Just 16% Of Indian Population Has Access To Free Or Partially-Free Health Care?

Posted on October 5, 2015 by Tapan Ray

Is health care currently a low priority area for the Government of India? Probably yes, and thus it is worth trying to fathom it out.

Besides planned frugal spending on overall public health in 2015-16, even as compared to the past trend, two other health related budgetary decisions of the Government are indeed baffling, at the very least.

As many of you, I too know that the incumbent Government in its first full-year budget of 2015-16 has sharply reduced the budgetary allocation on many important health related other projects, such as:

- Union budget allocation for the National Rural Drinking Water Program (NRDWP) that aims at providing safe drinking water to 20,000 villages and hamlets across India, has been drastically reduced this year. Curiously, this decision has been taken at a time, when India loses 200 million person days and Rs 36,600 crore every year due to water-related diseases.

- The Integrated Child Development Services (ICDS) scheme, which provides food, preschool education, and primary health care to children under 6 years of age and their mothers, has also been hit by a 54.19 percent budget cut this year. This decision too of cutting public expenditure on food, nutrition and health care for children to more than half, defies any logic, especially when 40 percent of growth stunted children in the world are reportedly from India, exceeding the number of even sub-Saharan Africa.

I hasten to add that the Union budget 2015-16 has indicated, as the states’ share in the net proceeds of the union tax revenues has increased, as per recommendations of the 14th Finance Commission, these central Government programs will now be run with a changed funding pattern between the Union and states. However, according to financial experts in these areas, regardless of devolution, the total money available to run these critical projects is sharply decreasing.

That said, on the other pages of the same Union Budget, public funding in the current fiscal year for bridges and roads has more than doubled. The budgetary allocation for these two areas now stands more than even education.

I deliberated on similar subject of access to health care in my blog of March 16, 2015, titled, “With Frugal Public Resource Allocation Quo Vadis Healthcare in India?”

Health care sector is important for job creation too:

According to the World Health Organization (WHO), health care sector is one of the largest job creators, not just in India, but globally. Thus, Indian health care industry being one of the fastest growing industrial turf in the country with a reasonable base, deserves a sharper focus of the Government.

Additionally, the socio-economic benefits that this sector provides in creating a sustainable, healthy and highly productive work force, has been well documented and can’t just be wished away, in any case.

The neglect is intriguing:

Currently, total healthcare spend of India is no more than 4.2 percent of the GDP with public spending being just 1.2 percent of it. Other BRICS nations are way ahead of India, in this area too. To set a direction on country’s public healthcare spend, breaking the jinx of a long period of time, the draft National Health Policy 2015 of the Government aimed at initial increase in health expenditure to 2 percent of the GDP.

As a result of the legacy of neglect over a long period of time, which continues albeit more blatantly even today, only 16 percent of the Indian population declares today that they have access to free or partially-free health care. I shall dwell on this area subsequently in this article.

Keeping these in perspective, it was intriguing, when the union budgetary allocation for health care in 2015-16 was kept at Rs. 297 billion or U$4.81 billion for its main health department, almost the same outlay as in the previous budget.

When compared against public fund allocations, such as, US$ 93 billion for highway projects or US$ 7.53 billion for 100 smart cities in the country, one will get a realistic perspective of this meager health budget allocation, in terms of effectively addressing the health care needs of around 1.25 billion people of India. Over 70 percent of this population live in the hinterland.

Agreed that the Government focus on these ‘infrastructure projects’ are not unimportant by any means. Nevertheless, the above comparison only highlights how much priority the Government assigns to the health care sector of India and for the health of its citizens. This issue assumes even greater significance in combating several challenging health situations, such as, ongoing fight against increasing incidence of life-long chronic ailments and deadly life-threatening diseases like, cancer, fueling already high rate of morbidity and mortality in the high country.

A quick glimpse on a few outcomes of neglect:

The Working Paper No. 1184 dated January 8, 2015, titled “Improving Health Outcomes And Health Care In India” of the Organization for Economic Co-operation and Development (OECD), highlights some interesting points, as follows:

Chronic diseases are the biggest causes of death and disability accounting for 50 percent of deaths, with cardiovascular diseases and diabetes, respiratory conditions and cancers figuring most prominently.

Preventive interventions such as improving access to a clean water supply, reducing the spread of HIV/AIDS through better sexual education, and vaccination campaigns for other diseases will each deliver more significant returns in life years.

Vaccination rates for diphtheria, tetanus and pertussis, for measles and for hepatitis B are all much lower than in OECD and peer countries.

Minimal access to free or partially-free health care.

It is an irony that ‘life expectancy’ in India still remains well below the countries at a similar level of development.

Abysmal overall hygienic conditions:

The OECD survey brings to the fore abysmal hygienic conditions still prevailing in India. It can only be improved through active intervention of the Government with necessary budgetary allocations, sans photo ops for some celebrities and most politicians. Sincere support and participation of the civil society and intelligentsia, in general, are also equally important.

The paper underscores, among others, the following extremely unhygienic conditions still prevailing both in urban and rural India:

Most households in rural India do not defecate in a toilet or latrine, which leads to infant and child diseases (such as diarrhea) and can account for much of the variation in average child height. Even today the sight of poor children defecating openly in the streets, that too in a city like Mumbai, is also not very uncommon.

The burning of solid fuels in particular (undertaken by more than 80 percent of the population in cooking) is a major risk factor behind ischemic heart disease, lower-respiratory tract infections and chronic obstructive pulmonary diseases and could also increase cataracts and stroke.

Exposure to air pollution is a significant problem.

Many of the poor continue to smoke heavily.

11 of the lowest income quintile did not undertake sufficient physical activity, compared with 16 percent in the highest income quintile.

India provides minimal access to free or partially-free health care:

As I mentioned above, India provides minimal access to free or partially-free healthcare to its citizens, as compared to all the BRICS nations, many other countries in South East Asia and even in Africa.

The above OECD paper states that with poor health intertwined with poverty, the greatest gains lie with policies that address the social conditions which enable combating communicable and non-communicable diseases.

Among BRICS countries, India provides least access to ‘Free or Partially-Free Health Care’ Services to its general population. This is despite being the largest democracy in the world, which is now striving hard to emerge as an economic and military superpowers.

The following study shows that only 16 percent of the Indian population declares having access to free or partially-free health care from the government:

BRICS Countries	% surveyed said ‘Yes’ to the question: “Does your household have access to free or partially free health care from the State”
India	16
Brazil	24
China	73
Russia	96
South Africa	62

Source: Credit Suisse Research Institute, Emerging Consumer Survey Databook 2014.

As the OECD paper states, in this study approximately 1500 respondents were surveyed in each country, with India and China both having larger sample size of 2500. The male-to-female split between respondents was roughly 50:50 in all cases with rural-to-urban split varying by country.

Poor satisfaction level with existing health care services:

This is very important; as public facilities are the predominant source of qualified health professionals in rural areas where much of the Indian poor reside. In addition, significant population growth is occurring in urban slums, where urban public health care facilities are struggling to provide basic services. In a situation like this, slum dwellers face challenging economic barriers to accessing expensive private health care services (MoHFW, 2012).

The OECD survey indicates that 41 percent of those in rural areas and 45 percent in urban areas were not satisfied with treatment by their doctors or facility.

The reason attributed to this dissatisfaction are as follows:

Distance was cited by 21 percent of people in rural areas and 14 percent in urban areas.

Public health care centers remain closed more than half the time and lack basic medical supplies, such as stethoscopes and blood pressure scales.

Non-availability of required services was cited by 30 percent of people in rural areas and 26 percent in urban areas.

This is quite credible, as according to the Government’s own estimates:

- 10 percent of primary health care centers are without a doctor

- 37 percent are without a laboratory technician

- 25 percent without a pharmacist (MoHFW, 2012)

The above picture is quite consistent with large scale surveys in poor communities of India, by OECD.

Health care business for up market is booming:

Growing inequitable distribution of healthcare products and services is now wide open and blatant, more than ever before. There is no signal yet that the Government would soon consider health care sector as its one of the key focus areas, along with education, just as infrastructure, such as, building roads, highways, e-highways, flyovers, bridges and smart cities.

For up-market patients, the private sector is creating world class facilities in India. We can see today a good number of ‘five-star’ hospitals, with more number of newer ones coming up offering jaw-dropping facilities, quite akin to, may be even surpassing what are being offered for patients’ luxurious comfort in the developed world. Although these facilities cost a fortune, one would usually need to be in a queue to get admitted there for any medical or surgical treatment.

Most of these hospitals are now in high demand for ‘medical tourism’. According to available reports India currently caters to health care needs of over 200,000 foreign patients. ‘Medical tourism’ business reportedly fetched around US$ 2 billion to India in 2012.

On the flip side of it, as we all read in the recent media reports, some of these hospitals in Delhi refused admission even to seriously ill dengue patients, as they can’t afford such facilities. A few of these patients ultimately succumbed to the disease and the parents of one such poor child, who died without any hospital treatment in that process, committed suicide unable to withstand the irreparable and tragic loss.

Giving ‘Infrastructure Status’ to health care sector:

When creating basic infrastructure is the priority area of the present Government for financial resource allocation, why not give ‘infrastructure status’ to the health care sector now? This is not just for the heck of it, but purely based on merit and earlier detail evaluation by a Government Committee of experts.

To address the critical health care needs for the vast Indian population with appropriate infrastructure, quality products, services and manpower, providing ‘infrastructure status’ to the health care sector could facilitate the whole process. Additionally, it can transform the Indian healthcare sector as one of the biggest job-generating industry too.

This has been a key demand of the industry until recently, though not so much being talked about it today. A few years back, the previous Government was reportedly mulling to assign full fledged infrastructure status to the healthcare sector, as it merits inclusion in the category of ‘infrastructure’, satisfying all the nine criteria set by the erstwhile Rangarajan Committee.

