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MCI asks Doctors to Prescribe Medicines in Generic Names

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Last week, on January 21, 2013, in a circular addressed to the Dean/Principals of all the Medical Colleges, Director of all the hospitals and Presidents of all the State Medical Councils, the Medical Council of India (MCI) called upon the doctors practicing medicine to prescribe Drugs with Generic names, as far as possible.

The MCI circular reinforced that all Registered Medical Practitioners under the Indian  Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 will comply with it without fail. At the same time, wide publicity of this regulation be given and necessary steps be taken to ensure observance of this provision in its letter and spirit.

PSC also recommended it:

Prior to this circular, Parliamentary Standing Committee (PSC) for Health and Family Welfare in its recommendation to the ‘Rajya Sabha’ of the Indian Parliament on August 4, 2010, also recommended prescription of medicines by their generic names.

The basic premises:

All these recommendations are reportedly based on the basic premises that high ‘Sales and Marketing’ costs of branded generic drugs in India can be significantly reduced, if prescription in generic names are encouraged, to make medicines available to patients at cheaper and much affordable prices.

‘Sales and Marketing’ expenses of ‘Branded’ drugs:

According to a recent report in BMJ every dollar that the pharmaceutical companies spend on “basic research,” US$ 19 goes toward promotion and marketing.

Another recent report from Forbes India titled “Will Pharma Companies Have to Stop ‘Gifting’ Doctors?“ states as follows:

“The budget that pharma companies have for freebies is huge. According to one estimate, the top 20 drug makers in India spend about $600 million a year on only freebies for doctors. It is still a paltry sum compared to the US, where drug makers spend $58 billion or more annually on marketing drugs, including freebies for doctors.

While the practice of giving gifts to doctors is rampant internationally, several sources told Forbes India that in India it borders on petty corruption. Doctors often refuse to write prescriptions unless they are offered at least Rs 50,000 in cash every time a new drug needs to be prescribed.” 

The prescribers’ ‘diplomatic’ stand:

It is interesting to note that some doctors reportedly are of the view that:

“For the benefit of patients and to get the best possible results, highest quality drugs with best possible pharmacological properties should be used by all doctors. If the quality of generic drugs is up to high standards, doctors should prescribe generic medicines.”

This comment needs to be taken considering that it has been made in response to the above MCI circular by a doctor. However, I reckon, in the real world such intent, as reflected in various independent retail audit reports, is hardly seen getting translated into reality, at least not just yet.

Ongoing debate on the quality issue with generic medicines:

Many opine that there could be a huge quality issue with generic medicines, which could make such drugs unsafe for the patients.

In response, other school of thought leaders often raise, among many others, the following questions:

  1. Are all generic medicines of dubious quality and branded generics are of good quality?
  2. If quality parameters can be doubted for both in many cases, why then raise this issue only in context of generic medicines?
  3. If the quality issues are not much with the larger companies and are restricted to only smaller companies, why then some branded generic drugs of smaller companies prescribed so much by the doctors?
  4. Currently many large companies market the same drugs both as generics and also as branded generics, why then the branded generic versions sell more than their generic equivalents, though manufactured by the same large companies?
  5. Why are the generic medicines available at ‘Jan Aushadhi’ outlets (though small in number) cost a fraction of their branded generic equivalents?
  6. Why do the doctors also not show much interest in prescribing generic medicines as of date?
  7. Why not those who argue that phonetically similar or wrong reading of generic names at the chemist outlets may cause health safety hazard to the patients, also realize that many already existing phonetically similar brand names in totally different therapy areas may cause similar hazards too?
  8. How does a doctor while prescribing a branded generic or generic medicine decide which ones are of good quality and which others are not?

A recent study:

As reported by the US FDA, ‘A recent study evaluated the results of 38 published clinical trials that compared cardiovascular generic drugs to their brand-name counterparts. There was no evidence that brand-name heart drugs worked any better than generic heart drugs. [Kesselheim et al. Clinical equivalence of generic and brand name drugs used in cardiovascular disease: a systematic review and meta-analysis. JAMA.  2008; 300(21) 2514-2526]‘.

Similar studies are also required in India to resolve much hyped ‘quality issue’ for generic medicines.

Some countries are taking similar steps: 

Just to cite an example, as reported by ‘The Guardian” on August 23, 2011, the Spanish government enacted a law compelling the doctors of Spain to prescribe generic drugs rather than more expensive patented and branded pharmaceuticals, wherever available. This move is expected to help the Spanish government to save €2.4 billion (£2.1billion) a year, as in Spain the drugs are partly reimbursed by the government.

As a result, the doctors in Spain will now have to prescribe only in the generic or chemical names of the respective drugs. Consequently the pharmacies will be obliged to dispense ‘the cheapest available versions of drugs, which will frequently mean not the better-known brand names sold by the big drugs firms’.

Interestingly, the above point, though considered as a positive fall-out in Spain, is reportedly taken negatively in India with the oft repeated argument, ‘India is different’.

Prescriptions for generic medicines were a record high in America in 2010:

As per published reports, last year i.e. in 2010, generic medicines accounted for more than 78 percent of the total prescriptions dispensed by retail chemists and long-term care facilities in the US. This is a record high and is four percentage points more than what it was in 2009 and came up from 63% as recorded in 2006.

This vindicates that prescription in generic names is encouraged in the US too for various reasons.

Concerns over pharmaceutical marketing malpractices in India:  

Ethical concerns on significant expenditure towards alleged sales and marketing malpractices since quite some time has further strengthened the demand for prescriptions only in the generic name of a drug.

Frequent reports by Indian media have already triggered a raging debate in the country on the subject, involving even the Government and also the Parliament. It has been reported that a related case is now pending with the Supreme Court for hearing in not too distant future.

In 2010, “The Parliamentary Standing Committee on Health’ expressed its deep concern that ‘the evil practice’ of inducement of doctors continued because the Medical Council of India (MCI) has no jurisdiction over the pharma industry and it could not enforce the code of ethics on it.”

