun Pharmaceuticals	951	67.4	7.1
Lupin	847	48.4	5.7
Wockhardt	770	11.2	1.4
Piramal Healthcare	720	18.5	2.6
Cadila Healthcare	644	34.4	5.3
Aurobindo Pharma	557	24.5	4.4
Matrix Laboratories	500	46.6	9.3
Total	9324	476	5.1

(Source: Prowess: Business World, February 8, 2010)

Research Options for India:

Following are various research options available to India:

Basic Discovery Research:

Basic Discovery Research is capital intensive, costly and takes a long time for the return on investments. This could be made possible only if significant (NIH-type) funding is available.

Genetic & Proteomic Research:

Genetic and Proteomic Research involves many of these following procedures:

- Decoding Human Genetic Code

- Identification of Genetic Markers

- Personalized cards or chips that will contain each person’s genetic structure

- Genetic Manipulation to alter a person’s susceptibility to a particular disease

- Elimination of therapies that will not work on certain genotypes

This is probably the most exciting field of Research today, where the Industry will be able to “leap-frog” given the right priority. The International Center of Genetic Engineering and Biotechnology (ICGEB) is already a recognized center of excellence both within and outside the country. Hence international grants and funding must be aggressively pursued.

Biotechnology & Biosimilars:

Biotechnology & Biosimilar drugs could be yet another opportunity area for India to leapfrog. Biotech derived products are among the fastest growing in the world. These products being more expensive, if discovered and developed locally, could be affordable to many and also highly profitable. Immunological and DNA Vaccines could be the most cost-effective answer to healthcare problems in developing countries, including India and should, therefore, be given top priority. Here again, collaborative and international grants will be a critical success factor, just as the success of Biotech Companies in the US was fuelled by private venture capital.

Process Research:

While focusing on Product Research, the Process Research should not be ignored, as India possesses considerable skill base for this type of research, even better than China. Cost effective, more and more economical processes will always be necessary to make products more and more affordable to patients.

Natural Product Screening:

India’s rich bio-diversity should not go waste. The amount of work being done today is negligible as compared to the availability of “raw material” from the natural source. Indian bio-diversity should be captured and cataloged into a meaningful library to facilitate R&D in this area.

The ‘Open Innovation’ Model:

As the name suggest, ‘Open Innovation’ or the ‘Open Source Drug Discovery (OSDD)’ is an open source code model of discovering a New Chemical Entity (NCE) or a New Molecular Entity (NME). In this model all data generated related to the discovery research will be available in the open for collaborative inputs. In ‘Open Innovation’, the key component is the supportive pathway of its information network, which is driven by three key parameters of open development, open access and open source.

Council of Scientific and Industrial Research (CSIR) of India has adopted OSDD to discover more effective anti-tubercular medicines.

Other Areas:

Epidemiological Research: The Industry needs good reliable data on the burden of human diseases. In the absence of this data, it will be difficult to allocate resources and predict outcomes of new therapies.
Clinical Research (including toxicological / animal testing): This area needs to be made world class, sooner than the later, not only to bring down the cost of drug development, but also to ensure that the data thus produced are acceptable in other countries. India has the potential to emerge as the most sought after global hub for pre-clinical and clinical drug development processes.

Success of Indian pharmaceutical companies in R&D:

Following are the details of success of some major domestic pharmaceutical players in their pharmaceutical R&D initiatives:

Company	NCE Pipeline	Key Therapeutic Area
Biocon	Preclinical – 2Phase II – 2Phase III – 1	Inflammatory Diseases, Oncology, Diabetes
Piramala Healthcare	13 Compounds in Clinical Trials	Oncology, Infectious Diseases, Diabetes, Inflammatory Diseases
Glenmark	Discovery – 4Preclinical – 5Phase I – 1Phase II – 3	Metabolic Diseases, Infectious Diseases, Respiratory Diseases, Oncology
Suven Life Sciences	Discovery – 2Preclinical – 4Phase I – 1	Neurodegenerative Diseases, Obesity, Diabetes, Inflammatory Diseases
Dr. Reddy’s Lab	Preclinical – 1Phase II – 2Phase III – 1	Metabolic Disorders, Cardiac, Oncology
Advinus	Preclinical – 3	Diabetes, Cardiac, Lipid Disorders
Worckhardt	Preclinical – 10Phase II – 1	Infectious Diseases
Lupin	Discovery – 2Preclinical – 1	Migraine, Psoriasis, T.B.

(Source: Financial Express, March 13, 2009)

Basic pre-requisites to encourage R&D in India:

Innovation friendly ecosystem
Adequate Funding
World class Infrastructure
Ready talent pool

The key elements of creating an ecosystem conducive to R&D:

Knowledge and learning need to be upgraded through the universities and specialist centres of learning within India.
Science and Technological achievement should be recognized and rewarded by the sanction of grants and the future funding should be linked to scientific achievement.
Indian scientists working abroad are now inclined to return to India or network with laboratories in India. This trend should be effectively leveraged.

Key role of Universities:

Most of our raw talent goes abroad to pursue higher studies. International Schools of Science like Stanford or Rutgers should be encouraged to set up schools in India, just like Kellogg’s and Wharton who have set up Business Schools. It has been reported that the Government of India is actively looking into this matter.

R&D funding:

Access to world markets is the greatest opportunity in the entire process of globalisation and the funds available abroad are a valuable source of “funding” to boost R&D in India. Inadequacy of funding is the greatest concern.

The various ways of funding R&D could be considered as follows:

Self-financing Research: This is based on (i) “CSIR Model” i.e. recover research costs through commercialization – collaboration with industries to fund research projects and (ii) “Dr Reddy’s Lab / Glenmark Model” i.e. recover research costs by selling lead compounds without taking through to development – wealth creation by the creation of Intellectual Capital.
Overseas Funding: By way of joint R&D ventures with overseas collaborators; seeking grants from overseas Health Foundations; earnings from Contract Research as also from Clinical Development and transfer of aborted leads (‘Killing Fields” of the West) and collaborative projects on Orphan Drugs. Multinational companies could be encouraged to deploy resources, as this is where the real money is.
Venture Capital & Equity Market : This could be both via Private Venture Capital Funds and Special Government Institutions. If regulations permit, foreign venture funds may also wish to participate. Venture Capital and Equity Financing will emerge as important sources of finance once track record is demonstrated and ‘early wins’ are recorded.
Fiscal Support & Non-Fiscal Support: Will also be valuable in early stages of R&D, for which a variety of schemes are possible as follows:

Customs Duty Concessions: For Imports of specialised equipment, e.g. high throughput screening equipment, equipment for combinatorial chemistry, special analytical tools, specialised pilot plants, etc.
Income tax concessions (weighted tax deductibility): For both in-house and sponsored research programmes.
Soft loans: For financing approved R&D projects from Government financial institutions / banks.
Tax holidays: Deferral, loans on earnings from R&D.

