In the Wonderland of Pharma Generics: Some Steps In, Some Steps Over the Line

Posted on June 10, 2013 by Tapan Ray

To scale-up access to healthcare, especially for the marginalized population of any country, greater access to affordable generic drugs will always remain fundamental, besides improving healthcare infrastructure and its delivery mechanism.

Thus, there should be a robust mechanism across the world to facilitate quick entry of cheaper generic equivalents immediately after patent expiry of the original molecule. Any attempt to step over the line, blocking entry of generics surreptitiously by vested interests must be brought to justice sooner. Such measures assume increasing importance, as without availability of newer generics, unmet medical needs of the most vulnerable section of the society cannot be met effectively by any country.

Newer generics will play a critical role even in the Indian context. Besides many other diseases, India is already known as the diabetic capital of the world with an estimated population of 70 million diabetics by 2020.

Greater access to treatment for such chronic ailments and many other dreaded diseases with increasing trend of prevalence, like cancer, multiple sclerosis, Alzheimer and autoimmune disorders, besides common tropical diseases, would also depend on the availability of cheaper and newer generic medicines.

Global innovators stepping into generics business in emerging markets:

Sniffing the growth opportunities in the generics business in an environment of patent cliff, even many hard-nosed innovator companies have been entering into this business either through local acquisitions or through various collaborative arrangements. Examples of some of these companies are as follows:

Novartis entered in generic business with its Sandoz arm
Pfizer with collaborative arrangements in India with Aurobindo Pharmaceuticals (India) in March 2009 and with Strides Arcolab in January 2010
Daiichi Sankyo acquired Ranbaxy of India
GlaxoSmithKline acquired 16 percent stake of Aspen Pharmacare of South Africa, Laboratorios Phoenix in in Argentina and signed a development and commercialization license with Dr. Reddy’s Laboratories (DRL)
Sanofi acquired Shantha Biotechnics and Universal Medicare of India, Zentiva in Czech Republic, Laboratorios Kendrick in Mexico, Medley in Brazil and Helvepharm in Switzerland
Abbott Laboratories acquired the pharmaceutical formulations business of Piramal Healthcare and collaborated with Zydus Cadila

A pro-generic initiative in the west:

Ireland’s parliament has recently passed a bill on pro-generic initiatives. Under this new law pharmacists will be permitted to substitute branded medicines, which have been designated by the Irish Medicines Board (IMB) as interchangeable.

Currently in Ireland, if a specific brand of medicine is prescribed for a patient, the pharmacist must supply only that brand.

Some steps over the line blocking entry of generics:

Interestingly, to continue marketing high priced innovative drugs even after patent expiry, attempts are still being made to block entry of cheaper generics through equally innovative means by stepping over the line.

On April 15, 2013 ‘The New York Times’ reported several such cases of the recent past in the United States. The report gives details of the players involved in each of these cases.

Prompted by these unfortunate incidents, the Federal Trade Commission (FTC) of the US investigated into the matter involving the American drug companies and charged many of them with ‘anticompetitive behavior’. These practices are no longer new and are being followed by some companies over a long period of time.

One of the latest and elegant, yet a very simple strategy reportedly works as follows:

Generic drug makers need samples of patented drugs to generate required regulatory data to obtain marketing approval for launch after the molecules go off patent.
Some innovator companies (named in the report) refuse to sell their patented drugs to generic manufacturers for development of generic equivalents.
Traditionally, the generic drug makers purchase their requirements from the concerned wholesalers.
However, because of safety concerns, drugs are now mostly sold with restrictions on who can buy them.
This compels the generic manufacturers to ask the innovator companies for samples of the patented products.
Unfortunately, mostly they get a negative answer.
In defense, innovator companies explain that they are ensuring any possible improper use of their innovative drugs and also say that no law binds any company to do business with another.

It is alleged that the companies, which most aggressively pursue such measures are those with drugs nearing end of their patent life.

The report indicates that the federal regulators in USA do consider this strategy of creative interpretation of drug safety laws, is illegal.

The news item also indicates that most of these drugs are for serious illnesses like various types of cancers, multiple sclerosis and other rare diseases costing US$ 79,000 to US$ 229,000 a year to patients.

More instances:

Another recent report highlights that European Union’s anti-trust regulator will fine two European pharmaceutical Company and seven other drug makers for blocking generic drugs against “pay-for-delay” deals. Ranbaxy’s name also features in this report.

The report also states that brand name companies, especially in the western world, have been defending “pay-for-delay” deals to extend patents and avoid costly litigation.

It reports that in a typical case, a generic rival may challenge the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge. Interestingly, defenders of the practice call it a legitimate means to resolve patent litigation.

A recent debate:

Another interesting development has come up with the pain killer drug OxyContin of Purdue Pharma, which went off patent in April 2013.

Just before patent expiry, Purdue Pharma reportedly reformulated and pulled out its previous version of OxyContin, without abuse-deterrent measures, from the market giving reasons related to safety and efficacy of the drug.

In the notice to the Federal Register, US-FDA reportedly said, “Compared to original OxyContin, reformulated OxyContin has an increased ability to resist crushing, breaking, and dissolution using a variety of tools and solvents.” The regulator, consequently, barred the generic companies from making copies of the older versions of OxyContin without tamper-resistant qualities.

This development, will not allow drug manufacturers like Teva and Impax to make and launch generic equivalents of older versions of OxyContin.

This report also says that similar request has been filed with US-FDA by Endo Health Solutions Inc. for safety of its old painkiller drug Opana, which could force the generic version of the drug manufactured by Impax’s going out of the market in favor of high priced medicine.

On this development the Generic Pharmaceutical Industry in America has reportedly commented, “Blocking generic drugs could mean leaving behind the millions of patients who stand to benefit from access to lower-cost versions of OxyContin”. Some experts have also expressed apprehension that such a precedent would likely to encourage many others to work for similar safety related changes to extend patent life of a product.

Having said that, it appears to be a complex regulatory issue where the possibility of drug abuse has to be carefully weighed against the benefits of low cost generic entry for greater access to patients.

‘Disparaging’ generic drugs:

Reuters , quoting the French Competition Authority, recently reported from Paris that a global pharmaceutical major has “created a doubt over the quality and the safety of generics, without any proven basis.”

As a result, the report says, the French Competition Authority has fined the drug maker 40.6 million euros (US$52.7 million) for “disparaging” generic competition.

The news report further indicates that this decision followed a complaint of Teva Sante filed in 2010 against communication practices of the branded molecule discouraging the use of its generic versions by the doctors.

The innovator company may appeal against this decision.

European Commission found similar practices:

It is interesting to note that in 2009, the European Commission also reportedly found similar practices, including ‘pay-for-delay deals’ which not only adversely impacted competition, but also delayed entry of cheaper generic drugs into the EU markets.

That said, entry of generic drugs is still not speedy in all therapy areas. In this context, a study titled, “Drug patent expirations and the speed of generic entry,” concluded that the generic industry mostly target chronic drug markets with high turnover products and entry of a generic drug is also greatly influenced by the existing branded substitutes in the marketplace.

Importance of the Indian generic drugs:

According to BCC Research, the global generic drug market is expected to grow at a CAGR of 15 percent over five years registering a turnover of US$ 169 billion in 2014.

In this market, India is now the world’s biggest provider of low priced high quality generic medicines to the developing world. The experts opine in various context, the world must ensure that this vibrant hub of generic drugs does not get adversely impacted at any cost for any vested interest.

According to Pharmexcil pharma exports from India stood at an impressive US$ 14.6 billion during 2012-13 compared to US$ 13.2 billion in 2011-12. Indian Ministry of Commerce had unfolded a ‘Strategy Plan’ to take it to US$ 25 Bn by 2013-14, which currently appears to be a very ambitious objective.

Taken together, India and China now reportedly manufacture over 80 percent of the Active Pharmaceutical Ingredients (APIs) of all drugs used in the United States.

As reported by BMJ from 2003 to 2008, in various programs supported by donor organizations like the Global Fund, generic drugs from India contributed over 80 percent of the medicines used to treat AIDS, including 91 percent of pediatric antiretroviral products and 89 percent of the adult nucleoside and non-nucleoside reverse transcriptase inhibitor markets.

In addition, India is considered to be an extremely valuable source of high quality affordable generic drugs for the treatment of cancer, cardiovascular conditions, infections and other non-infectious chronic diseases and conditions.

Allegations against Indian generic drugs:

In a situation is like these, some aberrations within the Indian generic space like, what has happened currently with Ranbaxy are, at times, made universal and blown out of proportion, probably on behalf the interested players to paint the domestic pharmaceutical industry, in general, black. There is no doubt, however, all such cases of fraud on patients, wherever these take place must be brought to justice.

The issue arises when such instances are grossly generalized. For example, an American Enterprise Institute report titled, “Cheap Indian generic drugs: Not such good value after all?” quoting US-FDA, highlights that “Pharmaceutical companies in developing countries are increasingly falsifying data about the quality of their medicines.”

It further alleges, Indian producers in particular strive to reduce costs by substituting cheaper ingredients or skimping on good manufacturing practices, and often patients and well-informed pharmacists alike will overlook the flaws.

The article laments, “Indian companies and regulators simply deny there is any difference in product quality between their products and those made in the West.”

Indian perspective to the allegation:

In response to such allegations a very recent FICCI –Heal 2012 publication titled “Universal Healthcare: Dream or Reality?” articulated as follows:

“Selected reporting of malpractices in healthcare has painted a poor picture of the sector. However, the instances of misconduct/corruption are miniscule compared to public perception.”

Some important campaigns in favor of generics:

However, a publication from ‘Global Pharmacy Canada’ says,

“Generic medications are just as safe and effective as their brand-name equivalents. All the drugs supplied by the pharmacies we deal with are government approved. The manufacturers they buy from follow strict World Health Organization (WHO) standards for Good Manufacturing Practices (GMP). One or several of the following agencies have approved these manufacturing facilities:

Food and Drug Administration (FDA), USA
Medicines Control Agency (MCA), UK
Therapeutic Goods Administration (TGA), Australia
Medicines Control Council (MCC), South Africa
National Institute of Pharmacy (NIP), Hungary
Pharmaceutical Inspection Convention (PIC), Germany
State Institute for the Control of Drugs, Slovak Republic
Food and Drug Administration (FDA), India”

Similarly USFDA comments on generic drugs as follows:

“Generic drugs are important options that allow greater access to health care for all Americans. They are copies of brand-name drugs and are the same as those brand name drugs in dosage form, safety, strength, and route of administration, quality, performance characteristics and intended use.”

“Health care professionals and consumers can be assured that FDA approved generic drug products have met the same rigid standards as the innovator drug. All generic drugs approved by FDA have the same high quality, strength, purity and stability as brand-name drugs. And, the generic manufacturing, packaging, and testing sites must pass the same quality standards as those of brand name drugs.”

The growth drivers:

According to a recent study, following are the key growth drivers of the global generic pharmaceutical industry:

Governments’ and payers’ need to contain rapidly increasing healthcare expenditures

A growing middle-class in emerging markets

Longer life expectancy

A large number of patent expiries for innovator drugs, many of them are mega blockbusters

All these have contributed to the growth of global generic industry from less than US$ 50 billion in 2004 to over $80 billion by 2011 improving global patient-access to medicines significantly.

The report also says, if a more general definition of off-patent medicines is used to define generics, estimates have placed the size of the industry at closer to $150 billion. In the United States alone, generic sales have more than tripled since 2000 and now exceed $51 billion in 2011.

Encourage speedy entry of generics:

Even the Federal Trade Commission (FTC) in a report titled “Generic Drug Entry Prior to Patent Expiration: An FTC Study,” stated as follows:

“Expenditures on pharmaceutical products continue to grow and often outpace expenditures for other consumer products. Pharmaceutical expenditures concern not only consumers, but government payers, private health plans, and employers as well. Generic drugs offer opportunities for significant cost savings over brand-name drug products.”

