Tag Archives: Challenges

Nine Major Challenges Constraining Indian Pharmaceutical Industry From Taking a Quantum Leap

Posted on by
Reply

Among the developing nations of the world, India has already carved out a special niche for itself in many business verticals of the pharmaceutical industry and is currently being recognized as the ‘pharmacy of the world’ for the generic medicines.

Even over seven years after ushering-in of the product patent regime in India in January 2005, domestic pharmaceutical companies keep dominating the Indian market overwhelmingly in all respect. Nonetheless, rejuvenated interest of the global players on India, because of unignorable business potential in the country, can now be quite palpably felt, despite many formidable challenges all around.

In the post product patent regime, though Indian companies have started investing in R&D, the first ‘Made in India’ new and innovative drug is yet to receive marketing approval anywhere in the world, including India. Thus the much needed thrust on innovation should continue unabated.

Unfortunately, despite continuous growth of the Indian pharmaceutical market and that too at a reasonably brisk pace since over decades, quite a large number of small-scale pharmaceutical units were compelled to shut their operations since 2008, just for not being able to adequately cope with the tough business challenges and competitive pressure. As the country moves ahead, these challenges, coupled with fierce competitive pressure, could further escalate, if not attended to with crafty strategies by the individual companies ably supported by the robust healthcare-reform oriented policy measures by the government.

In this article, I shall flag nine such major challenges, not necessarily in the same sequence, that the industry and the government should jointly address to create a win-win situation for all – the industry, patients, government and all other stakeholders.

 I.  High ‘Out of Pocket (OoP)’ expenditure limiting access to medicines:

While India is making reasonably rapid strides in its economic growth, the country is increasingly facing constraints in providing healthcare benefits to a vast majority of its population with ballooning ‘Out of Pocket (OoP)’ expenditure of around 74 percent and 72 percent of which is the cost of medicines (Source: HLEG  Report).

This is mainly because of the following key reasons:

  • Low public spending on healthcare at around just 1.1 percent of the GDP
  • Fragile healthcare infrastructure
  • Very low penetration of health insurance system for all strata of society
  • Poor healthcare delivery system
  • Absence of ‘Universal Health Coverage’

Government Share in Total Healthcare Spend is One of the Lowest in the World 

Country

Brazil

China

Mexico

South Africa

Pakistan

Bangladesh

Sri Lanka

India
% of Healthcare Spend

47

62.5

49

44

33

34

45

29

(Source: data compiled)

Changing disease pattern increases healthcare expenditure, further limiting access

As the disease pattern is undergoing a shift from acute to non-infectious chronic illnesses, requiring longer duration of treatment, OoP expenditure on healthcare will increase even more, bringing greater misery to the population in general and creating even greater access barrier, if no action is taken immediately.

It is worth acknowledging that one finds some good initiatives though, especially for the population Below the Poverty Line (BPL) and hears about the success of ‘Rashtriya Swasthya Bima Yojna (RSBY)’ and other health insurance schemes through rural micro health insurance units. It has been reported that currently around 40 such schemes are active in the country, which is far from enough.

II.  Public and government pressure to make drug prices more affordable:

Pharmaceutical companies in India have been constrained to live with continuing focus of the government and also of the civil society on ‘reasonably affordable medicines’ irrespective of the fact whether they are generic or patented.

The Department of Pharmaceuticals has reportedly started comparing Indian drug prices with their international equivalents in terms of the ‘purchasing power parity’ and ‘per capita income’ and not just their prevailing prices in various developed markets converted into rupees. With such comparisons the government has already started voicing that prices of medicines in India are not the cheapest but on the contrary one of the costliest in the world.

Thus, one of the critical challenges of the Indian Pharmaceutical Industry continues to be delivering affordable medicines for a large section of the population of the country, as expected by the government. Reported high profitability, at least, of the listed pharmaceuticals companies gives an impression to the stakeholders, including the government, that there is a scope for further reduction of pharmaceutical prices in India.

Pharmaceuticals being covered under the ‘Essential Commodities Act’, empower the government to announce the ‘administered price’ for essential medicines. Current debate and deliberations on the New Drug Policy both by the Supreme Court and the Group of Ministers is a case in point.