It was widely reported that the letter of a Member of Parliament, Dr. Jyoti Mirdha to the Prime Minister Dr. Manmohan Singh, attaching a bunch of photocopies of the air tickets claiming, “Doctors and their families were beating the scorching Indian summer with a trip to England and Scotland, courtesy a pharmaceutical company”, compelled the Prime Minister’s Office (PMO) to initiate inquiry and action on the subject.

The letter had claimed that as many as 30 family members of 11 doctors from all over India enjoyed the hospitality of the said pharmaceutical company.

In addition Dr. Mirdha reportedly wrote to the PMO stating, “The malpractice did not come to an end because while medical profession (recipients of incentives) is subjected to a mandatory code, there is no corresponding obligation on the part of the healthcare industry (givers of incentives). Result: Ingenious methods have been found to flout the code.”

The report also indicated that the Department of Pharmaceuticals (DoP) is trying to involve the Department of Revenue under the Ministry of Finance to explore the possibilities in devising methods to link the money trail to offending companies and deny the tax incentives.

Incidences of such alleged malpractices related to financial relationship between the pharmaceutical companies and the medical profession are unfolding reasonably faster now. All these issues are getting increasingly dragged into the public debate where government can no longer play the role of a mere bystander.

Taking the first step closer to that direction, Central Board of Direct Taxes (CBDT), which is a part of Department of Revenue in the Ministry of Finance, has now decided to disallow expenses on all ‘freebies’ to Doctors by the Pharmaceutical Companies in India.

A circular dated August 1, 2012 of the CBDT that the any expenses incurred by the pharmaceutical companies on gifts and other ‘freebies’ given to the doctors will no longer be allowed as business expenses. 

The response in favor of ‘Branded Generics’:

The proponents of ‘Branded Generics’ argue that the brand name is built on various differential value parameters to create a proper position of the brand in the minds of healthcare professionals as well as the patients. Thus, brand names offer a specific identity to generic drugs and is of high importance for both the doctors and the patients. 

The areas of complexity:

Those who favor branded generics also highlight, among others, the following three areas of complexity:

1. In India, over 50% medicines prescribed by the physicians are for Fixed Dose Combinations (FDCs), spanning across almost all therapeutic categories. Thus, it could be difficult for doctors to prescribe such medicines in generic names and might equally be difficult for the chemists to dispense such prescriptions.

They also argue that in case of any mistake of dispensing the wrong drug by the chemist inadvertently, the patients could face serious consequences.

2. Currently doctors use brand names to differentiate one formulation from the others. Different brands of even single ingredient medicines may have inherent differences in their formulations like, in the drug delivery systems (controlled/sustained release), kind of coatings allowing dissolution in different parts of alimentary canal, dispersible or non-dispersible tablets, chewable or non-chewable tablets etc. Since doctors are best aware of their patients’ conditions, they may wish to prescribe a specific type of formulation based on specific conditions of the patients, which may not be possible by prescribing only in generic names.

3. Patients also could face other difficulties due to generic prescribing. As is known, different brands of FDCs may have different proportions of same active ingredients. If chemists do not know or have the exact combination prescribed by the doctor in their shops, they would possibly substitute with a different combination of same drugs, which could well be less effective or even harmful to the patients.

The common perception:

The entire issue arises out of the key factor that the patients do not have any say on the use/purchase of a brand/brands that a doctor will prescribe.

It is generally believed by many that doctors predominantly prescribe mostly those brands, which are promoted to them by the pharmaceutical companies in various questionable ways, as reported above.

Thus, in today’s world and particularly in India, the degree of commercialization of the noble healthcare services, as often reported by the media, has reached a new high, sacrificing the ethics and etiquette both in the medical and also in the pharmaceutical sales and marketing practices at the altar of greed and conspicuous consumption.

Conclusion:

The recent MCI circular to doctors calling upon them to prescribe medicines in the generic names making them more affordable to patients, may be an important step towards a better future.

This assumes even greater importance when medicines constitute over 70 percent of the total treatment cost, especially for domiciliary treatment, and around 80 percent of total healthcare expenses is ‘out of pocket’ in our country.

However, the moot point is, the need of the hour calls for a total change in the mindset of all concerned. The importance of genuine care for the societal needs, while being in pursuit of professional excellence, in tandem, should ideally be demonstrated through voluntary measures by the concerned players in this area, leaving enforcement of stringent regulations as a last resort by the Government.

That said, while generic drugs per se are in no way bad for the patients, a careful analysis of all possible risk factors against expected benefits, especially for FDCs and different drug delivery formulations, will be important in the Indian perspective. Without effectively addressing the above issues, if prescriptions in generic names are made mandatory for all drugs, it could possibly be counter productive jeopardizing patients’ safety and interest.

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. 

 

Does branding of generic drugs offer value to the patients in India?

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It appears that the government has accepted the submission of the ‘Parliamentary Standing Committee for Health and Family Welfare’ made to the ‘Rajya Sabha’ of the Indian Parliament on August 4, 2010, recommending prescription of medicines by their generic names.

It has now been reported that the Drugs Technical Advisory Board (DTAB) has already considered the proposal to amend the rules of the Drugs and Cosmetics Act of India for approval of all drug formulations containing single active ingredient only in the generic names by the State Licensing Authorities. The proposal to publish the draft rules has been forwarded to the Ministry of Health for necessary approval. The Fixed Dose Combinations (FDC) will be kept out of the purview of this amendment.

This recommendation of the  ‘Parliamentary Standing Committee for Health and Family Welfare’  appears to be based on the premises that the ‘Brand Building’ exercise of the generic drugs in India, includes ‘very high sales and marketing expenditure’, which  can easily be eliminated to make medicines available to the common man at much cheaper prices. ‘Jan Aushadhi’ scheme of the Government is often cited as an example to drive home this point.

This recommendation, on the face of it, makes immense sense. However, the moot question remains, “Is it a practical proposition to implement in India?”

The generics and the branded-generic drugs and their value proposition: As we know generic name is the actual chemical name of a drug. The brand name is selected by the producer of a formulation and is built on various differential value parameters for its proper position in the minds of health professionals as well as the patients. Thus, brand names offer a specific identity to a chemical name in their value proposition.

