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Changing pharmaceutical marketing environment demands a change in mindset for a new strategic direction.

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Will the Tsunami of change hit India too?
In the matured markets of the global pharmaceutical industry, individual doctors are no longer the prime target customers. Healthcare providers, patient advocacy groups, pharmacy benefit managers, clinical assessment authorities etc have already emerged as key decision makers for use of various branded or generic medicines and other kind of healthcare facilities/ support for the patients.In India even today individual doctors are the prime target customers for the pharmaceutical companies as, by and large, they are the key decision makers for usage of medicines and other healthcare facilities for the patients.

However, a distinct change, albeit slowly though, is now noticeable within healthcare financing system in India. Slow but gradual emergence of healthcare providers with medical insurance and other related products, patient advocacy groups, standard treatment guidelines etc, are expected to bring in a radical change the way current pharmaceutical marketing strategy is formulated, which continue to revolve round the doctors, mainly. The small ripples of change, blessed by adequate dose of the Government’s financial policy reform measures, may soon get converted into a Tsunami of change, destroying the current pharmaceutical business strategy directions of majority of the companies. Rapid increase in the number of healthcare providers and other related stakeholders with attractive schemes for various strata of the civil society, will herald the emergence of very powerful groups of negotiators for products’ price and other healthcare related services. These groups will be capable to very strongly and significantly influence doctors’ products and other treatment choices.

Marketing will be a ‘composite value delivery system’:

In addition, during the coming years of post product patent regime in the country, pipelines of the domestic Indian companies for new ‘copycat’ versions of patented products are expected to completely dry up, making the price competition in the market place even more ‘cut throat’. In such type of environment Indian pharmaceutical companies will be under tremendous pressure to provide additional composite value, not just the physical products, as differential offerings to the patients, doctors, healthcare providers and other stakeholders, in and around the related disease areas. Ability to deliver such composite differential value along with the product will enable a company to acquire the competitive cutting edge.

Required leadership and managerial skill sets will be quite different:

In the new environment required skill sets of both the leaders and the managers of the Indian pharmaceutical companies will be quite different from what it is today. This will not happen overnight though, but surely gradually.

Skill requirements:

Leaders and managers with only individual functional expertise like, R&D, manufacturing, marketing, regulatory, finance etc will no longer be successful in the new paradigm. To handle new types and groups of customers, the leaders and managers will need to ensure:

• Multi-functional expertise by rotating right people across the key functional areas

• Knowledge of ‘Pharmaco-economics’ and/or ‘health technology assessment’ (HTA)

• Ability to interpret patients’ clinical benefits against cost incurred by the payors to achieve the targeted clinical outcome, especially in the areas of new products

• Insight about the thought pattern of the healthcare providers and other customers or influencers groups

• Speed in decision making and more importantly ability to take ‘first time right’ on the spot decision, which can make or mar a commercial deal.

Managing the phase of transition:

During the ensuing phase of transition in India, pharmaceutical companies should:

• Clearly identify, acquire and hone the new skill sets, which would drive the changing scenario

• Get strategically engaged with the existing public/private healthcare providers and health insurance companies like, Mediclaim, ICICI Lombard, large corporate hospital chains, retail chain chemists and others, proactively

• Drive the change, instead of waiting for the change to take place

• Ensure that appropriate balance is maintained in both types of marketing strategies, in innovative ways.

Conclusion:

Indian pharmaceutical industry has been trapped in a difficult to explain ‘strategic inertia’, as it were, since long. It is high time now to come out of it and face the change upfront boldly and squarely to translate this challenge into a possible growth opportunity. Global pharmaceutical companies are now gaining expertise in the new ball game in the developed markets of the world. If majority of the Indian pharmaceutical companies, who are not yet used to handling such change, are caught unaware of this possible future trend, the tsunami of change could spell a commercial disaster to them. However, I strongly hope that this new and yet another challenge of change will be met with a clear and well thought out strategic initiatives to give a further boost to the growth engine of the industry.

By Tapan Ray

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

Europe: now emerging as a more preferred market for the domestic Indian Pharmaceutical Industry

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Since almost last 30 years the Pharmaceutical Industry of India has been a net foreign exchange earner. Deutche Bank Researchindicates that over the last ten years the export surplus has widened from EUR 370 million to EUR 2 billion.Around 80% of these pharmaceuticals manufactured in India are sold to the US and Europedriven by higher purchasing power of the people in those countries and also due to recent regulatory changes towards greater cost containment initiatives by the respective governments.
Europe – a preferred destination for Indian Pharmaceutical companies:

In the quagmire of global recession, prompted by increasing pricing pressure with consequent pressure on the bottom-line, many Indian pharmaceutical companies have started increasing their focus on Europe. The European generics market is now growing faster than overcrowded US generics market.