Be that as it may, the proposed pricing methodology and the span of price control in the long overdue New Drug Policy have just been announced by the Group of Ministers (GoM) on September 27, 2012, which is in line with what I had recommended in my article of May 21, 2012 in this blog.

In my view, the new proposal of the GoM is expected to improve both the availability and affordability of the essential medicines, significantly.

 III.  Inadequate penetration of current health insurance schemes:

Health insurance coverage is still very low in India as compared to, among many other countries, Brazil and South Africa and at-par with our neighboring island state Sri Lanka. The details are as follows:

Country

Brazil

South Africa

Sri Lanka

India
% of Healthcare Spend

21

39

10

10

(Source: data compiled)

Moreover, currently health insurance schemes only cover expenses towards hospitalization. Ideally, medical insurance schemes in India should also cover domiciliary or in-patient treatment costs and perhaps loss of income too, if India wants to bring down the OoP expenditure for its population or at least till such time the ambitious ‘Universal Health Coverage’ project gets translated into reality.

IV. Pricing of Patented Drugs: 

Innovative pharmaceutical products patented in India are expected to facilitate access to latest modern medicines to the country’s population to meet their unmet needs, if available at a reasonably affordable price.

To respond to this important need of the patients, many innovator companies like, Merck, GlaxoSmithKline (GSK) have already announced a differential pricing mechanism for their patented medicines in India.

Recent grant of compulsory license of Bayer’s Nexavar to Natco, among other reasons on pricing issue by the Indian Patent Office, has raised serious concerns among the innovator companies across the world on their Intellectual Property Rights (IPR) in India, but not on their pricing strategy for the country, as of now.

It appears rather impractical to envisage that routine grant of compulsory license by the Indian Patent Office will be able to resolve the critical issue of improving access to patented medicines on a long term basis.  Such decisions may be taken only after exhausting all other access improvement measures.

Moreover, to improve access of such medicines to the common man, the Government of India should have a robust procurement plan for these products, at a well negotiated price, for supply through Government hospitals and dispensaries.

Despite all these, it remains a hard reality that pressure on pricing of patented products, very likely, will continue to pose a challenge in India.

An innovative approach

To effectively address the challenge of pricing of patented medicines in India, Swiss drug major Roche, has reportedly  entered into a ‘never-before’ technology transfer and manufacturing contract for biologics with a local Indian company, Emcure Pharma, for its two widely acclaimed Monoclonal Antibodies’ anti-cancer drugs – Herceptin and MabThera.

The report says that in the past, Emcure had signed licensing deals with US-based bio-pharmaceutical drug maker Gilead Life Sciences for Tenafovir and with Johnson and Johnson for Darunvir. Both are anti-HIV drugs.

In this regard, media reports further indicated that Roche would offer to Indian patients significantly cheaper, local branded versions of these two anti-cancer drugs by early next year. The same news item also quoted the Roche spokesperson from Basel, Switzerland commenting as follows:

“The scope is to enable access for a large majority of patients who currently pay out of pocket as well as to partner with the government to enable increased access to our products for people in need”.

Such ‘out of box’ strategies and initiatives by the global innovator companies could help keeping prices of patented products affordable to the Indian patients, improving their access significantly. 

 V. Fostering innovation and Intellectual Property Rights (IPR):

Innovation:

Many companies expect that ‘tomorrow’ will be a ‘mega today’ and prefer to continue to run their businesses more or less the same way, as what they are currently doing. At the same time the global market keeps sending, in very small measures though, but definite and continuous signals of changes. As we move on, we realize that ‘tomorrow’ will not be a ‘mega today’, just as ‘today’ is not a ‘mega yesterday’. To meet such challenges of change squarely and realistically, one will need to embrace a culture of ‘continuous innovation’ in all the fields of business processes in India.
Therefore, the name of the game, while competing within the globalized economy is “continuous innovation”, which is more than a novel idea or a set of novel ideas. It is, in fact, the process of translating the novel idea/ideas into reality.
Like other industries, the pharmaceutical sector in India will also have to innovate with cutting edge ideas, convert them to implementable business models and processes, which in turn would help these companies to remain competitive in the globalized market place. The innovation, which I am talking about, extends far beyond Intellectual Property Rights (IPR) for a product.
While innovation is an absolute must to remain and grow the business, having patented products and marketing these brands effectively are desirable, but not a ‘must do’ for the Indian pharmaceutical companies, just yet. Unfortunately, not much inclusive innovation is taking place within the industry as of now, which consequently poses a great challenge for a quantum leap of this knowledge based industry of the country.