Some other countries are also taking similar steps:

Just to cite an example, as reported by ‘The Guardian” on August 23, 2011, the Spanish government recently enacted a law compelling the doctors of Spain to prescribe generic drugs rather than more expensive patented and branded pharmaceuticals, wherever available. This move is expected to help the Spanish government to save €2.4 billion (£2.1billion) a year, as in Spain the drugs are partly reimbursed by the government.

As a result, the doctors in Spain will now have to prescribe only in the generic or chemical names of the respective drugs. Consequently the pharmacies will be obliged to dispense ‘the cheapest available versions of drugs, which will frequently mean not the better-known brand names sold by the big drugs firms’.

Quality standards of both generic and branded generic drugs are no different:

Drugs and Cosmetics Act of India requires all generic or branded generic drugs to have the same quality and performance. Thus when a generic drug is approved by the drug regulator, one should logically accept that it has met the required standards with respect to identity, strength, quality, purity and potency. It is not uncommon that there could be some variability taking place during manufacturing process for both branded generic and generic drugs and for that matter it is applicable to all drugs. However, all formulations of both types of these drugs manufactured by different manufacturers do not need to contain the same inactive ingredients.

In any case, all formulations of both generic and branded drugs must be shown to be bioequivalent to the reference drugs with similar blood levels to the respective reference products. Regulators even in the USA believe that if blood levels are the same, the therapeutic effect will be the same.

A recent study:

As reported by the US FDA, ‘A recent study evaluated the results of 38 published clinical trials that compared cardiovascular generic drugs to their brand-name counterparts. There was no evidence that brand-name heart drugs worked any better than generic heart drugs. [Kesselheim et al. Clinical equivalence of generic and brand-name drugs used in cardiovascular disease: a systematic review and meta-analysis. JAMA. 2008;300(21)2514-2526]‘.

Prescriptions for generic medicines were a record high in America in 2010:

As per published reports, last year i.e in 2010, generic medicines accounted for more than 78%  of the total prescriptions dispensed by retail chemists and long-term care facilities in the US. This is a record high and is four percentage points more than what it was in 2009 and came up from 63% as recorded in 2006.

Points to ponder and resolve in the current Indian situation:

While the intention of the Government is indeed good, some practical issues must be considered before its implementation, which are as follows:

1. Increased chances of error while dispensing:

Chemical names of medicines are complex. In case of any mistake of dispensing the wrong drug by the chemist inadvertently, the patients could face serious consequences.

2. There could be differences even within single ingredient formulations:

Different brands of even single ingredient medicines may have inherent differences in their formulations like, in the drug delivery systems (controlled/sustained release), kind of coatings allowing dissolution in different parts of alimentary canal, dispersible or non-dispersible tablets, chewable or non-chewable tablets etc. Since doctors are best aware of their patients’ conditions, they may wish to prescribe a specific type of formulation based on specific conditions of the patients, which may not be possible by prescribing only in generic names.

3. Price differences between branded generics and generic generics may not exist:

It is intriguing to fathom, just for a switch over from the brand name to the generic name how will the Maximum Retail Price (MRP) of a single ingredient formulation, bearing only the generic name, come down. Currently, MRPs printed on the product packs of generic formulations without any brand name, as available in the retail outlets, are similar to comparable branded generic formulations. In that case, what benefits that Government will expect a patient to get out of this well hyped change?

4. Manufacturers may switch from single ingredient formulations to FDCs:

There is a theoretical possibility that to retain brand names, the pharmaceutical companies may be encouraged to change their formulations from single ingredient to FDCs. In that situation, single ingredient formulations may not be available and comparable FDCs could cost more to the patients.

5. The key decision will shift from physicians to retail chemists:

The major issue with prescriptions by the chemical/generic names is that retail chemists will then be the sole decision makers to choose the prescribed product from within a whole lot of over 30 to 40 manufacturers for a particular product.

What then will prompt the retailers to buy, store and sell different generic formulations of various companies and what could possibly be the key selection criteria for such drugs by them?

I reckon, there could only be one criterion for the choice of such medicines by a chemist i.e. to select only those which will give them highest margin of profits.

In such a case, the ultimate decision making authority for the prescription medicines shifts from the physicians to the chemists. This could make the situation far worse for the patients.

In interest of the patients, it is, therefore, extremely important that the government, regulators, physicians, chemists and even the patients’ groups are aware of such risks and ensure that patients are not adversely impacted in any way.

Conclusion: Viewing purely from the Indian perspective, while the generic drugs per se are not bad for the patients, weighing all the above issues and possible risk factors against expected benefits, I reckon, without effectively addressing the above issues to start with, if the prescriptions of single ingredient formulations are made mandatory only in generic names, it could seriously jeopardize patients’ safety and interest.

In any case, when single ingredient formulations contribute just around 30% of the total prescriptions in India, how could then prescriptions of all single ingredient formulations only in generic names address the stated concern of the government, in a holistic way?

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.

Explore the Emerging Markets with the ‘Wings of Courage’.

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Overall growth rate of the global pharmaceutical industry is currently hovering around 5%. Similar situation has been prevailing since last several years. There is no indication of acceleration of growth rate from any of the top 3 regions of the world namely the USA, EU and Japan, at least in the near future.

According to IMS, the global pharmaceutical market is expected to grow around 5%-7% in 2011 to US$ 880 billion, as compared to around 4%-5% of 2010.

The reasons of the slowdown, I have discussed several times in the past through this column and do not intend to dwell on that, at least, in this Article.

The Emerging Markets of the World:

Unlike developed markets, emerging pharmaceuticals market of the world, like, India, China, Brazil, Russia, Mexico, Turkey and Korea, are showing a robust growth rate, quite commensurate to the ascending GDP growth trend of these countries.

According to IMS, the projected CAGR trend of the developed and Emerging Markets for the period of 2007–11, are as follows:

Mature Markets

CAGR 2007-11

Emerging Markets

 CAGR 2007-11
USA 4-7% China 13-16%
Canada 6-9% Korea 8-11%
Japan 2-5% Brazil 9-12%
Germany 3-6% Russia 17-20%
France 2-5% Mexico 6-9%
Italy 3-6% India 11-14%
UK 4-7% Turkey 9-12%
Spain 5-8%

(Source IMS)

Branded Generics/Generics are now key growth drivers in the Emerging Markets:

It is worth noting, unlike the developed markets of the world, where high priced branded patented drugs drive the value growth of the industry, in the emerging markets, where investment towards R&D is relatively less, branded generic and the generic products are the key growth drivers.

