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An Evolving Paradigm of ‘Price-Value Model’ Of Pharma Value Delivery System

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May 4, 2016 edition of the ‘MIT Technology Review’ published an interesting article carrying the headline, “The World’s Most Expensive Medicine Is a Bust”.

The obvious question that floats at the top of mind: What is this most expensive drug in the pharma history, and why has it failed commercially, despite being a product of disruptive innovation and a marvel that stands out in the space of contemporary drug innovation? 

The product is called Glybera (alipogene tiparvovec). It heralded the dawn of the “first gene therapy” in the Western world, whose approval helped ignite an explosion of investment and excitement around treatments that correct DNA, as the MIT article said.  

Glybera promises to cure rare inherited diseases with one-time repairs to a person’s DNA. A single dose of gene therapy can change the genetic instructions inside a person’s cells in ways that last many years, or even a lifetime. 

Interestingly, even with this unprecedented product offering, the product has become a commercial flop, due to its staggering million-dollar price tag, which very few patients can afford.

Is this an extreme example of price-value relationship for a new breakthrough pharma product? Yes, of course!  Nevertheless, it makes us ponder on some key fundamentals, afresh, such as:

  • The core purpose of drug innovation
  • The price-value relationship of even breakthrough drugs

The proper understanding of these points comprehensively, especially the above two fundamentals, would enable the drug companies to achieve both, the core purpose of intricate drug innovation initiatives, and also making these medicines commercially successful with increased access to patients, through innovative ‘value delivery’ mechanisms.

I believe, the pharmaceutical industry is now at the threshold of a paradigm shift. The new paradigm would signal a metamorphosis in the price-value equations for all drugs, mostly due to changing socio-political environment, across the world, as we have started witnessing in the topmost free economy of the world – the United States.

Pharma business is a ‘value delivery system’: 

Way back in June 2000, an article published in ‘McKinsey Quarterly’ on delivering value to the customers, deliberated on a 1988 paper of Michael J. Lanning and Edward G. Michaels. The study combines the value-maps developed in the price-value models with the idea of the “business system,” which was introduced in 1980.

The paper titled, “A business is a value delivery system,” emphasizes the importance of a clear, well-articulated “value proposition” for each targeted market segment. This means a simple statement of the benefits that the company intends to provide to each segment, along with the approximate price the company will charge each segment for those benefits. 

Looking at this concept in pharma perspective:

Keeping the above paper in perspective, when we look at the pharma value delivery system, besides the key benefits that a drug offers, one of the most critical value parameter continues to be the financial value.

The healthcare value chain, across the world, has started sharpening its focus on the drug cost today, more than ever before. This is primarily based on the differential value that a drug offers as compared to its closest alternatives. We may like it or not, it is happening irrespective of, whether the drug in question is a breakthrough innovation, or an off-patent high-priced generic medicine.

As I said before, not just in India, the affordability of health care in general, and medicines in particular, is rapidly emerging as a key concern for all developed and the developing nations, including the United States.

Thus, even after careful consideration of all novel product’s benefits and the costs associated with these, the stakeholders’ focus is getting sharper on the overall financial value of the product offerings to the patients. This is reality, and can’t just be wished away by any measure of powerful and expensive advocacy campaigns, together with clever media management. 

The drug companies may continue to crib about it, but this will possibly lead them nowhere, in the long term. Instead, they would require to search for a workable win-win and level headed solution, for this most fundamental business issue.

Understanding the evolving paradigm:

We are fast arriving at this new paradigm. There, the financial value of a drug, in the ‘value delivery system’ of pharma marketing, would occupy the center stage. The drug companies would need to arrive at this financial value, not just by understanding the professional mindset of the doctors and taking them on board somehow, but by properly understanding what would the majority of stakeholders want to pay for a new drug, and then perhaps work backwards to translate that finding into reality. 

Its successful application would soon assume a pivotal role in the pharma value delivery system. A company may contemplate pricing a drug high, limiting its access to a few rich, and still succeed in making its cash register ringing, such as, some new hepatitis C or cancer drugs. Nonetheless, this could ultimately make their overall business socio-politically too vulnerable, and may not be sustainable either, in the long run. 

The same old and current approach does not create a wholesome value for a new drug to most of the customers, despite the company having a state of art ‘value delivery platform’, for unleashing a dazzling marketing blitzkrieg.                                 

The pharma marketing strategy remains unchanged and stale: 

At a time, when a paradigm shift is taking place, especially in the way the entire world views at the price-value equation of a new drug, the overall strategic approach of the pharma marketers, as I see it, still remains in the old paradigm, with its roots firmly entrenched there.

I think it so, because the traditional pharma marketing has always been a unilateral communication process, predominantly involving the doctors, and trying to fathom their needs, wants and professional mindset.

Accordingly, the product value delivery process for the doctors, with or without the medical representatives, is basically woven around those needs, wants and mindsets of the target doctors. It, by and large, continues even today, with some cosmetic changes in tools and formats here or there. 

Therefore, when the basic marketing and communication process aims at effectively delivering the value of drugs, let us discuss briefly what does the core value of a drug mean?

The value of a drug: 

For this purpose, I reckon, it would be prudent to avoid an ethereal approach to arrive at the financial value of a drug, such as, what is the cost of a life, as often raised by many pharma players. A practical approach to resolve this issue would benefit all, in every way.