I find in my archive, the Confederation of Indian Industry (CII) also demanded ‘infrastructure status’ for the health care sector in its pre-union budget memorandum for 2010-11. In that proposal CII had estimated that health care industry in India requires an investment of around US$80 billion, whereas in the current fiscal year the public expenditure on health still languishes at U$4.81 billion.

This specific issue seems to have taken a back seat today, for reasons not known to me. However, it is interesting to note that not just the Government apathy, no such demand is being made today by the large multi-industry trade associations of India, as vociferously as we witness, for example, in the case of ‘The Goods and Service Tax (GST) Bill’.

Health care debate is not to the fore today:

Critical health care issues of the country don’t seem to be in the fore front today for comprehensive debates even for the Indian main stream media, to influence the government.

We have been experiencing for quite while that Indian media, including social media, in general, usually goes ballistic 24×7 mostly with selective sensational topics. These may include, among others…glitzy events on Government’s high profile advocacy initiatives to attract more Foreign Direct Investment (FDI) from large overseas companies…Or back home some unfortunate and tragic Dengue fever related deaths due to negligence just in Delhi, though the same and equally grave incidences taking place in the other states of India, are hardly getting any coverage…Or on some high profile alleged murder pot-boilers announcing media verdict conclusively, even before completion of police investigation and charge-sheet being filed in a court of law.

These are probably neither bad, nor unimportant, nor avoidable, nor can come within the ambit of any media criticism. I am also not trying to do that, either.

As the saying goes, variety is the spice of life. We, therefore, generally want to get a feel of it everyday early in the morning, mostly glancing through the newspaper headlines, or in the late evening watching impatient anchor with strong personal opinion trying hard to dominate over all other participants in high-decibel ‘TV debates’, as these are called by the respective channels.

In an era of sensationalized and eye-ball grabbing ‘Breaking News’ of all kinds, flashing everywhere almost every now and then, critical health care issues seem to have become a mundane subject to the newsmakers for any meaningful debate to influence the Government. Serious debates on critical health care issues presumably would not generate all important Television Rating Points (TRPs) to the TV channel owners. Though I have no idea, the TRP of such debates probably has been estimated to be even lesser as compared to the cacophony aired by the TV channels on the cost to exchequer for the MPs subsidized meals in the Indian Parliament…with intermittent high pitch ‘war cry’ of the dominating anchor… ‘the nation wants to know this’.

Conclusion:

Be that as it may, health care environment impacts all of us, quite appreciably. There is not even an iota of doubt on it. However, we can feel it mostly when the reality hits us or our families hard…very hard, as serious and cruel ailments strike suddenly, or as we face avoidable disease related deaths of our near and dear ones, or when illness makes a loving one virtually incapacitated, even after facing financial bankruptcy.

Health care is a serious matter for all of us, just as it is a serious and critical business for every nation and every Government. This criticality factor is independent of whatever level of economic development the country is aspiring for. Thus, the indifference of the Indian Government, if I may say so, despite promising so much on health care earlier this year, is intriguing, and more so, when just 16 percent of the total population has access to free or partially-free health care in our India of the 21^st century.

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.

“Make in India…Sell Anywhere in The World”: An Indian Pharma Perspective

Posted on September 29, 2014 by Tapan Ray

In his Independent Day speech from the ramparts of the Red Fort on August 15, 2014, Indian Prime Minister Modi gave a clarion call to all investors of the world, “Come, make in India”, “Come, manufacture in India”, “Sell in any country of the world, but manufacture here”.

The Prime Minister did not stop there. In his inimitable style, following it through on September 25, 2014 he gave an official status to ‘Make in India’ slogan and launched a global campaign.

“My definition of FDI for the people of India is First Develop India. This is also a responsibility for the people of India,” he further clarified.

An Indian perspective:

If I juxtapose this vision of the Prime Minister in the Indian pharmaceutical industry perspective, one finds that many small, medium and large size local domestic manufacturers are currently manufacturing drugs not just for the domestic market, but are also exporting in large quantities to various countries of the world, including, North America, South America and Europe.

The United States (US) is one of the most critical markets for majority of the Indian drug exporters. This transaction was taking place without any major regulatory hitches since quite some time. Unfortunately, over the last few years, mostly the Federal Drug Administration of the US (USFDA) and the United Kingdom (UK)’s Medicines and Healthcare Products Regulatory Agency (MHRA) have started raising serious doubts on the quality of medicines manufactured in India, making a significant impact on the drug exports of the country.

Most of these quality issues are related to ‘Data Integrity’ in the dug manufacturing and its documentation processes.

The impact:

According to industry data, in 2013-14, Indian drug exports registered the slowest growth in nearly the last 15 years. In this fiscal year, pharma exports of the country with a turnover of US$ 14.84 billion grew at a meager 1.2 percent. Pharmexcil attributed its reason to USFDA related regulatory issues and increasing global competition.

US accounts for about 25 percent of India’s pharma exports and its Federal Drug Administration (USFDA) has been expressing, since quite a while, serious concerns on ‘Data Integrity’ at the agency’s previously approved production facilities of a large number of Indian pharma players.

The issue is causing not just a serious concern to USFDA and some other overseas drug regulatory agencies, but also posing a huge threat to future growth potential of Indian drug exports.

It is worth noting that Indian government had set an objective, in its strategy document, to register a turnover of US$ 25 billion for pharma exports in 2014-15. In all probability, it would fall far short of this target at the end of this fiscal, predominantly for related reasons.

Why is so much of ‘fuss’ on ‘Data Integrity’?

Broadly speaking, ‘Data Integrity’ in pharmaceutical manufacturing ensures that finished products meet pre-established specifications, such as, for purity, potency, stability and sterility. If data integrity is breached in any manner or in absence of credible data, the product becomes of dubious quality in the eyes of drug regulators.

Manufacturing related ‘Data Integrity’ is usually breached, when data from a database is deliberately or otherwise modified or destroyed or even cooked.

Over the last several years, ‘Data Integrity’ related issues in India are attracting enormous attention of both the USFDA and the MHRA, UK. As a result, concerned pharma manufacturing facilities are receiving Import Alerts/Warning Letters from the respective overseas drug regulators, refusing entry of those medicines mostly in the United States and some in the UK.

Recent warning letters:

Just over a year – from May 2013 to July 2014, around a dozen ‘Warning Letters’ have been sent to the Indian drug manufacturers by the USFDA on ‘Data Integrity’ related issue, as follows:

	Recent ‘Warning Letter’ issued to:	Date of issue
1.	Marck Biosciences Ltd.	08. 07. 2014
2.	Apotex Pharmachem India Pvt Ltd.	17. 06. 2014
3.	Sun Pharmaceutical Industries	07. 05. 2014
4.	Canton Laboratories Private Limited	27. 02. 2014
5.	USV Limited	06. 02. 2014
6.	Wockhardt Limited	25. 11. 2013
7.	Agila Specialties Private Limited	09. 09. 2013
8.	Posh Chemicals Private Limited	02. 08. 2013
9.	Aarti Drugs Limited	30. 07. 2013
10.	Wockhardt Limited	18. 07. 2013
11.	Fresenius Kabi Oncology Ltd	01. 07. 2013
12.	RPG Life Sciences Limited	28. 05. 2013

(Source: RAPS, 19 August 2014)

Another report states that USFDA has, so far, banned at least 36 manufacturing plants in India from selling products in the US.

Importance of US for Indian generic players:

Generic drugs currently contribute over 80 percent of prescriptions written in the US. Around 40 percent of prescriptions and Over The Counter (OTC) drugs that are sold there, come from India. Almost all of these are cheaper generic versions of patent expired drugs. Hence, India’s commercial stake in this area is indeed mind-boggling.

The ‘Data Integrity’ issue is not restricted to just US or UK:

A report quoting researchers led by Roger Bate, an American Enterprise Institute scholar and funded by the The Legatum Institute and the Humanities Research Council of Canada, concluded that many Indian pharma companies follow double manufacturing standards, as they are sending poor quality drugs to Africa compared to the same pills sold in other countries. This study was based on tests of 1,470 samples produced by 17 Indian drug manufacturers.

Besides India, the researchers took drug samples from pharmacies in Africa and middle-income countries, including China, Russia and Brazil.

According to this paper, the researchers found that 17.5 percent of samples of the tuberculosis therapy rifampicin sold in Africa tested substandard, which means the drug has less than 80 percent of the active ingredient than what it should otherwise. Against this number, in India, 7.8 percent of the medicine sampled was found substandard.

Moreover, Almost 9 percent of samples of the widely used antibiotic ciprofloxacin sold in Africa tested substandard, as compared to 3.3 percent in India.

Thorny issues around golden opportunities:

Much reported breach in manufacturing ‘Data Integrity’ detected at the manufacturing sites in India, are throwing fresh doubts on the efficacy and safety profile of generic/branded generic medicines, in general, produced in the country and more importantly, whether they are putting the patients’ health at risk.

A new analysis by the U.S. National Bureau of Economic Research pointed out some thorny issues related to ‘Data Integrity’ of drugs produced by the Indian pharmaceutical companies, which supply around 40 percent of the generic drugs sold in the United States, as stated above.

The researchers examined nearly 1,500 India-made drug samples, collected from 22 cities and found that “up to 10 percent of some medications contained insufficient levels of the key active ingredients or concentrations so low, in fact, that they would not be effective against the diseases they’re designed to treat.”

The report also highlighted that international regulators detected more than 1,600 errors in 15 drug applications submitted by Ranbaxy. The Bureau Officials commented that these pills were “potentially unsafe and illegal to sell.”

Frequent drug recalls by Indian pharma majors:

The above findings came in tandem with a series of drug recalls made recently by the Indian pharma companies in the US.