Government funding: Government grants though available, tend to be small and typically targeted to government institutions or research bodies. There is very little government support for private sector R&D.

All these schemes need to be simple and hassle free and the eligibility criteria must be tight.

Infrastructure for R&D:

Scientific infrastructure needs of the country require to be urgently strengthened. Many of our Research Institutions require immediate upgradation. All research laboratories should be encouraged to be profit driven and plough back earning in modernization.

Quality of life (proximity to schooling, hospitals, recreation) and ambiance is important, particularly for scientists working abroad, who could be encouraged to return to India.

Setting up of world class Clinical Pharmacology Laboratories and Toxicology Centers must be considered. All clinical trials carried out in India must conform to GCP standards. At the same time, Indian registration procedures should be harmonized and simplified in order to minimize duplication of efforts and time loss.

Indian Patent infrastructure:

Indian patent infrastructure needs to be strengthened, among others, in the following areas:

Enhancing patent literacy both in Legal and Scientific Communities, who must be taught how to read, write and file a probe.
Making available appropriate Search Engines to our scientists to facilitate worldwide patent searches.
Creating world class Indian Patent Offices where the examination skills and resources will need considerable enhancement.
Advisory Services on Patents to Indian scientists to help in filing patents in other countries.

Partnering for Drug Discovery:

Many Indian pharma companies have entered into international collaborative arrangements, including R&D for development of new drugs for disease areas like cancer, diabetes, malaria and nervous system disorders.

DRL has partnered with ClinTec International for clinical trials and co-development of its anti-cancer drug. ClinTec International will possess the marketing rights for European markets while the commercialization for the rest of the world and US markets would be retained by DRL. It has also tied up with Torrent Pharma for the exclusive marketing rights of its two hypertension drugs in Russia, where Torrent has a strong market hold.

GSK and Ranbaxy set up an early-stage partnership in drug research, under which GSK will provide the Indian firm with leads, Ranbaxy will conduct lead optimization and animal trials, and GSK will take the drug through human trials. GSK will have exclusive rights to sell any resulting product in developed-world markets, and the two firms will co-promote it in India.

Conclusion:

- It is essential to have balanced policies offering equitable advantage to all stakeholders, including patients.

- Globalization brings opportunities like, access to markets, which are far more profitable than ours. Any policy of isolation or retaliation in an increasingly more global environment, could go against the general interest of the country.

- Acceptance by the Government of the benefits of privatization, market liberalization and rationalization of Government controls, will add speed to R&D initiatives.

- The trade policy is another important ingredient of public policy which can either reinforce or retard R&D efforts.

- Empirical evidence across the globe has demonstrated that a well balanced patent regime in the country encourages the inflow of technology, stimulates research and development, benefits both the national and the global pharmaceutical sectors and most importantly benefits the healthcare system.

- The Government, academia, scientific fraternity and the Pharmaceutical Industry should get involved in various relevant Public Private Partnership (PPP) arrangements for R&D to ensure wider access to newer and better medicines in the country, providing much needed stimulus to the public health interest of the nation.

References:

The Process of New Drug Discovery and Development, Second Edition, Charles G. Smith and James T. O’Donnell, 2006, p. 422, published by Informa Healthcare.
Goddamn the Pusher Man, Reason, April 2001
Abhinav Agrawal, Kamal Dua, Vaibhav Garg, U.V.S. Sara and Akash Taneja, 27- Challenges and Opportunities for The Indian Pharma Industry, Health Administrator vol. xx number 1&2 : 109-113
“Food & Drug Administration, Generic Drugs: Questions and Answers”. Food and Drug Administration, January 12, 2010.

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.

Credible role of CCI and NPPA should allay fear of possible ill effects of FDI in Pharmaceuticals

Posted on August 8, 2011 by Tapan Ray

On August 3, 2011, ‘The Hindu Business Line’ reported, “Domestic drug-makers worried by side-effects of MNC buyouts.” It opined, “Acquisitions in the pharma industry came in for sharp focus, after several domestic drug-makers sold their operations partially or entirely to overseas companies – raising concerns of, among other things, increase in medicine prices.”

However, on August 4, 2011 the same business daily retorted, “MNC drug-makers allay fears of rise in prices.” It asserted, “Multinational drug-makers have stressed that they are committed to achieving the country’s healthcare goals”.

March 18, 2011 issue of ‘Export Import News’ wrote, “FDI in pharma sector comes down during current financial year as debate on ‘Take-Overs’ rages on”.

The Union Health Minister Mr. Ghulam Nabi Azad is reportedly arguing in favor of putting a cap on the FDI limit for pharmaceuticals in India. This is based on an apprehension that such FDI would have an overall adverse impact on the health care scenario of the country, especially, on pricing and availability of medicines to the common man.

It has also been reported that the Commerce Ministry is in favor of reviewing the situation after taking into consideration of the report to be submitted to them by an international consulting firm. This seems to have been prompted by the request of the Department of Pharmaceuticals (DoP) based on the recent takeovers of Indian companies by the Multi National Pharmaceutical Corporations. It appears that the recommendations of the Ministry of commerce, prepared in consultation with the DoP, will then be forwarded to the Economic Advisory Council to the Prime Minister for a final direction on the much hyped and talked about issue.

Views of the Planning Commission of India:

Meanwhile, most of the daily business papers of India reported that on July 12, 2011, the Deputy Chairman of the Planning Commission of India Mr. Montek Singh Ahluwalia commented, “I don’t think there is any move anywhere to prevent the expansion of existing 100% foreign owned pharmaceutical companies or to prevent green field investment by foreign companies.”

A reasonable comment:

This comment of Mr. Ahluwalia seems quite reasonable, considering the fact that full control of powers on Mergers and Acquisitions of the Competition Commission of India (CCI) effective June 1, 2011, has already been notified.