Without going much into the core purpose of pharma innovation, usually the drug companies define the value of a medicine based on what they think about its attributes. Accordingly, respective players arrive at its financial value, that the patients or the payers must pay for, if they want to have an access to it. 

Usually not many independent studies are conducted by the drug companies to ascertain how much the majority of stakeholders, including the governments, payers and patients, would want to willingly pay for a new drug, after well considering its value offerings.

Competitive Scenario:

The ever increasing, and virtually obsessed focus on drug ‘innovation’, while justifying the high financial value of a medicine for the patients, also restricts competition, especially for newer ones. For most of the patients this situation is a double whammy.

Additionally, the consolidation process within the industry is also fuelling this situation further. The virtual monopoly of a few companies with some new drugs, in key therapy segments, such as, diabetes, cancer, vaccines and HIV, is restricting the overall competitive environment. This would continue.

A September 24, 2014 Article, published in the ‘Insight’ of Bain & Company on the throws some light on the subject. It says, “over the past 20 years, and especially since 2000, building leadership in a category has become a crucial route to success in pharma. Seven of our 10 leading value creators, including Roche in oncology and Novo Nordisk in diabetes care, generated at least 50 percent of their revenues from one therapeutic area or primary care. In two cases – Biogen Idec in neurology and Celgene in oncology – more than 90 percent of revenues came from a single therapeutic area.”

As I said, this process is expected to continue, it is necessary for the drug companies, governments, other payers and the patients understand the new paradigm, and act accordingly to address this issue to protect mutual benefit.

If it does not happen, the evolving socio-political environment, across the world, would occupy the driver’s seat to navigate through this complexity, in the healthcare space in general and pharma in particular, safeguarding the patients’ health interest. 

The core issue:

In the prevailing scenario, the core issue that gets reinforced, yet again, as raised by many, including the World Health Organization (WHO), is the growing inherent conflict between predominantly the profit driven business goals of the pharma players, and the public health interest of a nation.

Possibly for this reason, Dr. Margaret Chan, the Director General of the World Health Organization (WHO), at a briefing to discuss the Ebola outbreak in West Africa at the UN Foundation in Washington on September 3, 2014 said:

“Big Pharma’s greed for profits, not lack of funding, delaying Ebola treatment development.” 

Many countries are now seriously striving to arrive at a middle path to resolve this perennial conflict, India included. The drug companies may wish to take note of it.

I discussed this issue in an article published in this Website titled, “Is The Core Purpose of Pharma Business Beyond Profit Making?” on November 10, 2014.

Conclusion:

As the above ‘McKinsey Quarterly’ paper articulated, the strength of the buying proposition for any customer is a function of the product value minus the price. In other words, the ‘surplus value’ that the customer will enjoy once that product is paid for. As the paper clarified, the “value” in a price-value map will necessarily be informed guesses, though after well-considering multiple variables.

Delivering more of this ‘surplus value’ to patients, willy-nilly, would soon be the name of the game, especially for the winners in both the global and local pharma industry. 

In the entire drug sector, including India, this ‘price-value model’ could help a pharma company ascertain the sustainability of its competitive position, well considering the stakeholders’ perspective, and accordingly take the right business decision.

Thus, proper understanding of the ‘surplus value model’ while pricing a drug, and its immaculate execution through state of the art marketing and communication strategies, will separate the men from the boys, for sustained excellence in the pharma business.

Sans understanding of this ‘price-value model’, which is so important in the evolving new paradigm of a pharma value delivery system, a pharma player would risk getting caught in a tough headwind, especially with new high-priced products. This situation could, in turn, jeopardize its long term success, and even erode the well-earned company reputation, in tandem, at times mercilessly.

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.

Replication of ‘Old Paradigm’ of the developed pharmaceutical markets is unlikely to yield results in the evolving new paradigm of India

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“Health leaps out of science and draws nourishment from the society around it”

- Gunnar Myrdal (Swedish Nobel Laureate Economist)

The success concoction of the global pharmaceutical industry for India, by and large, still remains to be sustained attempts in various forms of replication of the ‘Old Paradigm’ of the developed world, even when a ‘Public Health Interest’ oriented new paradigm has started evolving in the country, faster than ever before.

Very interestingly, efforts to arrest this paradigm change still continue, even when healthcare related government policies are getting more and more ‘Public Health Interest’ oriented under increasingly assertive public opinion, together with healthcare cost containment initiatives of various governments also in the OECD (Organization for Economic Co-operation and Development) countries.

Commercial and public relations strategies for replication or recreation of more or less similar business excellence environment of the developed pharmaceutical markets of the world now in India, though some may say is possible and would work, but in my view is highly improbable, at least in the foreseeable future. To be equally successful in India, creation of India centric robust and differentiated business models, broadly aligning with the new evolving paradigm of the country, could probably make more commercial sense for all concerned.

“See things as they are, not way you want them to be”:

“Maintain and sharpen your intellectual honesty so that you’re always realistic. See things as they are, not way you want them to be”, wrote the Management Guru – Mr. Ram Charan in his book titled, ‘Execution: The Discipline of Getting Things Done’ co-authored by Larry Bossidy. In the same book the authors deliberated on ‘The 10 Greatest CEOs Ever’.