Some of the reported recent drug recalls in America, arising out of manufacturing related issues at the facilities of two well-known Indian pharma majors, which are going to merge soon, are as follows:

Sun Pharmaceuticals recalled nearly 400,000 bottles of the decongestant cetirizine (Zyrtec) and 251,882 of the antidepressant venlafaxine (Effexor) this May, because the pills failed to dissolve properly. The drugs were distributed by the drug maker’s US subsidiary Caraco Pharmaceutical Laboratories, but were manufactured in India.

In the same month – May, Ranbaxy recalled 30,000 packs of the allergy drugs loratadine and pseudo-ephedrine sulphate extended release tablets because of manufacturing defects in packaging.

In March, Sun Pharma recalled a batch of a generic diabetes drug bound for the US after an epilepsy drug was found in it. A patient discovered the error after noticing the wrong medication in the drug bottle.

Again in March, Ranbaxy recalled nearly 65,000 bottles of the statin drug atorvastatin calcium (Lipitor) after 20-milligram tablets were found in sealed bottles marked 10-milligrams. A pharmacist in the U.S. discovered the mix up.

Indian media reinforces the point:

Indian media (TNN) also reported that there is no quality control even for life-saving generic drugs and the government is apathetic on ensuring that the quality protocol of these drugs is properly observed.

This happens, as the report states, despite government’s efforts to push generic drugs, as they are more affordable. The report gave an example of a life-saving drug, Liposomal Amphotericin B, which is used to treat fungal infections in critically ill patients.

Are all these drugs safe enough for Indian Patients?

Though sounds awkward, it is a fact that India is a country where ‘export quality’ attracts a premium. Unintentionally though, with this attitude, we indirectly accept that Indian product quality for domestic consumption is not as good.

Unfortunately, in the recent years, increasing number of even ‘export quality’ drug manufacturing units in India are being seriously questioned, warned and banned by the overseas drug regulators, such as USFDA and MHRA, UK, just to ensure dug safety for the patients in their respective countries.

Taking all these into consideration, and noting increasing instances of blatant violations of cGMP standards and ‘Data Integrity’ requirements for ‘export quality’ drugs, one perhaps would shudder to think, what could possibly be the level of conformance to cGMP for the drugs manufactured solely for the consumption of local patients in India.

A cause of concern, as generic drugs are more cost effective to patients:

It has been widely recognized globally that the use of generic drugs significantly reduces out-of-pocket expenditure of the patients and also payers’ spending.

The findings of a study conducted by the Researchers from Brigham and Women’s Hospital (BWH), Harvard Medical School and CVS Health has just been published in the Annals of Internal Medicine on September 15, 2014. In this study the researchers investigated whether the use of generic versus brand name statins can play a role in medication adherence and whether or not this leads to improved health outcomes. The study concluded that patients taking generic statins were more likely to adhere to their medication and also had a significantly lower rate of cardiovascular events and death.

In this study, the mean co-payment for the generic statin was US$10, as against US$48 for brand-name statins. It is generally expected that the generic drugs would be of high quality, besides being affordable.

I deliberated on a related subject in one of my earlier blog posts of November 11, 2013 titled, “USFDA” Import Bans’: The Malady Calls For Strong Bitter Pills”.

Conclusion:

According to USFDA data, from 2013 onwards, about 20 drug manufacturing facilities across India attracted ‘Import Alerts’ as against seven from China, two each from Australian, Canadian and Japanese units and one each from South African and German facilities.

Unfortunately, despite intense local and global furore on this subject, Indian drug regulators at the Central Drugs Standard Control Organization (CDSCO), very strangely, do not seem to be much concerned on the ‘Data Integrity’ issue, at least, not just yet.

In my view, ‘Data Integrity’ issues are mostly not related to any technical or other knowledge deficiency. From the “Warning Letters” of the USFDA to respective Indian companies, it appears that these breaches are predominantly caused by falsification or doctoring of critical data. Thus, it basically boils down to a mindset issue, which possibly pans across the Indian pharma industry, irrespective of size of operations of a company.

Indian Prime Minister’s passionate appeal aimed at all investors, including from India, to “Make in India” and “Sell Anywhere in The World”, extends to pharma industry too, both local and global. The drug makers also seem to be aware of it, but the ghost keeps haunting unabated, signaling that the core mindset has remained unchanged despite periodic lip service and public utterances for corrective measures by a number of head honchos.

Any attempt to trivialize this situation, I reckon, could meet with grave consequences, jeopardizing the thriving pharma exports business of India, and in that process would betray the Prime Ministers grand vision for the country that he epitomized with, “Make in India” and “Sell Anywhere in The World”.

By: Tapan J. Ray

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

Union Budget 2014-15: Ticks The ‘Top Priority’ Boxes on Healthcare

Posted on July 14, 2014 by Tapan Ray

The Union Budget 2014-15, especially for healthcare, needs to be analyzed against the backdrop of what the common patients have been going through in the healthcare space of India, over a period of time.

In that context, I would quote new sets of data from a consumer expenditure survey carried out reportedly by the National Sample Survey Organization (NSSO) in 2011-12, capturing the following disturbing facts for a period between 2000 and 2012:

Total family spend on medical bills increased by 317 percent in urban areas and 363 percent in rural areas for institutional care, while ‘at-home’ medical expenses increased by about 200 percent in both urban and rural areas.

For institutional care in hospitals and nursing homes, costs of tests increased by a hopping 541 percent in urban areas. Even for the at-home patient, costs of diagnostic tests increased by over 400 percent in the same period.

Increases in doctors’ fees in hospitals were 433 percent in rural areas compared to 362 percent in urban cities,

Hospital charges went up by 454 percent in rural areas compared to 378 percent in urban areas.

Medicine costs in hospitals went up by 259 percent in rural versus about 200 percent in urban areas.

The number of families that reported expenditure on hospitalization dipped from 19 percent to 14 percent in urban areas and from 19 percent to 15 percent in rural areas. Lack of proper facilities at accessible distances was reported to be a key factor in dipping cases of hospitalization in rural areas.

Conversely, families that spent on patient care at home increased from 61 percent to 75 percent in urban areas and from 62 percent to 79 percent in rural areas.

Against the above backdrop, within 45 days after coming to power, in his maiden Union Budget Proposal for 2014-15, the Finance Minister of India has ticked most of the right boxes of national health priorities for India. It may not be a dream budget covering everything and all expectations; nonetheless, the budget reflects the intent of the government for the coming years.

Without going into minute details of the Union Budget in general, in this article, I shall dwell on its impact on the healthcare arena of India, in particular.

Key focus areas for healthcare:

Broadly speaking in the healthcare space what impacts the stakeholders most, besides others, are the following and no responsible government can afford to wish these away:

Access
Affordability
Capacity Building
Innovation
Ease of Doing Business

Within these five key areas, the Finance Minister appears to have focused on the four, namely – ‘Access’, ‘Affordability’, Capacity Building and overall ‘Ease of Doing Business’ in India.

I shall deliberate on each of these points briefly in a short while.

An example of pre-budget expectations of a pharma industry association:

With the current healthcare issues of India in mind and the above priority areas in the backdrop, I read recently in a business magazine, the expectations of one of the pharma industry association’s from the Union Budget 2014-15. Without being judgmental, I am now quoting those points for you to evaluate any way you would like to.

The key expectations of that pharma association were reportedly as follows:

1. Weighted Tax Deduction on Scientific Research:

“Currently there are no specific tax benefits available to units engaged in contract R&D or undertaking R&D for group companies. Benefits should be provided for units engaged in the business of R&D and contract R&D by way of deduction from profits”.

2. Clarity on taxing giveaways to doctors:

“The ambiguity of the CBDT circular in this regard has created widespread concern in the industry. As an interim measure, the CBDT may consider constituting a panel with adequate representation from the industry and Departments of Revenue and Pharmaceuticals to define expenses as ‘ethical’ or ‘unethical’ and lay down guidelines for implementation”.

3. Tax holiday for healthcare infrastructure projects:

“It is necessary to extend the tax holiday benefit to hospitals set up in urban areas to enable companies to commit the substantial investments required in the healthcare sector”.

4. FDI – Ambiguity on coverage (e.g. whether allied activities such as R&D, clinical trials are covered):

“Currently, there are no specific guidelines laid down on whether the FDI provisions are applicable to pharmaceutical companies undertaking allied activities e.g. R&D, clinical trials etc”.

5. Excise Duty on Active Pharma Ingredients (APIs):

“The excise duty rate of APIs be rationalized and brought on par with pharma goods i.e. excise duty on the inputs (API) should be reduced from 12% to 6%. Alternatively, the Government may introduce a refund mechanism to enable Pharma manufacturers to avail refund of excess CenVat Credit”.

Other issues that this particular pharma association had penned in its pre-budget memorandum of 2014-15, were as under:

Adoption and implementation of uniform marketing guidelines (e.g. the Uniform Code of Pharmaceutical Marketing Practices circulated by the DoP)
Rationalization of clinical trial guidelines
Updating of governing laws such as Drugs & Cosmetic Act to reflect the current industry scenario
Stakeholder consultation while introducing and implementing drug pricing guidelines

Interesting?

This memorandum is indeed interesting…very interesting, especially when it is taken as comprehensive and well-publicized expectations from the Union Budget of a pharma association in India. This pre-budget memorandum is just an example. Other pharma associations also had put on the table, their respective expectations from the government in the budget.

I gave this example, just to highlight what the new government has actually delivered in the charted priority areas in its warm-up maiden budget proposal, for the benefit of all concerned.

Pragmatic healthcare push in the Union Budget 2014-15:

I felt good to note, within a very short period, the new government could fathom the real healthcare issues of the country, as mentioned above, and proposed to deploy the national exchequers’ fund, probably following the good old saying “put your money where your mouth is”.