Top domestic Indian pharmaceutical Companies like Ranbaxy, Sun Pharma, Dr. Reddy’s Laboratories (DRL), Glenmark, Wockhardt and Aurobindo whose performance is highly dependent on their revenues from the US and Europe perhaps will need to have a sharper look at both western and eastern Europe.

It has been reported that because of higher volume penetration of over 55% of generics pharmaceuticals in Europe, which is significantly higher than US, Europe offers an attractive and better growth opportunities to the Indian pharmaceutical companies in the medium to longer term. Companies like Ranbaxy, Wockhardt and Aurobindo have already reported to have started showing higher revenue growth in Europe than USA.

Major merger and Acquisition (M&A) initiatives of the Indian pharmaceutical companies in Europe augur well towards this direction. Ranbaxy has already acquired companies in France, Belgium, Romania and Zydus Cadila in France. DRL purchased Betapharm in Germany.

Inorganic growth will demand a more cautious approach:

However, the path of M&A by Indian pharmaceutical companies should be treaded with more caution. The case in point is Wockhardt, which grew with a scorching pace of over 30% on an average for several years in the recent past driven by its inorganic growth strategy. In 2006-07 Wockhardt acquired two companies in Europe, one in Ireland and the other in France. Unfortunately, the company could not manage its rapid growth through such M&A as efficiently for long and got entangled in a debt trap of around Rs. 34,000 crore in that process.

Converting problems into opportunities:

Global financial meltdown throws open an opportunity for the Indian pharmaceutical companies to acquire the distressed specialty pharmaceutical companies at a very competitive price in Europe. Many small pharmaceutical companies in Europe are now looking to sell their facilities because of difficulty in maintaining their business arising out of higher operating costs.

In such a scenario after acquiring a company in those countries, the Indian acquirer will have an opportunity to transfer the manufacturing operations to India, where the costs are much lower, keeping just the marketing operations there.

A report from The Economic Times (ET) indicates that Pharmaceutical majors like Zydus Cadilla are looking for acquisition in Spain and Italy and Glenmark in the Eastern Europe. Kemwell of Bangalore has recently acquired the manufacturing plant of Pfizer located in Sweden and has expressed intention to shift their manufacturing operations to India to concentrate only on marketing with the acquired local infrastructure.

Just at the same time and for the same reasons many global pharmaceutical companies plan to outsource their manufacturing requirements from India and China retaining the R&D and marketing operations with them.

Increasing attention on Eastern Europe:

According to PMR, the Polish Market Research company, countries like Ukraine, Bulgaria, Turkey, Russia and Romania are quite attractive for pharmaceuticals business in the Eastern Europe.

In that part of the world, Russia, Romania and Ukraine have been dominating in terms of sustained high growth since last five years. Acquisition of a local company will provide the best option for quick entry into these markets, recommends PMR.

Conclusion:

Global financial meltdown has thrown open many doors of opportunities for rapid entry into both eastern and western European markets by the Indian pharmaceutical companies for better future growth potential. I am sure the domestic pharmaceutical companies will carefully evaluate these opportunities to take appropriate action to catapult themselves to a higher business growth trajectory in the years to come by.

Tapan Ray

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

Dire need of quality ‘Cold Chain’ infrastructure for pharmaceuticals in India and its efficient management through Public Private Partnership initiatives.

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Why Cold Chain for pharmaceuticals?Drugs are complex entities and many of these are temperature sensitive in nature. This entails them requiring precise and continuous temperature conditions in transit in order to retain their potency and resultant efficacy.Many life saving drugs including biotech products and vaccines fall under such category. Any break in the cold chain process for such drugs can lead to immediate denaturing or deterioration in their quality parameters. It is imperative that a careful consideration is given by all concerned including government agencies mainly at the seaports and airports while providing storage space at their warehouses for such drugs.

Current bottlenecks and lack of proper cold chain infrastructure:

Currently in India there are bottlenecks at the Airports and Seaports that include authorities not being able to assure cold room space despite getting advance notices from the pharmaceutical companies about the possible unloading of large consignments of temperature sensitive products.

Some of the other gaps include improper training and refresher courses for the handling staff who handle such products at the ports. Storage of Pharmaceutical products along with meat and food products is against the GMP norms.