One of these 10 greatest CEOs ever, George Merck of the global pharmaceutical giant Merck & Co articulated his vision for the Company way back in 1952 as follows:

“Medicine is for people, not for the profits.”

George Merck believed, the purpose of a corporation is to do something useful, and to do it well, which also ensures decent profits.

I have personally witnessed the Merck (MSD) employees to start their business presentations quoting the above famous vision, even today. George Merck’s vision, I reckon, is more relevant today than any time in the past.

In the same context, another very senior official of a global pharmaceutical major was quoted in the Harvard Business Review in its April 28, 2010 edition saying:

“As western pharmaceutical companies consider how to be successful in emerging markets, they must address two key questions:

  • How will we bring high-quality health care to patients wherever in the world they may live?
  • How do we effectively manage the transformation of the traditional pharmaceutical business model to one that meets the diverse range of needs of the emerging markets?”

He further said, “Our approach to providing patients with access to our medicines is evolving. We have extended a flexible-pricing strategy for middle-income countries to improve the affordability of our medicines and increase access for patients with lower income levels, while remaining profitable.”

Though some companies have been able to carefully pick up this important signal and strategize accordingly, many others still prefer to follow ‘their own ways’.

Increasing healthcare consumption of India attracting global players:

Along with the economic progress of India, healthcare consumption of the population of the country is also increasing at a reasonably faster pace. According to McKinsey India Report, 2007, the share of average household healthcare consumption has increased from 4 per cent in 1995 to 7 per cent in 2005 and is expected to increase to 13 per cent in 2025 with a CAGR of 9 per cent, as follows:

Share of Average Household Consumption (AHC) (%)

Household Consumption 1995 2005 E 2015 F 2025 F

CAGR %

1.

 Healthcare

4

7

9

13

9

2.

 Education & Recreation

3

5

6

9

9

3.

 Communication

1

2

3

6

12

4.

 Transportation

11

17

19

20

7

5.

 Personal Products and Services

4

8

9

11

8

6.

 Household Products

2

3

3

3

5

7.

 Housing & Utilities

14

12

12

10

5

8.

 Apparel

5

6

5

5

5

9.

 Food, Beverages & Tobacco

56

42

34

25

3

(Source; McKinsey India Report 2007)

From this study, it appears that among all common household consumption, the CAGR of ‘healthcare’ at 9 percent will be the second highest along with ‘education’ and ‘communication’ topping the growth chart at 12 percent.

As per this McKinsey study, in 2025, in terms of AHC for ‘healthcare’ (13 percent) is expected to rank third after ‘Food & Beverages’ (25 percent) and ‘transportation’ (20 percent).

Thus, AHC for ‘healthcare’ shows a significant growth potential in India, over a period of time. Hence, this important area needs to attract as much attention of the policymakers, as it is attracting the pharmaceutical players from all over the world, to help translate the potential into actual performance with requisite policy, fiscal support and incentives.

Such a scenario in the pharmaceutical space is difficult to ignore by any player with an eye for the future.

Sectoral break-up of the Healthcare Industry:

Even while looking at the sectoral break-up of the healthcare industry, the significant share of the pharmaceutical industry should be quite enticing to many global companies.

According to IDFC Securities 2010, the sectoral break-up of the US$ 40 billion healthcare industry is as follows:

Industry

%
Hospitals

50
Pharma

25
Diagnostics

10
Insurance & Medical Equipment

15

(Source: IDFC Securities Hospital Sector, November 2010)

A promising market:

Pharmaceutical market of India holds an immense future promise already being globally recognized as one of the fastest growing healthcare markets of the world. All components in the healthcare space of the country including hospital and allied services are registering sustainable decent growth, riding mainly on private investments and now fueled by various government projects, such as:

  1. National Rural Health Mission (NRHM)
  2. National Urban Health Mission (NUHM)
  3. Rashtriya Swasthya Bima Yojana (RSBY)
  4. Universal Health Coverage (UHC)
  5. Free Medicine from the Government hospitals
  6. Centralized procurement by both the Central and the State Governments

Supported by newer, both public and private initiatives, like:

  • Increase in public spending on healthcare from 1.0 per cent to 2.5 per cent of GDP in the 12th Five Year Plan period
  • Increasing participation of the private players in smaller towns and hinterland of the country
  • Wider coverage of health insurance
  • Micro-financing
  • Greater spread of telemedicine
  • More number of mobile diagnosis and surgical centers

Need to strike a right balance:

The pharmaceutical companies need to strike a right balance between ‘Public Health Interest’ and their expectations for a high margin ‘free market-like’ business policies in India.

Pharmaceuticals come under the ‘Essential Commodities Act’ in India, where government administered pricing for all drugs featuring in the ‘National List of Essential Medicines 2011’ is expected and cannot be wished away, at least, for now.

Despite all these concerns, India still remains a promising market for the pharmaceutical players, both global and local. McKinsey & Company in its report titled, “India Pharma 2020: Propelling access and acceptance realizing true potential” estimated that the Indian Pharmaceutical Market (IPM) will grow to US$ 55 billion by 2020 and the market has the potential to record a turnover of US$ 70 billion with a CAGR of 17 per cent during the same period.