Initiates a major step towards ‘Health for All’:

In that direction, the government in its budget proposal has given a new thrust towards ‘Health for All’. For this purpose, two critical initiatives have been proposed:

Free Drug Service:

Free medicines under ‘Health for All’ would also help addressing the issue of poor ‘Access’ to medicines in the country.

Free Diagnosis Service:

Besides ‘Access’, focus on diagnosis and prevention would consequently mean early detection and better management of diseases.

Thus, free medicines and free diagnosis for everyone under ‘Health for All’ would help reducing Out of Pocket (OoP) expenditure on healthcare in India quite significantly. It is worth reiterating that OoP of over 70 percent, which is one of the highest globally, after Pakistan, pushes millions of people into poverty every year in India. This proposal may, therefore, be considered as a precursor to Universal Health Care (UHC).

Increase in FDI cap on insurance sector:

The Finance Minister has proposed an increase in the limit of Foreign Direct Investment (FDI) in the insurance sector from the current level of 26 per cent to 49 per cent. However, the additional investment has to follow the Foreign Investment Promotion Board (FIPB) route. Though this change is not healthcare sector specific, nonetheless, it would ensure deeper penetration of health insurance, improving access to healthcare.

Other key 2014-15 Union Budget proposals:

Other key proposals include:

Universal access to early quality diagnosis and treatment to TB patients

Two National Institutes of Aging (NIA) at AIIMS, New Delhi, and Madras Medical College, Chennai. NIA aims to cater to the needs of the elderly population which has increased four-fold since 1951. The number of senior citizens is projected to be 173 million by 2026.

Four more AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Purvanchal in UP, for which Rs 500 Crore has been set aside.

Additional 58 government medical colleges. The proposal also includes 12 government medical colleges, where dental facilities would also be provided.

15 Model Rural Health Research Centers (MHRCs) in states for better healthcare facilities in rural India.

HIV AIDS drugs and diagnostic kits have been made cheaper through duty rationalization.

For the first time, the budget proposal included central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing ones.

Focus on biotechnology:

The Finance Minister proposed a cluster-led biotech development in Faridabad and Bangalore, as well as agro-biotech clusters in Mohali, Pune and Kolkata. It is a well-established fact that a cluster approach ensures that academia, researchers and the companies engage closely to create strong synergies for innovation and growth.

The announcement of Rs 10,000 Crore funds for ‘startups’ is also expected to help ‘startups’ in the biotech space.

Withdrawal of exemption of a service tax:

As a part to widen the service tax net, the Finance Minister has proposed withdrawal of exemption on service taxes in case of technical testing of newly developed drugs on humans. This has attracted ire of the pharma industry, just as any withdrawal of tax exemption does.

Re-arranging the proposals under high impact areas:

As indicated above, if I now re-arrange the Union budget proposals 2014-15 under each high impact areas, the picture would emerge as follows:

Access improvement:

- “Health for All” – Free drugs and diagnostic services for all would help improving ‘Access’ to healthcare by manifold.

- Universal access to early quality diagnosis and treatment to TB patients would again help millions

- Deeper penetration of health insurance and its innovative usage would also help a significant number of populations of the country having adequate ‘Access’ to healthcare.

Affordability:

- HIV AIDS drugs and diagnostic kits have been made cheaper through duty rationalization.

- “Health for All” – Free drugs and diagnostic services for all would help answering the issue of ‘Affordability’, as well.

Capacity building:

- Two National Institutes of Aging (NIA) at AIIMS, New Delhi, and Madras Medical College, Chennai.

- Four more AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Purvanchal in UP, for which Rs 500 Crore is being set aside.

- Additional 58 government medical colleges, including 12 colleges where dental facilities would also be provided.

- 15 Model Rural Health Research Centers (MHRCs) in states for better healthcare facilities in rural India.

- Central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing state laboratories.

Innovation:

- Cluster-led biotech development

Ease of doing business:

- Numbers of common pan-industry initiatives have been enlisted in the general budget proposals, many of which would improve overall ‘Ease of Doing Business’ in the healthcare sector too.

A concern:

Despite all these, there is a concern. In the Union Budget proposals 2014-15, the health sector attracted a total outlay of Rs 35, 163 Crore, which is an increase from the last year’s Rs 33, 278 Crore. I wonder, whether this increase would be sufficient enough to meet all healthcare commitments, as it does not even take inflation into account.

Conclusion:

Taking all these into consideration, the Union Budget proposals for 2014-15, in my view, are progressive and reformists in nature. I am quite in sync with the general belief that the idea behind any financial reform of a nation is not to provide discretionary treatment to any particular industry.

With that in mind, I could well understand why this budget has not pleased all, including the constituents of the healthcare industry and would rather consider it only as a precursor to a roadmap that would follow in the coming years.

However, given the monetary and fiscal constraints of the country, the Union Budget 2014-15, with its key focus on healthcare ‘Access’, ‘Affordability’, ‘Capacity Building’ and overall ‘Ease of Doing Business’ in India, sends right signals of moving towards a new direction, for all. Opportunities for ‘Innovation’ and growth in the biotechnology area have also been initiated, which expectedly would be scaled up in the coming years.

Currently, the general belief both globally and locally is that, this new government has the enthusiasm, will and determination to ‘Walk the Talk’ to make India a global force to reckon with, including its healthcare space.

By: Tapan J. Ray

Discretionary ‘Non-Compete Clause’ in Pharma FDI: An Intriguing Decision

Posted on January 10, 2014 by Tapan Ray

As I had commented before, the MNC investors, while acquiring controlling stake in the Indian pharmaceutical companies, henceforth, would not be generally allowed to include any ‘non-compete clause’ in their agreement with the Indian promoters. However, this clause may be allowed only in special circumstances with the discretionary power of the Foreign Investment Promotion Board (FIPB).

Looking back:

While looking back, the decision to have a relook at pharma Foreign Direct Investment (FDI) by the Department of Industrial Policy and Promotion (DIPP), was possibly spurred by the following key apprehensions of the ‘Third World Network (TWN)’, following a series of takeovers of important Indian Pharma and Vaccine companies by the MNCs:

1. Takeover of large integrated Indian pharma players would ultimately leave behind mostly the smaller domestic companies operating in the lower end of the pharmaceutical value chain. This may compel India to compromise on need-based R&D and become completely dependent on MNCs for meeting the country’s drug requirements to respond effectively to various urgent needs, over a period of time.

2. Acquisitions of well-integrated domestic companies with technological capabilities by the MNCs could either fully eliminate or restrict the use of TRIPS flexibilities in the country, such as, Compulsory Licensing (CL) and patent challenges. For instance, immediately after its takeover by Daiichi Sankyo, Ranbaxy withdrew all the patent challenges against Pfizer’s blockbuster cholesterol reducing drug Lipitor.

3. Takeovers are easy ways to make effective use of a well-oiled marketing and distribution network established by large domestic companies to substitute low-cost medicines with higher-priced ones, including the patented drugs.

4. MNCs allegedly want to restrict the large Indian companies from entering into the regulated markets with their low-priced generic products of high quality standards, resorting to patent challenges and taking prime initiatives in Para IV filing in the United States. All these are believed to be posing an increasing threat to them over a period of time.

5. These acquisitions could ultimately result in high medicine prices. As quoted by TWN, according to the ‘Indian Pharmaceutical Alliance (IPA)’, Abbott increased the prices of medicines produced by Piramal Healthcare immediately after its takeover. The examples given are as follows:

The price of Haemaccel was Rs 99.02 in May 2009; by May 2011 it had gone up to Rs 215 – 117 percent increase in just two years. In another instance, the epilepsy drug Gardenal registered a price hike of 121 percent during the same period.

The new ‘Press Note’ :

Thereafter, much water has flown under the bridge and finally the ‘Press Note’ of DIPP on Wednesday, January 8, 2014 formalized the deliberations of the inter-ministerial group held in November 2013 that existing policy of 100 percent FDI in the brownfield pharmaceutical sector through FIPB approval route will continue, along with the rider of jettisoning the ‘non-compete clause’. Only change in the above ‘Press Note’ is that, the said clause may be allowed only in special circumstances with the discretionary power of the FIPB.

However, 100 per cent FDI will continue to be allowed through automatic route in the Greenfield pharma projects.

An intriguing decision:

The DIPP ‘Press Note’ appears to be intriguing without understandable explanations and quite inconsistent with the reform measures already announced by the government thus far in many other areas.

More so, as I wrote before, no tangible assessment of impact of all M&As, so far taken place in India, has yet been done in a systematic manner.

The ‘non-compete clause’ being a standard feature, especially in brownfield Mergers and Acquisitions (M&A), justifiably restricts the promoters of the acquired companies from getting into the same business for a predetermined period of time.

Absence of this clause is expected to impact the valuation of the target companies significantly. Hence, some large Indian promoters had openly expressed their displeasure against such arbitrary measures and that too in quite specific terms.

More importantly, the absence of the ‘non-compete clause’ does not, in any way, effectively address those apprehensions, as mentioned above.

Conclusion:

Without any tangible evidence, it is a matter of conjecture now, whether the above apprehensions have any merits or not, in any case.

Be that as it may, the clumsy way this issue has been handled by the DIPP, especially since last couple of years, adds today even greater confusion to overall pharma FDI brownfield policy in India.

The issues related competition during any M&A process, as per statute, fall within the purview of the competition watch-dog of the country – the Competition Commission of India (CCI), which is expected to ensure that desired competition does in no way get compromised during M&As, including brand acquisitions, for the sole interest of consumers.