In its report FTC recommended that generic drugs should not experience delays when entering the market. The Commission also highlighted that both pharmaceutical innovation and cheaper generic drugs bring enormous benefits to patients.

Conclusion:

It is widely recognized that generic medicines play a key role to improve access to medicines to a very large section of population of the world.

Currently, important policy measures taken by the countries like, United States, United Kingdom, Canada, Holland, Denmark and Germany for increasing use of generic drug have started helping them to achieve this objective. At the same time, such policies are helping them to garner significant savings in their respective healthcare cost.

Out of pocket expenditure towards healthcare being around 80 percent in India, un-interrupted availability of high quality affordable generic medicines will help the patients significantly. This should, no doubt, need to be ably supported by the Government by rolling-out much awaited ‘The Universal Healthcare’ proposal of the High Level Expert Group (HLEG) appointed by the Planning Commission of India, sooner.

To improve demand of generic drugs, the prescribers too need to be influenced by the regulators, as has happened in many countries of the world.

Finally, the requirement to maintain high quality standards for generic medicines should be non-negotiable and continuously be kept under careful vigil of the drug regulators.

The complex dynamics of the global generic drugs market are indeed intriguing. It is indeed a ‘Wonderland’, as it were.

Be that as it may, in this wonderland of pharma generics, as some continue to step in and some others continue to step over the line, it is also important to understand how this industry caters to the healthcare needs of billions of poor and needy.

Respective Governments across the world should facilitate speedy entry of more number of newer generic drugs in the market. Simultaneously, the drug regulators will require bringing to justice to all those forces, which will attempt blocking or delaying entry of generics, causing great harm to a vast majority of patients across the world.

By: Tapan J. Ray

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

Is Fraud or Negligence in Drug Quality Standards Not a Fraud on Patients?

Posted on June 3, 2013 by Tapan Ray

As we know, a substance is called a drug when it has scientifically proven and well documented efficacy and safety profile to reduce both mortality and morbidity of patients. Any fraud or negligence in the drug quality standards, for whatever may be the reasons or wherever these take place, is a fraud on patients and should warrant zero tolerance.

A perception survey on drug quality:

According to a poll released in 2010 by the ‘Pew Charitable Trusts’s Prescription Project’ of the United States:

More than three out of four voters are confident that prescription drugs made in the USA are free from contamination

While less than one in 10 feel confident about medications made in India or China.

54 percent of Americans distrusted Indian drugs and 70 percent distrusted Chinese drugs.

“When you buy a shirt, it will say right on the label where it was made, but when you get a pharmaceutical, you don’t know.”

Despite all these, the survey points out that in 2007, 68 percent of the ingredients of all drugs sold worldwide came from India or China, as compared to 49 percent in 2004.

Experts comment that USFDA does not have either people or resources required to monitor manufacturing in the geographically widespread locations, as these are today.

Recent spate of charges against Indian pharmaceutical companies – a vindication?

Recent spate of charges against some top ranked Indian companies, will further dent the image of India not just in the United States or Europe, but also as a pharmacy of high quality yet low cost generic drugs for the developing countries of the world.

In May 2013, well known India-based pharma major Ranbaxy reported to have pleaded guilty to criminal charges of manufacturing and distributing some adulterated medicines, produced at its Paonta Sahib and Dewas, facilities and agreed to US$ 500-millon settlement. Can this be considered as a vindication of the above perception on the quality of ‘made in India’ drugs?

The view of WHO:

Interestingly the World Health Organisation (WHO) even after the above USFDA indictment has commented that at present it has no evidence that Ranbaxy manufactured medicines that are currently prequalified by WHO are of unacceptable quality.

Indian drug regulator initiates action:

It is good to know that the Drugs Controller General of India (DCGI) and the Ministry of Health will reportedly decide the way forward in this matter on completion of a fact-finding study initiated by the Central Drugs Standards Control Organization (CDSCO) on the subject.

Other incidents in India:

Following are examples of other reported serious regulatory violations involving the domestic pharmaceutical companies:

No.	Year	Company	Issue	Status
	2009	Lupin	USFDA warning for Mandideep plant	Resolved in 2010
	2010	Claris Life Sciences	USFDA ban products for manufacturing norms violations	Ban revoked in 2012
	2011	Zydus Cadila	USFDA warns Co. over Moraiya, Gujarat Facility	Ban revoked in 2012
	2011	Dr Reddy’s	USFDA bans sale of drugs from Mexico facility	Ban revoked in 2012
	2013	Jubilant Life Sciences	Gets USFDA warning for Canada facility	Company taking corrective steps
	2013	Wockhardt	Banned from exporting products from its Aurangabad factory to the US due to quality concerns	In discussion

Source: The Economic Times (May 22, 2013), Financial Express (May 25, 2013)

Though some other countries also have faced bans from exporting products, it cannot be taken, I reckon, as any consolation by anyone.

A Mumbai Hospital demonstrated the mood of zero tolerance:

The above expression of good intent should not just remain as a ‘lip service’. Indian drug regulator is expected to take a leaf out of all these allegations and initiate appropriate audit as required. Otherwise, exhibiting zero tolerance, like Jaslok Hospital of Mumbai, many other institutions will ask their doctors not to prescribe products of these companies to protect patients’ interest. More hospitals reportedly are mulling similar action against Ranbaxy.

IMA expresses apprehension:

Even ‘The Indian Medical Association (IMA)’ has reportedly asked the DCGI to investigate quality of medicines manufactured by Ranbaxy.

It happens in the ‘heartland’ too just as in the ‘hinterland’:

Contrary to the above poll released in 2010 by the ‘Pew Charitable Trusts’s Prescription Project’, pointing accusing fingers, in this respect, exclusively to India and China, may not be just fair. Incidents of such regulatory violations are not just restricted to Indian pharmaceutical companies either. Unfortunately, these happen with the global majors too.

None of these should be condoned in any way by anyone and attract as much global publicity, public wrath and zero tolerance, as all these would possibly deserve.

Following are some examples:

No	Company	Issues with USFDA	Consent decree signed (year)	Issue status	Penalty amount
	Schering-Plough	GMP violations affecting four manufacturing sites and 125 products	Yes (2002)	Closed (2007)	$500 Mn.
	GlaxoSmithKline	Manufacturing deficiencies found at Puerto Rico facility	Yes (2005)	Pending	$650 Mn. Bond
	Wyeth	GMP violations at plant in Pennsylvania and New York which were producing FluShield	Yes (2000)	Pending	$297 Mn. Plus 18.5% of sales of FluShield
	Abbott Labs	Non-conformance with quality system regulations for in vitro diagnostic products at an Illinois facility	Yes (1999)	Pending	$212 Mn.
	Boehringer Ingelheim	To bring its Ohio facility into compliance with regulatory requirements	Yes (2013)	Pending	Not specified

Source: Financial Express (May 25, 2013)

Further, in December 1998 the US FDA reportedly had stopped shipments of Abbott Laboratories’ clot-busting drug Abbokinase till the company had resolved undisclosed manufacturing problems at its plant. Abbott subsequently resolved this to the satisfaction of the drug regulator.

Even end May 2011, the USFDA reportedly raised concerns about contamination of drugs of the American pharmaceutical major – Hospira, at its Indian manufacturing facility.This issue was highlighted as the latest in a string of manufacturing and quality problems dogging the company since 2010.

American lawmakers demand thorough review of USFDA oversight procedures:

Pressure has reportedly started mounting in the United States for a thorough review into the effectiveness of oversight procedures for all bulk drugs and formulations manufactured in foreign facilities.

Simultaneously, there is also a specific demand for an in-depth review of all actions of the US regulator for so many years, which allowed Ranbaxy’s ‘massive fraud to remain unchecked’.

Beyond regulatory oversight, need robust internal system driven model as a fire-wall:

To address such issues only drug regulators interventions may not be just enough, maintaining total integrity of ‘Supply Chain’ of an organization proactively in a well structured, fool-proof and a system-driven way, will continue to play the most critical role. This will help creating ‘fire-wall’, which will be difficult to breach.

The scope of Supply Chain:

The scope of ‘Supply Chain’, which is comprised of the entire network of entities from vendors who supply raw and packaging materials, manufacturers who convert these materials into medicines, together with warehouses, distributors, retailers and healthcare centers who will reach these medicines ultimately to patients exactly the way these will deserve.

Thus, just not in the manufacturing process, any breach of security at any place of the supply chain can cause serious problems to patients.

Accordingly, pharmaceutical companies need to adequately invest along with appropriate staff training programs to ensure that the Supply Chain Integrity is maintained, always.

Supply Chain Security (SCS) is critical:

SCS, therefore, deserves to be of prime importance for the pharmaceutical companies across the globe. Recent high profile SCS related cases, as mentioned above, have exposed the vulnerability in addressing this global menace effectively.

All pharmaceutical players should realize that not just ‘show-off’, an effective integrated approach is of paramount importance to eliminate this crime syndicate, which is taking lives of millions of patients the world over.

Mixing-up counterfeit drugs with this menace may not be prudent:

Shouting for counterfeit drugs involving mainly intellectual property related issues, may be important, but will in no way help resolving self-created menaces arising out of breach of supply chain integrity endangering million of lives, in another way.

Though an expensive process, can’t be compromised:

It is worth repeating, securing pharmaceutical supply chain on a continuous basis is of critical importance for all the pharmaceutical players across the globe. However, the process will no doubt be expensive for any company.

Like other industries, in the pharmaceutical sector, as well, cost effective procurement is critical, which entices many pharmaceutical players, especially, in the generic industry not to go for such expensive process just to maintain the SCS.

A serious SCS related tragedy:

I would like to reinforce my argument on the importance of SCS with the following example of the ‘Heparin tragedy’ where the supply chain integrity was seriously violated with ‘ingeneuity’.

In the beginning of 2008, there were media reports on serious adverse drug events, some even fatal, with Heparin, a highly sulfated glycosaminoglycan of Baxter International. Heparin is widely used as an injectable anticoagulant. Baxter voluntarily recalled almost all their Heparin products in the U.S. Around 80 people died from contaminated Heparin products in the U.S. The US FDA reported that such contaminated Heparin was detected from at least 12 other countries.

A joint investigation conducted by Baxter and the US FDA ascertained that the Heparin used in batches associated with the serious adverse drug events was contaminated with Over Sulfated Chondroitin Sulfate (OSCS). It was reported that Heparin Scientific Protein Laboratories, Changzhou, China supplied Heparin to Baxter.

The cost of OSCS is just a fraction of the ingredient used in Heparin. Being driven by the criminal profiteering motive the manufacturers in Changzhou, China had reportedly used OSCS for highly sulfated glycosaminoglycan, as the former could not be detected by the pharmacopeia test in use, until 2008. This is because OSCS mimics Heparin in the pharmacopeia test. Post this criminal event, at present, all over the world more specific pharmacopeia test methods have been adopted for Heparin.

Stakeholders need to be extremely vigilant:

Considering all these, pharmaceutical players and the drug regulators from across the world should put proper ‘fool proof’ systems in place to eliminate the growing menace of criminal adulteration of APIs, drug intermediates, excipients entering in the supply chain together with preventing any breach in their logistics support systems.

Apprehension against generic drugs as a class:

Taking advantage of the situation, one can possibly say, as some vested interests have already started propagating that generic equivalents of the branded drugs are really not quite the same in quality.

However, the point that cannot be ignored is the comment of a senior USFDA, who was quoted in the same article saying, “I have heard it enough times from enough people to believe that there are a few products that aren’t meeting quality standards.“

Generic drug manufacturers should make serious note of such comments and act accordingly to allay prevailing lurking fear on the use of generic medicines, in general, though small in number.