CCI to address all possible adverse impact on competition due to M&A:

The Competition Commission of India (CCI) will now carefully scrutinize the possibilities of the market being less competitive due to Mergers and Acquisitions (M&A) of companies across the industry in the country. This concern becomes even greater, especially, in the horizontal mergers and acquisitions between the comparable competitors in the same products or geographic markets, as we have been witnessing also in the pharmaceutical sector of India, over a period of time.

However, the country is yet to notice any quantifiable ill effects of such horizontal or vertical M&A. Neither is there any major case pending with the CCI in this regard for the pharmaceutical sector.

Competition related scrutiny is nothing new in the developed markets:

Competition related scrutiny during M&A is nothing new in the developed markets of the world and is already being followed in the USA, the countries within the European Union (EU) and elsewhere.

Key concerns with M&A in pharmaceuticals:

Many believe that M&A even in the oligopolistic nature of pharmaceutical market in any country, if not abused will not do any harm to competition. Possibly for this reason, it will be rather difficult to cite many examples, the world over, where companies have been stopped from merging by the regulators because of anti-competitive reasons.

Another school of thought, however, believes that large M&A could ultimately lead to oligopolistic nature of the pharmaceutical industry with adverse impact on competition. Thus M&A regulations are very important for this sector.

Moreover, we need to remember that competition no longer depends only on the number of players in any given field. To explain this point many people cite the example of two large global players in the field of brown liquid beverages, Coke and Pepsi, where despite being limited competition, consumers derive immense value added economic benefits due to cut throat competition between these two large players.

It goes without saying, CCI must ensure that in any M&A process, even within the pharmaceutical industry of India, such rivalry does not give way to an absolute monopoly, directly or indirectly.

M&A activity in India:

In India, the consolidation process within the Pharmaceutical Industry started gaining momentum way back in 2006 with the acquisition of Matrix Lab by Mylan. 2008 witnessed one of the biggest mergers in the Pharmaceutical Industry of India, when the third largest drug maker of Japan, Daiichi Sankyo acquired 63.9% stake of Ranbaxy Laboratories of India with US $4.6 billion.

Last year, in May 2010, Chicago based Abbott Laboratories acquired the branded generics business of Piramal Healthcare with US$3.72 billion. This was soon followed by the acquisition of Paras Pharma by Reckit Benkiser.

The ground realities:

In India, if we look at the ground reality, we find that the market competition is extremely fierce with each branded generic/generic drug (constituting over 99% of the Indian Pharmaceutical Market, IPM) having not less than 50 to 80 competitors within the same chemical compound. Moreover, 100% of the IPM is price regulated by the government, 20% under cost based price control and the balance 80% is under stringent price monitoring mechanism.

In an environment like this, the apprehension of threat to ‘public health interest’ due to irresponsible pricing will be rather imaginary. More so, when the medicine prices in India are the cheapest in the world, cheaper than even our next door neighbors like, Bangladesh, Pakistan and Sri Lanka.

CCI and NPPA will play a critical role:

One of the key concerns of the stakeholders in India is that M&A will allow the companies to come together to fix prices and resort to other anti competitive measures. However, in the pharmaceutical industry of the country this seems to be highly unlikely because of effective presence of the strong price regulator, National Pharmaceutical Pricing Authority (NPPA), as mentioned above.

Thus even after almost three years of acquisition, the product prices of Ranbaxy have remained stable, some in fact even declined. As per IMS MAT June data, prices of Ranbaxy products grew only by 0.6% in 2009 and actually fell by 1% in 2010. Similarly post acquisition of Piramal Healthcare by Abbott USA and Shantha Biotech by Sanofi of France, average product price increases of these two Indian subsidiaries were reported to be just around 2% and 0%, respectively.

However, even if there is any remote possibility of M&A having adverse effect on competition, it will now be taken care of effectively by the CCI, as it happens in many countries of the world, Israel being a recent example involving an Indian company.

‘Competition Commission’ does intervene:

In the process of the acquisition of Taro Pharma of Israel by Sun Pharma of India in 2008, being concerned with the possibility of price increases due to less competitive environment in three generic carbamazepine formulations, the Competition Commission in Israel intervened, as happened in many other countries. As a result, Sun Pharma was directed by the regulator to divest its rights to develop, manufacture and market of all these three formulations to Torrent Pharma or another Commission approved buyer.

There are many such examples, across the world, of Competition Commission playing a key role to negate any possible ill effect of M&A.

Will the new Competition Law delay the M&A process?

Some apprehensions have been expressed that the new competition law could delay the process of a Mergers and Acquisitions (M&A) . However, it is worth noting, in case the CCI will require raising any objection after the voluntary notification has been served, they will have to do so within 90 working days, otherwise the M&A process will deem to be solemnized.

Conclusion:

I reckon, in the M&A process, the entire Pharmaceutical Industry in India would continue to act responsibly with demonstrable commitment to help achieving the healthcare objectives of the nation.

Global players will keep on searching for their suitable targets in the emerging markets like India, just as Indian players are searching for the same in the global markets. This is a process of consolidation in any industry and will continue to take place across the world.

Adverse impact of M&A on competition, if any, will now be effectively taken care of by the CCI. In addition, the apprehension for any unreasonable price increases post M&A will be addressed by the National Pharmaceutical Pricing Authority (NPPA).

Thus, there are enough checks and balances already being in place to avoid any possible adverse impact due to M&A activities in India.In this evolving scenario, it is indeed difficult to understand, why the FDI issue related to M&A in the Pharmaceutical space of India is still catching headlines of both in the national and international media.

Be that as it may, it goes without saying that as we move on, the role of CCI in all M&A activities within the Pharmaceutical Industry of India will be keenly watched by all concerned, mainly to ensure that the vibrant competitive environment is kept alive within this sector.

Restructure, reposition and empower the DoP to deliver more to the nation: Break the Silos

Posted on August 1, 2011 by Tapan Ray

A news item on July 25, 2011 reported, “DoP (Department of Pharmaceuticals) moots National Authority for Drugs & Therapeutics (NADT) with Central Drugs Standard Control Organization (CDSCO) under it”.

If I recall, some years ago, a Government of India (GoI) appointed taskforce had also suggested integration of the offices of the DCGI, CDSCO and NPPA along with all their powers and functions. However, nothing has fructified, as yet, not even the Central Drug Authority (CDA) Bill, which was mooted in 2007.

In the same context while taking a pause to look back, we note that in 2008 to help accelerating the growth momentum of the pharmaceutical industry of India through a more efficient government administrative and policy machinery, the GoI created a new department called the ‘Department of Pharmaceuticals’ under the MOC&F.