Domestic Pharmaceutical Industry has come a long way:

Domestic pharmaceutical companies have positioned themselves as formidable forces to reckon with, not just locally but in the global generics market too.

Currently India:

  • Ranks 3rd in the world in terms of pharmaceutical sales volume.
  • Caters to around a quarter of the global requirements for generic drugs.
  • Meets around 70 per cent of the domestic demand for Active Pharmaceutical Ingredients (API).
  • Has the largest number of US FDA approved plant outside USA
  • Files highest number of ANDAs and DMFs
  • One of most preferred global destinations for contract research and manufacturing services (CRAMS)

Patients are still being exploited:

Unfortunate and deplorable incidences of exploitation of patients, mainly by the private players, are critical impediments to foster growth in quality healthcare consumption within the country.

In this context, ‘The Lancet’, January 11, 2011 highlighted as follows:

“Reported problems (which patients face while getting treated at a private doctor’s clinic) include unnecessary tests and procedures, rewards for referrals, lack of quality standards and irrational use of injection and drugs. Since no national regulations exist for provider standards and treatment protocols for healthcare, over diagnosis, over treatment and maltreatment are common.” 

Prevailing situation like this calls for urgent national regulations for provider-standards and treatment-protocols, at least for the common diseases in India and more importantly their stricter implementation across the country by both the global and local players.

Pharmaceutical key business processes in India are almost a ‘free-for-all’ type:

Despite many challenges and damning reports of the Indian Parliamentary Standing Committees, overall key business processes in India are something like ‘free-for-all’ types, mainly because of the following reasons:

  • No pan-India voluntary or mandatory code exists for ethical Sales and Marketing practices
  • Many regulatory controls and standards are reportedly below par
  • Regulatory control on clinical trials done in India is reportedly sub-standard. In many cases even  adequate compensation towards trial related deaths is reportedly not paid to the victims families by the companies, mostly fixing responsibilities to the ‘Ethics Committees’.

Key factors to take note of in the changing paradigm:

While looking at the big picture, the global pharmaceutical players, I reckon, should take note of the following factors while formulating their India- specific game plan to be successful in the country without moaning much:

  • At least in the short to medium term, it will be unrealistic to expect that India will be a high margin / high volume market for the pharmaceutical sector in general, unlike many other markets, across the world.
  • India will continue to remain within the ‘modest-margin’ range with marketing excellence driven volume turnover.
  • The government focus on ‘reasonably affordable drug prices’ may get extended to patented products, medical devices / equipment and other related areas, as well.
  • Although innovation will continue to be encouraged in the country, the amended Patents Act of India is ‘Public Health Interest’ oriented and different from many other countries. This situation though very challenging for many innovator companies, is unlikely to change in the foreseeable future, even under pressure of various “Free Trade Agreements (FTA)”.

Government no longer accepts that medicine prices are cheapest in India:

Pharmaceutical companies in India will be constrained to live with the 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 the Indian drug prices with international equivalents in terms of the ‘purchasing power parity’ and ‘per capita income’ and not just their prevailing prices in various developed markets converted to 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.

The above argument though interesting, worth taking note of, by all concerned to successfully chart-out their respective game plans for India.

A recent media report highlighted that an inter-ministerial group constituted for regulating prices of patented medicines in India has recommended using a per capita income-linked reference pricing mechanism for such products.

The above news item also mentions that Tarceva, a Roche lung cancer drug, costs Rs 1.21 lakh in Australia and France while it costs Rs 35,450 in India. But when adjusted for per capita income, which is significantly more in these countries compared with India, the price falls to Rs 10,309 and Rs 11,643, respectively, for both countries as indicated below:

Country India France Australia
Per capita gross national income (PCGNI) (US$) 3260 33940 38510
Ratio of PCGNI of other countries to India 1 10.4 11.8
Eriotnib (Tarceva) 100 mg price in India (Rs.) 35450 121085 121650
Eriotinib (Tarceva) 100 mg Price in terms of weighted PCGNI (Rs) 35450 11643 10309
Sunatinib (Stutent) capsule 50 mg (Rs)       46925 363216 310384
Sunatinib (Stutent) 50 mg price in terms of weighted PCGNI (Rs)              46925 34925 26303

(Source: The Economic Times, August 16, 2012)

Government encouraging R&D Focus on the diseases of the poor:

Many in India, including ‘Council of Scientific & Industrial Research (CSIR)’ feel that the pharmaceutical R&D activities should also focus on the diseases of the poor, which constitute the majority of the global population.

However, global pharmaceutical companies argue that greater focus on the development of new drugs for the diseases of the poor should not be considered as the best way to address and eradicate such diseases in the developing countries. On the contrary, strengthening basic healthcare infrastructure along with education and the means of transportation from one place to the other could improve general health of the population of the developing world quite dramatically.

The counterpoint to the above argument articulates that health infrastructure projects are certainly very essential elements of achieving longer-term health objectives of these countries, but in the near term, millions of unnecessary deaths in the developing countries can be effectively prevented by offering more innovative drugs at affordable prices to this section of the society.