IPR

From the perspective of the global innovator companies across the world, ‘lack of a robust innovation friendly ecosystem’ in India is still a major challenge. However, home grown companies feel otherwise. This is mainly because, before enactment of the Indian Patents Act (amended) 2005, it was widely reported that mainly for the interest of Public Health and probably also to ensure that the growth of the domestic pharmaceutical industry does not get very adversely impacted, the Parliament of India ensured inclusion of a number of ‘safeguards’ including checks on ‘ever-greening’ of pharmaceutical patents and broader provisions for the grant of ‘Compulsory License’ in the statute.

Such provisions in the Indian Patents Act throw a major challenge to the global innovator companies spreading across the continents to get many of their new molecules patented in India and subsequently launch in the country. 

 VI. Counterfeit Medicines:

India still needs to generate enough credible data to convince itself and then to establish that counterfeit drugs are posing a growing menace to the humanity. All stakeholders should join hands to address this public health issue, leaving aside petty commercial interests, be it generic pharmaceutical companies of India or research based pharmaceutical players across the world.

The other side of the coin is that counterfeit versions of high value and/or high volume brands of the pharmaceutical companies in India are adversely affecting their business performance posing another major challenge. 

 VII.  Talent Pool: 

As we know, access to healthcare comprises not just medicines but more importantly healthcare infrastructure like, doctors, paramedics, diagnostics, healthcare centers and hospitals. In India the demand for these services has outstripped supply. There is a huge short fall in ‘Healthcare Manpower’ of the country as demonstrated in the following table:

Target Actual Shortfall %
Doctors 1,09,484 26,329 76
Specialists 58,352 6,935 88
Nurses 1,38,623 65,344 53
Radiographers 14,588 2,221 85
Lab Technicians 80,308 16,208 80

Source: Rural Health Statistics 2011 in 12th Plan draft chapter

Besides above, other key challenge faced by the pharmaceutical industry in this area is dearth of industry-specific employable work force in important areas like, R&D, clinical research, pre-clinical and clinical studies, manufacturing, quality assurance, besides sales and marketing. 

 VIII.  Requirement of Stringent Regulatory Practices:

In the increasingly globalized economy, strict conformance to high regulatory standards like, Good Manufacturing Practices (GMP), Good Clinical Practices (GCP) and Good Laboratory Practices (GLP) pose another major challenge for the pharmaceutical industry in India.

Those pharmaceutical companies who are involved in manufacturing and export of drugs and pharmaceuticals are required to meet standards set up not only by the Drug Controller General of India (DCGI) and/or the State Drug controllers, but also of the regulatory authorities of the respective countries, where their products will be exported.

 IX.   Ethics and Compliance: 

We have been witnessing for quite some time that ethical concerns related to the pharmaceutical industry, spanning across clinical trials to ethical marketing practices, are hugely bothering a large section of the stakeholders, solely for the interest of the patients.

Such concerns are assuming greater proportion, as the pharmaceutical industry is increasingly facing stringent regulatory and media scrutiny in gradually expanding areas of business operations. Thus, to overcome this challenge, there is a dire need for the industry to move beyond its usual bottom-line centric model to a transparent, comprehensive and implementable ‘Ethics and Compliance Models’, which are well meshed with all other business processes.

The Department of Pharmaceuticals has not delivered yet:

To help the pharmaceutical industry overcoming all the above nine major challenges in India, even the Department of Pharmaceuticals (DoP), considered being the nodal department for the pharma sector does not seem to have delivered, as yet.