It was widely expected at that time that the DoP will be able to address the following key pharmaceutical industry related issues with an integrated approach to strike a right balance between the growth fundamentals of the industry and the Public Health Interest (PHI):

Drug policy and pricing
Providing access to high quality and affordable modern medicines to all
A facilitating drug regulatory system
An appropriate ecosystem to encourage R&D and protect Intellectual Property Rights (IPR)
Addressing the issue of high out of pocket expenses of the general population for healthcare
Fiscal and tax incentives required by the Micro-Small and Medium Enterprises (MSME) within the pharmaceutical industry of India.

As stated above, all these will necessitate close coordination and integration of work of various departments falling under the different ministries of the government.

The key Objectives of the DoP:

Following are the stated key objectives of the DoP:

1 Ensure availability of quality drugs at reasonable prices as per the Pharma Policy

2 Facilitate growth of Central pharma PSUs with required support

3 Develop Pharma Infrastructure and Catalyze Drug Discovery and Innovation

4 Launch and Position Pharma India Brand.

The moot questions:

Considering all these, the moot questions that could follow are as follows:

Do the objectives of the DoP effectively address the need to improving access to quality and affordable medicines to the common man with an integrated approach between all concerned departments of MOC&F and MOH&FW?
Is the nodal department of the pharmaceutical industry – the DoP currently placed in the right Ministry to contribute more effectively to achieve the ultimate national goal of ‘ affordable healthcare for all’ ?

Need for greater co-ordinated approach:

The issue of access to quality and affordability medicines, reaching patients in conformance to a strict regulatory framework, will need to be addressed with an integrated systems approach.

As is commonly believed, increasing access to modern medicines will depend mainly on the following key requirements:

Creating an appropriate healthcare infrastructure and delivery system across the country.
Making prices of medicines reasonable/affordable to a large section of the population.
Reducing high (80%) ‘Out of Pocket’ healthcare expenses of the common man through a well-structured healthcare financing/health-insurance model for all strata of society.

All these measures will entail very closely working together between the DoP and the related departments of MOH&FW. This situation calls for consideration of repositioning the DoP by making it a part of MOH&FW and NOT of MOC&F.

Pharmaceutical Industry: The areas of key importance:

Be that as it may, let us now try to have a closer look at the other aspect – the key areas of importance of the pharmaceutical industry for its accelerated growth and development and try to ascertain, if DoP is made responsible for all these critical areas, which Ministry they will need to deal with, the most:

1. Drug Policy and Pricing:

Currently DoP is responsible for an inclusive growth oriented drug policy and drugs pricing (through National Pharmaceutical Pricing Authority, NPPA) under the MOC&F. This key activity of the department has immense impact on the performance of the pharmaceutical industry of India.

2. ‘Access’ and ‘Availability’ of modern medicines across the country:
Availability of pharmaceutical products is intimately linked to the quality of access to pharmaceuticals by a vast majority of population of India, as indicated above, depends on availability of requisite healthcare infrastructure and the delivery systems, besides the prices of medicines.

‘Jan Aushadhi’ scheme – a praiseworthy initiative of the DoP now seems to be a near disaster in terms of the project implementation. This scheme could have been more meaningful with the support of adequate health related infrastructural facilities and in tandem with the projects like, National Rural Health Mission (NRHM), National Urban Health Mission (NUHM), Rashtriya Swasthaya Bima Yojna (RSBY) targeted to offer better healthcare to the common man with a robust and integrated healthcare delivery initiative.

Ministry of Health and Family Welfare (MOH&FW) is responsible to create such healthcare related infrastructure and delivery system.

3. Drug Regulatory System:

The drug regulatory system of the country, which is so important to the pharmaceutical industry for its rapid growth and development, is now operating at a sub-optimal level for various reasons. The dissatisfaction of the industry with this key regulator reportedly has reached its nadir.

Almost the entire Drug Regulatory System in India is being run and governed by the office of the Drug Controller General of India (DCGI), which comes under the MOH&FW. DCGI’s office is responsible for effective and speedy implementation of the Drugs and Cosmetics Act of India (DCA), which includes world class and ethical clinical trial standards in the country, marketing approval of all new products including exports, implementation of Schedule M (cGMP), all pharmaceuticals site registrations and effectively addressing the issue of spurious and counterfeit drugs, just to name a few. DoP has hardly any direct or indirect control over any of these key activities falling under the purview of the MOH&FW.

4. Biopharmaceuticals:

The Department of Biotechnology under the Ministry of Science and Technology currently looks after this emerging area of pharmaceuticals sector. DoP has no direct control over these activities.

5. R&D and IPR:

R&D and IPR related issues in pharmaceuticals/biopharmaceuticals are very important areas of the pharmaceutical business in the country. Although IP Policy related areas are looked after by the Department of Industrial policy and Promotion (DIPP), some contentious and highly debated IP related issues like, Regulatory Data Protection (RDP), Patent Linkage etc. are currently within the domain of DCGI under MOH&FW. DoP has no direct role to play in these areas.

6. High out of pocket expenses for healthcare:

In India ‘Out of Pocket Expenses (OPE)’ towards healthcare is around 80%. Such high OPE, especially in case of very serious and life threatening illnesses, like cancer, cardiovascular emergencies etc. could make a middle class household poor and a poor household could even be pushed ‘Below the Poverty Line (BPL)’.

Thus high OPE is indeed a very serious issue of the country, which can only be addressed through policy initiatives by designing appropriate health insurance/healthcare financing scheme for all strata of society in India.

For a large section of the society, this issue can be addressed by MOH&FW in consultation with Ministry of Finance, just as they have come out with an innovative and praiseworthy RSBY scheme for the BPL families. DoP does not seem to have much role to play in this area, as well.

Thus the objective of GoI to have greater focus on healthcare in general and the pharmaceuticals in particular could be better achieved, if the DoP is made a part of MOH&FW by breaking the independent silos in form of the NPPA, CDSCO, DCGI etc., now operating, especially, in these two ministries.

Key issues of pharma industry versus key objectives of the DoP: From the above details, if one compares the key issues and success factors of the pharmaceutical industry of India versus the key objectives of the DoP, one will notice a dis-conformity.

If this is allowed to continue even the all-important first objective of the department, ”Ensuring availability of quality drugs at reasonable prices as per the Pharma Policy” will continue to remain an illusion. It is indeed surprising to note that this objective does not talk anything about improved access to modern medicines by the common man, either.