Despite statutory requirement to pass through CCI scrutiny in all mergers and takeover processes in India, the provision for discretionary decision to review the ‘non-compete cause’ by the FIPB, on case-by-case basis, without putting in place a set of fair and transparent guidelines for the same, appears indeed intriguing.

By: Tapan J. Ray

Sets 2013, Dawns 2014: Top 7 Pharma Developments

Posted on December 31, 2013 by Tapan Ray

Wish You Good Health, Happiness, Success and Prosperity in 2014

In this article I shall focus on ‘Top 7 Pharma Developments’, both while ‘Looking Back to 2013′ and also during my ‘Crystal Gazing 2014′.

Looking Back to 2013:

While looking back, the ‘Top 7 Pharma Developments’ unfolded in India during 2013, in my opinion, are as follows:

1. Supreme Court judgment on Glivec:

The landmark Supreme Court judgment on the Glivec case has vindicated, though much to the dismay of pharma MNCs, the need to strike a right balance between encouraging and protecting innovation, including incremental ones, and the public health interest of India.

2. DPCO 2013:

Following the National Pharmaceutical Pricing Policy (NPPP) of December 2012, the new Drug Price Control Order 2013 (DPCO 2013) signaled a significant departure from the decades old systems of arriving at both the ‘span’ and also the ‘methodology’ of drug price control in India. However, its implementation has been rather tardy as on today.

As a result, at the very beginning of the process of its effective roll-out, the new DPCO faltered badly. It created unprecedented complications and dead-locks not just for the pharmaceutical companies and the trade, but for the National Pharmaceutical Pricing Authority (NPPA), as well, which has not been able to announce the new ceiling prices for at least 100 essential drugs, even 8 months after notification of this order.

The pharma companies and the NGOs have already taken this policy to the court, though for different reasons. The rationale for the National List of Essential Medicines (NLEM) 2011 has also been questioned by many along with a strong demand for its immediate review.

Thus much awaited DPCO 2013 is still charting on a slippery ground.

3. India, China revoked 4 pharma patents:

In the Intellectual Property Rights (IPR) arena many National Governments have now started asserting themselves against the prolonged hegemony of the Western World pressing for most stringent patent regime across the globe, at times even surreptitiously. Such assertions of these countries signal a clear tilt in the balance, favoring patients’ health interest rather than hefty gains in business profits, much to the delight of majority of world population.

Revocation of four drug patents by India and China within a fortnight during July-August 2013 period has thus raised many eyebrows, especially within the pharma Multinational Corporations (MNCs). In this short period, India has revoked three patents and China one.

While these unexpected and rather quick developments are probably double whammy for the pharma MNCs operating in India and China, a future trend would possibly emerge as soon as one is able to connect the evolving dots.

4. Supreme Court intervened in Clinical trials (CT):

With a damning stricture to the Indian Drug Regulator, the Supreme Court, in response to a PIL filed by the NGO Swasthya Adhikar Manch, came out heavily on the way Clinical Trials (CTs) are approved and conducted in the country.

Breaking the nexus decisively between a section of the powerful pharma lobby groups and the drug regulator, as highlighted even in the Parliamentary Committee report, the Ministry of Health, as reported to the Supreme Court, is now in the process of quickly putting in place a robust and transparent CT mechanism in India.

This well thought-out new system, besides ensuring patients’ safety and fair play for all, is expected to have the potential to help reaping a rich economic harvest through creation of a meaningful and vibrant CT industry in India, simultaneously benefitting millions of patients, in the years ahead.

5. US-FDA/UK-MHRA drug import bans:

Continuous reports from US-FDA and UK-MHRA on fraudulent regulatory acts, lying and falsification of drug quality data, by some otherwise quite capable Indian players, have culminated into several import bans of drugs manufactured in those units. All these incidents have just not invited disgrace to the country in this area, but also prompted other national regulators to assess whether such bans might suggest issues for drugs manufactured for their respective countries, as well.

This despicable mindset of the concerned key players, if remains unleashed, could make Indian Pharma gravitating down, stampeding all hopes of harvesting the incoming bright opportunities.

The ‘Import Alert’ of the USFDA against Mohali plant of Ranbaxy, has already caused inordinate delay in the introduction of a cheaper generic version of Diovan, the blockbuster antihypertensive drug of Novartis AG, after it went off patent. It is worth noting that Ranbaxy had the exclusive right to sell a generic version of Diovan from September 21, 2012.

The outcome of such malpractices may go beyond the drug regulatory areas, affecting even the valuations of concerned Indian pharma companies.

6. Pharma FDI revisited in India:

After a series of inter-ministerial consultations, the Government of India has maintained 100 percent FDI in pharma brownfield projects through FIPB route. However, removal of the ‘non-compete’ clause in such agreements has made a significant difference in the pharma M&A landscape.

7. ‘No payment for prescriptions’:

Unprecedented acknowledgement and the decision of GSK’s global CEO for not making payments to any doctor, either for participating or speaking in seminars/conferences to influence prescription decision in favor of its brands, would indeed be considered as bold and laudable. This enunciation, if implemented in letter and spirit by all other players of the industry, could trigger a paradigm shift in the prescription demand generation process for pharmaceuticals brands.

Crystal Gazing 2014:

While ‘Crystal Gazing 2014′, once again, the following ‘Top 7 (most likely) Pharma Developments’, besides many brighter growth opportunities, come to the fore:

1. Public Interest Litigation (PIL) now pending before the Supreme Court challenging DPCO 2013 may put the ‘market based pricing’ concept in jeopardy, placing the pharma price control system back to square one.

2. The possibility of revision of NLEM 2011, as many essential drugs and combinations have still remained outside its purview, appears to be imminent. This decision, if taken, would bring other important drugs also under price control.

3. Universal Health Care (UHC) related pilot projects are likely to be implemented pan-India along with ‘free distribution of medicines’ from Government hospitals and health centers in 2014. Along side, more Public Private Partnership (PPP) initiatives may come up in the healthcare space improving access to quality healthcare to more number of patients.

4. With the Supreme Court interventions in response to the pending PILs, more stringent regulatory requirements for CT, Product Marketing approvals, Pricing of Patented Medicines and Ethical Marketing practices may come into force.

5. Possibilities of more number of patent challenges with consequent revocations and grant of several Compulsory Licenses (CL) for exorbitantly priced drugs in life-threatening disease areas like, cancer, loom large. At the same time, between 2013 and 2018, US$ 230 billion of sales would be at risk from patent expirations, offering a great opportunity to the Indian generic players to boost their exports in the developed markets of the world.

6. More consolidation within the pharmaceutical industry may take place with valuation still remaining high.

7. Overall pharma IPR scenario in India is expected to remain as robust and patient friendly as it is today, adding much to the worry of the MNCs and relief to the patients, in addition to the generic industry. More number of countries are expected to align with India in this important area.

Conclusion:

The year 2013, especially for the pharmaceutical industry in India, was indeed eventful. The ‘Top Seven’ that I have picked-up, out of various interesting developments during the year, could in many ways throw-open greater challenges for 2014.

My ‘Crystal Gazing 2014’, would challenge the pharma players to jettison their old and traditional business mindsets, carving out new, time-specific, robust and market savvy strategic models to effectively harvest newer opportunities for growth.

That said, the pharmaceutical industry will continue to thrive in India with gusto, including the MNCs, mainly because of immense potential that the domestic market offers in its every conceivable business verticals, propelled by continuous high growth trend in the domestic consumption of medicines, excepting some minor aberrations.

The New Year 2014, I reckon, would herald yet another interesting paradigm for the pharma industry. A paradigm that would throw open many lucrative opportunities for growth, both global and local, and at the same time keep churning out different sets of rapidly evolving issues, requiring more innovative honed corporate skill-sets for their speedy redressal, as the time keeps ticking.

By: Tapan J. Ray

Pharma FDI Debate: Highly Opinionated, Sans Assessment of Tangible Outcomes?

Posted on November 18, 2013 by Tapan Ray

In 2001, the Government of India (GoI) allowed 100 percent Foreign Direct Investments (FDI) in the pharmaceutical sector through automatic route to attract more investments for new asset creation, boost R&D, new job creation and ultimately to help aligning Indian pharma with the modern pharma world in terms of capacity, capability, wherewithal, reach and value creation.

Thereafter, several major FDI followed, such as:

No.	Company	Acquirer	Value US$M	Year
1.	Ranbaxy	Daiichi Sankyo	4600	2008
2.	Shantha Biotechnics	Sanofi Pasteur	781	2009
3.	Piramal Healthcare	Abbott	3700	2010
4.	Orchid Chemicals	Hospira	200	2012
5.	Agila Specialties	Mylan	1850	2013

FDI started coming:

Even recently, in April- June period of 2013, with a capital inflow of around US$ 1 billion, the pharma sector became the brightest star in otherwise gloomy FDI scenario of India.

However, out of 67 FDI investments till September 2011, only one was in the Greenfield area. It is now clear that the liberal pharma FDI policy is being predominantly used for taking overs the domestic pharma companies, as indicated earlier.

The Reserve Bank of India (RBI) data reveals that between April 2012 and April 2013, US$ 989 million FDI was received in brownfield investments, and just US$ 87.3 million in Greenfield investments.

As a result, in 2010 pharma Multi-National Corporations (MNCs) captured over 25 percent of the domestic Indian market, as against just around 15 percent in 2005.

An assessment thus far:

While assessing the outcomes of liberal pharma FDI regime, especially at a time when India is seeking foreign investments in many other sectors, following facts surface:

New asset creation:

Most of the FDIs in pharma, during this period, have been substitution of domestic capital by foreign capital, rather than any significant new asset creation.

Investment in fixed assets (1994-95 to (2009-10):

Companies	Rs. Crore	Contribution %
Indian	54,010	94.7
MNC	3,022	5.3
Total	57,032	100

(Source: IPA)

Thus contrary to the expectations of GoI, there has been no significant increase in contribution in fixed assets by the pharma MNCs, despite liberalization of FDI.