Such an evolving situation has prompted large global majors like Pfizer, GSK, Sanofi-aventis, Daiichi Sankyo and Abbott Laboratories, to name a few, either to acquire large generic or Biosimilar drug companies or ink various interesting and win-win collaborative deals, in these markets, to maintain their respective business growth with the branded generic and generic products in the fast growing emerging markets of the world.

Will Emerging Markets be lucrative enough only with Generic and Branded Generic products, in the long run?

Some experts do feel that, in the long run, the emerging pharmaceutical markets, like India, may not prove to be as lucrative to the global pharmaceutical majors.

The key reason being, around 80% ‘out of pocket’ expenditure for medicines in India, could be the key impediment to expanded access to higher priced innovative medicines, in general. Such a situation could seriously limit the success of branded patented drugs in India following their global strategy, compared to the developed markets of the world. The issue of affordability of such medicines will continue to be a key factor for their improved access in India, if the ground reality remains unchanged. Top line business growth only with Generics and Branded Generics in the emerging markets may not be sustainable enough, in the long run, for the innovator companies to adequately fund their R&D initiatives to meet the unmet needs of the patients.

The other school of thought:

The other school of thought, however, argues that ‘out-of pocket” characteristic of  India is indeed more sustainable in terms of cost containment pressure, than those  markets where the government or health insurance companies cover a large part of the medical expenses for the population.

Every year around 1% of population comes above the poverty line in India together with a growing ‘middle income’ segment with increasing purchasing power. This cycle, in turn, will keep fueling the growth of healthcare space, contributing significantly to the progress of the pharmaceutical industry of the country.

‘One size fits all’ global strategy unlikely to succeed in the ‘Emerging Markets’:

In my view ‘One size fits all’ type of strategy, especially in the area of pricing, is unlikely to succeed in the emerging markets of the world. Pharmaceutical Companies will need to have  different types of ‘tailor made’ strategic approaches for markets like Brazil, Russia, India, China, South Africa, Mexico, Korea and Turkey.

Pricing Strategy will be a key determinant to success:

For better access to medicines, ‘differential pricing strategy’ has been the stated policy of large global companies like, GSK and MSD. If this trend continues, a win-win situation could be created, when unmet needs of a large number of patient groups could be met with innovative medicines, paving the way for the innovator companies to register a healthy, both top and bottom line, business growth in these markets to effectively fund their R&D projects, besides others.

The most successful brand launch in India, so far:

The credit for the most successful new patented product launch (launched in 2008) in the recent times, I reckon, should go to Januvia (Sitagliptin), an oral anti-diabetic molecule from the global major MSD. The reported global sales of Januvia in 2008 was US $1.4 billion and the sales reported in India was around Rs. 77 Crore (around US $17 million) in just over two years with around 2.4% market share in the large and fragmented Oral Ant-Diabetic segment (IMS, MAT March 2010). This could happen, in my view, not only due to a brilliant business strategy executed with military precision but also because of a differential pricing strategy adopted by the company for this particular product in India.

In recent times, it has not been difficult to record a turnover of around US $ 20 – 25 million by a large pharmaceutical brand either in India or China.

Conclusion:

If this does not happen, due to one reason or the other, it would arguably be quite challenging for the global innovators to be able to keep engaged in the high-cost and high-risk R&D initiatives, by driving their business growth mainly with generic and branded generic medicines in the fast growing emerging markets of the world.

Thus the name of the game for the global innovator companies will be to Explore the Emerging Markets with the ‘Wings of Courage’.

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.

Have the successive ‘Drug Policies’ of India delivered? If not, why not?