Recognition of India’s healthcare priorities is important:

Despite chaos in many areas, as mentioned above, a paradigm change in the way pharmaceutical business to be conducted in India, is slowly but surely taking place, where replication of any western business model could be counterproductive. The strategy has to be India specific, accepting the priorities of the countries, even with all its ‘warts and moles’

Participative strategies should yield better results:

To achieve excellence in the pharmaceutical market of India, there is a dire need for all stakeholders to join hands with the Government, without further delay, to contribute with their global knowledge, experience and expertise to help resolving the critical issues of the healthcare sector of the nation, like:

  • Creation and modernization of healthcare infrastructure leveraging IT
  • Universal Health Coverage
  • Win-Win regulatory policies
  • Creation of employable skilled manpower
  • Innovation friendly ecosystem
  • Reasonably affordable healthcare services and medicines for the common man through a robust government procurement and delivery system

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

It is high time for the Government of India, I reckon, to reap a rich harvest from the emerging lucrative opportunities, coming both from within and the outside world in the healthcare space of the country. Effective utilization of this opportunity, in turn, will help India to align itself with the key global healthcare need of providing reasonably affordable healthcare to all.

Conclusion:

Thus in my view, just replication of the ‘Old Paradigm’ of the developed pharmaceutical markets is unlikely to yield results in the new evolving paradigm of India.

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

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.

Social Media – an evolving new-age powerful communication tool for the Pharmaceutical Industry, both global and local

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David Edelman in his article titled, “Branding in the Digital Age:You’re Spending your Money in All the Wrong Places”, published in the ‘Harvard Business Review’  dated December 2010, commented the following:

“Consumers today connect with brands in fundamentally new ways, often through media channels that are beyond manufacturers’ and retailers control. That means traditional marketing strategies must be redesigned to accord with how brand relationships have changed.”

I reckon, broadly, this is applicable to the Pharmaceutical Industry, as well, in the current scenario.

Today, we all are witnessing that the opportunities to share information within the communities and groups with effective use of social media like ‘Twitter’, ‘YouTube’, ‘Facebook’, ‘Linked-in’, blogs etc. are increasing by manifold, every passing day, with amazing speed. A very significant number of internet users across the world, are now quite actively taking part through social media in various areas of their interest.

The social networking site ‘Facebook’ claimed a few months back that it has connected over 400 million users all over the world and over 9.6 million users just in India with 20 million Indians using Internet every day. It is also interesting to note that each day about 68.5% of online population in the country visits social networking sites.

With 80% of the internet users currently searching for medical, health and product related information through cyber media, the importance of these powerful channels to engage interested stakeholders and groups in a meaningful dialogue on relevant products, services and issues, has increased by manifold. The pharmaceutical industry can no longer afford to ignore or even remain indifferent to this emerging trend.

Many global pharmaceutical majors having realized the future potential of cyber connectivity, have already started experimenting with social media, which are indeed outstanding byproducts of a disruptive innovation of the millennium, called ‘Internet’. In not too distant future, the pharmaceutical players are also expected to make the best use of social media not only to promote their products and services, but also to fulfill their obligation towards corporate social responsibilities.

The new-age marketing tool:

With more and more doctors not giving adequate time and even showing reluctance to meet the medical representatives and the important hospitals following suit, the global pharmaceutical companies are now in search of new and even more effective marketing tools.

To get the marketing communications across, to important target audiences, many of them have started experimenting, quite seriously, with the digital world. Effective networking media like ‘Facebook’ , ‘YouTube’, ‘MySpace’ and ‘Twitter’ are showing promises to become powerful online pharmaceutical marketing tools.

Global pharmaceutical companies have already started ‘testing the water’:

Examples of global pharmaceutical giants who have already started using this new age media for pharmaceutical marketing, in varying scale, are as follows:

1. Bayer uses ‘Facebook’ page to promote its Aspirin for women. For young people of the UK, suffering from diabetes, the company has also come out with an online blood glucose monitoring system.

2. Merck is using ‘Facebook’ to promote its cervical cancer vaccine, Gardasil

3. GlaxoSmithKline is using ‘YouTube’ for ‘restless-legs syndrome’ awareness film. The popularity of this video spot perhaps has prompted the company to come out with its own ‘YouTube’ channel last year with a name, ‘GSKvision’.

4. AstraZeneca is also using ‘YouTube’ for a program called ‘My Asthma Story’ related to their anti-asthma drug Symbicort.

5. Johnson & Johnson’s ‘You Tube’ channel has now over 90 videos

6. Novartis is using the social media dedicated to Chronic Myeloid Leukemia (CML) to connect to healthcare professionals, patients groups and even individual patients.

7. Recent report of Pfizer’s new RSS feed and the plan for a unique ‘Pfacebook’ site for internal communication perhaps is an important step towards this direction. The company has also been reported to have teamed up with Private Access to create a social networking website to bring clinical researchers and the patients together.

8. Boehringer Ingelheim has also started using the ‘Twitter’ since 2008

The reasons for using the social media as a marketing tool:

Social media like, ‘Facebook’, ‘Twitter’, ‘YouTube’ etc. provide a very important platform towards patients’ outreach efforts of the pharmaceutical companies exactly in a format, which will be preferred by the target group.

With the help of new-age social media these companies are now joining communities to begin a dialogue with them. It has been reported that some of these companies have already created un-branded sites like, silenceyourrooster.com or iwalkbecause.org, to foster relationship with patients’ group through online activity, the contents of which have been generated by the users themselves of the respective social medium. With the help of click-through links these sites lead to the branded sites of the concerned companies.