In 2008, when the DoP was formed, it was widely expected that the department will be able to address the following key pharmaceutical industry related issues, with an integrated approach, to strike a right balance between the growth fundamentals of the industry and the Public Health Interest:

  • A modern, both growth and access oriented, drug policy and pricing mechanism.
  • Continuous improvement of access to high quality and affordable modern medicines for all.
  • An efficient, transparent and non-discretionary drug price regulatory system.
  • An appropriate ecosystem to encourage R&D and foster pharmaceutical innovation.
  • Addressing the issue of high ‘Out of Pocket (OoP)’ expenditure of the general population towards medicines in particular and healthcare in general together with the Ministry of Health.
  • Facilitating fiscal and tax incentives required by the Micro-Small and Medium Enterprises (MSME) within the pharmaceutical industry of India to help driving their growth.

It is worth mentioning, all these will necessitate a close coordination and integration of work of various departments falling under different ministries of the government, DoP being the nodal department. Unfortunately, this is not happening today, the way it should. 

Conclusion:

If remedial measures are not taken, sooner than later, to overcome these nine major challenges  bothby the pharmaceutical industry and the government working in tandem, it will be difficult for the industry to take a quantum leap in the foreseeable future, as is being envisaged by many.

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.

‘Free Essential Medicines for All’ – A Laudable Public Healthcare Initiative of India, Tough Challenges Notwithstanding

Posted on by
Reply

Recently the Government of India has taken a landmark ‘Public Healthcare’ related initiative to provide unbranded generic formulations of all essential drugs, featuring in the ‘National List of Essential Medicines 2011’, free of cost to all patients from the public hospitals and dispensaries, across the country.

This social sector project is expected to roll out, as reported in the media, from October/November this year with a cost of around US$ 5 billion during the 12th Five Year Plan period of the country.

Considering medicines account for around 70% of the total ‘Out of Pocket’ expenses, this particular initiative is expected to benefit, especially the poorer patients, significantly.

Recommendations of the Parliamentary Standing Committee:

Noting the keen interest of the Government for speedier implementation of this scheme, it appears that the Ministry of Health has accepted the recommendations made by the ‘Parliamentary Standing Committee (PSC) for Health and Family Welfare’ to the Indian Parliament on August 4, 2010, regarding prescription of medicines by their generic names in the Public hospitals and dispensaries, to start with.

In this context, it is worth noting that the ‘Drugs Technical Advisory Board (DTAB)’ has also reportedly considered the proposal to amend the rules of the ‘Drugs and Cosmetics Act of India’ for regulatory approval of all drug formulations containing single active ingredient in the generic names by all State Licensing Authorities.

This recommendation of the  PSC is based on the premises that the ‘Brand Building’ exercise of the generic drugs includes a very high sales and marketing expenditure.

The Committee felt that by putting in place a well structured policy such ‘avoidable’ expenditures can easily be eliminated making generic 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.

The scheme is new for India, but other countries have already taken 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 in Spain to prescribe generic drugs instead of 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 drug costs are partly reimbursed by the government.

As a result, the doctors in Spain require prescribing only in the generic or chemical names of such 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’.

Product quality of generic/ generics and branded generics:

Drugs and Cosmetics Act of India requires all generic/generic and branded generic drugs to have the same quality and performance standards. Thus when a generic/generic medicine is approved by the drug regulator, one should logically expect that it has met with the required standards set for the identity, strength, quality, purity and potency of the chemical substance.

It is not uncommon that there could be some variability taking place during their manufacturing process and all formulations of both the categories produced by different manufacturers may not also contain exactly the same inactive ingredients.

In any case, both generic/generic and branded generic drugs must be shown to be bio-equivalent 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 also 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]”.

Generic drugs are prescribed more, even in America:

As per published reports, generic medicines account for around 78% of the total prescriptions dispensed by retail chemists and long-term care facilities in the US. For example, in 2010 generic prescriptions were four percentage points more than what these were in 2009 and came up from 63% as recorded in 2006.

Capacity constraints could hold back full implementation of the Indian initiative:

Huge shortages in the number doctors, nurses, paramedics and hospital beds per 10,000 population in India will pose a tough challenge for speedier implementation of ‘Free medicines for all’ project in the country. India should respond to its healthcare infrastructure developmental needs much faster now than ever before to achieve its objective of providing ‘healthcare to all’, sooner.