Similarly, the available facts indicate that 100 percent FDI through automatic route in the pharma sector has not contributed in terms of creation of new modern production facilities, nor has it strengthened the R&D space of the country. The liberalized policy has not contributed to significantly increase in the employment generation by the pharma MNCs in those important areas, either.

The following figures would vindicate this point:

R&D Spend:

Companies	1994-95(Rs. Crore)	Contribution %	2009-10(Rs. Crore)	Contribution %
Indian	80.61	55.7	3,342.22	78.1
MNC	64.13	44.3	934.40	21.9
Total	144.74	100	4,276.32	100

(Source: IPA)

The above table vindicates that post liberalization of FDI regime, MNC contribution % in R&D instead of showing any increase, has significantly gone down.

Wage Bill/ Job Creation:

Companies	1994-95(Rs. Crore)	Contribution %	2009-10(Rs. Crore)	Contribution %
Indian	664	65.5	8,172	87.1
MNC	350	34.5	1,215	12.9
Total	1,014	100	9,387	100

(Source: CMIE)

In the area of job creation/wage bills, as well, liberalized FDI has not shown any increasing trend in terms of contribution % in favor of the MNCs.

Delay in launch of cheaper generics:

There are instances that the acquired entity was not allowed to use flexibilities such as patent challenges to introduce new affordable generic medicines.

The withdrawal of all patent challenges by Ranbaxy on Pfizer’s blockbuster medicine Lipitor filed in more than eight countries immediately after its acquisition by Daiichi-Sankyo, is a case in point.

Key concerns expressed:

Brownfield acquisitions seem to have affected the entire pharma spectrum, spanning across manufacturing/ marketing of oral formulations; injectibles; specialized oncology verticals; vaccines; consumables and devices, with no tangible perceptible benefits noted just yet.

Concerns have been expressed about some sectors, which are very sensitive, such as, cancer injectibles and vaccines.

Moreover, domestic Indian pharma exports generic medicines worth around US$ 13 billion every year establishing itself as a major pharmaceutical exporter of the world and is currently the net foreign exchange earner for the country. If the Government allows the domestic manufacturing facilities of strategic importance to be taken over by the MNCs, some experts feel, it would adversely impact the pharmaceutical export turnover of the country, besides compromising with the domestic capacity while facing epidemics, if any or other health exigencies. It would also have a negative fall out on the supply of affordable generic medicines to other developing nations across the world.

Countries such as Brazil and Thailand have a robust public sector in the pharma space. Therefore, their concerns are less. Since India doesn’t have a robust public sector to fall back on, many experts feel that unrestrained acquisitions in the brownfield sector could be a serious public health concern.

Some conditions proposed:

The DIPP proposal reportedly wants to make certain conditions mandatory for the company attracting FDI, such as:

If a company manufactures any of the 348 essential drugs featuring in the National List of Essential Medicines (NLEM), the highest level of production of that drug in the last three years should be maintained for the next five years
The acquirer foreign company would not be allowed to close down the existing R&D centres and would require to mandatorily invest upto 25 per cent of the FDI in the new unit or R&D facility. The total investment as per the proposed condition would have to be incurred within 3 years of the acquisition.
Reduction of FDI cap to 49 per cent in rare or critical pharma verticals, as discussed above.
If there is any transfer of technology it must be immediately communicated to the administrative ministries and FIPB

Vaccines and cancer injectibles, which have a limited number of suppliers, could fall under the purview of even greater scrutiny.

Conclusion:

The Ministries of Health and Commerce & Industries, which are in favor of restricting FDI in pharma stricter, are now facing stiff opposition from the Finance Ministry and the Planning Commission.

The Department of Industrial Policy and Promotion (DIPP) has now repotedly prepared a draft Cabinet Note after consulting the ministries of Finance, Pharma and Health, besides others. However, as comments from some ministries came rather late, the DIPP is reportedly moving a supplementary note on this subject.

The matter is likely to come up before the cabinet by end November/December 2013.

While FDI in pharma is much desirable, it is equally important to ensure that a right balance is maintained in India, where majority of the populations face a humongous challenge concerning access to affordable healthcare in general and affordable medicines in particular.

There is, therefore, an urgent need for critical assessment of tangible outcomes of all pharma FDIs in India as on date, based on meaningful parameters. This would help the Government while taking the final decision, either in favor of continuing with the liberalized FDI policy or modifying it as required, for the best interest of country.

Otherwise, without putting the hard facts, generated from India, on the table, is it not becoming yet another highly opinionated debate in its ilk, between the mighty MNC pharma lobby groups either directly or indirectly, the Government albeit in discordant voices and other members of the society?

By: Tapan J. Ray

Pharma FDI: Damning Report of Parliamentary Panel, PM Vetoes…and Avoids Ruffling Feathers?

Posted on August 19, 2013 by Tapan Ray

An interesting situation emerged last week. The Parliamentary Standing Committee (PSC) on Commerce proposed a blanket ban on all FDI in brownfield pharma sector. Just two days after that, the Prime Minister of India vetoed the joint opposition of the Department of Industrial Policy and Promotion (DIPP) and the Ministry of Health to clear the way for all pending pharma FDIs under the current policy.

On August 13, 2013, Department related Parliamentary Standing Committee on Commerce laid on the Table of both the Houses of the Indian Parliament its 154 pages Report on ‘FDI in Pharmaceutical Sector.’

The damning report of the Parliamentary Standing Committee flags several serious concerns over FDI in brownfield pharma sector, which include, among others, the following:

1. Out of 67 FDI investments till September 2011, only one has been in green field, while all the remaining FDI has come in the brown field projects. Moreover, FDI in brown field investments have of late been predominantly used to acquire the domestic pharma companies.

2. Shift of ownership of Indian generic companies to the MNCs also results in significant change of the business model, including the marketing strategy of the acquired entity, which are quite in sync with the same of the acquirer company. In this situation, the acquired entity will not be allowed to use flexibilities such as patent challenges or compulsory license to introduce new affordable generic medicines.

The withdrawal of all patent challenges by Ranbaxy on Pfizer’s blockbuster medicine Lipitor filed in more than eight countries immediately after its acquisition by Daiichi-Sankyo is a case in point.

3. Serial acquisitions of the Indian generic companies by the MNCs will have significant impact on competition, price level and availability. The price difference between Indian ‘generics’ and MNCs’ ‘branded generic’ drugs could sometimes be as high as 80 to 85 times. A few more larger scale brownfield takeovers may even destroy all the benefits of India’s generics revolution.

4. FDI inflow into Research & Development of the Pharma Industry has been totally unsatisfactory.

5. FDI flow into brown field projects has not added any significant fresh capacity in manufacturing, distribution network or asset creation. Over last 15 years, MNCs have contributed only 5 per cent of the gross fixed assets creation, that is Rs 3,022 crore against Rs 54,010 crore by the domestic companies. Further, through brownfield acquisitions significant strides have not been made by the MNCs, as yet, for new job creation and technology transfer in the country.

6. Once a foreign company takes over an Indian company, it gets the marketing network of the major Indian companies and, through that network, it changes the product mix and pushes the products, which are more profitable and expensive. There is no legal provision in India to stop any MNC from changing the product mix.

7. Though the drug prices may not have increased significantly after such acquisitions yet, there is still a lurking threat that once India’s highly cost efficient domestic capacity is crushed under the weight of the dominant force of MNCs, the supply of low priced medicines to the people will get circumvented.

8. The ‘decimation’ of the strength of local pharma companies runs contrary to achieving the drug security of the country under any situation, since there would be few or no Indian companies left having necessary wherewithal to manufacture affordable generics once a drug goes off patent or comply with a Compulsory License (CL).

9. Current FIPB approval mechanism for brownfield pharma acquisitions is inadequate and would not be able to measure up to the challenges as mentioned above.

The Committee is also of the opinion that foreign investments per se are not bad. The purpose of liberalizing FDI in pharma was not intended to be just about takeovers or acquisitions of domestic pharma units, but to promote more investments into the pharma industry for greater focus on R&D and high tech manufacturing, ensuring improved availability of affordable essential drugs and greater access to newer medicines, in tandem with creating more competition.

Based on all these, The Committee felt that FDI in brown field pharma sector has encroached upon the generics base of India and adversely affected Indian pharma industry. Therefore, the considered opinion of the Parliamentary Committee is that the Government must impose a blanket ban on all FDI in brownfield pharma projects.

PM clears pending pharma FDI proposals:

Unmoved by the above report of the Parliamentary Committee, just two days later, on August 16, 2013, the Prime Minister of India, in a meeting of an inter-ministerial group chaired by him, reportedly ruled that the existing FDI policy will apply for approval of all pharmaceutical FDI proposals pending before the Foreign Investments Promotion Board (FIPB). Media reported this decision as, “PM vetoes to clear the way for pharma FDI.”

This veto of the PM includes US $1.6-billion buyout of the injectable facility of Agila Specialties, by US pharma major Mylan, which has already been cleared by the Competition Commission of India (CCI).

This decision was deferred earlier, as the DIPP supported by the Ministry of Health had expressed concerns stating, if MNCs are allowed to acquire existing Indian units, especially those engaged in specialized affordable life-saving drugs, it could possibly lead to lower production of those essential drugs, vaccines and injectibles with consequent price increases. They also expressed the need to protect oncology facilities, manufacturing essential cancer drugs, with assured supply at an affordable price, to protect patients’ interest of the country.

Interestingly, according to Reserve Bank of India, over 96 per cent of FDI in the pharma sector in the last fiscal year came into brownfield projects. FDI in the brownfield projects was US$ 2.02 billion against just US$ 87 million in the green field ventures.