Cold Chain medicines require different and special temperature control:

Cold Chain Medicines require special temperature controlled Cold storage. There are two commonly recommended temperatures specified on labels of cold chain products:

1. Products requiring temperature between 2 to 8 degree centigrade

2. Products requiring temperature around -10 to -20 degree centigrade

Cold Chain should be an uninterrupted series of storage and distribution activities which will maintain required temperature range of 2 to 8 degree centigrade or -10 to -20 degree centigrade as per products requirements.

Proper Cold Chain Management system is essential to ensure right product quality:

Proper Cold Chain Management of pharmaceuticals will ensure that the right quality of such products is maintained not only during storage but during transportation also to meet regulatory specifications. There is a greater focus and stringent regulatory guidelines/standards are in place today in the developed markets around the world for strict adherence to right storage and transportation process for cold chain sensitive pharmaceuticals.

It should be kept in mind always that Cold Chain products are mostly sensitive biological substances that can become less effective or lose potency if not properly stored.

Some examples:

Products requiring 2 to 8 degree storage will not be effective if:

i. They are frozen or stored below 2 degree centigrade
ii. Exposed to temperatures above 8 degree centigrade
iii. Exposed to direct sunlight or fluorescent light

The loss of potency is cumulative and irreversible. If products are exposed to conditions outside the established range, the quality may be adversely affected, reducing their assigned shelf life, diminishing their effectiveness or making them ineffective. The exposed product may look just as the same – the loss of potency may not be visible.

World class SOPs for Cold Chain storage and handling facilities are essential :

Quality of storage and handling of Cold Chain Pharmaceutical products at Airports and Seaports in the course of export from or import into India requires special care and attention. Since multiple products are stored and handled at Seaports/ Airports, personnel may not be able to appreciate the special need for Cold Chain pharmaceuticals’ storage & handling. Thus, there should be Standard Operating Procedures (SOPs) for storage and handling of pharmaceuticals laid down by the Port Management authorities, so that the personnel handling pharmaceuticals strictly adhere to the pre-set norms.

Pharmaceutical products requiring cold chain facilities are rapidly growing in numbers:

Pharmaceutical Products for which efficient Cold Chain facilities are required are rapidly growing in numbers. In their movement across the supply chain from the manufacturers to the patients, the medicines are handled and stored by various stakeholders like transporters, Airports, Seaports, Distributors, Stockists, Retailers etc. Since the storage and handling of Cold Chain Pharmaceuticals Products are unique, an uninterrupted Cold Chain is to be maintained in the entire supply chain network without any discontinuity, even for a short while. This will ensure that medicinal products of high quality reach the patients, always. it is, therefore, very important for all concerned stakeholders to ensure maintenance of proper Cold Chain facilities.

Government plan of “Pharma Zones” in India:

The Drugs Controller General of India (DCGI) has planned a separate dedicated controlled environment – ‘Pharma Zone’, within the cargo premises at Airports and Seaports for proper storage of Pharmaceutical products in line with Good Manufacturing Practices and Good Distribution Practices so as to assure right quality, safety and efficacy of Pharmaceutical products, which are to be either imported or exported.

Currently no ‘Pharma Zones’ in India:

At present there are no ‘Pharma Zones’ in India. However, Mumbai International Airport Private Limited (MIAL) has created 4 new cold rooms for pharmaceuticals. It has been reported that the new Cargo Terminal of Delhi International Airports Limited (DIAL), which is expected to be commissioned later in the year, will have around 4000 square metres of additional cold room capacity compared to the current cold room capacity of 400 square metres. Similarly, MIAL is also planning for a dedicated Cold Room facility for Pharmaceutical Products in their new set–up.

Need for outsourcing Cold Chain services:

In the developed markets of the world there are private cold chain storage and third party logistics providers to offer contract logistics and storage services especially to cater to the growing demands of the Biopharmaceutical segment, which is now the fastest growing manufacturing sector within global pharmaceutical industry.

It is expected that spend of the Biopharmaceutical companies towards outsourcing of cold chain facilities will grow by over 10% to 15% for the next three to five years in the developed markets. India being the second largest producers of Biopharmaceuticals after China, similar opportunities exist in the country.

In India some renowned international courier companies like DHL and World Courier have been reported to have developed an efficient cold-chain management process, especially for the pharmaceutical companies to properly maintain the cold chain in their logistics network.

Conclusion:

A world class cold chain infrastructure and its efficient management within the country will help immensely to Indian domestic pharmaceutical companies, as well, as they are exploring more and more opportunities to export Biopharmaceuticals in the global market. To achieve this objective modern cold chain warehouses and their efficient management as per regulatory guidelines will play a key role in ensuring right product quality standard that India will export.