Overall impact of the scheme:

I reckon, this new scheme will hasten the overall growth of the pharmaceutical industry, as poor patients who could not afford will now have access to essential medicines. On the other hand, rapidly growing middle class population will continue to favor branded generic drugs prescribed by the doctors at the private hospitals and clinics.

Some people are apprehending that generic drug makers will have brighter days as the project starts rolling on. This apprehension is based on the assumption that large branded generic players will be unable to take part in this big ticket drug procurement process of the Government.

However, in my view, it could well be a win-win situation for all types of players in the industry, where both the generic/generic and branded generic businesses will continue to grow simultaneously, because of the reasons as mentioned above.

That said procedural delays and drug quality issues while procuring cheaper generics may pose to be a great challenge for the Government to ensure speedier implementation of this project. Drug regulatory and law enforcing authorities will require to be extremely vigilant to ensure that while sourcing cheaper generic drugs, “Public health and safety” due to quality issues do not get compromised in any way.

How long will it take?

Full implementation of ‘Universal healthcare’ projects takes considerable time in any country. China has taken a long time for its roll-out covering even a larger population than India. Even Mexico has reportedly taken more than seven years for implementation of similar public healthcare initiative.

Thus, I guess, though it is quite possible for India to offer ‘Free Essential Medicines’ to its 1.13 billion people, it may take a decade long efforts for the country to reach out to the entire population.

Are generic/generic drugs really cheaper than their branded generic equivalents?

The recommendation of the ‘Parliamentary Standing Committee for Health and Family Welfare’ on this issue, as stated above, makes sense for India. However, the moot question, which is the basis of choosing generic/generic drugs over their branded generic equivalents, still remains as follows:

“Are the generic/generic drugs really cheaper than their branded generic equivalents in India?”

From the MRPs, as printed on the packs of both branded generic and the generic/generic formulations, it appears that this basic assumption may not hold good universally across the country.

Following examples will vindicate this point:

Molecule

Product

Company

Batch No.

Price Per Tab.
Telmisartan 40 mg Branded Generic

Telmiline 40 mg

John SmithKline

M111622

14/-
Generic/Generic

Generic

Unichem

BTL(11/11001)

30/-

 

Molecule

Brand/ Generic

Company

Batch No.

Price Per Tab.
Rosuvastatin 10 mg Branded Generic

Rosufine

Morpen

P20472

13.20
Generic/Generic

Generic

Sharon Bio-Medicines

AC-2159

16/-

 

Molecule

Brand/ Generic

Company

Batch No.

Price Per Tab.
Cetirizine HCL 10 mg Branded Generic

Cetfast

Elder

CO81810

2.50
Generic/Generic

Generic

Ra Biotech

CT 016B

3/-

 

Molecule

Brand/ Generic

Company

Batch No.

Price Per Tab.
Nimesulide 100 mg Branded Generic

NICIP

Cipla

-

2.53
Generic/Generic

Generic

Themis

-

3/-

 

Molecule

Brand/ Generic

Company

Batch No.

Price Per Tab.
Amlodipine 5 mg Branded Generic

Aginal 5

Alkem

-

2.48
Generic/Generic

Generic

Sandoz

-

2.70

 

Molecule

Brand/ Generic

Company

Batch No.

Price Per Tab.
Ampicillin 500 Branded Generic

Ampisyn

Cipla

-

6.40
Generic/Generic

Generic

SGS

-

7.50

As on July 6, 2012

Let me hasten to add, it is quite possible to present another set of examples, which may show that the MRPs of generic/generic drugs are lesser than the comparable branded generics.

However, the bottom-line is, it will not be fair to comment that MRPs of generic/generic drugs, which do not include any expenditure towards ‘brand-building’, are always significantly lesser than their branded generic counterparts as shown above.

Why are MRPs of generic/generics and branded generics not much different?

It is a general perception, as stated above, that ‘Brand Building’ exercise for generic drugs in India includes a very high component of ‘sales and marketing expenditures’ which are built into the price, making MRPs of the branded generic formulations significantly higher than their generic/generic equivalents.