Conclusion:

Following the recent series of incidents including that of Ranbaxy, the image of India as a low cost generic drugs manufacturer of high quality could get adversely impacted. Although there are enough instances that such things happen in the developed world, as well, including the United States.

Moreover, in the backdrop of high decibel quality concerns raised by USFDA, the level of apprehension regarding effectiveness of generic drugs made in India may increase significantly, unless some tangible, well thought out and highly publicized remedial measures are taken forthwith.

The decision of Jaslok Hospital, Mumbai advising their doctors for not using Ranbaxy products to patients on the same ground, will further strengthen the public apprehension.

Whatever may be the reason, as long as any company is in the business of manufacturing medicines, there should be demonstrable zero tolerance on any compromise, fraud or negligence in the drug quality standards. Any fraud and negligence in drug quality, I reckon, is virtually a fraud against humanity.

That said, changing mindset towards a strong corporate governance by walking the talk, all pharmaceutical companies must guarantee safe and high quality medicines to the society, come what may.

This, I believe, could be achieved by putting in place a robust SCS system and ensuring that this is not compromised in any way… anywhere…ever… for patients’ sake…both globally and locally.

By: Tapan J. Ray

A Ten Step Strategy Prescribed

Posted on December 24, 2012 by Tapan Ray

In India, there are various hurdles to address the healthcare issues in a comprehensive way. Though, these do not seem to be insurmountable, the country needs a clear time-bound grand strategy to squarely address this vexing concern, which also has its consequent socioeconomic fallout.

If we look at the history of development of the industrialized countries of the world, we shall easily be able to fathom that all of them not only had heavily invested, but even now are investing to improve the socioeconomic framework of the country where education and health are the center pieces. Continuous reform measures in these two key areas are proven key drivers of economic growth of any nation.

Just as focus on education is of utmost importance to realize the economic potential of any country, so is the healthcare. It will be extremely challenging for India to realize its dream of becoming one of the economic superpowers of the world, without a sharp strategic focus and significant resource allocation in these two areas.

The World Health Statistics:

As reported by the ‘World Health Statistics 2011′, India spends around 4.2 percent of its Gross Domestic Product (GDP) on health, which is quite in line with other BRIC countries like, China and Russia.This has been possible mainly due to increasing participation of the private players in the healthcare sector and not so much by the government. The following table on ‘Health Expenditure’ will highlight this point:

Type	Brazil	Russia	India	China
Exp. on Health (% of GDP)	8.4	4.8	4.2	4.3
Govt. Exp. on Health(% of Total Exp. on Health)	44	64.3	32.4	47.3
Pvt. Exp. on Health (% of Total Exp. on Health)	56	35.7	67.6	52.7
Govt. Exp. on Health (% of Total Govt. Exp.)	6	9.2	4.4	10.3
Social Security Exp. on Health (% of General Govt. Exp. on Health)	-	38.7	17.2	66.3

Key healthcare goals:

As articulated in a recent paper titled ‘Meeting the Challenges of Healthcare Needs in India: Paths to Innovation’, the key healthcare goals of any country have been described as follows:

Improved quality of care and population health as measured by life expectancy and other measures of wellness

Cost containment and pooled risk-sharing by the population to allow financial access to care as well as avoid catastrophic ruin
Provide access to care in an equitable manner for all citizens

Specifically to India one of the key challenges to healthcare is ‘Universal Access’ to care and health equity. However, in terms of pure concept the country has a universal healthcare system, where theoretically any citizen is entitled to avail the public health facilities irrespective of socioeconomic status. Unfortunately, the reality is far out of the line.

Health is a ‘State subject’:

In Indian system, health is primarily a state subject and the Central Government deals with:

Health related policies
Health related regulations
Initiatives related to identified disease prevention and control

Whereas, each state needs to take care of:

Healthcare administration
Healthcare delivery
Healthcare financing
Training of personnel related to healthcare

The system:

Primary Health Centers (PHCs) of India located in the cities, districts or rural villages are expected to provide medical treatment free of cost to the local citizens. The focus areas of these PHCs, as articulated by the government, are the treatment of common illnesses, immunization, malnutrition, pregnancy and child birth. For secondary or tertiary care, patients are referred to the state or district level hospitals.
The public healthcare delivery system is grossly inadequate and does not function, by and large, with an optimal degree of efficiency, though some of the government hospitals like, All India Institute of Medical Science (AIIMS) are among the best hospitals in India.

Most essential drugs, if available, are dispensed free of cost from the public hospitals/clinics. Outpatient treatment facilities available in the government hospitals are either free or available at a nominal cost. In AIIMS an outpatient card is available at a nominal onetime fee and thereafter outpatient medical advice is free to the patient.

However, the cost of inpatient treatment in the public hospitals though significantly less than the private hospitals, depends on the economic condition of the patient and the type of facilities that the individual will require. The patients who are from Below Poverty Line (BPL) families are usually not required to pay the cost of treatment. Such costs are subsidized or borne by the government.

Private sector is expensive:

That said, in India health facilities in the public sector being inadequate, generally under-staffed and under-financed, a large section of population still does not have access to affordable modern healthcare. As a result, more often than not, common patients are compelled to go to expensive private healthcare providers. Majority of the population of India cannot afford such high cost private healthcare, though comes with a much better quality.

Thus, as things stand today the public sector actually provides just about 20% of actual care services. The balance is catered by the private sector.

A great potential:

A 2012 report on ‘Indian Healthcare Industry’ indicates that in 2010 the size of the industry was around US$ 50 billion and is expected to register a turnover of US$ 140 billion in 2017 with a CAGR of 15 percent. This growth momentum, despite all these, positions India as one of the most lucrative markets within the developing countries of the world. On a global perspective as well, healthcare industry is one of the fastest growing segments clocking a turnover of US$ 5.5 trillion in 2010.

Growth drivers:

The main drivers of growth for the Indian healthcare industry are considered as follows:

Second highest growing economy in the world
Changing demographic profile
Increasing disposable income
Higher incidence of Non-infectious Chronic Diseases (NCD)
New investment avenues
A large talent pool
Cost-effective human resource

Besides above, other growth drivers are as follows:

Increased penetration of pharmaceuticals in the rural markets
Increased export potential for low cost and high quality generic pharmaceuticals, as a large number of patents are going to expire in the next 5 years
Emergence of various health cities and also single specialty clinics offering quality healthcare
Health insurance portability is expected to increase the penetration of insurance, improve quality of service and raise competition among insurers to retain customers
Telemedicine: E-healthcare in rural areas is gaining popularity with the involvement of both
public and private players like, ISRO, Mazumdar Shaw Cancer Center and Narayana Hrudayalaya. Some telecom companies like, Nokia and BlackBerry are also contemplating to extend the use of mobile phones for remote disease monitoring as well as diagnostic and treatment support. Introduction of 3G and in the near future 4G telecom services will
further enhance opportunities of e-healthcare through mobile phones, expanding the field of healthcare.

Promising sectors:

Within the healthcare industry, the most promising sectors are:

Pharmaceuticals
Hospitals and Nursing Homes
Medical equipment
Pathological labs and other diagnostic service providers

According to the Investment Commission of India, the healthcare sector of the country has registered a robust CAGR of over 12 percent during the last four years and the trend is expected to be ascending further.

Quite in tandem, other important areas of the healthcare sector, besides pharmaceuticals, have also recorded impressive performance as follows:

Areas	Growth %
Hospitals/Nursing Homes	20
Medical Equipment	15
Clinical Lab Diagnostics	30
Imaging Diagnostics	30
Other Services (includes Training & Education; Aesthetics & Weight loss; Retail Pharmacy, etc.)	40

Government initiatives:

On its part, the Indian government is also in the process of giving a thrust to the healthcare sector as a whole by:

Increasing public expenditure on healthcare from 1 percent to 2.5 percent of GDP in the 12th Five Year Plan Period
Encouraging public-private partnerships (PPP) in hospital infrastructure and R&D
Encouraging medical tourism
Attracting Indian and foreign players to invest in Tier-II and Tier-III cities with huge untapped market potential. For example:

- Expansion of major healthcare players in tier-II and tier-III cities of India like, Apollo, Narayana Hrudayalaya, Max Hospitals, Aravind Eye Hospitals and Fortis

- BCG Group will reportedly open shortly a multidisciplinary health mall that would provide a one-stop solution for all healthcare needs starting from doctors, hospitals, ayurvedic centers, pharmacies including insurance referral units at Palarivattom in Kochi, Kerala.

BCG’s long-term plan, as reported in the media, is to set up a health village spanning across an area of a 750,000 sq. ft. with an estimated cost of US$ 88.91 million. Along the same line, to set up more facilities for diagnostic services in India, GE Healthcare reportedly has planned to invest US$ 50 million for this purpose

Introduction of the ‘National Commission for Human Resources for Health Bill 2011( NCHRH Bill 2011)’, which will bring all independent bodies like the Medical Council of India (MCI), the Dental Council of India (DCI), the Pharmacy Council of India (PCI) and the Nursing Council of India (NCI) under a centralized authority for a more cohesive action.

Attracting FDI:

According to the Department of Industrial Policy & Promotion (DIPP), the healthcare sector is undergoing significant transformation and attracting investments not only from within the country but also from overseas.

The Cumulative FDI inflow in the healthcare sector from April 2000 to October 2012, as per DIPP publications, is as follows:

Sector	FDI inflow (US$ million)
Hospital and diagnostic centers	1482.86
Medical and surgical appliances	571.91
Drugs and pharmaceuticals	9775.03

(Source: Fact Sheet on FDI – April 2000 to October 2012, DIPP)

Job creation:

The trend of new job creation in the healthcare sector of India is also quite encouraging, as supported by the following facts:

The Healthcare sector in India recorded a maximum post-recession recruitment to a total employee base of 36, 21,177 with a new job creation of 2, 73, 571, according to ‘Ma Foi Employment Trends Survey 2012’.

Despite slowdown in other industries, in the healthcare sector the new job creation continues at a faster pace.

With many new hospital beds added and increasing access to primary, secondary and tertiary / specialty healthcare, among others, the ascending trend in job creation is expected to continue in the healthcare sectors of India in the years ahead.

A Strategy Prescribed:

Though the report of the High Level Expert Group (HLEG) on the ‘Universal Health Coverage (UHC)’ is already in place, without going into the implementability issues of the report in this article, I would like to propose a ten pronged approach towards a new healthcare reform process to achieve the national healthcare objectives:

1. The government should focus on its role as provider of preventive and primary healthcare to all, through public hospitals, dispensaries and PHCs, including free distribution of essential medicines.

2. In tandem, the government should play the role of enabler to create Public-Private partnership (PPP) projects for secondary and tertiary healthcare services at the state and district levels with appropriate fiscal and other incentives.

3. PPP also may be extended to create a robust health insurance infrastructure urgently.

4. The insurance companies will be empowered to negotiate with concerned doctors, hospitals and other organizations, all fees payable by the patients to doctors, hospitals, for diagnostic services etc., including cost of medicines for both inpatients and outpatients treatment, with the sole objective to ensure access to affordable high quality healthcare to all.

5. Create an independent regulatory body for healthcare services to regulate and monitor the operations of both public and private healthcare providers/institutions, including the health insurance sector.

6. Levy a ‘healthcare cess’ to all, for effective implementation of this new healthcare reform process.

7. Effectively manage the corpus thus generated to achieve the healthcare objectives of the nation through the Healthcare Services Regulatory Authority (HSRA).

8. Make HSRS accountable for ensuring access to affordable high quality healthcare to the entire population of the country together with a grievance redressal mechanism.