Over a period of over last four decades India has experienced that only through increased focus on affordability, the objective of increased access to medicines by the common man could not be achieved in India. Besides other healthcare infrastructure related factors, high OPE still remains a key barrier to access to modern medicines by the common man.

Why is DoP trying to revive the loss making pharmaceutical Public Sector Units (PSUs)?

As stated above, the second objective of the DoP, which states, “Facilitate growth of Central pharma PSUs with required support” is equally intriguing. Everyone knows that all these PSUs created by spending tax payers’ money , miserably failed to perform and deliver even when the Indian pharmaceutical industry continues to register a CAGR growth of around 15% decade after decade. It is indeed difficult to fathom, which magic wand of the DoP will be able to bring these loss making and heavily bleeding PSUs out of continuous non-performance and governance failure in an era of fierce competitive pressure within the industry, by pouring even more from the national exchequer’s fund in the bottomless pits of losses of these PSUs?

I reckon, if these PSUs still attract interest of some good private buyers/investors with reasonable valuation, the government should unhesitatingly decide to unlock these values, sooner the better.

Conclusion:

In my view, if the DoP is expected to ensure improved “access to affordable and quality modern medicines to all”, as discussed above, the department should be repositioned and made a part of MOH&FW, rather than keeping it with the MOC&F, ignoring any possible political squabbles between the two concerned ministries, even in the coalition politics of India.

Such restructuring, repositioning and empowerment of the DoP in turn, will help achieving one of the key healthcare objectives of the nation, simultaneously fostering rapid growth of the industry making it a formidable global force to reckon with, both in the innovative and generic pharmaceutical business of the world.

This expected scenario, if gets translated into reality will justify the creation and existence of the DoP at the cost of huge amount of public fund.

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.

Medical Tourism: A key growth driver in the healthcare space of India

Posted on July 25, 2011 by Tapan Ray

Since the last several years medical tourism is fast evolving as one of the key growth drivers of the healthcare sector, especially, in the western world like, the United States of America (USA) and the United Kingdom.

Dr. Fred Hansen in his article titled, “A revolution in healthcare medicine meets the marketplace (January 2008)” highlighted that the increasing number of high-quality healthcare facilities in developing countries are catering to medical tourists from the developed countries. Among them there are many uninsured Americans. Medical services outside USA in the developing countries are much cheaper. On average it is around 80%. For example, a cardiac surgery, which will cost more than US$ 50,000 in the United States, can be availed for US$ 20,000 in Singapore, US$ 12,000 in Thailand and between US$ 3,000 and US$ 10,000 in India. For this reason, Dr. Hansen predicted that the number of Americans traveling abroad for healthcare is expected to increase from around 1.3 million in 2008 to 6 million by 2010.

It has been reported that about 500,000 foreign patients traveled to India for medical care in 2005 from an estimated 150,000 patients in 2002 mainly from USA, UK and the Gulf countries for low-priced high quality healthcare in various disease areas. More and more people from these countries are finding the prospect of quality and value added medical care in countries like India financially attractive.

The Global Market:

In 2006 the global market for medical tourism was around US$ 60 billion. According to McKinsey & Company, this market could expand to US$100 billion by 2012.

An evolving sector in India:

Thus, medical tourism is fast establishing itself as an evolving area of business in the global healthcare space. In that space, India is fast emerging as one of the most preferred medical tourism destinations in the world.

This healthcare sector in India, despite being smaller compared to the western world, is surging ahead both at the national and the regional levels with enormous potential for future growth, if explored appropriately with a carefully worked out strategic game plan from the very nascent stage of its evolution process.

Economic Times, in its January 6, 2009 edition reported, “Indian medical tourism to touch Rs 9,500 Crore (around US $ 2.1 billion) by 2015”. Another report titled “Booming Medical Tourism in India”, published in December 2010 estimated that the medical tourism industry will generate revenues of around US$ 3 billion by 2013, although with a market share of just around 3% the of global medical tourism industry. Thus, in medical tourism, India still remains a smaller player with enormous growth potential.

The key reason and influencers:

The most common reason for medical tourism globally is lack of (adequate) health insurance. The most common emerging destinations of medical tourism in the world are Thailand, Singapore, Costa Rica, Panama, Brazil, Mexico, Malaysia and India.

Other factors influencing Medical Tourism particularly in India are as follows:

Significant cost advantages.
High quality treatment and hospital stay with the world class medical technological support
Rigid compliance with international treatment standards
No language barrier with the western world
Government taking active steps and interest in the medical tourism sector.

In all these five areas the significant advantages that India offers will need to be adequately encashed in a sustainable manner.

Significant cost advantage in India: The patients from other countries of the world who come to India for medical care not only get world class healthcare services, but also are offered to stay in high-end ‘luxury’ hospitals fully equipped with the latest television set, refrigerator and even in some cases a personal computer. All these are specially designed to cater to the needs of these groups of patients.

Moreover, according to John Lancaster of The Washington Post ( October 21, 2004) Indian private hospitals have a better mortality rate for heart surgery than American hospitals.

Cost Comparison: India vs UK:

Nature of Treatment	Treatment Approximate Cost in India ($) *	Cost in other Major Healthcare Destination ($) *	Approximate Waiting Periods in USA / UK (in months)
Open heart Surgery	4,500	> 18,000	9 – 11
Cranio-facial Surgery and skull base	4,300	> 13,000	6 – 8
Neuro-surgery with Hypothermia	6,500	> 21,000	12 – 14
Complex spine surgery with implants	4,300	> 13,000	9 – 11
Simple Spine surgery	2,100	> 6,500	9 – 11
Simple Brain Tumor -Biopsy -Surgery	1,000 4,300	> 4,300 > 10,000	6 – 8
Parkinsons -Lesion -DBS	2,100 17,000	> 6,500 > 26,000	9 – 11
Hip Replacement	4,300	> 13,000	9 – 11

* These costs are an average and may not be the actual cost to be incurred.