However, it will not be realistic to accept that generic/generic drugs are not promoted at all, in any form, by the concerned manufacturers. The fact is, in case of generic/generic medicines almost the same amount that is spent on ‘sales and marketing’ for branded generic drugs, is passed on to the retail chemists by their manufacturers as huge incentives for promotion and substitution of such drugs by the respective pharmacies.

Thus, in a large number of cases the patients do not get any significant pricing benefit for buying generic/generic drugs against doctors’ prescriptions instead of branded generics from the retail outlets. 

Conclusion:

In the prevailing scenario, the decision of the Government to procure and distribute only the generic/generic essential medicines through public hospitals/dispensaries simply on pricing ground, keeping the branded generics at bay, is indeed intriguing.

From the data presented above, it will be quite reasonable to believe that MRPs being similar, the ‘sales and marketing’ costs for branded generics are quite comparable to hefty discounts being passed on to the wholesalers and retail chemists by the manufacturers of generic/generic drugs.

Hence, in the balance of probability, a branded generic product can well compete with its genuine generic/generic equivalent, even on pricing ground, in the government procurement process.

Thus, to be fair to the pharmaceutical companies, across the board, the government should invite all generic manufacturers selling their products with or without brand names to participate in the public procurement process and thereafter make the final purchase decisions based on well laid out and transparent criteria, which can stand scrutiny of the strictest audit. 

That said, I fully recognize that the participation in the public procurement process of essential medicines, will indeed be the business decision of individual  companies. If it makes commercial sense, there is no reason why large companies, including the multinationals, will not participate in this laudable project of the Government.

The record of the Government in the implementation of various social sector projects, thus far, may not be brilliant by any measure. Despite that, it does make enough sense for all of us to be rather optimistic about this well hyped ‘Free Essential Medicines for all’ project of India, considering the immense benefits that the common man will derive out of it.

For the effective implementation of the project, the government should now get adequately prepared with required wherewithal, put in place world class skill-sets by partnering with private domain experts wherever required and chart the pathway of success with clearly assigned accountability to each individual responsible for translating this grand ‘Public Healthcare’ initiative of India into reality .

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.

Pharmaceutical R&D in India: Issues and Challenges

Posted on by
Reply

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

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

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

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

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

R&D process:

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

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

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

Global R&D investment and Asia-Pacific Region:

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

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

The key growth driver of any economy:

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

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

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

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

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

R&D is an arduous process:

The dynamics of Drug Discovery are shown below:

  • Despite patent life being 20 years, effective period of exclusivity for the discoverer is only 7.5 – 8.5 years.
Stages of Development No. of Years
Pre-clinical 3.5
Clinical 6.5
Regulatory 2.5 – 1.5
Total: 12.5 – 11.5
  •  Another report, as depicted in the chart below indicates the investment pattern in R&D by various countries in the developed markets of the world:

Where does the money go? (%)

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

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

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

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

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

Strengths and weaknesses of India in Pharmaceutical R&D:

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

Strengths:

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

Weaknesses:

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

R&D Expenditure in India:

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

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

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

Research Options for India:

Following are various research options available to India:

  • Basic Discovery Research:

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

  • Genetic & Proteomic Research:

Genetic and Proteomic Research involves many of these following procedures:

- Decoding Human Genetic Code

- Identification of Genetic Markers

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

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

- Elimination of therapies that will not work on certain genotypes

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

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

  • Process Research:

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

  • Natural Product Screening:

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

  • The ‘Open Innovation’ Model:

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

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

Other Areas:

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

Success of Indian pharmaceutical companies in R&D:

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

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

(Source: Financial Express, March 13, 2009)

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

  • Innovation friendly ecosystem
  • Adequate Funding
  • World class Infrastructure
  • Ready talent pool

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

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

Key role of Universities:

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

R&D funding:

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

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

  1. Self-financing Research: This is based on (i) “CSIR Model” i.e. recover research costs through commercialization – collaboration with industries to fund research projects and (ii) “Dr Reddy’s Lab / Glenmark Model” i.e. recover research costs by selling lead compounds without taking through to development – wealth creation by the creation of Intellectual Capital.
  2. Overseas Funding:  By way of joint R&D ventures with overseas collaborators; seeking grants from overseas Health Foundations; earnings from Contract Research as also from Clinical Development and transfer of aborted leads (‘Killing Fields” of the West) and collaborative projects on Orphan Drugs.  Multinational companies could be encouraged to deploy resources, as this is where the real money is.
  3. Venture Capital & Equity Market :  This could be both via Private Venture Capital Funds and Special Government Institutions.  If regulations permit, foreign venture funds may also wish to participate. Venture Capital and Equity Financing will emerge as important sources of finance once track record is demonstrated and ‘early wins’ are recorded.
  4. Fiscal Support & Non-Fiscal Support: Will also be valuable in early stages of R&D, for which a variety of schemes are possible as follows:
  • Customs Duty Concessions: For Imports of specialised equipment, e.g. high throughput screening equipment, equipment for combinatorial chemistry, special analytical tools, specialised pilot plants, etc.
  • Income tax concessions (weighted tax deductibility): For both in-house and sponsored research programmes.
  • Soft loans: For financing approved R&D projects from Government financial institutions / banks.
  • Tax holidays: Deferral, loans on earnings from R&D.

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

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

Infrastructure for R&D:

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

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

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

Indian Patent infrastructure:

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

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

Partnering for Drug Discovery:

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

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

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

Conclusion:

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

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

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

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

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

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

References:

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

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

Challenges for the Pharmaceutical Industry in the new paradigm – there are more questions than answers

Posted on by
Reply

To get insight into the future challenges of the pharmaceutical industry in general ‘Complete Medical Group’of U.K recently conducted a study with a sizeable number of senior participants from the pharmaceutical companies of various sizes and involving many countries. The survey covered participants from various functional areas like, marketing, product development, commercial, pricing and other important areas.
The study indicates that a paradigm shift has taken place in the global pharmaceutical industry, where continuation with the business strategies of the old paradigm will no longer be a pragmatic approach. Besides this finding, my experience also vindicates that today is not a mega yesterday, just as tomorrow will not be a mega today.
Learning from the results of the above study, which brought out several big challenges facing the pharmaceutical industry in the new paradigm, my submissions are as follows:

Gaining greater market access and increasing pressure of price containment:

The increasing power of payors in the developed world and the interventions of the Government in the developing countries are creating an all pervasive pricing pressure. This critical development together with the issues related to gaining greater market access remain a prime concern for the future.

Better understanding of the new and differential value offerings that the doctors and patients will increasingly look for beyond the physical pharmaceutical products, will indeed be the cutting edge for the winners, in this new ball game.

Questioning the relevance of the current business model:
Top managements of the pharmaceutical companies have already started evaluating the relevance of the current global pharmaceutical business model. They will now need to include in their strategy wider areas of healthcare value delivery system with a holistic disease management focus. Only treatment of diseases will not be considered just enough with an offering of various type medications. Added value with disease prevention initiatives and appropriately managing quality of life of the patients, especially in case of chronic ailments, will assume increasing importance in the pharmaceutical business process.

Greater innovation across the pharmaceutical value chain:
Greater and more frequent incremental innovation across the pharmaceutical Value Chain will be critical success factors. The ability to really harness new technologies, rather than just recognize their potential, and the flexibility to adapt to the fast changing and demanding regulatory environment together with patients’ newer value requirements, should be an important part of the business strategy of a pharmaceutical company in the new world order.

Well integrated decision making processes:
More complex, highly fragmented and cut throat competition, especially in the branded generic market, have created a need for better, more aligned and integrated decision making process across various functional areas of the pharmaceutical business. Avoiding silos and empire building have long been a significant issue, especially for big pharmaceutical companies. Part of better decision making will include more pragmatic and efficient investment decisions and jettisoning all those activities, which are duplications and will no longer deliver incremental intrinsic or extrinsic differential value to the stakeholders.

Customer engagement:
Growing complexity of the prevailing business environment, including most recent change in the MCI regulations for the doctors are making meaningful interactions with the customers and decision makers increasingly challenging. There is a greater need for better management of the pharmaceutical communications channels to strike a right balance between ‘pushing’ information to the doctors and patients and helping them ‘pull’ the relevant information whenever required.