9. Make HSRS accountable, its operation transparent to the civil society through HSRS website and cost-neutral to the government, through innovative pricing model based on economic status of an individual.

10. Allow independent private healthcare providers to make reasonable profit out of the investments made by them

Conclusion:

All the ten steps prescribed as above, will help ensure a holistic approach to healthcare needs of India and reduce prevailing socioeconomic inequalities within the healthcare delivery systems of the country.

Rapidly growing urban centric five-star private healthcare initiatives are welcome but these are now just catering to the privileged few, perpetuating the pressing healthcare issues unanswered.

Only a well-orchestrated, comprehensive, time-bound and holistic approach is capable of addressing the humongous healthcare needs of India and at the same time providing much required growth momentum to the Indian healthcare industry, positioning India as one of the most lucrative healthcare hubs within the emerging economies of the world.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion and also do not contribute to any other blog or website with the same article that I post in this website. Any such act of reproducing my articles, which I write in my personal capacity, in other blogs or websites by anyone is unauthorized and prohibited.

Hysteria on Corporate Lobbying in India

Posted on December 17, 2012 by Tapan Ray

The ‘hysteria’ on ‘Corporate Lobbying’ influencing the key policy decisions of India, reverberated in the corridors of power of the Indian Parliament last week with consequent media attraction and triggering a raging public debate.

On Monday, December 10, 2012 the Upper House of the Indian Parliament reportedly expressed itshuge concern over a lobbying disclosure in the United States related to a contentious government policy decision India.

Taking part in the debate a distinguished Member of the Parliament and an eminent lawyer Mr.Ravishankar Prasad reportedly articulated, “Lobbying is illegal in India and is a kind of bribe. If Wal-Mart has said that hundreds of crores of rupees were spent on India, then it is a kind of bribe.Government should tell who was given this bribe.”

Responding to the opposition demand on this subject, the Government has already ordered a judicial probe on this allegation.

Corporate Lobbying:

The term ‘Lobbying’ has been defined as “a form of advocacy with the intention of influencing decisions made by the government by individuals or more usually by Lobby groups; it includes all attempts to influence legislators and officials, whether by other legislators, constituents, or organized groups”.

April 21, 2012 edition of ‘The Economist’ in an article titled. “The Chamber of Secrets - The biggest business lobby in the United States is more influential than ever”, reported that ‘Americas first chamber of commerce was founded in Charleston in 1773.

Many a times the key issues of corruption, morality and ethics are being used with ‘lobbying’ activity. However, following two different perceptions remain generally associated with this terminology:

Corporates or people with mighty socioeconomic power, by themselves or through their industry bodies, corrupt the laws to serve a self-serving agenda by bending or deflecting them away from general fairness to majority of the population.
It gives an opportunity to defend minority interest against corruption and tyranny of the majority.

An article published in the ‘The Washington Post’ on August 14, 2011 argued that “Blame for financial mess starts with the corporate lobby” in America.

In a recent book titled, “Time to Start Thinking – America and the Specter of Decline”, the author described how the big money in America has almost completely bought over the political process along with a pen picture of the organized lobbying group continuing to wield their mighty power despite reported ban of this activity in the ‘White House’ by President Barrack Obama.

Lobbying is legal in many countries:

It is worth mentioning that lobbying is a legal activity in many countries, such as, the United States of America, Europe and Canada. In the US, many Indian companies, including the government of India have been lobbying since so many years to present their cases and argument with the American law and policy makers.

When President Obama came to power in the US, it was reported: ‘one of the first acts of the Obama administration in office was to have an executive order which prohibited the Obama Administration either from hiring lobbyists – those who had lobbied within two years of joining the administration or allowing people who had left the Obama administration to service lobbyists for two years. The idea is that you want to break the chains where there is undue influence of special interest groups upon the government’.

‘Disclosure’ required in the US:

In the US, lobbying being recognized as a legitimate business activity, the companies are required to inform all such activities through quarterly disclosure reports to the US Senate.

In America, in 2012 alone and only in Washington DC there were reportedly 12,016 active registered lobbyists, who spent a whopping US$ 2.45 Billion for lobbying activities . Similarly, as per publishedreports, there are currently an estimated 15,000 individual lobbyists and 2,500 lobbyist organizations in Brussels to seek favorable business decisions through the legislative process of the European Union.

It has been reported that in the U.S. lobbying is a huge and established industry. This is quite contrary to Indian situation, where lobbying has not been legalized and the activity, going by general perception, ‘smacks of illegal gratification and is ravished by corruption scandals like 2G scams”.

Indian corporates also lobby in the US:

Records with the US House of Representatives reportedly show that around 27 Indian companies have spent money on lobbying in the US. Some examples are as follows:

Reliance Industries (RIL): Unspecified issue
Tata Sons:
Ranbaxy Lab,
The National Association of Software and Service Companies (Nasscom )
Wipro
Gems and Jewellery Export Promotion Council, among others.

Some sensational recent reports:

Following are some sensational recent reports on Corporate Lobbying:

The ‘Pharma Letter’ in its in its March 29, 2012 edition reported that “New research reveals that the pharmaceutical industry lobby is spending more than 40 million Euros (US$ 53.5 million) annually to influence decision making in European Union.”

Back home ‘Live Mint (The wall Street Journal)’ reported on October 6, 2011 as follows:

“Wal-Mart has disclosed earlier, “discussion related to India FDI (Foreign Direct Investment)” as one of the issues in its lobbying with the US lawmakers in the first two quarters of 2011, during which it spent nearly US$ 4 million on various lobbying activities.”

On December 13, 2012, ‘The Telegraph‘ reported that in a recent regulatory disclosure in the United States, Walmart has stated that it spent US$ 25 million in the last four years on lobbying for, among other its hopes for “enhanced market access for investment in India”.

Not legalized in India:

As stated above, though Lobbying is considered a legal business activity in many countries, in India it is still not considered as a legally and recognized business activity. However, many industrial sectors have formed their respective associations primarily for lobbying with the government, which is generally termed as ‘advocacy’.

A recent article published in the India Law Journal titled, ‘Corporate Lobbying and Corruption-Manipulating Capital’ articulates that “lobbying is the preferred means for exerting political influence in developed countries and corruption the preferred one in developing countries. However, lobbying and corruption are symbiotic in nature as both are ways of obtaining help from the public sector in exchange for favors.”

The article further states that corporate lobbying or advocacy has expanded in India mostly as intensive briefings and presentations to the ministers and senior bureaucrats, though it is not yet recognized in a statutory or non-statutory form in the country.

Thus, right from the debate on Bofors Guns to the telephone tapes of high profile lobbyist Niira Radia related to 2G telecom scam and then Tatra trucks scam of the Indian Army and now on Walmart debate in the Parliament, one gets a clear feel that corporate lobbying falls in a grey zone under the Indian law.

Difference between ‘Lobbying’ and ‘Advocacy’:

According to the article titled, ‘Lobbying and Advocacy—Similarities and Differences, published by Charity Lobbying for the Public Interest’, when nonprofit organizations advocate on their own behalf, they seek to positively affect majority of the society, whereas lobbying refers specifically to advocacy efforts that attempt to influence policy or legislation of a country by interested groups, irrespective of its best outcome to the society.

More debate:

In a very recent reported debate published on December 15, 2012 titled, “Is lobbying an acceptable business practice? “, one distinguished professional said, ‘While lobbying can be considered routine, the response to it should not be, as it can be deeply harmful to our country’.

In the same debate, another equally distinguished person commented, ‘Lobbying may be a legitimate activity subject to strict regulatory oversight in the US. But in India, it a sophisticated alibi for the more brazen bribe-giving, what with cash still ruling the roost with its subterranean links lubricating all sections of the economy.”

More controversy:

Not so very long ago, some consumer activists from the civil society vehemently protested against the ‘Intellectual Property Conferences’ held in India, which were allegedly sponsored by some interested groups in a guise to influence the policy makers and the judiciary of India.

It was widely reported that the consumer activists viewed these IP summits, organized by the George Washington University Law School of USA as ‘attempts to influence sitting judges on patent law enforcement issues that are pending in Indian courts.’

In a letter dated February 26, 2010 addressed to Shri Anand Sharma, Minister of Commerce and Industry of India, over 20 NGOs demanded transparency and more information on such meetings and wanted the government of India ‘to put a stop to such industry sponsored lobbying with Indian judges and policymakers to promote their own requirements for intellectual property and to lobby for either law amendments or even to plead their cases currently pending before, various courts and the Indian Patent Office.”

In raising their concerns, the civil society groups argued that the posture adopted by the lobbyists and their supporters is to “force India to adopt greater standards” of IP protection “beyond the mandatory levels” required by the WTO, which may ‘go against public health interest of India’.

The need for a middle path:

In the current volatile scenario, it is quite reasonable to expect that lobbying activities in India, especially after the current uproar in the Parliament, may come under greater scrutiny both by the media and the government. The intervention of the courts against ‘Public Interest Litigation (PIL)’ cannot also be ruled out.

However, it is also believed by many that long-term interest of India is expected to ultimately prevail in this closely watched raging debate with the acceptance of a middle path.

A strong argument in favor of lobbying/advocacy:

As stated above, there is also a strong argument in support of lobbying or advocacy, based on the following grounds:

In a democratic country like India, people from across the spectrum, including the industries and its associations, should have the right to convey their views to policy makers.
Lobbying should be regarded as a “fundamental basis to express a point of view”, industry included.
Trying to influence the government is a natural process by all, including the civil society, other stakeholders and the industry alike.

Regulating lobbying activities – An option:

Considering the fast changing environment and arising out of some recent very sensational lobbying related financial/policy scams in India, as mentioned above, the moot question, as is being raised by many across the country is: “Should the government regulate lobbying activities in the country with appropriate regulations?”

Surrogate lobbying:

The instances of ‘surrogate lobbying’ by the industries with funds coming from various parts of the world are also being raised by the civil society, media and recently by the Government. The contentious issue became the subject of a heated debate related to ‘Kudankulam Nuclear Power Plant’ in Tamil Nadu.

In February 2012, Prime Minister Manmohan Singh’s reportedly charged that foreign NGOs for stoking protests with foreign funds at the ‘Kudankulam Nuclear power Plant’ for vested interests and ordered further investigation by the Ministry of Home Affairs to track the trails of funds.

As a result of all these developments, the Government is reportedly becoming increasingly more vigilant against direct or indirect ‘foreign hand’ through surrogate lobbying in the policy related issues of the country, against majority interest of the society. The ‘Walmart saga’ is a case in point, at this stage.

Industry observers have opined, probably many other forms of surrogate lobbying are currently operational in India, which needs to be thoroughly probed and in case of any illegal activity, the perpetrators must be brought to justice, sooner than later, whether it is related to ‘Kundamkulam Nuclear Power Plant’ or any other .

Examples of political fall-out of lobbying activities:

On June 1, 2012, FiercePharma reported as follows:

“The cat is out of the bag so to speak with the disclosure of memos today detailing the level of drug industry support for passage of President Obama’s prized healthcare reform”

It continued to state, “Big Pharma came around to support the original bill, trading about $80 billion in additional taxes and some price rebates to federal programs for an expanded pool of insured.”

Back home in India, The Outlook Magazine reported on June 6, 2010 on the political fall-out of lobbying related to 2G telecom spectrum allocation scam in India as follows:

“Since Outlook published extracts from the CD of Radia’s phone conversations (submitted to the court) taped by the I-T department and put the 140 conversations up on its website, there has been a raging debate on what they tell us about the role of lobbyists in the 2G spectrum allocation scam, how the media interplays in such a system, and how our political class and retired bureaucrats are more often than not willing partners in the game.”