(Source: Health Line)

Most popular treatment areas:

The most popular treatment areas are as follows:

Alternative medicines
IVF treatment
Bone-marrow transplant
Cardiac bypass
Eye surgery
Dental care
Cosmetic surgery
Other areas of advanced medicine

The key components:

The following four basic components constitute the medical tourism industry:

• Healthcare providers: Hospitals, mainly corporate hospitals and doctors • Payers: Medical/ Health insurance companies • Pharmaceutical Companies: for high quality affordable medicines • IT companies : operating in the healthcare space Key drivers and barriers to growth: Following are the key growth drivers:

Government support through policies and initiatives
High quality, yet low cost care
Much less or no waiting time
World class private healthcare infrastructure
Rich source of natural and traditional medicines. Ministry of Tourism is also promoting the traditional systems of medicines, like, Ayurveda, Siddha, and Yoga to project India as a the destination of choice for even spiritual wellness and healing

In future, the world class and low cost private sector healthcare services are expected to drive the growth of the medical tourism in India. However, any shortages in the talent pool and inadequate other basic infrastructural support like, roads, airports and power could pose to be barriers to growth, if not addressed immediately.

The PPP model:

Currently the government has started adopting a Public Private Partnership (PPP) Model to provide world class healthcare services through medical tourism both at the national and the state levels. This PPP model has been designed in such a way that continuous improvement in healthcare infrastructure takes place through the private sector resources ably supported by the public sector in terms of policy, budgetary and fiscal support towards such initiatives.

US apprehension about growing Medical Tourism of India:

India Knowledge@Wharton in its June 2, 2011 issue reported as under:

In the past, US President Barack Obama had singled out India for what he sees as the country usurping American jobs and business.
In May 2009, he removed some tax incentives for US companies who allegedly preferred to outsource rather than create domestic jobs. “Buffalo before Bangalore” was his rallying call at the time.
In April 2011, he told a town hall gathering in Virginia that Americans shouldn’t have to go to India or Mexico for “cheap” health care. “I would like you to get it right here in the U.S.,” he said.

Conclusion:

As we have noted above, due to global economic meltdown even many corporate business houses in the developed world are under a serious cost containment pressure, which includes the medical expenses for their employees. Such cost pressure prompts/ could prompt them to send their employees to low cost destinations for treatment, without compromising on the quality of their healthcare needs. This trend could offer an additional significant growth opportunity in the medical tourism sector in India.

India should keep in mind that other countries, in quite close proximity to ours, like, Thailand, Singapore and Malaysia will continue to offer quite tough competition in the medical tourism space of our country.

However, superior healthcare services with a significant cost advantage at world class and internationally accredited facilities, treated by foreign qualified doctors, supported by English speaking support staff and equipped with better healthcare related IT services will only accelerate this trend in favor of India.

Thus it is a time to say, ‘medical tourism in India – Ahoy!’

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.

First ever ‘Code of Pharma Marketing Practices’ by the Government: A strong signal to “Shape Up”!

Posted on July 18, 2011 by Tapan Ray

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

This decision of the government is the culmination of a series of events, covered widely by the various section of the media, at least, since 2004.

Examples of public/media outcry:

Way 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 later, 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.” Even ‘The Times of India’ reported the following in December 15, 2008: “1. More drugs a doctor prescribes of a specific company, greater are the chances of his/ her winning a car, a high-end fridge or a 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”.

Urgent need for change:

In today’s India, the degree of commercialization of the noble healthcare services has reached its nadir, sacrificing the ethics and etiquette both in medical and pharmaceutical marketing practices at the altar of unlimited greed and want.

As a result of fast degradation of ethical standards and most of the noble values in the healthcare space, the patients in general have started losing faith and trust both on the medical profession and the pharmaceutical industry, by and large. Health related multifaceted compulsions do not allow them, either to avoid such a situation or even raise a strong voice of protest against the vested interests.

Growing discontentment of the patients in both the private and public healthcare space in the country, is being regularly and very rightly highlighted by the media, including reputed medical journals like, ‘The Lancet’ to help arrest this moral and ethical decay with some tangible proactive measures.

MCI took the first step:

In a situation like this, steps taken by the ‘Medical Council of India (MCI)’ in 2009 for the Medical Profession/ Healthcare Practitioners (HCP) deserves kudos from all corners. It is now up to the HCP to properly abide by the new regulations on their professional conduct, etiquette and ethics. The pharmaceutical industry of India should naturally be a party towards conformance of such regulations, in every possible way.

Quite likely, based on the media outcry, the Department of Pharmaceuticals (DoP), also mooted the idea of a self-regulatory UCMP for the entire pharmaceutical industry of India almost around the same time of 2009. However, as was reported, due to lack of consensus within the pharmaceutical industry, the DoP supposedly could not make the said UCMP operational at that time.

A brand new code from the DoP:

Meanwhile in May 2011, the Department of Pharmaceuticals (DoP) released a draft ‘Uniform Code of Marketing Practices’ for the Pharmaceutical Industry of India for comments by the stakeholders. The preamble of the document states as follows:

“This is a voluntary code of Marketing Practices for Indian Pharmaceutical Industry, for the present and its implementation will be reviewed after a period of six months from the date of its coming into force and if it is found that it has not been implemented effectively by the Pharma Associations/Companies, the Government would consider making it a statutory code.”

Some Key features of the DoP Code:

All promotional material must be consistent with the requirements of this Code.
Brand names of products of other companies must not be used for comparison without prior consent of the concerned companies.
Paid or arranged publication of promotional material in journals must not resemble editorial matter.
The names or photographs of healthcare professionals must not be used in promotional material.
Audio-visual material must be accompanied by all appropriate printed material to ensure compliance of the Code.
Samples should be provided directly to prescribing authority and be limited to prescribed dosages for three patients and in response to a signed and dated request from the recipient. Each sample pack shall not be larger than the smallest pack presented in the market.
Medical and Educational events for doctors should be organized in the appropriate venue in India and all expenses must be incurred only for the events held in India.
Outline of a detailed Complaint Lodging and Redressal mechanism (Committee for Code of Pharma Marketing) to ensure compliance of the marketing code.

Overall quality of the DoP marketing code:

The overall document is well written, balanced and fair. The DoP should indeed be commended on the great work that they have done in putting all details of pharmaceutical marketing practices together in this document in a very comprehensive manner.

This unified Code does not seem to pose any major extra restrictions to the pharmaceutical companies as compared to the MCI guidelines. All concerned should welcome the DoP decision that the same standards will now be applied to all small, mid-sized and large companies, equally. The main focus of the DoP should be in ensuring that all companies across the pharmaceutical industry follow the same standards in their marketing practices and interactions with the HCP.

The draft code of the DoP also states that companies must maintain a detailed record of expenditures incurred on these events. It is not quite clear though, as to what extent and detail the pharmaceutical companies are expected to keep these records and how long? It is also not clear whether these records have to be maintained on file and supplied to the DoP only on specific request for the same or those details are expected to be disclosed on a regular basis to the regulator.