Let me hasten to add, even in the new paradigm, the fundamental way the pharmaceutical industry has been attempting to address these critical issues over decades, has not changed much. To unleash the future growth potential the pharmaceutical companies are still moving around the same old issues like, innovative new product development, scientific sales and marketing, customer focus, application of information technology (IT) in all areas of strategy making process including supply chain, building mega product brands, continuing medical education, greater market penetration skills, to name just a few.

Such responses do ring an alarm bell to me. It is known to many that most of the pharmaceutical companies have been investing in all these areas since long and yet these are the very points being highlighted even in the new paradigm to meet the “Challenge of Change”. The moot question will therefore be, what have all investments in these areas achieved, so far? And why have we not been able to address the needs of the new world order focusing with these tools? More importantly, if we do not address these issues moving ‘outside the box’ and with ‘lateral thinking’ even now, one can well imagine what could the implications be in the times to come?

The future Business Model will need to different:
I believe, the underlying business model of large global organizations focused primarily on developing New Chemical/Molecular Entities (NCEs/NMEs) from initial product discovery through development and commercialization, is unlikely to continue to yield results in the new era. The issue of ‘Patent Cliff’ has already started haunting the research based companies and assuming larger dimensions day by day.
Global pharmaceutical businesses have started evolving beyond patented drugs and including generics to create more diversified and robust healthcare businesses. It is quite evident from the strategies of many larger global pharmaceutical companies that this process has already begun.

Will R&D be collaborative in nature in future?
Currently R&D cost to launch a new patented drug in the market is reported to be around US$ 1.8 – 2.0 billion with accompanying huge risk factors. Thus there is a need to re-evaluate the R&D model of the pharmaceutical companies to make it cost effective with lesser built-in risk factors.
Could there be a collaborative model for R&D, where multiple stakeholders will join hands to discover new patented molecules? In this model all involved parties would be in agreement on what will be considered as important innovations and share the risk and reward of R&D as the collaborative initiative progresses. The Translational Medicine Research Collaboration (TMRC) partnering with Pfizer and others, ‘Patent Pool’ initiative for tropical diseases of GSK and OSDD for Tuberculosis by CSIR in India are examples of steps taken towards this direction.
Surely such collaborative initiatives are not easy but they are not uncommon either, as we witness these, especially in areas like IT. So why cost effective collaborative R&D projects be not initiated to create a win-win situation for all stakeholders in the healthcare space?

Could building pharmaceutical mega brands go beyond just a product for better ROI?
Building brands involve creating equity around an entity that delivers value to the customer, over and above the key functional properties of product. Traditionally, the global pharmaceutical industry has been largely focusing on building mega product brands having specific product life cycle say about ten years, especially for patented products.

Could the core idea of building a mega pharmaceutical brand be substantially different, in future?
I reckon, yes. Instead of investing huge sums in building pharmaceutical product brands with very limited product life cycle (for patented products), a more dynamic, powerful and cost efficient brand building process could well entail focusing on the ‘Corporate franchise’ brands with a mix of both patented and generic products in different price bands for different customer segments within a specific therapy category or disease area.

So instead of consistently creating, building and watching the mega patented pharmaceutical brands grow, mature and die, pharmaceutical companies could well encash the real opportunity to build long term emotional equity into their brands, hopefully without the suffocating NPPA restrictions associated with the current product brands.

Who knows, tomorrow’s list of the world’s top mega brands will not be dominated by the likes of Lipitor, Nexium, Plavix or Advair, but perhaps by quite a different types of mega brands like for example, GSK Vaccines, Sanofi-aventis Endocrinology, Novo-Nordisk Diabetic Care, Abbott Nutrition or Pfizer Cardiac Care.

Serum Institute Vaccines could be considered as one such brand for vaccines as a category, created within the pharmaceutical arena in India, over a long period of time.

Conclusion:
It is indeed quite clear now that the pharmaceutical business models are undergoing a serious re-evaluation in the new paradigm. I get a sense that the change is inevitable due to a variety of trends that are squeezing both sales and margins, posing severe challenges towards R&D, product development, marketing and communications.

As I have deliberated, some kind of solutions are gradually emerging. However, the key questions of how profound will this change be and how well the pharmaceutical companies are prepared to counter these changes, still remain unanswered.

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.