Fresh curb mooted in the PM’s meeting:

In the same August 16, 2013 inter-ministerial group meeting chaired by the Prime Minister, it was also reportedly decided that DIPP will soon float a discussion paper regarding curbs that could be imposed on foreign takeovers or stake purchases in existing Indian drug companies, after consultations with the ministries concerned.

Arguments allaying apprehensions:

The arguments allaying fears underlying some of the key apprehensions, as raised by the Parliamentary Standing Committee on Commerce, are as follows:

1. FDI in pharma brownfield will reduce competition creating an oligopolistic market:

Indian Pharmaceutical Market (IPM) has over 23,000 players and around 60,000 brands. Even after, all the recent acquisitions, the top ranked pharmaceutical company of India – Abbott enjoys a market share of just 6.6%. The Top 10 groups of companies (each belonging to the same promoter groups and not the individual companies) contribute just over 40% of the IPM (Source: AIOCD/AWACS – Apr. 2013). Thus, IPM is highly fragmented. No company or group of companies enjoys any clear market domination.

In a scenario like this, the apprehension of oligopolistic market being created through brownfield acquisitions by the MNCs, which could compromise with country’s drug security, needs more informed deliberation.

2. Will limit the power of government to grant Compulsory Licensing (CL):

With more than 20,000 registered pharmaceutical producers in India, there is expected to be enough skilled manufacturers available to make needed medicines during any emergency e.g. during H1N1 influenza pandemic, several local companies stepped forward to supply the required medicine for the patients.

Thus, some argue, the idea of creating a legal barrier by fixing a cap on the FDIs to prevent domestic pharma players from selling their respective companies at a price, which they would consider lucrative otherwise, just from the CL point of view may sound unreasonable, if not protectionist in a globalized economy.

3. Lesser competition will push up drug prices:

Equity holding of a company is believed by some to have no bearing on pricing or access, especially when medicine prices are controlled by the NPPA guidelines and ‘competitive pressure’.

In an environment like this, any threat to ‘public health interest’ due to irresponsible pricing, is unlikely, especially when the medicine prices in India are cheapest in the world, cheaper than even Bangladesh, Pakistan and Sri Lanka (comment: whatever it means).

India still draws lowest FDI within the BRIC countries:

A study of the United Nations has indicated that large global companies still consider India as their third most favored destination for FDI, after China and the United States.

However, with the attraction of FDI of just US$ 32 billion in 2011, against US$ 124 billion of China, US$ 67 billion of Brazil and US$ 53 billion of Russia during the same period, India still draws the lowest FDI among the BRIC countries.

Commerce Minister concerned on value addition with pharma FDI:

Even after paying heed to all the above arguments, the Commerce Minister of India has been expressing his concerns since quite some time, as follows:

“Foreign Direct Investment (FDI) in the pharma sector has neither proved to be an additionality in terms of creation of production facilities nor has it strengthened the R&D in the country. These facts make a compelling case for revisiting the FDI policy on brownfield pharma.”

As a consequence of which, the Department of Industrial Policy and Promotion (DIPP) has reportedly been opposing FDI in pharma brownfield projects on the grounds that it is likely to make generic life-saving drugs expensive, given the surge in acquisitions of domestic pharma firms by the MNCs.

Critical Indian pharma assets going to MNCs:

Further, the DIPP and the Ministry of Health reportedly fear that besides large generic companies like Ranbaxy and Piramal, highly specialized state-of-the-art facilities for oncology drugs and injectibles in India are becoming the targets of MNCs and cite some examples as follows:

Through the big-ticket Mylan-Agila deal, the country would lose yet another critical cancer drug and vaccine plant.

In 2009 Shantha Biotechnics, which was bought over by Sanofi, was the only facility to manufacture the Hepatitis B vaccine in India, which used to supply this vaccine at a fraction of the price as compared to MNCs.

Mylan, just before announcing the Agila deal, bought over Hyderabad based SMS Pharma’s manufacturing plants, including some of its advanced oncology units in late 2012.

In 2008, German pharma company Fresenius Kabi acquired 73 percent stake in India’s largest anti-cancer drug maker Dabur Pharma.

Other major injectable firms acquired by MNCs include taking over of India’s Orchid Chemicals & Pharma by Hospira of the United States.

With the US market facing acute shortage of many injectibles, especially cancer therapies in the past few years, companies manufacturing these drugs in India have become lucrative targets for MNCs.

An alternative FDI policy is being mooted:

DIPP reportedly is also working on an alternate policy suggesting:

“It should be made mandatory to invest average profits of last three years in the R&D for the next five years. Further, the foreign entity should continue investing average profit of the last three years in the listed essential drugs for the next five years and report the development to the government.”

Another report indicated, a special group set up by the Department of Economic Affairs suggested the government to consider allowing up to 49 per cent FDI for pharma brownfield investments under the automatic route.However, investments of more than 49 per cent would be referred to the Foreign Investment Promotion Board (FIPB).

It now appears, a final decision on the subject would be taken by the Prime Minister after a larger inter-mimisterial consultation, as was decided by him on August 14, 2013.

The cut-off date to ascertain price increases after M&A:

Usually, the cut off point to ascertain any price increases post M&A is taken as the date of acquisition. This process could show false positive results, as no MNC will take the risk of increasing drug prices significantly or changing the product-mix, immediately after acquisition.

Significant price increases could well be initiated even a year before conclusion of M&As and progressed in consultation by both the entities, in tandem with the progress of the deal. Thus, it will be virtually impossible to make out any significant price changes or alteration in the product-mix immediately after M&As.

Some positive fallouts of the current policy:

It is argued that M&As, both in ‘Greenfield’ and ‘Brownfield’ areas, and joint ventures contribute not only to the creation of high-value jobs for Indians but also access to high-tech equipment and capital goods. It cannot be refuted that technology transfer by the MNCs not only stimulates growth in manufacturing and R&D spaces of the domestic industry, but also positively impacts patients’ health with increased access to breakthrough medicines and vaccines. However, examples of technology transfer by the MNCs in India are indeed few and far between.

This school of thought cautions, any restriction to FDI in the pharmaceutical industry could make overseas investments even in the R&D sector of India less inviting.

As listed in the United Nation’s World Investment Report, the pharmaceutical industry offers greater prospects for future FDI relative to other industries. Thus, restrictive policies on pharmaceutical FDI, some believe, could promote disinvestments and encourage foreign investors to look elsewhere.

Finally, they highlight, while the Government of India is contemplating modification of pharma FDI policy, other countries have stepped forward to attract FDI in pharmaceuticals. Between October 2010 and January 2011, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Need to attract FDI in pharma:

At a time when the Global Companies are sitting on a huge cash pile and waiting for the Euro Zone crisis to melt away before investing overseas, any hasty step by India related to FDI in its pharmaceutical sector may not augur well for the nation.

While India is publicly debating policies to restructure FDI in the ‘Brownfield’ pharma sector, other countries have stepped forward to attract FDI in their respective countries. Between October 2010 and January 2011, as mentioned earlier, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Thus the moot question is, what type of FDI in the pharma brownfield sector would be good for the country in the longer term and how would the government incentivize such FDIs without jeopardizing the drug security of India in its endeavor to squarely deal with any conceivable eventualities in future?

Conclusion:

In principle, FDI in the pharma sector, like in any other identified sectors, would indeed benefit India immensely. There is no question about it…but with appropriate checks and balances well in place to protect the national interest, unapologetically.

At the same time, the apprehensions expressed by the Government, other stakeholders and now the honorable members of the Parliament, across the political party lines, in their above report, should not just be wished away by anyone.

This issue calls for an urgent need of a time bound, comprehensive, independent and quantitative assessment of all tangible and intangible gains and losses, along with opportunities and threats to the nation arising out of all the past FDIs in the brownfield pharma sector.

After a well informed debate by experts on these findings, a decision needs to be taken by the law and policy makers, whether or not any change is warranted in the structure of the current pharma FDI policy, especially in the brownfield sector. Loose knots, if any, in its implementation process to achieve the desired national outcome, should be tightened appropriately.

I reckon, it is impractical to expect, come what may, the law and policy makers will keep remaining mere spectators, when Indian Pharma Crown Jewels would be tempted with sacks full of dollars for change in ownerships, jeopardizing presumably long term drug security of the country, created painstakingly over decades, besides leveraging immense and fast growing drug export potential across the world.

The Competition Commission of India (CCI) can only assess any possible adverse impact of Mergers & Acquisitions on competition, not all the apprehensions, as expressed by the Parliamentary Standing Committee and so is FIPB.

That said, in absence of a comprehensive impact analysis on pharma FDIs just yet, would the proposal of PSC to ban foreign investments in pharma brownfield sector and the PM’s subsequent one time veto to clear all pending FDI proposals under the current policy, be construed as irreconcilable internal differences…Or a clever attempt to create a win-win situation without ruffling MNC feathers?

By: Tapan J. Ray

Patent Conundrum: Ignoring India Will Just Not be Foolhardy, Not An Option Either

Posted on April 29, 2013 by Tapan Ray

The recent verdict of the Supreme Court against Novartis, upholding the decision of the Indian Patent Office (IPO) against grant of patent to their cancer drug Glivec, based on Section 3(d) of the Indian Patents Act, has caused a flutter and utter discontentment within the global pharmaceutical industry across the world.

However, on this verdict, the Director General of the World Trade Organization (WTO), Pascal Lamy has reportedly opined, “Recent decisions by the courts in India have led to a lot of protest by pharmaceutical companies. But decisions made by an independent judiciary have to be respected as such.”

The above decision on Glivec came close on the heels of IPO’s decision to grant its first ever Compulsory License (CL) to the Indian drug manufacturer Natco, last year, for the kidney cancer drug Nexavar of Bayer.