As reported by TNS Media Intelligence, internet media spending of the global pharmaceutical companies increased by 36% to US$137 million, in 2008, which is significantly higher than their spending in Television advertisements.

Why is the entry in the new-age social media so slow?

Pharmaceutical companies are currently delving into marketing through cyber media with a very cautious approach, though the new social media will become more central to many global marketing strategies in not too distant future. The cautious approach by the pharmaceutical companies is primarily due to evolving regulatory requirements in this new space

In the USA, very recently the FDA cautioned the major players in the industry to refrain them from publishing any misleading communication through social media. This is primarily because of absence of any published guidelines for online pharmaceutical marketing. How to use this powerful social media for maximum marketing and other benefits will indeed be quite a challenging task, at this stage. Many pharmaceutical companies are, therefore, slow to use the social media to the fullest extent.

Not only in India, even in the developed countries like, the USA, there are no specific regulatory guidelines to promote pharmaceutical brands or create brand awareness through these media. This scenario holds good for most of the countries of the world, including Europe, Japan. Thus, in this much uncharted territory, as there are not enough foot-steps follow, the pharmaceutical companies are currently just ‘testing the water’. Most probably to fathom how far regulatory authorities will allow them to explore with this new media.

Effective use of social media is expected to be financially attractive:

Low costs associated with creating internet promotional inputs will make social media quite attractive to pharmaceutical and bio-pharma companies, not only as an effective marketing tool, but also in their other outreach program for the stakeholders. Various types of social media are expected to be significantly cost-effective in creating and executing successful pharmaceutical brand awareness and brand marketing campaigns, aiming at well-defined and the specific target groups.

Use of social media in India:

In India though the social media are currently growing at around 35% annually, their overall utilization as an important marketing tool has remained rather limited, thus far, with practically no significant usage by the Indian pharmaceutical industry. I reckon, it is about time that the important pharmaceutical players in the country start creating their own network of loyalists and engage them with this important communication tool to meaningful dialogues, involving their respective brands and/or services and related issues.

‘Proof of the pudding is in the eating’:

A recent report indicates that in 2007, well reputed computer maker Dell’s ‘Twitter’ activity brought in US$ half-million in new business to the company.

Thus the innovative use of the new-age social cyber-media promises immense potential to open a goldmine of opportunities for the global pharmaceutical industry.

Conclusion:

I reckon, the use of social media as an effective business communication tool, will start growing at a scorching pace in India, shortly.

Some large and even Small and Medium Enterprises (SMEs) have just initiated appropriate processes towards ‘Social Media Optimization’ involving their respective brands and related services. This is primarily aimed at improving awareness and increasing market share through significantly higher share of voice and more intense customer engagement.

With rapid increase in the numbers of such initiatives, there will probably be a sea change in the way stakeholder engagement plans are worked out by the industry in general and the pharmaceutical industry in particular, ushering a new dawn in the communication space of the business.

At the same time, we should realize that in this new ball game customers will really be the king and the quality of innovative usage of all powerful social media could well draw the decisive line between business communication success and failure.

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.

‘Medical Outsourcing’ – a fast evolving area in the healthcare space with high business potential.

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Medical outsourcing is an evolving area in the global healthcare space. It can offer immense opportunity to India, if explored appropriatly with a carefully worked out strategic game plan from the very nascent stage of its evolution process. This sector could indeed be a high potential one in terms of its significant financial attractiveness by 2015.
Key components of medical outsourcing:

The following four basic components constitute the medical outsourcing industry:

• Healthcare providers: Hospitals, mainly corporate hospitals and doctors

• Payer: Medical/ Health insurance companies

• Pharmaceutical Companies

• IT companies operating in the healthcare space

So far as payers are concerned, currently they are primarily involved in the data entry work, the present market of which in India is estimated to be around U.S$ 100 million.

Key drivers and barriers for growth:

The world class cost-effective private sector healthcare services are expected to drive the growth of the medical outsourcing sector in India. However, shortages in the talent pool and inadequate infrastructure like roads, airports and power could pose to be the major barriers to growth.

At present, majority of medical outsourcing is done by the US followed by the UK and the Gulf countries.

How is this market growing?

Medical Tourism, by itself, is not a very recent phenomenon all over the world. Not so long ago for various types of non-essential interventions like, cosmetic surgeries, people from the developed world used to look for cheaper destinations with relatively decent healthcare facilities like, India, Thailand etc.

Now with the spiraling increase in the cost of healthcare, many people from the developed world, besides those who are underinsured or uninsured have started looking for similar destinations for even very essential medical treatments like cardiac bypass surgery, knee replacement, heap bone replacements, liver and kidney transplants, to name just a few.

Significant cost advantage in India with world class care:

It has been reported that for a cardiac bypass surgery, a patient from abroad will require to pay just around U.S$ 10,000 in India, when the same will cost not less than around U.S$ 130,000 in the US. These patients not only get world class healthcare services, but also are offered to stay in high-end ‘luxury’ hospitals fully equipped with the latest television set, refrigerator and even in some cases a personal computer. All these are specially designed to cater to the needs of such groups of patients.

Recently ‘The Washington Post’ reported that the mortality rate after a cardiac bypass surgery is better in Indian private hospitals than their equivalents in the USA.

