Tag Archives: R&D

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is the era of Blockbuster drugs over?

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

Indian Pharmaceutical Companies – are they in a dilemma?

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

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

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

India is making progress in pharmaceutical R&D:

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

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

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

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

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

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

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

WILL THE BALL GAME BE QUITE DIFFERENT TOMORROW?

By Tapan Ray

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

R&D and Protection of IPR related to Pharma sector, are now the responsibilities of the Department of Pharmaceuticals (DoP) – a quick look at the initiatives taken by the department.

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On July 2, 2008, the Cabinet Secretariat of the Government of India notified creation of a new department to be known as the Department of Pharmaceuticals (DoP) under the Ministry of Chemicals and Fertilisers with an objective to have a sharper focus on the Pharmaceuticals Industry of India. In that notification besides other important areas, Research and Development (R&D) and protection of Intellectual Property Rights (IPR) related to the Pharmaceutical sector, were brought under the newly created department.In this discussion let us try to have a look at the progress in both the R&D and IPRareas, separately.After creation of the new department, the Minister of Chemicals and Fertilisers Shri Ram Vilas Paswan, announced a proposed allocation of Rs. 10,000 crores (around US$ 2 billion), together with necessary regulatory reforms, towards annual Pharmaceutical R&D funding by the DoP.

The Government expects that such initiatives will help bringing in transformation of the Indian Pharmaceutical Industry from brilliant and highly successful ‘imitators’ to world class ‘innovators’ of path breaking medicines. Discovery of such medicines in India is also expected to help the Government significantly, to improve access to affordable innovative modern medicines to the common man of the country. All these are no doubt, very laudable initiatives by the DoP, with a very capable, effective and a ‘can do’ leader at its helm.

The DoP plans to bring in significant changes in the clinical trial facilities available within the country. Currently even very basic clinical trials on ‘dogs’ cannot be undertaken because of protests from the activists related to ‘prevention of cruelty on animals’. Such reform measures, I am sure, will be sincerely welcomed by many.

It is interesting to note that the DoP is also planning to extend Regulatory Data Protection (RDP) to innovators. It has been reported that the invaluable data generated by the innovators towards development of the New Molecular Entity (NME) will, in near future, be protected from ‘piracy’ during 20 year patent life of the product. However, the DoP cautions that attempt to ‘evergreen patent’ through data protection, beyond the patent life of a product will not be permitted.

The argument of the innovators on this issue is that Product Patent and Clinical Data are two different types of intellectual properties and should not be considered as one and the same. While patent protection is extended for discovery of the molecule, data protection is for the immense and expensive clinical data that the innovators share with the Government for regulatory approval of the patented molecule, within the country. The argument that such valuable data generated by the innovators is an intellectual property (IP), lies in the premise that if the innovator would not have been required to part with the data with the regulatory authorities, such data would have been regarded as a ‘trade secret’, which is an IP. Therefore, the innovators argue that for sharing this IP with the Government, specific period of data protection to be extended to them, which should be unrelated to the life of the patent.

Thus far, we see that DoP has taken some very important and admirable initiatives to encourage R&D within the country. However, while looking at another important area of its responsibility i.e. protection of IPR within the Pharmaceutical sector, nothing has been announced by the department, as yet.

Encouraging R&D without effective protection of IPR, points towards an incomplete agenda to effectively address pharmaceutical product innovation related issues by the department. I sincerely hope that the DoP will soon announce its policy initiatives towards IPR protection to further encourage the innovators, both within and outside the country.

The DoP has taken some significant steps to address various important issues of the pharmaceutical industry under its terms of reference, within a very short period. I look forward to knowing from the DoP the detail initiatives in each of its nine functions and responsibilities, as announced in the notification of the cabinet secretariat on July 2, 2008.

By Tapan Ray

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

On ‘Patent Linkage’ – a rational argument on an emotive debate

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WTO TRIPS Article 28.1a says that the member countries agree to ensure exclusive rights to patent holder for a specific time period. In case of India, like most other countries, this time period is for 20 years.During this period the member countries agree to prevent third parties from making, using, offering for sale the patented product without the owner’s consent.In India, during last twelve months, at least 4 patents were infringed by the local generic companies. All these cases are currently under litigation. No one at this stage will possibly be able to hazard a guess as to when will these cases ultimately get resolved. If it takes another two to three years to get the final verdict from the honourable High Courts, the revenue of the innovator companies who have already launched their patented products in India will get shaved off, at least for this period, leaving a very adverse commercial impact on them. There is a theoretical possibility that it may take even more time for the honourable High Courts to resolve these cases and during the remaining period of limited patent life of these products the cases may not get resolved, at all.