The draft indicates that associations must upload full details of received complaints onto their websites. Although this provision could help making the system more transparent, the DoP should clearly articulate the details about the specific information that will require to be disclosed in cases of any proven breach of the code.

It is interesting to note in the draft code states that media reports and published letters indicating that a company may have breached the Code will be treated as a complaint.

The global scenario:

Just like in India, a public debate has started since quite some time in the US, as well, on allegedly huge sum of money being paid by the pharmaceutical companies to the physicians on various items including free drug samples, professional advice, speaking in seminars, reimbursement of their traveling and entertainment expenses etc. All these, many believe, are done to adversely influence their rational prescription decisions for the patients.

‘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 specialties (anesthesiology, cardiology, family practice, general surgery, internal medicine and pediatrics) 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-reimbursement 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. As a result of strict regulatory measures, the situation in the US has presumably started changing now.

However, 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 malpractices 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.”

Fierce ongoing debate:

As the financial relationship between the pharmaceutical companies and the physicians are getting increasingly dragged into the public debate, it appears that there is a good possibility of making disclosure of all such payments made to the physicians by the pharmaceutical companies’ mandatory by the Obama administration, as a part of the new US healthcare reform process.

Examples of global voluntary measures:

Eli Lilly, the first pharmaceutical company to announce such disclosure voluntarily around September 2008, has already uploaded its physician payment details on its website. US pharmaceutical major Merck has also followed suit and so are Pfizer and GSK. However, the effective date of their first disclosure details is not yet known.

Meanwhile, Cleveland Clinic and the medical school of the University of Pennsylvania, US are also in the process of disclosing details of payments made by the Pharmaceutical companies to their research personnel and the physicians.

Similarly in the U.K the Royal College of Physicians has reportedly to have called for a ban on gifts to the physicians and support to medical training, by the pharmaceutical companies. Very recently the states like Minnesota, New York and New Jersey in the US disclosed their intent to bring in somewhat MCI like regulations for the practicing physicians of those states.

Transparency: Australia sets an example: The Australian Competition and Consumer Commission (ACCC) has decided to grant authorization for five years to Medicines Australia’s 16th edition of its Code of Conduct. The Code sets standards for the marketing and promotion of prescription pharmaceutical products in Australia. The Code provides, among other measures, a standard to address potential conflicts of interest from unrestricted relationships between pharmaceutical companies and the HCPs, which may harm the consumers through inappropriate prescriptions. The Code also prohibits the pharmaceutical companies from providing entertainment and extravagant hospitality to HCPs with the requirement that all benefits provided by companies should be able to successfully withstand public and professional scrutiny. “The requirement for public disclosure was imposed by the ACCC as a condition of authorization of the previous version of Medicines Australia’s Code and was confirmed on appeal by the Australian Competition Tribunal.” Edition 16 of the Code fully incorporates the public reporting requirements.

Conclusion:

Currently in the US, both in Senate and the House of Congress two draft bills on ‘The Physician Payment Sunshine Act’ are pending. It appears quite likely that Obama Administration, with the help of this new law, will make the disclosure of payments to physicians by the pharmaceutical companies mandatory.

It appears, India has taken an extra step forward towards this direction as compared to the Obama administration in the USA. The amended MCI regulations for the HCPs coupled with the draft code of the DoP for the entire pharmaceutical industry should make the financial transactional relationship between the physicians and the pharmaceutical industry in India absolutely clean and transparent.

It should be kept in mind by all concerned that the draft code very categorically warns, in case the voluntary code of Marketing Practices is not implemented effectively, the Government would seriously consider making it statutory for the entire pharmaceutical industry of India…quite a strong signal indeed for ‘Shaping Up’!

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.

‘Utility Models’: A process of winning in the world of innovation

Posted on July 11, 2011 by Tapan Ray

On May 13, 2011 the Department of Industrial Policy and Promotion (DIPP) uploaded in their website a Discussion Paper on “Utility Models (UM)”. It was reported that as a policy initiative on Intellectual Property Rights (IPR) and to encourage innovation in the country, without diluting the present strict criteria for patentability, this discussion paper intends to trigger a healthy national debate on a very relevant subject.

Benefits of UM:

A publication titled, Utility Models and Innovation in Developing Countries by International Centre for Trade and Sustainable Development (ICTSD), Geneva, Switzerland highlights the following benefits of the UM:

• Fosters local innovation for local industries to produce more goods and generate more employment.

• Protects valuable inventions which otherwise would not be protected under the patent law of the country.

• Prevents free-riding of inventions by copiers who do not make any investment in R&D.

• Generates additional revenue for the government in terms of fees towards registration, search, publication, etc.

• Acts as a source of valuable information via published specifications.

• Reduces incentives for industry to lobby for the inclusion of minor inventions in the patent regime, which in turn would limit the public domain much more than the less expansive utility model system.

Does India need UM Laws?

Though India is fast emerging as a global economic power to reckon with, the Micro, Small and Medium Enterprises (MSME) of the country still do not have adequate resources and wherewithal to invest in various R&D projects in the right scale. Thus many of them are unable to come out with the types of inventions, which would have global potential and also conform to the prevailing Patents Act of India (2005).

Moreover, even today the benefits of acquiring ‘Intellectual property (IP)’ in the business process is still not widely understood and made use of, across various Indian industries. The requisite culture, appropriate ecosystem and thereby a groundswell for innovation are yet to take shape in our country.

Imitating or copying something new developed within or outside India is the order of the day in most of the industries in India. As the UM would require neither a high-tech infrastructural support nor high level of investments, coming out with a commercially relevant innovation with limited exclusivity period may not be as difficult, especially, by the MSME sector of India. UM could thus effectively help creating both an appropriate ecosystem and groundswell for innovation in the country.

As indicated in the DIPP Discussion Paper, many countries of the world like, Australia, China, Japan, Germany, France, Korea, Netherlands and others still find the UM as an extensively used tool to foster innovation within the local industries.