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January 11, 2011 edition of ‘The Lancet’ in its article titled, “Financing health care for all: challenges and opportunities” commented as follows:
“India’s health financing system is a cause of and an exacerbating factor in the challenges of health inequity, inadequate availability and reach, unequal access, and poor-quality and costly health-care services. The Government of India has made a commitment to increase public spending on health from less than 1% to 3% of the gross domestic product during the next few years…. Enhanced public spending can be used to introduce universal medical insurance that can help to substantially reduce the burden of private out-of-pocket expenditures on health.”
The “Drug Policy “of India:
The new ‘Drug Policy’ of India, which is long overdue, should address all these key issues, as articulated by ‘The Lancet’. Unfortunately, outdated ‘1995 Drug Policy’ is still operational, since last fifteen years. The reason for inordinate delay in putting a new, robust and more reform oriented ‘Drug Policy ’in place is still not known to many, as it is probably languishing in the prison of indecision of the bureaucracy of the country.
The ‘Drug Policy 1986’ clearly enunciated the basic policy objectives relating to drugs and pharmaceuticals in India. After around 25 years, should not the government, at the very least, ponder to assess whether the successive drug policies have delivered to the nation the desirable outcome or not?
In my view, the objectives of the new ‘Drug Policy’ should help accelerating the all-round inclusive growth of the Indian pharmaceutical industry to make it a force to reckon with in the global pharmaceutical space. The drug policies are surely not formulated just to implement rigorous price control measures for drugs. The policy should also formulate other key measurable initiatives, assigning specific accountabilities, to contribute significantly towards achieving the healthcare objectives of the nation. The policy should also encourage working closely and in tandem of all the related ministries of the government.
Financial protection against medical expenses for all is very important:
One of the very major issues in the healthcare space of the country is high out of pocket expenses by the majority of our population. “Financial protection against medical expenditures is far from universal with only 10% of the population having medical insurance” in India. (Source: Lancet Jan 11, 2011).
A comparison of private (out of pocket) health expenditure: (Source: Lancet)
1. Pakistan: 82.5% 2. India: 78% 3. China: 61% 4. Sri Lanka: 53% 5. Thailand: 31% 6. Bhutan: 29% 7. Maldives: 14%
The key issue remains unresolved:
The above edition of ‘The Lancet’ has highlighted that outpatient (non-hospitalization) expenses in India is around 74% of the total health expenses in India and the drugs account for 72% of this total outpatient expenditure. The study has also highlighted that 47% and 31% hospitalization in rural and urban areas respectively are financed by loans and sell of assets.
Drug Prices in India:
The cost of medicines, especially the essential medicines in India, is one of the lowest in the world, even more economical than our neighboring countries like, Bangladesh, Sri Lanka and Pakistan. Moreover, as per DIPP data the inflation index of medicine in 2009 was much lower at 112.32 against the same for all commodities in the same year at 127.47. National Pharmaceutical Pricing Authority (NPPA) also indicated that there was almost no rise (+0.5%) of drug prices in 2010 over the previous year because of effective ‘Drug Price Monitoring mechanism’ by the regulator and fierce market competition.
Around 38% – 40% of Indian population can’t afford to spend on medicines:
While framing the ‘Drug Policy’, the government should also keep in mind that a population of around 38 to 40% of India, still lives below the poverty line and will not be able to afford any expenditure towards medicines. Adding more drugs in the list of essential medicines and even bringing them all under stringent price control will not help the country to resolve this important issue, in the prevailing situation.
The key focus area of successive ‘Drug Policies’ of India has been just ‘price’:
The reform initiatives enunciated by the government in the successive drug policies have been considered by the pharmaceutical industry, in general, as far from satisfactory. In the era of globalization, where market forces play a dominant role to control prices, including the essential commodities, the rigors of stringent price control on pharmaceuticals need to be addressed urgently. This was re-enforced even in the ‘National Economic Survey Report of 2009′.
Will continuation of the same focus be able to resolve the issue?
I do not think so. Continuation of the focus on price since last four decades has certainly enabled the government to ensure that drugs prices in India are cheapest in the world. However and very unfortunately the ‘Drug Policies’ with focus on price alone have not been able to ensure even today that 47% and 31% of hospitalization in rural and urban areas, respectively, are financed by robust healthcare financing systems and not by private loans and selling of assets by individuals.
Expectations from the new ‘Drug Policy’:
Adequate and immediate policy measures to respond to the needs of a robust healthcare financing model for all strata of the society are absolutely critical to address this pressing issue. Effective penetration of health insurance, will, therefore, be one of the key growth drivers not only for the Indian pharmaceutical industry, but also to ensure its inclusive growth, as desired by many.
Conclusion:
Unfortunately, the ‘Drug Policies’ of India have not been able to keep pace with the globalization process of the country as compared to even those industries, which are dealing with the essential commodities, like pharmaceuticals. The amended Indian Patents Act came into force in the country in January 2005. The drug policy of India, for various reasons, has not been able to articulate, as yet, specific key measures to encourage innovation, giving a new thrust to the pharmaceutical R&D space of the country, as much as it should have been.
The ‘New Drug Policy’ should have clear and transparent provisions of stringent drugs ‘price monitoring’ mechanism by the NPPA. The policy should also include an equally transparent system to ensure that errant pharmaceutical players, if any, who will be caught with profiteering motives, under any garb, at the cost of precious lives of the ailing patients, are brought to justice with exemplary punishments, as will be defined by law.

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.

Prescribing medicines by generic names…a good intent… but is it a practical proposition in India?

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Parliamentary Standing Committee for Health and Family Welfare in their recommendation to the ‘Rajya Sabha’ of the Indian Parliament on August 4, 2010, recommended prescription of medicines by their generic names.

This recommendation appears to be based on the premises that the cost of ‘Brand Building’ exercise of the generic drugs in India, including varying degree of presumably ‘high sales and marketing expenditure’ incurred by the formulators towards such efforts, can be easily eliminated to make medicines available to the common man at much cheaper prices.

This recommendation, on the face of it, makes immense sense. However, the moot question remains, “Is it a practical proposition to implement in India?”

In the following paragraphs, let me try to deliberate on this important issue.

Generics and Branded Generics:

As we know generic name is the actual chemical name of a drug. The brand name is selected by the producer of a formulation and is built on various differential value parameters for its proper position in the minds of health professionals as well as the patients. Thus, brand name offers a specific identity to the generic drug.

The prevailing situation in India:

In India, over 50% medicines prescribed by the physicians are for Fixed Dose Combinations (FDCs), spanning across almost all therapeutic categories. Thus, it could be difficult for them to prescribe such medicines in the generic name and could equally be difficult for the chemist to dispense such prescriptions.

Moreover, in case of any mistake of dispensing the wrong drug by the chemist inadvertently, the patients could face serious consequences. It is well known, the concentration of ingredients in the fixed dose combination of any two medicines, many a times, differs from manufacturer to manufacturer. There are over 50,000 odd formulations in the Indian pharmaceutical market and it would be almost impossible for any doctor to keep track of exact concentrations of each of these drugs and prescribe in their right strengths.

Current prescription practice:

Currently doctors use brand names to differentiate one such formulation from the others. Different brands of even single ingredient medicines may have inherent differences in their formulations like, in the drug delivery systems (controlled/sustained release), kind of coatings allowing dissolution in different parts of alimentary canal, dispersible or non-dispersible tablets, chewable or non-chewable tablets etc. Since doctors are best aware of their patients’ conditions, they may wish to prescribe a specific type of formulation based on specific conditions of the patients, which may not be possible by prescribing only in generic names.

Other Patients related issues:

Patients also could face other difficulties due to generic prescribing. As is known, different brands of FDCs may have different proportions of same active ingredients. If chemists do not know or have the exact combination prescribed by the doctor in their shops, thye would possibly substitute with a different combination of same drugs, which could well be less effective or even harmful to the patients.

Conclusion:

Prescriptions by generic names instead of brand names could likely to lead to substitution of the medicines at the chemists’ outlets because of the reasons, as mentioned above.

Thus, the major concern with generic prescriptions is that a chemist will then make the choice of the manufacturer while dispensing a medicine. There could only be one criterion for the choice of such medicines by a chemist i.e. to select what gives them highest margin of profit. In such a case, the ultimate decision making authority for the prescription medicines shifts from the physicians to the chemists, which could make the situation far worse for the patients. For the interest of the patients, it is, therefore, extremely important that the government, regulators, physicians, chemists and even the patients’ groups are aware of such risks.