An irony:

It is indeed an irony that while such private hospitals in India are equipped to provide world class healthcare facilities for their medical outsourcing business and also to the rich and super rich Indians, around 65 percent of Indian population still does not have access to affordable modern medicines in the country.

Is the government indirectly funding the private medical outsourcing services in India?

In India, from around 1990, the government, to a great extent, changed its role from ‘healthcare provider’ to ‘healthcare facilitator’. As a result private healthcare facilities started receiving various types of government support and incentives (Sengupta, Amit and Samiran Nundy, “The Private Health Sector in India,” The British Journal of Medical Ethics 331 (2005): 1157-58).

While availing medical outsourcing services in India, the overseas patients although are paying for the services that they are availing from the private hospitals, such payments, it has been reported, only partially fund the private hospitals. If such is the case, then the question that we need to answer: Are these medical tourists also sharing the resources and benefits earmarked for the Indian nationals?

Conclusion:

Due to global economic meltdown many business houses in the developed world are under a serious cost containment pressure, which includes the medical expenses for their employees. Such cost pressure prompts them to send their employees to low cost destinations for treatment, without compromising on the quality of their healthcare needs.

Other countries in quite close proximity to ours like, Thailand, Singapore and Malaysia are offering tough competition to India in the medical outsourcing space. However, superior healthcare services with a significant cost advantage at world class and internationally accredited facilities, treated by foreign qualified doctors, supported by English speaking support staff and equipped with better healthcare related IT services, will only accelerate this trend in favor of India. In this ball game it surely is, ‘Advantage India’.

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.

Contract Research – a rapidly evolving business opportunity in India: Is the Pharmaceutical Industry making the best use of it?

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A quick perspective of the ‘new-era’ pharmaceutical R&D in India:
Since 1970 up until 2005, Indian pharmaceutical industry used to be considered as the industry of ‘reverse engineering’ and that too with an underlying disparaging tone… and also as the industry of ‘copycat’ medicines’.

However, it will be absolutely unfair on my part to comment that only domestic Indian pharmaceutical companies launched ‘copycat’ versions of patented products in India and no multinational companies (MNCs) resorted to this practice, during this period.

Long before Indian Product Patent regime was put in place, in January 1, 2005, around 1998/99 Dr. Reddy’s Laboratories (DRL) entered into a bilateral agreement with Novo Nordisk and Ranbaxy with Bayer of Germany to out-license two New Chemical Entities (NCEs) and a New Drug Delivery System (NDDS), respectively for further development.

Opened the new vistas of opportunities:

These research initiatives opened the new vistas of opportunities for the Indian pharmaceutical industry in terms of R&D, in the pharmaceutical science. The above new developments also brought in a sense of determination within the research oriented domestic pharmaceutical players to enter into the big ticket game of the global pharmaceutical industry called ‘product discovery research’.

The jubilation of the industry having demonstrated its initial capability of taking a leap into forthcoming new paradigm of that time, received a set back momentarily when Novo Nordisk terminated the development of both the NCEs of DRL, after a couple of years, because of scientific reasons. However, DRL continued to move on to its chosen path, undeterred by the initial set back.

Need to focus on R&D and create world class ‘Intellectual Properties’:

In a letter addressed to the shareholders of DRL in one of its recent annual reports, the founder and the chairman of the company Dr. Anji Reddy expressed his following vision:

“Excelling in the basic business operations will be necessary, but not sufficient. To maintain a long-term presence in the global pharmaceuticals markets and to grow profitably will require companies to be even more focused on R&D and creation of successful IPR’s [intellectual property rights].”

After India signed the World Trade Organization (WTO) agreement, Indian pharmaceutical companies were quick to make out that the ball game of doing pharmaceutical business in the new IPR regime will be quite different. Having pharmaceutical product patents will indeed be important in future, for the domestic R&D based pharmaceutical companies.

The Past versus Present R&D models in India:

Domestic research based pharmaceutical companies did realize in the early days that a radical shift in their focus from ‘process research’ to ‘product discovery research’ may not be prudent or practical either.

Some of these companies initiated step-wise approach from mid 90’s to meet the challenge of change, come year 2005. During the transition period of 10 years as given by the WTO to India from 1995 to 2005, some domestic companies wanted to make full use of their past R&D model.

The past model:

Before the product patent regime, Indian pharmaceutical companies used to manufacture and market generic equivalents of the patented drugs at a fraction of the price of the originators, with non-infringing process technology in the Indian domestic market and also for export to the other non-regulated markets. During the WTO transition period of 10 years, they increased the pace of utilization of this model and launched as many ‘copycat’ versions of the new products as possible to boost up their sales and profit.

The present model for regulated markets:

Following two strategies are followed:

1. Indian companies doing generic business in the regulated markets like the USA submit
“Abbreviated New Drug Application” (ANDA) to the drug regulator for approvals of drugs,
which will go off patent within the next few years, so that the generic products could be launched
immediately after patent expiry.

2. Many other companies follow the second avenue, simultaneously, which is though risky but very
remunerative. In this case, the generic market entry takes place by challenging the patents of the
innovators.

It is believed that this model is being used by the Indian pharmaceutical companies, primarily to raise financial resources to get more engaged in their drug discovery initiatives or to generate wherewithal for collaborative or contract research initiatives.