“These debates do not detract from the aim of punishing the guilty behind the 2G scam; rather they raise disturbing questions we all have to answer. Who is this woman who can speak to the “highest and mightiest” in this country in this way? From where does she draw her power? And what does it tell us about our society? When ‘Outlook’ asked her, whether she would like to give her version of these recent events, Radia SMSed back: “No. Thank You.” This is her story..”

Conclusion:

Despite a long history of regulated and legalized lobbying in the US, there are still severe criticisms even in that country about the way lobbying activities have worked there in the past so many decades. India has plenty to learn from such experiences.

In the prevailing situation within India many experts often question, whether the economic/ other critical policy decisions of the country are mostly based on what the local population would require or depend on the money power of vested interests or business houses within and outside the country to influence such decisions.

To eliminate any possibility of illegal gratification, directly or indirectly or in any other manner or form, the process of lobbying or advocacy should be made absolutely transparent for all through appropriate rules and regulations, legally acceptable lobbyists and an appropriate disclosure mechanism for all such related expenses, just as exists in the United States of America.

In absence of these transparent and robust measures, lobbying or advocacy will continue to be perceived not just as an illegitimate activity, but also an ignoble and dubious profession in the eyes of majority living in India.

The fantastic vocabulary of ‘Good Governance’ should not be used just for others to practice. It is a time to ‘walk the talk’ for all stakeholders, including the government to douse histrionics of various kinds like, what happened last week on ‘Corporate Lobbying in India’.

By: Tapan J Ray

A NEW Study on Ballooning Pharma R&D Cost: Exploring a Sustainable Model for Greater Patients’ Access

Posted on December 10, 2012 by Tapan Ray

The high-decibel debate on increasing prices for patented drugs affecting patients’ access to innovative medicines gets a new fuel. A brand new study dated December 2012 carried out by the Office of Health Economics (OHE), UK, which was partly supported by a grant from AstraZeneca, estimated that the cost of developing new medicine has risen by ten times from US$100 million in the 1970s to as high as US$ 1.9 billion in 2011.

The study identifies the following key reasons for a galloping increase in the cost of research and development:

Inflation-adjusted investments
Sharp increase in the rate of failure
Stringent regulatory demands together with scientific complexity
Longer time for clinical development
Significant increase in the cost of capital

Another recent study goes even beyond:

Many experts have gone even further on this subject, arguing that pharmaceutical R&D expenses are over stated and the real cost is much less.

An article titled “Demythologizing the high costs of pharmaceutical research”, published by the London School of Economics and Political Science in 2011 indicates that the total cost from the discovery and development stages of a new drug to its market launch was around US$ 802 million in the year 2000. This was worked out in 2003 by the ‘Tuft Center for the Study of Drug Development’ in Boston, USA.

However, in 2006 the same figure increased by 64 per cent to US$ 1.32 billion, as reported by a pharmaceutical industry association. Maintaining similar trend, if one assumes that the R&D cost will increase by another 64 per cent by 2012, the cost to bring a new drug to the market through its discovery and development stages will be around US $2.16 billion. This will mean a 2.7 times increase from its year 2000 estimate, the article articulates.

The important caveat:

The authors also mentioned that the following factors were not considered while working out the 2006 figure of US$ 1.32 billion:

The tax exemptions that the companies avail for investing in R&D.
Tax write-offs amount to taxpayers’ contributing almost 40% of the R&D cost.
The cost of basic research (should not have been included), as these are mostly done in public funded universities or laboratories.

The article commented that ‘half the R&D costs are inflated estimates of profits that companies could have made if they had invested in the stock market instead of R&D and include exaggerated expenses on clinical trials’.

The authors alleged that “Pharmaceutical companies have a strong vested interest in maximizing figures for R&D as high research and development costs have been the industry’s excuse for charging high prices. It has also helped generating political capital worth billions in tax concessions and price protection in the form of increasing patent terms and extending data exclusivity.”

The study concludes by highlighting that “the real R&D cost for a drug borne by a pharmaceutical company is probably about US$ 60 million.”

A positive side of the story:

The book titled “Pharmaceutical R&D: Costs, Risks, and Rewards”, published by the government of USA states that the three most important components of R&D investment are:

Money
Time
Risk

Money is just one component of investment, along with a long duration of time, to reap benefits of success intertwined with a very high risk of failure. The investors in the pharmaceutical R&D projects not only take into account how much investment is required for the project against expected financial returns, but also the timing of inflow and outflow of fund with associated risks. It is thus quite understandable that longer is the wait for the investors to get their return, greater will be their expectations for the same.

This publication also highlights that the cost of bringing a new drug from ‘mind to market’ depends on quality and sophistication of science and technology involved in a particular R&D process together with associated investment requirements for the same. In addition, regulatory demand to get marketing approval of a complex molecule for various serious disease types are also getting more and more stringent, significantly increasing their cost of clinical development simultaneously. All these factors when taken together make the cost of R&D not only very high, but unpredictable too.

Thus to summarize from the above study, high pharmaceutical R&D costs involve:

Sophisticated science and technology dependent high up-front financial investments
A long and indefinite period of negative cash flow
High tangible and intangible costs for acquiring technology with rapid trend of obsolescence
High risk of failure at any stage of product development

The ground reality: R&D productivity is going south

That pharmaceutical R&D productivity is fast declining has been vindicated by ‘2011 Pharmaceutical R&D Factbook’ complied by Thomson Reuters, the key highlights of which are as follows:

21 new molecular entities (NMEs) were launched in the global market in 2010, which is a decrease from 26 NMEs of the previous year.
2010 saw the lowest number of NMEs launched by major Pharma players in the last 10 years
The number of drugs entering Phase I and Phase II clinical trials fell 47% and 53% respectively during the year.

According to findings of the latest review of ‘Pharmaceutical R&D returns performance’ by Deloitte and Thomson Reuters of December 2012, the R&D Internal Rate of Return (IRR) of leading pharmaceutical companies has fallen for a second successive year to 7.2 percent in 2012 from 7.7 percent in 2011.

High cost of failure:

By challenging the status quo, Andrew Witty, the global CEO of GlaxoSmithKline (GSK) in his speech in Mumbai on September 27, 2011 to the members of the Indian pharmaceutical industry commented that the cost of over a billion dollar to bring a new molecule to the market through its discovery and development stages is “unacceptable.” He attributed such high R&D expenses to the ‘cost of failure’ by the industry.

Witty said, “High in-house failure rates are slowing progress on pricing affordability… We need to fail less and deliver more”.

He commented during his deliberation that success in reducing the R&D cost to make innovative drugs more affordable to the patients of all income levels, across the globe, will be the way forward in the years ahead.

Conventional thinking and an unsustainable model:

Research scientists have already articulated that sharp focus in the following areas may help containing the R&D expenditure to a great extent and the savings thus made, in turn, can fund a larger number of R&D projects:

Early stage identification of unviable new molecules and jettisoning them quickly
Newer cost efficient R&D models, like one implemented by GSK
Significant reduction in drug development time.

Unfortunately, sustainability of the above model still remains a wishful thinking and a question mark to many for various other reasons.

Exploring a seemingly ‘Sustainable Model’:

Should Pharmaceutical R&D move from the traditional models to a much less charted frontier?

Perhaps towards this direction, in November, 2010 a report of Frost & Sullivan titled, “Open Source Innovation Increasingly Being Used to Promote Innovation in the Drug Discovery Process and Boost Bottom-line”, underscored the urgent need of the global pharmaceutical companies to respond to the challenges of high cost and low productivity in their respective Research and Development initiatives, in general.

‘Open Innovation’ model, they proposed, will be most appropriate in the current scenario to improve not only profit, but also to promote more innovative approaches in the drug discovery process. Currently, on an average it takes about 8 to 10 years to bring an NCE/NME to market with a cost of around U.S$ 1.9 billion.

The concept of ‘Open Innovation’ is being quite successfully used by the Information Technology (IT) industry since nearly three decades all over the world, including India. Web Technology, the Linux Operating System (OS) and even the modern day ‘Android’ – the open source mobile OS, are excellent examples of commercially successful ‘Open innovation’ in IT.

In the sphere of Biotechnology Human Genome Sequencing is another remarkable outcome of such type of R&D model.

On May 12, 2011, in an International Seminar held in New Delhi, the former President of India Dr. A.P.J. Abdul Kalam commented, “Open Source Drug Discovery (OSDD) explores new models of drug discovery”. He highlighted the need for the scientists, researchers and academics to get effectively engaged in ‘open source philosophy’ by pooling talent, patents, knowledge and resources for specific R&D initiatives from across the world. In today’s world ‘Open Innovation’ in the pharmaceutical R&D has a global relevance, especially, for the developing world of many ‘have-nots’.

‘Open Innovation’:

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. The licensing arrangement of OSDD where both invention and copyrights will be involved, will be quite different from any ‘Open Source’ license for a software development.

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
Open source

As stated earlier, ‘Open Innovation’ concept was successfully used in the ‘Human Genome Project’ where a large number of scientists, and microbiologists participated from across the world to sequence and understand the human genes. However, this innovation process was first used to understand the mechanics of proteins by the experts of the biotech and pharmaceutical industries.

Making innovative drugs affordable through ‘Open Innovation’:

The key objective of ‘Open Innovation’ in pharmaceuticals is to encourage drug discovery initiatives at a reasonably cheaper price, especially for Non-infectious Chronic Diseases (NCD) or the dreaded ailments like Cancer, Parkinson’s, Alzheimer, Multiple Sclerosis etc. and also many neglected diseases of the developing countries, to make innovative drugs affordable even to the marginalized people of the world.

Multiple benefits:

According to the above report of Frost & Sullivan on the subject, the key benefits of ‘Open Innovation’ in pharmaceuticals will include:

Bringing together the best available minds to tackle “extremely challenging” diseases
Speed of innovation
Risk-sharing
Affordability

The key barrier: Shared IPR

Industry observers feel that the key barrier to ‘Open Innovation’ is that IPR needs to be shared. Hence, large innovator companies, by and large, have not evinced much commercial interest in this initiative as yet. Other issues for ‘Open Innovation’ model are:

Who will fund the project and how much?
Who will lead the project?
Who will coordinate the project and find talents?
Who will take it through clinical development and regulatory approval process?

However, the experts feel that all these do not seem to be an insurmountable problem at all, as the saying goes, ‘where there is a will, there is a way’.

The Global initiatives on ‘Open Innovation’:

In June 2008, GlaxoSmithKline announced that it was donating an important slice of its research on cancer cells to the cancer research community to boost the collaborative battle against this disease. With this announcement, genomic profiling data for over 300 sets of cancer cell lines was released by GSK to the National Cancer Institute’s bioinformatics grid. It has been reported that over 900 researchers actively contribute to this grid from across the industry, research institutes, academia and NGOs. Many believe that this initiative will further gain momentum to encourage many more academic institutions, researchers and even smaller companies to add speed to the drug discovery pathways and at the same time make the NCE/NME coming through such process much less expensive and affordable to a large section of the society, across the globe.

The Alzheimer Disease Neuroimaging Initiative (ADNI) is another example of a Private Public Partnership (PPP) project with an objective ‘to define the rate of progress of mild cognitive impairment and Alzheimer’s disease, develop improved methods for clinical trials in this area and provide a large database which will improve design of treatment trials’.

Recently announced ‘Open invitation’ strategy of GlaxoSmithKline (GSK) to discover innovative drugs for malaria is yet another example where GSK has collaborated with European Bioinformatics Institute and U.S. National Library of Medicine to make the details of the molecule available to the researchers free of cost with an initial investment of US$ 8 million to set up the research facility in Spain involving around 60 scientists from across the world to work in this facility.