Considering all these risk factors, in my view, if the prescriptions of medicines are made mandatory by their respective generic names in India, it could compromise with patients’ safety, very significantly.

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.

The traditional ‘Business Models’ of R&D focused Global Pharmaceutical majors are undergoing a metamorphosis

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Mounting pressure on the P&L account, as the products go off patent:

Patented new products are the prime growth driver of the research based pharmaceutical companies of the world. Since last few years, because of various reasons, the number of launch of such products has been greatly reduced. To add fuel to the fire, 2010-12 will witness patent expiries of many blockbuster drugs, depleting the growth potential of the most of the research based pharmaceutical companies.

The existing model of growth engine needs a relook:

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

Decline in R&D productivity is not related to investments:

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

Total global expenditure for pharmaceutical R&D was reported to have reached U.S. $ 70 billion in 2007 and is expected to be around U.S. 90 billion in year 2010. 75% of this expenditure was incurred by the U.S alone. It is interesting to note that only 22 NMEs received marketing approval by the US FDA during this period against 53 in 1996, when R&D expenditure was almost less than half of what was incurred in 2007 towards R&D.

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

The silver linings:

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

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

2. R&D applications for clinical trials in the U.S. rose by 11.6% to a record high of 662 last year.

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

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

Healthcare reform of March/April 2010 in the USA is expected to give a further boost to this trend.

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

New Product Differentiation could be a big issue:

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

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

In this trying time, the global pharmaceutical companies are resorting to an interesting strategy, combing both old and the new ones. I shall touch upon the following seven strategies:

1. Mergers and Acquisitions (M&A):
Mega M&A strategies are still being actively followed by some large Pharmaceutical companies mainly to enrich R&D pipeline and achieve both revenue and cost synergies.
However, some of these large global companies have started realizing that ‘powerhouses’ created through past mega mergers and acquisitions have now become too large to manage effectively for various reasons. Mismatch between two different organization cultures also throws a great challenge to obtain desired output, many a times. Moreover, the merged R&D set up could become too large to manage, impacting the R&D productivity very adversely.

2. Extension of the Product Life Cycle and Effective Product Life Cycle Management:
Many global pharmaceutical companies are now engaged in ‘product life cycle management’ of their existing products by extending the ‘product life cycle’, effectively. In that process they are trying to maximize the brand value of these products in the international markets. For example, AstraZeneca has developed once daily treatment with their anti-psychotic drug Seroquel XR. This extended-release formulation of the same drug will help patients avoid 5 to 7-day titration required with the immediate-release version.
Towards similar initiative, Pfizer has also recently set up a dedicated “Established Product Business Unit” within worldwide pharmaceutical operations, to hasten business growth in the international markets.

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

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

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

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

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

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

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

In April 2010, Reliance Life Science has already announced its intent to enter into the Biosimilar market of the EU in not too distant future.

6. Entry into Generic Markets:

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

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

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

7. Collaboration with the Indian Companies:

Another emerging trend is the collaboration of MNCs with the Indian pharmaceutical companies to market generics in the global market, like, Pfizer with Aurobindo and Claris, GSK with Dr. Reddy’s Laboratories (DRL), Astra Zeneca with Torrent. I guess that similar trend will continue, in future, as well.

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

By Tapan Ray

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

Will Global Pharma Majors be successful in their foray into highly competitive generics pharma business offering no (patent) protection of any kind?

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As reported by IMS Health, emerging markets will register a growth rate of 14% to 17% by 2014, when the developed markets will be growing by 3% to 6% during the same period. It is forecasted that the global pharmaceutical industry will record a turnover of US$1.1 trillion by this period.

Mega consolidation process in India begins in 2009:

Fuelled by the above trend, the year 2009 witnessed the second biggest merger, so far, in the branded generics market of India when the third largest drug maker of Japan, Daiichi Sankyo acquired 63.9 percent stake of Ranbaxy Laboratories of India for US $4.2 billion.

This was widely believed to be a win-win deal for both Ranbaxy and Daiichi Sankyo, when Daiichi Sankyo will leverage the cost arbitrage of Ranbaxy effectively while Ranbaxy will benefit from the innovative product range of Daiichi Sankyo. This deal also establishes Daiichi Sankyo as one of the leading pharmaceutical generic manufacturers of the world, making the merged company a force to reckon with, in the space of both innovative and generic pharmaceuticals business.

Another mega acquisition soon followed:

Daiichi Sankyo – Ranbaxy deal was followed in the very next year by Abbott’s acquisition of the branded generic business of Piramal Healthcare in India. This deal, once again, vindicated the attractiveness of the large domestic Indian Pharma players to the global pharma majors.

In May 2010, the Pharma major in the US Abbott catapulted itself to number one position in the Indian Pharmaceutical Market (IPM) by acquiring the branded generics business of Piramal Healthcare with whopping US$3.72 billion. Abbott acquired Piramal Healthcare at around 9 times of its sales multiple against around 4 times of the same paid by Daiichi Sankyo.

Was the valuation right for the acquired companies?

Abbott had valued Piramal’s formulations business at about eight times sales, which is almost twice that of what Japan’s Daiichi Sankyo paid for its US$4.6 billion purchase of a controlling stake in India’s Ranbaxy Laboratories in June 2008.

According to Michael Warmuth, senior vice-president, established products of Abbott, the acquired business will report to him and will be run as a standalone business unit after conclusion of the merger process. Warmuth expects that the sales turnover of Abbott in India, after this acquisition, will grow from its current around US$ 480 million to US$2.5 billion in the next decade.

On the valuation, Warmuth of Abbott has reportedly commented “If you want the best companies you will pay a premium; however, we feel it was the right price.” This is not surprising at all, as we all remember Daiichi Sankyo commented that the valuation was right even for Ranbaxy, even when they wrote off US$3.5 billion on its acquisition.

For Abbott, is it a step towards Global Generics Markets?