For short term business growth and to raise fund for discovery research, their non-infringing process research initiatives have been proved to be quite useful. These R&D based Indian pharmaceutical companies; seem to understand very well that discovery of NCEs/NMEs or getting involved in this process will ultimately be ‘the name of the game’ to fuel longer term business growth of their respective organizations.

Contract Research (CR) in India:

Contract research is another business model within the overall R&D space, where a significant part of the investments come from the collaborators. CR business model currently explore the following two key options:

Intellectual Property Rights (IPR) for the discovery will go to the global collabolator and the
Indian CR organization will get an upfront or milestone payments.

 Along with funding support to the CR organization, IPR is shared by both the companies
depending on the terms of agreement.

There could be many other terms/clauses in such CR agreements, which are not within the scope of this discussion.

Types of Contract Research (CR):

Frost & Sullivan in one of their studies on Indian R&D opportunities indicated following three models of contract research:

1. Joint research: Here two or more collaborators will work jointly

2. Collaborative research: In this type of research, scientists of different disciplines work together on a project e.g. Ranbaxy has recently entered into a collaborative research program with GlaxoSmithKline (GSK) or collaboration of Ranbaxy to develop an anti-malarial NCE Rbx 11160 with Medicines for Malaria Venture (MMV), Geneva.

3. Complete outsourcing: When an altogether different research organization is assigned a research project by another organization. Some Indian research based pharmaceutical companies have already got engaged in these types contract research activities. The market of contract research is expected to grow much faster in the near future.

India – an attractive contract research destination:

A global survey done by the Economist Intelligence Unit (EIU) couple of years ago on the preferred centres for overseas contract research, published as follows:

• 39% preference for China

• 28% preference for India

Attractiveness as preferred contract research center was based on the following criteria:

• A place where companies can tap into existing networks of scientific and technical expertise

• Has good links to academic research facilities

• Provides an environment where innovation is supported and easy to commercialize.

Many global pharmaceutical companies believe that China scores over India on the third point, as mentioned above.

Indian pharmaceutical companies have commenced targeting contract research opportunities:

Research based Indian pharmaceutical companies companies like, Piramal Healthcare, Ranbaxy, DRL, Zydus Cadilla, Glenmark etc are now actively targeting international companies for contract research in custom synthesis, medicinal chemistry and clinical studies.

A medium-sized pharma company Shasun Chemicals and Drugs has been reported to have defined its business as an “integrated research and manufacturing solutions provider”. Similarly Divi’s Laboratories, a pharmaceutical company of similar size has collaborated with global multinational companies for both custom synthesis and contract research projects.

Some international CROs, like Quintiles have its establishments in Ahmedabad, Bangalore and Mumbai with great expectations and a robust business model.

New contract research opportunities in Biopharmaceuticals:

Besides pure pharmaceutical companies, an emerging opportunity is seen within the biotech companies in India, which are mostly engaged in a contract model. Novartis has inked a three year deal with Synergene (Biocon) for various research projects primarily in the early stages of development in cardiovascular and oncology therapy areas.

Likewise, Reliance Life Sciences are involved in chemistry, biology and contract clinical research activities.

Another research process outsourcing company, Avesthagen is engaged in collaborative research in metabolics, proteomics, genomics and sequencing. The company shares the IPR with the collaborators.

Jubilant Biosys of India, which has already partnered in a drug development deal with Eli Lilly has recently entered into another research and development deal with AstraZeneca, estimated to be worth up to US$220 million. This research collaboration will be funded by AstraZeneca for five years and they will own the patent of any neuroscience molecule that will come out of this collaborative agreement.

Contract research – a lucrative business model:

A UBS Warburg study indicated that around 20% to 25% of R&D investments in the US go towards contract research. This percentage is expected to increase as the pressure to contain R&D expenses keeps mounting, especially in the US and EU.

Currently the cost of bringing an NCE/NME to market from its R&D stage is estimated to be around US$ 1.7 billion. Across the world efforts are being generated to bring down these mounting expenses towards R&D.

Many experts believe that cost of innovation in India will be almost half of what it will be in the US and EU. A report from Zinnov Management Consulting forecasts that towards outsourcing by the global pharmaceutical companies, India has the potential to earn about US$2.5 billion by 2012.

Conclusion:

Currently, within CR space India is globally considered as a more mature venue for chemistry related drug-discovery activities than China. However, in biotech space China is ahead of India. Probably, because of this reason, companies like, Divi’s Laboratories, Avesthagen, Ranbaxy, Synergene, Jubilant Biosys, Reliance Life Science, DRL, Zydus Cadilla, Glenmark and Piramal Healthcare could enter into long-term collaborative arrangements with Multinational Companies (MNC)to discover and develop New Chemical Entities (NCEs).

As I said earlier quoting Korn/Ferry that in the CR space China’s infrastructure is better than India, primarily due to firm commitment of the Chinese government to derive maximum benefits of the globalization process in the country.

Prudent policy reforms and other measures as expected from the new UPA Government will hopefully help bridging the gap between the Chinese and Indian pharmaceutical industry in the space of overall CR business including biotechnology, as Indian R&D based pharmaceutical companies will start realizing and encashing the potential of this important business model.

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.