Indian initiative:

In India, Dr. Samir Brahmachari, the Director General of the Council of Scientific and Industrial Research (CSIR) is the champion of the OSDD movement. CSIR believes that for a developing country like India OSDD will help the common people to meet their unmet medical needs in the areas of neglected tropical diseases.

‘Open Innovation’ project of CSIR is a now a global platform to address the neglected tropical diseases like, tuberculosis, malaria, leishmaniasis by the best research brains of the world working together for a common cause.

To fund this initiative of the CSIR the Government of India has allocated around U.S$ 40 million and an equivalent amount of funding would be raised from international agencies and philanthropists.

Conclusion:

Currently pharmaceutical R&D is an in-house initiative of innovator global companies. Mainly for commercial security reasons, only limited number of scientists working for the respective innovator companies will have access to the projects.

‘Open Innovation’ on the other hand, is believed to have the potential to create a win-win situation, bringing in substantial benefits to both the pharmaceutical innovators and the patients.

According to available reports, the key advantage of the ‘Open Innovation’ model will be substantial reduction in the costs and time of R&D projects, which could be achieved through voluntary participation of a large number of Researchers/Scientists/Institutions in key R&D initiatives. This in turn will significantly reduce ‘mind-to-market’ time of more affordable New Chemical/Molecular Entities in various disease areas making innovative medicines affordable to all.

Thus, many experts argue, high prices of new patented drugs, giving rise to low access to majority of patients, at least, in the developing world, should by and large be attributed to high R&D cost. They feel, such ballooning increase in research and development expenditures is commercially unsustainable even in the medium term.

Many thought leaders now believe, despite hard commercial consideration related to IPR, which perhaps has to be amicably sorted out willy-nilly in the long run, ‘Open Innovation’ concept could well be an important commercial model for tomorrow’s global R&D initiatives. This sustainable model would possibly address the issue of improving access to innovative affordable Medicines to a larger number of patients of the world, meeting their unmet medical needs, more effectively and with greater care.

By: Tapan J Ray

Revocation and Denial of Patents on Patentability Ground in India: The Fallout and the Road Ahead

Posted on December 3, 2012 by Tapan Ray

On November 26, 2012, the Intellectual Property Appellate Board (IPAB) reportedly denied patent protection for AstraZeneca’s anti-cancer drug Gefitinib on the ground that the molecule lacked invention.

The report also states that AstraZeneca suffered its first setback on Gefitinib in June 2006, when the Indian generic company Natco Pharma opposed the initial patent application filed by the global major in a pre-grant opposition. Later on, another local company, GM Pharma, joined Natco in November 2006.

After accepting the pre-grant opposition by the two Indian companies, the Indian Patent office (IPO) in March 2007 rejected the patent application for Gefitinib citing ‘known prior use’ of the drug. AstraZeneca contested the order through a review petition, which was dismissed in May 2011.

Prior to this, on November 2, 2012 the IPAB revoked the patent of Pegasys (Peginterferon alfa-2a) – the hepatitis C drug of the global pharmaceutical giant Roche. Interestingly Pegasys was granted patent protection across the world.

Though Roche was granted a patent for Pegasys by the Indian Patent Office (IPO) in 2006, this was subsequently contested by a post-grant challenge by the large Indian pharma player – Wockhardt and the NGO Sankalp Rehabilitation Trust (SRT) on the ground that Pegasys is neither a “novel” product nor did it demonstrate ‘inventiveness’ as required by the Patents Act of India.

It is worth noting, although the IPO had rejected the patent challenges by Wockhardt and SRT in 2009, IPAB reversed IPO’s decision revoking the patent of Pegasys.

Similarly the patent for liver and kidney cancer drug of Pfizer – Sutent (Sunitinib), which was granted by IPO in 2007, was revoked by the IPAB in October, 2012 after a post grant challenge by Cipla and Natco Pharma on the ground that the claimed ‘invention’ does not involve inventive steps.

A twist and turn:

However, on November 26, 2012 in a new twist to this case, the Supreme Court of India reportedlyrestored the patent for Sutent. Interestingly, at the same time the court removed the restraining order, which prevented Cipla from launching a copy-cat generic equivalent of Sunitinib.

The key reason:

All these are happening, as the amended Patents Act 2005 of India includes special protections for both patients and generic manufacturers by barring product patents involving ‘incremental’ changes to existing drugs. This practice is called “evergreening” by many.

It is worth noting, such ‘incremental innovations’ qualify for the grant of patents across the world including, Europe, Japan and the USA and that reason prompted initiation of a raging debate throwing strong arguments both in favor and against of this issue, though the subject conforms to the law of the land.

‘Incremental innovation’ still a contentious issue in India:

As on today in the Indian Patents Act 2005, there is virtually no protection for ‘incremental innovation’, as the section 3(d) of the statute states as follows:

“The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

Explanation: For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy.”

The apprehension:

A published report on ‘Patentability of the incremental innovation’ indicates that Indian Patents Act 2005 was formulated by the policy makers keeping the following points in mind:

The strict standards of patentability as envisaged by TRIPS pose a challenge to India’s pharmaceutical industriy, whose success depended on the ability to produce generic drugs at much cheaper prices than their patented equivalents.
A robust patent system would severely curtail access to expensive life saving drugs.
Grant of a product patents should be restricted only to “genuine innovations” and those “incremental innovations” on existing medicines, which will demonstrate significantly increased efficacy over the original drug.

Is it ‘MNC Interest’ versus ‘Indian Interest’ issue?

Many domestic stakeholders reportedly are looking at this particular subject as ‘MNC Interest’ versus ‘Indian Interest’ in the realm of intellectual Property Rights (IPR). While others holding opposite view-points counter it by saying, this is a narrow and unfair perspective to address the much broader issue of fostering innovation within the Indian pharmaceutical industry helping capacity building, attracting talent and investments, while creating an IPR friendly ecosystem for the country in tandem.

Incidentally many MNCs, as reported by a section of the media, have demonstrated proven long-standing commitment to India, as they have been operating in the country with impeccable repute for a much longer period than most of the domestic pharmaceutical players, if not all, spanning across all scale and size of operations.

Are the patent challenges under section 3(d) being used as a ‘business strategy’?

Some observers in this field have expressed, although ‘public health interest’ is the primary objective for having Section 3(d) in the Indian Patents Act 2005, many generic companies, both local and global, have already started exploiting this provision as a part of their ‘business strategy’ to improve business performance in India.

This game seems to have just begun and may probably assume unhealthy dimension, if not openly debated and appropriate remedial actions are taken, as will deem necessary by the law makers keeping in view the long term, both global and local, implications of the same.

The beginning of the dispute:

As we know, way back in 2006 IPO refused to grant patent to the cancer drug Glivec of Novartis on the ground that the molecule is a mere modification of an existing substance known as imatinib. However, Novartis challenged the decision in the Supreme Court of India and in September, 2012, the final arguments in the Glivec case commenced. The matter is now sub judice.

Experts have opined that this interesting development has put Section 3(d) of the Indian Patents Act 2005 to an ‘Acid Test’ and the final verdict of the apex court will have the last say on the interpretation of this much talked about section of the statute.

Industry observers from both schools of thought – pro and against, are now waiting eagerly for the final outcome of this long standing dispute with bated breath, as it were.

Differing view points on impact:

Though the domestic stakeholders, including the local pharmaceutical industry, by and large, have expressed satisfaction with the law having taken its own course, the adversely affected companies articulated their strong disappointments with the developments. These companies argue, since valid patents were granted across the world for all these products, they had deployed significant financial and other resources starting from the regulatory approval process to market launch of such products in India with reasonable confidence.

Now with the such revocation and denial of patents, the concerned companies feel that they will have to suffer significant financial losses besides high ‘Opportunity Costs’ for these molecules in India.

Interestingly, neutral observers have reportedly opined that this contentious issue, if not addressed appropriately and sooner by the government keeping in view the global business climate, will ultimately leave a lasting negative impression on the global community regarding the quality of IP ecosystem and investment climate in India, which consequently could lead to far reaching economic consequences extending even beyond the pharmaceutical industry of the country.

However, most of the local stakeholders advocate that there is no need to have a relook at it, in any way.

Opposition from the domestic industry:

It has been reported that a detailed study commissioned by the ‘Indian Pharmaceutical Alliance (IPA)’ and authored by Mr. T. C. James, Director, National Intellectual Property Organization, and a former bureaucrat in the ‘Department of Industrial Policy and Promotion (DIPP)’, articulated as follows:

“There is no clinching evidence to show that without a strong patent protection regime innovations cannot occur, that minor incremental innovations in the pharmaceutical sector do not require patent protection and that Section 3(d) of the Patents Act is not a bar for patenting of significant incremental innovations.”

In his report Mr. James also criticized large ‘Multinational Companies (MNCs)’ for “exploring strategies to extend their hold on the market, including through obtaining patents on minor improvements of existing drugs.”

The author continues to argue in favor of the section 3(d) the as follows:

It will be incorrect to conclude that Section 3 (d) is not compatible with TRIPS Agreement.
It has stood the test of time and does not introduce any unreasonable restrictions on patenting.
It is a major public health safeguard as it blocks extension of patent period through additional patents on insignificant improvements paving the way for introduction of generics on expiry of the original patent.
Pharma companies need to be given incentives for undertaking more research and development, but removing section 3(d) will be counterproductive.
A good marketing strategy for the companies would be to concentrate on R & D in diseases which are endemic to countries like Brazil, China and India which are fast emerging as major economies.

IPA challenges: 86 pharmaceutical patents granted by IPO fall under Section 3(d):

A study by the Indian Pharmaceutical Alliance (IPA) indicates that 86 pharmaceutical patents granted by the IPO post 2005 are not breakthrough inventions but only minor variations of existing pharmaceutical products and demanded re-examination of them.

Possible implications to IPA challenge:

If the argument, as expressed above in the IPA study, is true by any stretch of imagination, in that case, there exists a theoretical possibility of at least 86 already granted product patents to get revoked. This will indeed be a nightmarish situation for innovators of all caste, creed and colors, irrespective of national or multinational background.

Recapitulation of ‘Revised Mashelkar Committee Report’:

In August 2009, the Government accepted the revised report of the ‘Mashelkar Committee’, which observed the following:

1. “It would not be TRIPS compliant to limit granting of patents for pharmaceutical substance to New Chemical Entities only, since it prima facie amounts to a statutory exclusion of a field of technology.”

2. “Innovative incremental improvements based on existing knowledge and existing products is a ‘norm’ rather than an ‘exception’ in the process of innovation. Entirely new chemical structures with new mechanisms of action are a rarity. Therefore, ‘incremental innovations’ involving new forms, analogs, etc. but which have significantly better safety and efficacy standards, need to be encouraged.”

Could it have an impact on FDI?

Keen observers of these developments have reportedly expressed that revocation of granted patents or denial of patents on patentability criteria for the molecules, which hold valid patents elsewhere in the world, is sending a very negative signal to the global community and vitiating, among others, the Foreign Direct Investment (FDI) climate in the country. However, many local experts interpret this observation as mere ‘posturing’ at the behest of the MNCs’ interest.

The point to ponder:

The innovator companies have been arguing since quite some time that innovation involving any New Chemical Entity (NCE) never stops just after its market launch. Scientists keep working on such known molecules to meet more unmet needs of the patients within the same therapeutic class.

They substantiate their argument by citing examples like, after the discovery of beta-blockers, incremental innovation on this drug continued. That is why, from non-cardio-selective beta-blockers like Propranolol, the world received cardio-selective beta-blockers like Atenolol, offering immense benefits and choices to the doctors for the well being of patients.

Thus, global innovators reiterate very often that such examples of high value ‘incremental innovation’ are important points to ponder in India.

Patent challenge is a legal process, but…:

The proponents of ‘no change required in the Section 3(d)’ argue with gusto that ‘Patent Challenge’ is a legal process and the law should be allowed to take its own course.