Moreover, in India there is no known strong deterrent for patent infringement. In absence of which, the opportunity to make significant commercial gain through patent infringement, on the pretext of extending benefits to patients could indeed be, many a times, difficult to resist. Media reports that the National Pharmaceutical Pricing Authority (NPPA) has raised huge demand in crores of rupees for overcharging the common man, flouting the drug pricing norms, by some of these large companies involved in patent infringement litigations, vindicates the point of their basic overall intention of significant commercial gain over extending pricing benefits to the patients. The moot question that follows is who is responsible to ensure the sanctity of the product patent system in India?

The prevailing situation warrants a strong regulatory system which could prohibit marketing approval of generic equivalents of patented molecules during their patent period.

The question that is often raised in this context is who exactly be held responsible for implementation of such a system in our country? While addressing this question one should realize that it is the Government in its entirety and not just the Patent offices or any particular ministry or ministries of the Governments is bound by the WTO TRIPS Agreement. Therefore, it is justifiably the responsibility of all Government departments/ministries to ensure that TRIPS obligations of the Government on proper enforcement of patent are properly met.

The process of granting marketing approval for patented molecules, in general, rests on the Ministry of Health (MoH) of WTO member states. Thus for WTO member states to meet TRIPS obligations effective communication between the MoH and the Patent offices of the country is absolutely essential. Such a system will help prevent approval of generic versions of patented molecules before expiration of the product patents.

Establishing this communication process will ensure that one department/ministry of the Government (say DCGI) does not impair the efforts of another Government department/ministry (say IPOs) to provide effective intellectual property protection as articulated in Article 28.1 of the WTO TRIPS Agreement.

This system will ensure that Health Regulatory Authorities do not, even unintentionally, undermine the commitment of the Government to conform to the TRIPS Agreement.

My experience of the last three years of post product patent regime in India prompts the need for establishing a “Patent Linkage” system without further delay, not only for effective patent protection but also to encourage innovators to get more involved and engaged in the process of innovation in India.

Will India be the unique country if such a system of “Patent Linkage” is put in place? The answer is obviously ‘no’.

In the largest market of the global pharmaceutical industry, the USA, such a system exists. US FDA maintains a listing of pharmaceutical products known as the ‘Orange Book’. The soft copy of the ‘Orange Book’ is also available through internet at: http:/www.fda.gov/cder/ob/.

US FDA does not authorize marketing approval of generic versions of patented molecules listed in the ‘Orange Book’.

What then happens in the second largest market of the global pharmaceutical industry, the European Union (EU)? In the EU, sanctity of the product patent is ensured by granting 10/11 years data exclusivity. Thus, if any company intends to introduce a generic version of a patented molecule, it will have to generate its own sets of entire regulatory data through a very long and expensive process, which may take several years. Even after spending huge amount money and time towards generation of their own clinical data, there is no guarantee that such companies will be able to market the product without getting involved into expensive patent infringement litigation. Thus in the EU, the deterrent to make such an ambitious attempt is humongous.

Various types of ‘Patent Linkage’ system also exists in Australia, Canada, Mexico, Jordan, UAE, Singapore, China etc. While putting in place of such a system is reportedly in progress in countries like, Chile, Dominican Republic – Central America, Bahrain, Morocco, Oman etc.

To conclude, in my view, when the Government of India is the sole authority to grant product patents in India, it is the responsibility of the same Government to protect those patents through its Health Regulatory System i.e. DCGI’s office. I reckon, such a system already exists in India. The procedure of (‘Patent Linkage’) checking the patent status before granting marketing approval already exists in FORM 44, which is an application to the DCGI for grant of permission to import or manufacture a New Drug or to undertake clinical trial in India. In the first page of FORM 44 (available in the website of the DCGI) under ‘Particulars of New Drug’ in point 8, it seeks details of the ‘Patent Status of the drug’. Can this information be not effectively utilized to justifiably deny marketing approval of a generic version of a patented molecule during its patent life in India? If not, it is difficult to make out what purpose will the DCGI utilize this information for?

Thus in my view, the procedure to be followed for ‘Patent Linkage’ in India is already in place. There is hardly any need to reinvent this wheel either. The Health Regulatory Authority of India should now make this procedure work effectively in its obligation to adhere to the commitment of the national Government to honour Article 21.1 of WTO TRIPS Agreement.

By Tapan Ray

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