It is believed that the Piramal acquisition is intended towards achieving a quantum growth of Abbott’s business in the IPM. However, it is equally important to note the widely reported quite interesting statement of Michael Warmuth’s, when he said, “we have no plans immediately to export Piramal products [to third-country markets] but we will evaluate that. You won’t be at all surprised that if we evaluate that.”

The Key driver for acquisition of large Indian companies:

Such strategies highlight the intent of the global players to quickly grab sizeable share of the highly fragmented IPM – the second fastest growing and one of the most important emerging markets of the world.

If there is one most important key driver for such consolidation process in India, I reckon it will undoubtedly be the strategic intent of the global pharmaceutical companies to dig their feet deep into the fast growing Indian branded generic market, contributing over 98% of the IPM. The same process is being witnessed in other fast growing emerging pharmaceutical markets, as well, the growth of which is basically driven by the branded generic business.

Important characteristics to target the branded generic companies in India:

To a global acquirer the following seem to be important requirements while shortlisting its target companies:

• Current sales and profit volume of the domestic branded generic business
• Level of market penetration and the rate of growth of this business
• Strength, spread and depth of the product portfolio
• Quality of the sales and marketing teams
• Valuation of the business

What is happening in other emerging markets? Some examples:

The most recent example of such consolidation process in other emerging markets happened on June 10, 2010, when GlaxoSmithKline (GSK) announced that it has acquired ‘Phoenix’, a leading Argentine pharmaceutical company focused on the development, manufacturing, marketing and sale of branded generic products, for a cash consideration of around US $253 million. With this acquisition, GSK gains full ownership of ‘Phoenix’ to accelerate its business growth in Argentina and the Latin American region.

Similarly another global pharma major, Sanofi-aventis is now seriously trying to position itself as a major player in the generics business, as well, with the acquisition of Zentiva, an important player in the European generics market. Zentiva, is also a leading generic player in the Czech, Turkish, Romanian, Polish, Slovak and Russian markets, besides the Central and Eastern European region. In addition to Zentiva, in the same year 2009, Sanofi-aventis also acquired other two important generic players, Medley in Brazil and Kendrick in Mexico.

With this Sanofi-aventis announced, “Building a larger business in generic medicines is an important part of our growth strategy. Focusing on the needs of patients, Sanofi-aventis has conducted a regional approach in order to enlarge its business volumes and market share, offering more affordable high-quality products to more patients”.

Faster speed of such consolidation process could slow down the speed of evolution of the ‘generics pharmaceutical industry’ in India:

As the valuation of the large Indian companies will start attracting more and more global pharmaceutical majors, the revolutionary speed of evolution of the ‘generics pharmaceutical industry’ in India could slow down. The global companies will then acquire a cutting edge on both sides of the pharmaceutical business, discovering and developing innovative patented medicines while maintaining a dominant presence in the fast growing emerging branded generics market of the world.

Recent examples of Indian companies acquired by global companies:

1. Ranbaxy – Daiichi Sankyo
2. Dabur Pharma – Fresenius
3. Matrix – Myalan
4. Sanofi Pasteur – Shanta Biotech
5. Orchid – Hospira
6. Abbott – Piramal Healthcare

Indian Pharmaceutical companies are also in a shopping spree:

It has been reported that by 2009, around 32 across the border acquisitions for around US $2 billion have been completed by the Indian pharmaceutical and biotech players. Recently post Abbott deal, Piramals have expressed their intent to strengthen the CRAMS business to make good the drop in turnover for their domestic branded generics business, through global M&A initiatives.

Some of the major overseas acquisitions by the Indian Pharmaceutical and Biotech companies:

1. Biocon – Axicorp (Germany)
2. DRL – Trigenesis Therapeutics (USA)
3. Wockhardt – Esparma (Germany), C.P. Pharmaceuticals (UK), Negma (France), Morton Grove (USA)
4. Zydus Cadilla – Alpharma (France)
5. Ranbaxy – RPG Aventis (France)
6. Nicholas Piramal – Biosyntech (Canada) , Minrad Pharmaceuticals (USA)

What is happening in other industries?

In spite of the global financial meltdown in 2009, the future of M&A deals in India looks promising across the industry. Some of the major offshore acquisitions by the Indian companies are as follows:

 

Mega acquisition of foreign companies by Indian companies:

• Tata Steel acquired 100% stake in Corus Group on January 30, 2007 with US$12.2 billion.
• India Aluminum and Hindalco Industries purchased Canada-based Novelis Inc in February 2007 for
US $6-billion.
• The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009 for US $2.8 billion.
• Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. The deal
amounted to $2.3 billion.
• Acquisition Asarco LLC by Sterlite Industries Ltd’s for $1.8 billion in 2009
• In May 2007, Suzlon Energy acquired Germany’s- wind turbine producer Repower for US$1.7 billion.

Mega acquisition of Indian companies by foreign companies:

• Vodafone acquired administering interest of 67% owned by Hutch-Essar, on February 11, 2007 for US
$11.1 billion.
• The Japan based telecom firm NTT DoCoMo acquired 26% stake in Tata Teleservices for USD 2.7
billion, in November 2008.

An alarm bell in the Indian Market for a different reason:

It has been reported that being alarmed by these developments, Indian Pharmaceutical Alliance (IPA) has written a letter to the Department of Pharmaceuticals, highlighting, “Lack of available funding is the main reason for the recent spurt in the sale of stakes in domestic companies”.

The letter urged the Government to adequately fund the research and development initiatives of the Indian Pharmaceutical Companies to ensure a safeguard against further acquisition of large Indian generic players by the global pharmaceutical majors. To a great extent, I believe, this is true, as the domestic Indian companies do not have adequate capital to fund the capital intensive R&D initiatives.

Will such consolidation process now gain momentum in India?

In my view, it will take some more time for acquisitions of large domestic Indian pharmaceutical companies by the Global Pharma majors to gain momentum in the country. In the near future, we shall rather witness more strategic collaborations between Indian and Global pharmaceutical companies, especially in the generic space.

The number of high profile M&As of Indian pharma companies will significantly increase, as I mentioned earlier, when the valuation of the domestic companies appears quite attractive to the global pharma majors. This could happen, as the local players face more cut-throat competition both in Indian and international markets, squeezing their profit margin.