However, the opposition counter-argues that the main reason in favor of Section 3(d) being that the provision will prevent grant of frivolous patents and the ultimate fallout of which will result in limited access to these drugs due to high price, is rather difficult to accept. This, they point out, is mainly because the Government is now actively mulling a structured mechanism of price negotiation for all patented drugs to improve their access to patients in India.

Conclusion:

The spirit of ‘public health interest’ and avoidance of frivolous patents behind Section 3(d) of the Indian Patents Act is indeed commendable.

However, exclusion of almost all kinds of ‘incremental innovation’ for not meeting the very subjective and highly discretionary ‘efficacy’ criterion in the above section could prove to be counterproductive in the long run, even for the domestic players. The reason being, many such innovations will help enhancing safety, efficacy and compliance, besides other properties, of already existing molecules meeting various unmet needs of the patients.

Looking from a different perspective altogether, restrictive provisions in Section 3(d) could well go against the public health interest in the longer term, especially when the government is considering a mechanism of price negotiation for the patented drugs in India, as stated above.

Thus weighing pros and cons of both the arguments, in the finer balance of probability in terms of net gain to India as a nation, I reckon, appropriate legislative amendment in the section 3(d) of the Indian Patents Act 2005 will give a much required boost and incentive to pharmaceutical research and development in India.

This long overdue course-correction, if dealt with crafty win-win legal minds, will be able to protect not only high value “incremental innovations” of all innovators, global or local, in pursuit of significantly better and better drugs for the patients of India, but at the same time will effectively address the genuine apprehensions of ‘evergreening’ through frivolous patents.

…Or else should we wait till the final verdict of the Supreme Court comes on the Glivec case of Novartis?… Keeping my fingers crossed.

By: Tapan J. Ray

The Conundrum of Stringent IPR Regime in India: Responsible Pricing still remains ‘The Final Frontier’

Posted on November 26, 2012 by Tapan Ray

In his management classic named, ‘The Practice of management’, published in 1954, the universal management guru Peter Drucker postulated that any successful business is driven by only the following two fundamental functions:

Marketing
Innovation

…and all the rests are costs. Drucker’s above postulation is as valid today as it has been in the past for so many decades. Cutting edge expertise in managing innovation, which may not necessarily mean the Intellectual Property Rights (IPR), and marketing the same better than competition will continue to remain the name of the game for business excellence, perhaps in all time to come, across the world and India is no exception. No doubt, for the same reason the current decade has been termed as ‘the decade of innovation’ by none other than the Prime Minister of India.

The innovators’ financial and non-financial claims on the fruits of value-adding creations following the prescribed inventive steps is epitomized in the IPR, which confers a legal protection to the innovator based on the relevant national IP Act of individual countries. Any successful innovation will give rise to meeting an unmet need with innovative products or services for doing things more efficiently and effectively than ever before.

Excellence in the financial performance of business organizations driven by innovation is expected to keep this wheel of progress moving with optimal speed in perpetuity. Thus, innovation must be encouraged through appropriate legal protection of IP, creating a win-win socioeconomic environment for a country.

Why protect patent?

The pharmaceutical major Eli Lilly had very aptly summarized the reason for patent protection in their website called ‘LillyPad’, as follows:

“Pharmaceutical companies continue to invest in innovation not only because it is good for business, but it is what patients expect. If we want to continue to have breakthrough products, we need patent protection and incentives to invest in intellectual property. The equation is simple, patents lead to innovation – which help lead to treatments and cures”.

Positive impact of an IPR regime:

In a paper titled “Strengthening the Patent Regime: Benefits for Developing countries – A Survey”, published in the Journal of Intellectual Property Rights, the authors concluded that innovativeness of developing countries has now reached a stage where it is positively impacted by a robust Intellectual Property regime. The authors further stated that a robust patent ecosystem is among other important policy variables, which affect inflow of Foreign Direct Investments (FDI) in the developing nations.

Another paper titled, “The Impact of the International Patent system in the Developing Countries”, published by the ‘World Intellectual Property Organization (WIPO)’, though a bit dated of October 2003, states that a robust national patent system in developing countries contributes to their national socioeconomic development. The paper also highlights the experience of some developing nations, which found usefulness of a strong patent system in creation of wealth for the nation.

IPR debate is not non product exclusivity:

It is important to understand, though a raging debate is now all pervasive related to the level of IPR protection for drugs, across the world, there has not been many questions raised by most stakeholders on the exclusive rights on patents by the innovators. The center piece of the arguments and counter-arguments revolves predominantly around responsible pricing of such IPR protected medicines affecting patients’ access.

Need to go beyond IPR:

Echoing similar sentiments in the Indian context the Global CEO of GSK commented in October 18, 2012 that while intellectual property protection is an important aspect of ensuring that innovation is rewarded, the period of exclusivity in a country should not determine the price of the product. Witty said, ‘At GSK we will continuously strive to defend intellectual property, but more importantly, defend tier pricing to make sure that we have appropriate pricing for the affordability of the country and that’s why, in my personal view, our business in India has been so successful for so long.’

Is this view shared by all in the global pharma industry?

Not really. All in the global pharmaceutical industry does not necessarily seem to share the above views of Andrew Witty and believe that to meet the unmet needs of patients, the Intellectual Property Rights (IPR) of innovative products must be strongly protected by the governments of all countries putting in place a robust product patent regime and the pricing of such products should not come in the way at all.

The industry also argues that to recover high costs of R&D and manufacturing of such products together with making a modest profit, the innovator companies set a product price, which at times may be perceived as too high for the marginalized section of the society, where government intervention is required more than the innovator companies. Aggressive marketing activities, the industry considers, during the patent life of a product, are essential to gain market access for such drugs to the patients.

In support of the pharmaceutical industry the following argument was put forth in a recent article:

“The underlying goal of every single business is to make money. People single out pharmaceutical companies for making profits, but it’s important to remember that they also create products that save millions of lives.”

IPR, product price and patients’ access:

In the paper titled ‘TRIPS, Pharmaceutical Patents and Access to Essential Medicines: Seattle, Doha and Beyond’, published in ‘Chicago Journal for International Law, Vol. 3(1), Spring 2002’, the author argues, though the reasons for the lack of access to essential medicines are manifold, there are many instances where high prices of drugs deny access to needed treatments for many patients. Prohibitive drug prices, in those cases, were the outcome of monopoly due to strong intellectual property protection.

The author adds, “The attempts of Governments in developing countries to bring down the prices of patented medicines have come under heavy pressure from industrialized countries and the multinational pharmaceutical industry”.

While the ‘Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS)’ of the World Trade Organization (WTO) sets out minimum standards for the patent protection for pharmaceuticals, it also offers adequate safeguards against negative impact of patent protection or its abuse in terms of extraordinary and unjustifiable drug pricing. The levels of these safeguards vary from country to country based on the socioeconomic and political requirements of a nation.

The Doha Declaration:

Many independent experts in this field consider the Doha Declaration as an important landmark for recognizing the primacy to public health interest over private intellectual property and the rights of the members of WTO to use safeguards as enumerated in TRIPS, effectively. To protect public health interest and extend access to innovative medicines to majority of their population whenever required, even many developed/OECD countries do not allow a total freehand for the patented products pricing in their respective countries.

How much then to charge for an IPR protected drug?

While there is no single or only right way to arrive at the price of an IPR protected medicine, how much the pharmaceutical manufacturers will charge for such drugs still remains an important, yet complex and difficult issue to resolve, both locally and globally.

A paper titled, “Pharmaceutical Price Controls in OECD Countries”, published by the US Department of Commerce, after examining the drug price regulatory systems of 11 OECD countries concluded that all of them enforce some form of price controls to limit spending on pharmaceuticals. The report also indicated that the reimbursement prices in these countries are often treated as de facto market price. Moreover, some OECD governments regularly cut prices of even those drugs, which are already in the market.

An evolving rational system for responsible pricing of IPR protected drugs:

The values of health outcomes and pharmacoeconomics analysis are gaining increasing importance for drug price negotiations/control by the healthcare regulators even in various developed markets of the world to ensure responsible pricing of IPR protected medicines.

In countries like, Australia and within Europe in general, health outcomes data analysis is almost mandatory to establish effectiveness of a new drug over the existing ones.

Even in the US, where the reimbursement price is usually negotiated with non-government payors, many health insurers have now started recognizing the relevance of these data.

Such price negotiations at times take a long while and may also require other concessions by manufacturers, just for example:

In the UK, a specified level of profitability may constrain the manufacturers.
Spain would require a commitment of a sales target from the manufacturers, who are made responsible to compensate for any excess sales by paying directly to the government either the incremental profit or by reducing the product price proportionately.

Metamorphosis in Pharmaceutical pricing models:
Pharmaceutical pricing mechanism is undergoing significant metamorphosis across the world. The old concept of pharmaceutical price being treated as almost given and usually determined only by the market forces with very less regulatory scrutiny is gradually but surely giving away to a new regime. Currently in many cases, the prices of patented medicines differ significantly from country to country across the globe, reflecting mainly the differences in their healthcare systems and delivery, along with income status and economic conditions.

Global pharmaceutical majors, like GSK and Merck (MSD) have already started following the differential pricing model, based primarily on the size of GDP and income status of the people of the respective countries. This strategy includes India, as well.

Reference pricing model is yet another such example, where the pricing framework of a pharmaceutical product will be established against the price of a reference drug in reference countries.

The reference drug may be of different types, for example:

Another drug in the same therapeutic category
A drug having the same clinical indications available in the country of interest e.g. Canada fixes the drug prices with reference to prices charged for the same drug in the US and some European Union countries.

Responsible pricing in the changing paradigm:

Taking note of the above scenario, while looking at the big picture, the global pharmaceutical players, experts believe, should take note of the following factors while formulating their India-specific game plan to be successful in the country without worrying much about invocation of Compulsory License (CL) for not meeting ‘Reasonably Affordable Price’ criterion, as provided in the Patents Act of the country:

While respecting IPR and following Doha declaration, the government focus on ‘reasonably affordable drug prices’ will be even sharper due to increasing pressure from the Civil Society, Indian Parliament and also from the Courts of the country triggered by ‘Public Interest Litigations (PIL)’
India will continue to remain within the ‘modest-margin’ range for the pharmaceutical business with marketing excellence driven volume turnover.
Although innovation will continue to be encouraged with IPR protection, the amended Patents Act of India is ‘Public Health Interest’ oriented, including restrictions on patentability, which, based on early signals, many other countries are expected to follow as we move on.
This situation though very challenging for many innovator companies, is unlikely to change in the foreseeable future, even under pressure of various “Free Trade Agreements (FTA)”.

Many global companies are still gung-ho about India:

Despite above scenario, many global companies like GSK are reportedly still quite gung-ho about India as evident in the following recent statement of their Global CEO, Andrew Witty:

“I am a huge bull on India and I have a very strong sense of optimism about the future potential of this country. Of course, there continues to be policy uncertainties in certain areas of government decision-making, particularly in pharma. While there are the areas under question, but the overall picture makes you feel positive about India.”

Late 2011, echoing similar sentiment the Global CEO of Sanofi and now the ‘President Elect’ of the European Pharmaceutical Association EFPIA commented as follows:

“I do not want us to be a colonial company with a colonial approach where we say we decide on the strategy and pricing. If you have to compete locally then the pricing strategy cannot be decided in Paris but will have to be in the marketplace. People here will decide on the pricing strategy and we have to develop a range of products for it.”

Recognition of national healthcare priorities:

It may be prudent to recognize and accept that a paradigm change is taking place, slowly but surely, in the way pharmaceutical businesses are conducted in India, where replication of any western business model could be counterproductive. The strategy has to be India specific, accepting the priorities of the countries.