Utility models in some countries:

As indicated in the above DIPP Discussion Paper, I am quoting below examples of UM being practiced in some important countries:

COUNTRY	DATE OF FIRST LAW	DURATION OF PROTECTION	NAME	SUBSTANTIVE EXAMINATION
AUSTRALIA	1979/2001	8 years	Innovation Patent	no
AUSTRIA	1994	10 years	Utility Model	no
BELGIUM	1987	6 years	Short Term Patent	no
BRAZIL	1945	10 years	Utility Model	yes
CHINA	1985	10 years	Utility Model	no
FRANCE	1968	6 years	Utility Certificate	no
GERMANY	1891	10 years	Gebrauchsmuster	no
INDONESIA	1991	5 years	Simple Patent	yes
ITALY	1934	10 years	Utility Model	no
JAPAN	1905	not > 15 years	Utility Model	no
KOREA	1961	not > 15 years	Utility Model	yes – but deferred
MALAYSIA	1986	15 years	Utility Innovation	yes
MEXICO	1991	10 years	Utility Model	yes
NETHERLANDS	1995	6 years	Short Term Patent	no

(Source: Petty Patents by John Richards – updated version of Proceedings of the Fordham University School of Law International Intellectual Property Law and Policy Conference 1995,Juris Publishing and Sweet & Maxwell, 1998).

Therefore, keeping in mind of the needs of, especially, the MSME sector, I reckon, the UM should be seriously considered by the Government for expeditious implementation. As stated earlier, the UM would enable a large section of smaller entrepreneurs to get a limited commercial exclusivity for their inventions, which otherwise would not have been possible by them within the current patent regime of India.

Moreover, such inventions being incremental in nature, subsequent inventions would be triggered much faster with a cascading effect on continuous innovation in the country.

In this scenario, it will be very important to keep the registration cost for the UM within affordable limits by the Indian Patent Offices (IPO).

Scope of protection:

I reckon, all types of inventions, including mechanical and chemical ones, should be covered under the UM. If this does not happen the UM law will only be useful to a small section of the entrepreneurs.

Further, a large number of useful developments and improvements that may fall short of requirements of getting patents, could be well accommodated under the UM to encourage more and more innovations for rapid economic growth of the country.

In case of chemical or pharmaceutical innovations there will also be a chance for the smaller players to apply for the UM for incremental innovation, when such inventions would not pass the stringent qualifying criteria of Section 3(d) of the Indian Patents Act. I hasten to add that some contentious issues could possibly crop-up in this area, which needs to be resolved with well informed debates.

I would recommend that in India UM may be considered for innovations in areas of chemicals, pharmaceuticals, devices, tools, working instruments or apparatus with appropriate qualifying standards.

Parameters for consideration:

The inventive threshold for the UM would obviously be less than what is required by the patent laws of India. These should be very clearly enunciated by the policy makers without ambiguity whatsoever. However, the product novelty criteria in no case should be compromised, which should be similar to patents.

The period of exclusivity for UM varies internationally, for example, from 5 years in Indonesia to 10 years in China and 15 years in Korea. In India, the protection period should not ideally exceed 5 to 7 years from the date of grant of the UM with a much simpler registration process than the patent.

Section 8(1) of Patents Act may be suitably amended to include provision of UM. At the same time, providing details of corresponding UMs, along with related patent applications, if any, should be made mandatory.

An innovator should be allowed to apply for both patent and UM together. However, when only an application for patent will be filed and after scrutiny, if the same does not qualify for grant of patent, the concerned applicant may be allowed to convert the same application into UM, without any adverse impact on priority.

It is important to ensure that filing of a new UM nearer end of the term of patent is not allowed. The patent may, in such cases, be regarded as prior art by the IPO. Moreover, any provision for temporary protection of an invention as an UM pending grant of a patent should not be included in the legislation. Patent grant is usually a slow process in India, which quite often gets caught in the quagmire of delays and backlogs. In such a scenario, if any temporary exclusivity is granted by way of UM to the applicant, the entire patent processing system may get further slowed down.

Promoting domestic filings by MSMEs:

There does not seem to be any need to provide any specific provision to promote domestic filing by the MSMEs other than by way of providing for express provisions of disposal of infringement actions or other related contentious issues. Specific non-extendable time frames should be provided for all.

Currently the Courts in India have very little exposure to IP laws. Keeping this in mind UM laws should have simple wordings, free of ambiguity enunciating specific measures in case of infringement. Any invalidity should be clearly spelt out to avoid unnecessary appeals and unproductive, protracted and expensive litigation process.

To make Indian industries feel and understand the need for the protection/exclusivity for the UM, suitable awareness campaigns should be designed and championed by the government and the industry bodies with a focused approach to achieve this goal within a given timeframe.

UM and Traditional knowledge:

Traditional knowledge is something, which is already available or known to public at large and any protection to such knowledge would deny the civil society its legitimate rights in India. Thus, I shall strongly recommend that no exclusivity is granted to any person or industry on traditional knowledge.

However, rights to traditional knowledge may be provided through a different fail-proof mechanism to safeguard the interest of specific communities in India, who have inherited such knowledge through practice for generations.

The enforcement mechanism:

The enforcement mechanism for the UM should be similar to the Patent System or else a special ‘Utility Model Appellate Board (UMAB)’ may be considered for speedy redressal of infringement disputes.

Obviating monopolistic dominance:

Compensation / royalty rather than other methods of restrain could be a better option as most applicants would be MSMEs.

The UM law makers should, however, bear in mind that individual innovators although will have remedy within the law in case of a breach, due to sheer practical considerations, could at times feel helpless when a rich licensee will fail to compensate or pay royalty as per the order of a Court of law.

I would, therefore, suggest that there should be specific clauses in the UM law, which will be strong deterrent to such behaviour by unscrupulous elements, for example, payment of the compensation in an amount exceeding about 15 to 20 times of the original award in the event of default for no good reason. However in such a case the appropriate value may be properly decided to effectively avoid any attempt of ‘extortionary measures’ by anyone.

Conclusion:

It is believed by many that the UM framework with a lower threshold of invention will be able to encourage domestic incremental innovation in many areas of business. Thus, by providing protection to UM for about 5 years vis-a-vis 20 years, as provided by the patents, India can further stimulate the process of innovation, while discouraging monopolies in the country.

I reckon, a suitably designed UM framework will immensely encourage the domestic players to seek protection and obtain exclusivity for continuous incremental innovation in various facets of their respective businesses.

This process, in turn, will promote innovation based commercial business models within the country by offering low cost and affordable innovative products to the common man, adding simultaneously speed to the wheel of economic progress of the nation with inclusive growth.

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.

PILMAN

A Tapan Ray Website

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‘Utility Models’: A process of winning in the world of innovation