It will not be a cake walk…not just yet:

Be that as it may, establishing dominance in the highly fragmented and fiercely competitive IPM will not be a ‘cakewalk’ for any company, not even for the global pharmaceutical majors. Many Indian branded generic players are good marketers too. Companies like, Cipla, Sun Pharma, Alkem, Mankind, Dr.Reddy’s Laboratotries (DRL) have proven it over a period of so many years.

We witnessed that acquisition of Ranbaxy by Daiichi Sankyo did not change anything in the competition front. Currently the market share of Abbott, including Solvay and Piramal Healthcare, comes to just 6.4% followed by Cipla at 5.5% (Source: AIOCD). This situation is in no way signifies domination by Abbott in the IPM, even post M&A.

Thus the pharmaceutical market of India will continue to remain fragmented with cut-throat competition from the existing and also the newer tough minded, innovative and determined domestic branded generic players having both cost arbitrage and the spirit of competitiveness.

Simultaneously, some of the domestic pharmaceutical companies are in the process of creating a sizeable Contract Research and Manufacturing Services (CRAMS) sector to service the global pharmaceutical market.

Conclusion:

In my view, it does not make long term business sense to pay such unusually high prices for the generics business of any company. We have with us examples from India of some these acquisitions not working as the regulatory requirements for the low cost generics drugs were changed in those countries.

Most glaring example is the acquisition of the German generic company Betapharm by DRL for US$ 570 million in 2006. It was reported that like Piramals, a significant part of the valuation of Betapharm was for its trained sales team. However, being caught in a regulatory quagmire, the ultimate outcome of this deal turned sour for DRL.

Could similar situation arise in India? Who knows? What happens to such expensive acquisitions, if for example, prescriptions by generic names are made mandatory by the Government within the country?

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.

Abbott – Piramal deal: the way future is expected to shape up

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In my view, these are still very early days for such acquisitions of large domestic Indian pharmaceutical companies by the Global Pharma majors to gain momentum in the country. However, there is no doubt that in the near future, we shall rather witness more strategic collaborations between Indian and Global pharmaceutical companies, especially in the generic space.

Squeezing margin due to cut-throat domestic and international competition may affect future valuation of the domestic companies:

I reckon, the number of such high profile mergers and acquisitions will significantly increase, as and when the valuation of domestic Indian companies appears quite attractive to the global pharma majors. This could happen, as the domestic players face more cut-throat competition both in Indian and international markets, squeezing their profit margin.
Abbott possibly has a well-structured game plan for seemingly high valuation of the deal:
Having said that let me point out, during Ranbaxy-Daiichi Sankyo deal, analysts felt that the valuation of the deal was quite high. US $ 3.7 billion Abbott – Piramal deal has far exceeded even that valuation. Does this deal not make any business sense? I do not think so. Abbott is a financially savvy seasoned player in the M&A space. It is very unlikely that they will enter into any deal, which will not have any strategic and financial business sense.

Big ticket Indian Pharma deals:

So far India has seen four such major deals starting from Ranbaxy – Daiichi Sankyo, Dabur Pharma – Fresenius, Matrix – Myalan and Orchid – Hospira, besides some global collaborative arrangements, such as, Pfizer with Aurobindo/Claris/Strides GSK with DRL, AsraZeneca with Torrent and again Abbott with Zydus Cadila.

Key drivers for these deals:

Such acquisitions and collaborations will be driven by following eight key factors:

1. R&D pipelines of the global innovative companies are drying up
2. Many blockbuster drugs will go off-patent in the near future
3. Cost containment pressure in the western world exerting pressure on the bottom lines
of the global pharma majors
4. Increasing demand of generics in high growth emerging and developing markets
5. The new Healthcare Reform in the US will promote increased usage of generic drugs.
6. The fact that India already produces 20% of the global requirement for generic drugs
increases the attractiveness.
7. The fact of domestic Indian companies account for 35% of ANDAs highlights the future
potential of the respective companies.
8. Highest number of US-FDA approved plants, next to the US, is located in India.

A strategic move by Abbott:

As announced by Abbott from its headquarter in Chicago that Abbott in India will increase its sales four times to around Rs. 11,000 Crores by 2020 with the acquisition of 350 brands of ‘Piramal Healthcare’ business.

Facing the stark reality of a ‘patent Cliff’, cost containment pressures especially in the US and EU, low single digit growth rate of the developed markets and high growth of branded generic dominated emerging markets, Abbott has taken a new global initiative aimed at the emerging markets with the creation of its global ‘Established Products’ Business’. This initiative started with worth US $ 6.2 billion acquisition of branded generic business of Solvay Pharma, which has a sizeable presence in the EU markets.
Recently announced licensing agreement of Abbott with Zydus Cadila to market 24 products initially in 15 emerging markets of the world is another step towards this direction.

Advantage Abbott India:

The asset based acquisition of ‘Piramal Healthcare’ by Abbott will help its Indian arm to increase its domestic market penetration, significantly, both for branded generic and patented products in urban, semi-urban and rural markets spearheaded by around 7000 strong sales force. This strategy perhaps will also help Abbott in India distancing itself from the number 2, in the Indian Pharma league table, probably with a handsome margin.

Global players want a risk-cover with the generic business and minimize tough competition:

Like Abbott, it is quite likely that other major global players are also planning to reduce their business risks by expanding the business from mainly high risk and expensive R&D intensive patented products to a more predictable and rapidly expanding branded generic business.

Will such move have any significant effect on competition?

Such M&A initiatives may seemingly minimize the cut throat competition from large generic players from India. However, I do not envisage any significant impact on over all competition between the generic players for such moves, as their will be mounting competition from more number of new entrants and emerging players, entry barrier in Indian generic pharmaceutical market being quite low.

Conclusion:

In the globalized economy where the ‘world is flat’ such types of business consolidation initiatives are inevitable. The domestic Indian companies across the industry are also in the prowl for suitable global targets, which are at times of world class ‘Crown Jewels’ like Arcelor, Chorus or Jaguar/Land Rover. Pharmaceutical industry is, therefore, no exception.

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.