Interestingly, no member of the World Trade Organization has raised any concern on these issues, as the Head of WTO, Lamy recently confirmed, “No country has objected to India issuing compulsory license or refusing patent for drugs.” He further added, “TRIPS provides flexibilities that allow countries to issue compulsory licenses for patented medicines to address health urgencies.”

That said, simmering unhappiness within innovator companies on various areas of Indian patent laws is indeed quite palpable. Such discontent being expressed by many interested powerful voices is now reverberating in the corridors of power both in India and overseas.

Point and Counterpoint:

Although experts do opine that patent laws of India are well balanced, takes care of public health interest, encourage innovation and discourage evergreening, many global innovator companies think just the opposite. They feel, an appropriate ecosystem to foster innovation does not exist in India and their IP, by and large, is not safe in the country. The moot question is, therefore, ‘Could immediate fallout of this negative perception prompt them to ignore India or even play at a low key in this market?’

Looking at the issue from Indian perspective:

If we take this issue from the product patent perspective, India could probably be impacted in the following two ways:

New innovative products may not be introduced in India
The inflow of Foreign Direct Investments (FDI) in the pharma sector may get seriously restricted.

Let us now examine the possible outcome of each of these steps one at a time.

Will India be deprived of newer innovative drugs?

If the innovator companies decide to ignore India by not launching such products in the country, they may take either of the following two steps:

Avoid filing a patent in India
File a patent but do not launch the product

Keeping the emerging scenario in perspective, it will be extremely challenging for the global players to avoid the current patent regime in India, even if they do not like it. This is mainly because of the following reasons:

1. If an innovator company decides not to file a product patent in India, it will pave the way for Indian companies to introduce copy-cat versions of the same in no time, as it were, at a fractional price in the Indian market.

2. Further, there would also be a possibility of getting these copycat versions exported to the unregulated markets of the world from India at a very low price, causing potential business loss to the innovator companies.

3. If any innovator company files a product patent in India, but does not work the patent within the stipulated period of three years, as provided in the patent law of the country, in that case any Indian company can apply for CL for the same with a high probability of such a request being granted by the Patent Controller.

A market too attractive to ignore:

India as a pharmaceutical market is quite challenging to ignore, despite its ‘warts and moles’ for various reasons. The story of increasing consumption of healthcare in India, including pharmaceuticals, especially when the country is expected to be one of the top 10 pharmaceutical markets in the world, is too enticing for any global player to ignore, despite unhappiness in various areas of business.

Increasing affordability of the fast growing middle-class population of the country will further drive the growth of this market, which is expected to register a value turnover of US$50 billion by 2020, as estimated by PwC.

PwC report also highlights that a growing and increasingly sophisticated pharmaceutical industry of India is gradually becoming a competitor of global pharma in some key areas, on the one hand and a potential partner in others, as is being witnessed today by many.

Despite urbanization, nearly 70 percent of the total population of India still lives in the rural villages. Untapped potential of the rural markets is expected to provide another boost to the growth momentum of the industry.

Too enticing to exit:

Other ‘Enticing Factors’ for India, in my views, may be considered as follows:

A country with 1.13 billion populations and a GDP of US$ 1.8 trillion in 2011 is expected to grow at an average of 8.2 percent in the next five-year period.

Public health expenditure to more than double from 1.1 percent of the GDP to 2.5 percent of GDP in the Twelfth Five Year Plan period (2012-17)

Government will commence rolling out ‘Universal Health Coverage’ initiative

Budget allocation of US$ 5.4 billion announced towards free distribution of essential medicines from government hospitals and health centers.

Greater plan outlay announced for NRHM, NUHM and RSBY projects.

Rapidly growing more prosperous middle class population of the country.

Fast growing domestic generic drug manufacturers who will have increasing penetration in both local and emerging markets.

Rising per capita income of the population and relative in-efficiency of the public healthcare systems will encourage private healthcare services of various types and scales to flourish.

Expected emergence of a robust health insurance model for all strata of society as the insurance sector is undergoing reform measures.

Fast growing Medical Tourism.

World-class local outsourcing opportunities for a combo-business model with both patented and branded generic drugs.

Core issues in patent conundrum:

I reckon, besides others, there are three core issues in the patent conundrum in India as follows, other issues can be sorted out by following:

1. ‘Pricing’ strategy of patented products: A large population across the globe believes that high prices of patented products severely restrict their access to many and at the same time increases the cost of healthcare even for the Governments very significantly.

2. To obtain a drug patent in India, passing the test of inventive steps will not just be enough, the invention should also pass the acid test of patentability criteria, to prevent evergreening, as enshrined in the laws of the land. Many other countries are expected to follow India in this area, in course of time. For example, after Philippines and Argentina, South Africa now reportedly plans to overhaul its patent laws by “closing a loophole known as ‘ever-greening’ used by drug companies to extend patent protection and profits”. Moreover, there does not seem to be any possibility to get this law amended by the Indian Parliament now or after the next general election.

3. Probably due to some legal loopholes, already granted patents are often violated without following the prescribed processes of law in terms of pre or post – grant challenges before and after launch of such products. There is a need for the government to plug all such legal loopholes, after taking full stock of the prevailing situation in this area, without further delay.

Some Global CEOs spoke on this issue:

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

Does all in the global pharma industry share this view?

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

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

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

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

How much then to charge for a patented drug?

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

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

Should India address ‘Patented Products’ Pricing’ issue with HTA model?

Though some people hate the mechanism of Health Technology Assessment (HTA) to determine price of a patented drug, I reckon, it could be a justifiable and logical answer to price related pharmaceutical patent conundrum in India.

Health Technology Assessment, as many will know, examines the medical, economic, social and ethical implications of the incremental value of a medical technology or a drug in healthcare.

HTA, in that process, will analyze the costs of inputs and the output in terms of their consequences or outcomes. With in-depth understanding of these components, the policy makers decide the value of an intervention much more precisely.

Companies like, Merck, Pfizer and GSK have reportedly imbibed this mechanism to arrive at a value of the invention. National Pharmaceutical Pricing Authorities (NPPA) may well consider this approach for a well judged, scientific and transparent pricing decision mechanism in India, especially for innovative new drugs.

Could local manufacturing be an option?

Considering relatively higher volume sales in India, to bring down the price, the global companies may consider manufacturing their patented products in India with appropriate technology transfer agreements being in place and could even make India as one of their export hubs, as a couple of their counterparts have already initiated.

Accepting the reality responsibly:

In view of the above, the global pharmaceutical players, as experts believe, should take note of the following factors. All these could help, while formulating their India-specific game plan to be successful in the country, without worrying much about invocation of Compulsory License (CL) for not meeting ‘Reasonably Affordable Price’ criterion, as provided in the Patents Act of the country:

While respecting IPR and following Doha declaration, the government focus on ‘reasonably affordable drug prices’ will be even sharper due to increasing pressure from the Civil Society, Indian Parliament and also from the Courts of the country triggered by ‘Public Interest Litigations (PIL)’

India will continue to remain within the ‘modest-margin’ range for the pharmaceutical business with marketing excellence driven volume turnover.

Although innovation will continue to be encouraged with IPR protection, the amended Patents Act of India is ‘Public Health Interest’ oriented, including restrictions on patentability, which, based on early signals, many other countries are expected to follow as we move on.

This situation though very challenging for many innovator companies, is unlikely to change in the foreseeable future, even under pressure of various “Free Trade Agreements (FTA)”.

Sectors Attracting Highest FDI Equity inflows:

When one looks at the FDI equity inflow from April 2000 to March 2013 period as follows, it does not appear that FDI inflow in Drugs and Pharmaceuticals had any unusual impact due to ‘Patent Conundrums’ in the country at any time:

Ranks	Sector	US$ Million
1.	Service Sector	37,151
2.	Construction Development:(Township, Housing, Built-up infrastructure)	22,008
3	Telecommunication(Radio paging, Cellular mobile,Basic telephone services)	12,660
4	Computer Software &Hardware	11,671
5	Drugs & Pharmaceuticals	10,309
6	Chemical	8,861
7	Automobile Industry	8,061
8	Power	7,828
9	Metallurgical Industries	7,434
10	Hotel & Tourism	6,589

Further, if we look at the FDI trend of the last three years, the conclusion probably will be similar.

Year	US$ Million.
2010-11	177.96
2011-12	2,704.63
2012-13	1,103.70

(Source: Fact Sheet on Foreign Investments, DIPP, Government of India)

Conclusion:

In search of excellence in India, global pharmaceutical companies will need to find out innovative win-win strategies adapting themselves to the legal requirements for business in the country, instead of trying to get the laws changed.

India, at the same time, should expeditiously address the issue of blatant patent infringements by some Indian players exploiting the legal loopholes and set up fast track courts to resolve all IP related disputes without inordinate delay.

Responsible drug pricing, public health oriented patent regime, technology transfer/local manufacturing of patented products and stringent regulatory requirements in all pharmaceutical industry related areas taking care of patients’ interest, are expected to be the key areas to address in the business models of global pharmaceutical companies for India.

Moreover,it is worth noting that any meaningful and long term FDI in the pharmaceutical industry of India will come mostly through investments in R&D and manufacturing. Such FDI may not be forthcoming without any policy compulsions, like in China. Hence, many believe, the orchestrated bogey of FDI for the pharmaceutical industry in India, other than brownfield acquisitions in the generics space, is just like dangling a carrot, as it were, besides being blatantly illusive.

Even with all these, India will continue to remain too lucrative a pharmaceutical market to ignore by any. Thus, I reckon, despite a high decibel patent conundrum, any thought to ignore or even be indifferent to Indian pharmaceutical market by any global player could well be foolhardy.

By: Tapan J. Ray

PILMAN

A Tapan Ray Website

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