Be a part of the solution process:

To achieve excellence in the pharmaceutical market of India, there is a dire need for all stakeholders to join hands with the Government, without further delay, to contribute with their global knowledge, experience and expertise to help resolving the critical issues of the healthcare sector of the nation. This will help demonstrating that the global pharmaceutical industry is extending its hands to be a part of the healthcare solution process of India, like:

Creation and modernization of healthcare infrastructure leveraging IT
In the implementation of ‘Universal Health Coverage’ project
Reaching out to help formulate win-win regulatory policies
Help Creating employable skilled manpower
Ensure availability of reasonably affordable medicines for the common man through a robust government procurement and delivery system

Right attitude of all stakeholders to find a win-win solution for all such issues, instead of adhering to the age-old blame game in perpetuity, as it were, without conceding each others’ ground even by an inch, is of utmost importance at this hour.

In this rapidly changing scenario, the name of the game for all players of the industry, both global and local, I believe, is recognition of the changing socioeconomic environment and market dynamics of India, active engagement in its paradigm changing process and finally adaptation to the countries changing aspirations and priorities to create a win-win situation for all.

Government should reach out:

It is high time for the Government of India, I reckon, to also reach out for reaping a rich harvest from the emerging lucrative opportunities, coming both from within and the outside world in the healthcare space of the country. Effective utilization of these opportunities, in turn, will help India to align itself with the key global healthcare need of providing reasonably affordable healthcare to all, despite a robust IPR protected regime across the world.

Conclusion:

While encouraging innovation and protecting it with an effective IPR regime is very important for any country, no nation can afford to just wish away various socioeconomic expectations, demands and requirements not just of the poor, but also of the powerful growing middle class intelligentsia, as gradually getting unfolded in many parts of the globe.

At the same time, it should be recognized by all that there should be full respect, support and protection for innovation and the IPR system in the country. This is essential not only for the progress of the pharmaceutical industry, but also to alleviate sufferings of the ailing population of the country, effectively.

Having said that, available indicators do point out that the civil society would continue to expect in return just, fair, responsible and reasonably affordable prices for the innovative medicines, based on the overall socioeconomic status of the local population. It is, therefore, now widely believed that pharmaceutical products, which play a pivotal role in keeping the population of any nation healthy and disease free to the extent possible, should not be exploited by anyone.

Pharmaceutical companies are often criticized in this area by those stakeholders who claim to be genuinely concerned with the well-being of particularly the underprivileged population across the world.

Some experts have already opined that prices of IPR protected drugs will no longer remain ‘unquestionable’ in increasing number of countries. In that scenario, responsible pricing may, therefore, emerge as the ‘Final Frontier’ to address the conundrum of a robust IPR protected regime in India.

By: Tapan J. Ray

‘Old is Always Not Gold’: The Saga of Uncertainty on the New Drug Policy Continues

Posted on November 19, 2012 by Tapan Ray

Along with the initiation of globalization process of India in 1991, many significant reform oriented steps are being taken by the Government for the pharmaceutical industry as its growth booster.

In tandem with gradual reduction in the span of price control, the government also ensured dereservation of specified drugs only for the public sector and opened it up to the private sector, as well. During this period, foreign investments through automatic route was first raised from 49 to 74 percent and then to 100 percent.New product patent regime with the introduction of the Patents Act 2005 ushered in a paradigm shift in the pharmaceutical landscape of India, encouraging the domestic industry to invest in R&D. In line with these reforms, weighted deduction on in-house research and development facility was increased to 200 percent to cover expenditure towards R&D, patent filing, regulatory approvals and clinical trials, over a period of time.

With creation of an enabling growth environment, the government helped the domestic industry catapult itself as a major global force to reckon with, in the generic pharmaceutical space of the world.

Unfortunately, in recent times, the policy makers of the country instead of flooring the gas pedal keeping public health interest in mind, seems to have decided to shift its foot on the brake, creating great uncertainty within the industry.

Recent developments: A cause of concern

As reported by the media the recommendations of the Group of Ministers (GoM) on the Draft National Pharmaceutical Pricing Policy 2011 (NPPP 2011) was scheduled for discussion in the Union Cabinet meeting on November 8, 2012.

Meanwhile, the Ministry of Finance (MoF) reportedly sent its views on the same to the Department of Pharmaceuticals (DoP) and also the Prime Minister’s Office (PMO) advocating continuation of the current cost plus pricing policy.

As a result, the media reported that the NPPP 2011 was eventually removed from the Cabinet Meeting agenda of November 8, 2012, as the PMO referred the policy back to the GoM requesting the Cabinet Secretariat to mandate the Ministers to hold a fresh meeting (now scheduled on November 21, 2012), consider the view of MoF and get back to the Union Cabinet with a final proposal so that an appropriate decision may be taken by the Cabinet on the new Drug Policy before November 27, as stipulated by the Supreme court of India.

With this, the saga of uncertainty on the new Drug Policy continues unabated.

Finance Ministry views: Continue with cost plus formula:

The key recommendations of the Ministry of Finance as reported are as follows:

The proposal to limit the NPPP to control prices of only formulations leaving aside bulk drugs is not ‘supported’.
Top priced brands in many therapy areas are also the brand leaders. As a result, high prices of such drugs while calculating the ceiling prices would push up prices of many low priced drugs significantly.
The current system which is a cost plus system is adequate to cover all legitimate costs for a manufacturer, particularly when the costing is being done annually and should be continued.
The same cost plus system should also apply to other formulations where additional therapeutic elements will be added. Related incremental cost in those cases can be considered to determine the ceiling price of combination formulations.
The Maximum Retail Prices (MRP) for all NLEM 2011 drugs may be fixed by the NPPA accordingly and the pharmaceutical companies would be free to price these NLEM products at any level below the MRP.
Annual indexation of price with WPI is not supported. The cost analysis should determine the quantum of increase.
Data related to prices and market shares should be collected from sources other than IMS even for drugs covered by them. The methodology to be followed by NPPA for evaluating IMS data and for collecting the data for medicines from other sources should be included in the NPPP.
A phased movement towards 100 percent generic manufacturing, as recommended by the Ministry of Health (MoH), for all drugs under the NLEM should be considered.

The industry view: Have a Balanced Approach

As I understand, the industry feels that the Finance Ministry recommendations are continuation of the same old policy, which has failed to address the key issue of providing affordable and quality healthcare, including medicines, to all, since over last four decades.

However, the pharmaceutical industry has supported the recommendations of the GoM on NPPP 2011 as they reckon it will be a positive step to ensure affordability for the patients, ensure adequate availability and at the same time will not cripple the growth of the industry.

As recommended by the GoM, the draft NPPP 2011 would take the Weighted Average Price (WAP) of all brands with greater than 1% market share by volume as the ceiling price. This formula should improve patient affordability as Weighted Average Price (WAP) of all brands will be most representative of the Indian pharmaceutical market.

The GoM-recommended pricing policy, the industry feels, will certainly have an adverse impact on the pharmaceutical industry as price controls will be expanded and prices will now be based on roughly 91 percent of the pharmaceutical market by value. This will result in over 20 percent price reduction in 60 percent of the NLEM medicines. More importantly, the policy will also achieve the objectives of the Government in ensuring essential medicines are available to those who need these most, by managing prices in the retail market and balancing industry growth.

The existing cost-plus policy, industry leaders argue, has significant limitations and has adversely impacted industry and patients, for example, by shifting bulk drug production out of India (to countries like China), reducing innovation in cost control medicines, limiting new introductions and failing to help medicines reach patients located in rural India.

Many stakeholders have written about the negative implications of a cost-plus pricing methodology. Too stringent price control norms would stifle the pharmaceutical industry and may result in serious shortages of essential drugs in the country. An apt example in this case is that the existing price control regime under DPCO 1995 has caused manufacturing to shift away from the country about 27 notified bulk drugs under price control. In fact, only 47 out 74 bulk drugs under DPCO 1995 are now produced in the country. Such a situation needs, the industry articulates, to be prevented from happening in the future. It is quite likely the focus of the national pharma industry may shift then to export, defeating the primary purpose of the new policy.

Moreover, the WHO in its feedback on the draft NPPP 2011 welcomed the intent to move away from cost-plus pricing as it has been abandoned elsewhere. Even developing countries typically have no price control on private market (non-government, non-social insurance reimbursement) sales of pharmaceuticals.

Based on a survey of developing countries similar to India, it is seen that the countries that do have price control for private market drugs, employ market based methods e.g. in Brazil cost-based price regulations do not exist outside of government reimbursement, social insurance reimbursement schemes. In short, essential medicines predominantly seem to be reimbursed either via government or social insurance or provided free by the government.

Since the Government has recognized that a pricing policy alone cannot ensure access to quality medicines, over the last few months, it has undertaken several steps in the right direction to improve access and affordability of medicines.

The Government has already announced that it will spend over US $5.4 billion to provide essential medicines free to patients in government-run hospitals and clinics. The Government is also in the process of putting in place a central procurement authority to purchase medicines for its use, which, if operated on a level playing field, can realize economies of scale and create the conditions necessary to drive down costs through competition. All such policies can enhance access to medicines and also promote healthy competition in the industry. Both the outcomes cannot be achieved with any price control regime alone.

Expanding access to quality medicines at affordable prices is in everyone’s best interest, and the industry seems to have expressed its willingness and keenness to engage in the development and implementation of policies that will make medicines in India more affordable and accessible to all.

Pharmaceutical industry expressed its support to the key principles of the new pricing policy, essentiality of drugs and market based pricing so as to ensure greater patient sensitized pricing of medicines. As cited by the Economic Advisory Council (EAC) of the Prime Minister, the negligible increase in drug prices over the last 7 years illustrates the intense competition in the Indian Pharmaceutical Market. In comparison, prices of other essential items including food items have increased steeply. Between 2004 and 2012, price rise of drugs has only been 3/8th of all commodities and half of that of manufactured products.

However, in order to make the pricing formula more robust and to prevent prices of lower priced drugs from moving towards the ceiling price, a section of the industry recommended that this formula be combined with price increases limited to Weighted Price Index (WPI) or 10 percent p.a. (the present price increase cap for non-DPCO) whichever is higher, for individual brands. This measure is expected to make it a fool proof pricing mechanism.

New Drug Policy to focus on all-round inclusive growth:

The role and objectives of the NPPP should help accelerating all-round inclusive growth of the Indian pharmaceutical industry and try to make it a force to reckon with, in the global pharmaceutical industry.

The drug policy is surely not formulated just to implement rigorous price control of drugs. The policy includes other key objectives to contribute significantly towards achieving the healthcare objectives of the nation and also to boost the growth of the industry, working closely with other related ministries of the government.

As stated above by the industry, to correct the imbalance between availability and affordability of essential medicines, in 2005, the government constituted a special taskforce, which is widely known as ‘Dr. Pronab Sen Committee’. This committee was mandated to recommend options other than existing methodology of price control (DPCO 95) for achieving the objective of making available life-saving and essential drugs at reasonable prices.

In its report, the committee did suggest an alternative measure at that time, concluding that the present price control system (DPCO 95) is inappropriate, inadequate and complex, besides being time consuming in its implementation.

Conclusion:

Unfortunately, the views of the MoF point towards continuation of the same old regime, which has failed to deliver for so many decades.

I therefore reckon, it is about time to recognize that the ‘Old is not always Gold’, at least in this particular issue. The government should in no way allow the saga of uncertainty in the formulation of a vibrant and inclusive Drug Policy to continue. The policy makers should consciously shun away any possibility of taking retrograde steps on this critical matter for the sake of both patients and the pharmaceutical industry of India, alike.

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.

PILMAN

A Tapan Ray Website

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