Over a period of time cold-chain management practices of global standards will be required to achieve this goal. Currently for both import and export of cold-chain sensitive pharmaceuticals, as indicated above, the available infrastructural facilities pose to be one of the key challenges encountered by the industry to maintain high product quality during shipment and warehousing at the ports. Individual pharmaceutical companies like Eli Lilly, India have their own vehicles equipped with cold-chain management systems for transportation of their cold chain sensitive products.

Greater initiative by the DCGI in particular in this area, in collaboration with the Indian pharmaceutical industry, sooner, is absolutely essential. For the patients’ sake.

By Tapan Ray

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

Patent Linkage: an important step yet to be taken by the Government of India for proper enforcement of product patents granted in the country

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The process of Patent Linkage establishes a desirable communication process between the Health Ministry and the Patent Offices to prevent marketing approval of generic drugs before expiration of patents granted in India. It also ensures that one Government Department / Ministry does not impair the efforts of another Government Department / Ministry to provide effective intellectual property protection as required by Article 28 of the WTO TRIPS Agreement.
The system of Patent Linkage exists around the world:Following are some examples:

Australia – Health Authorities do not provide marketing approval for a generic copy which would infringe an existing patent.

Brazil – As of 2006, no copies of products still under patent have been launched in the market place. However, the Brazilian Health Agency (ANVISA), grants registration to copy products, based only on the merits of the case from the regulatory point of view, whether or not a patent has been granted for the same.

Canada – Health Regulatory Authorities do not provide marketing approval for pharmaceutical products protected by patents listed in the equivalent of the US FDA Orange Book.

China – The State Food & Drugs Administration (SFDA) must be satisfied that no patent is being infringed before it will issue marketing approval. If there has been litigation over a patent, SFDA will wait until the appeals process has been exhausted before acting.

Jordan – Marketing approval for a pharmaceutical product is not permitted during the period of patent protection.

Mexico – Applicants seeking marketing approval for generic pharmaceutical products in Mexico must certify that their patent rights are not infringed. The Health Regulatory Authorities then check with the Patent Office, which must respond within ten days to confirm whether a patent is involved. While Health Authorities will accept an application of marketing approval during the patent period, grant of marketing approval will be delayed until the patent expires.

Singapore – Applicants seeking marketing approval for generic pharmaceutical products in Singapore must declare that the application does not infringe any patent.

U.A.E – The Health Regulatory Authorities do not provide marketing approval for pharmaceutical products that remain under patent protection in the country.

U.S.A – U.S. FDA maintains a listing of pharmaceutical products known as the Orange Book. The Electronic Orange Book is also available via the internet at: http://ww.fda.gov/cder/ob The U.S. FDA does not authorize the marketing approval for a generic copy of a pharmaceutical product protected by a patent listed in the Orange Book.

Europe – Instead of Patent Linkage, the period of data exclusivity is for 10/11 years.

The Patent Linkage System is in progress in countries like Bahrain, Chile, Dominican Republic – Central America FTA (DR-CAFTA), Morocco and Oman.

Some people question why should India follow Patent Linkage system in the regulatory approval process?

In India ground realities in the patent enforcement process are quite unique. Thus there is an urgent need for having a Patent Linkage system in place for the following reasons:

1. The Government is granting product patent to encourage, protect and reward innovation in India, it will not be in the best interest of the innovators if the same Government grants marketing approval for a generic equivalent of the patented molecule during the patent life of the product.

2. Unlike many other countries, the Indian Patent Law has provision for both pre-grant and post-grant oppositions. Therefore, if anyone wants to challenge the patent, enough time will be available for the same.

3. After patent is granted for a product in India, if marketing approval is given to a generic equivalent of the same molecule, a dispute or patent infringement may arise. As per the Patents Act 2005, such disputes regarding patent infringement have to be challenged in a High Court. The judicial process is a long drawn one and it is quite possible that the patent life of the concerned molecule would expire during the dispute settlement period, which in turn, would raise doubts about the sanctity of granting a product patent to an innovator in our country.

Conclusions:

I therefore submit the following recommendations to ensure proper enforcement of products patent in India:

 The status of the grant of patent should be reviewed, through appropriate drug regulatory mechanism, before granting marketing permission to generic formulations and if the concerned innovative product is already patented in India, marketing permission for the generic formulation should be withheld.

 Appropriate mechanism/system should soon be worked out in co-ordination with other Ministries to avoid cases of infringement of product patents in India.

 The procedure (Patent Linkage) of checking the patent status of a product before granting marketing approval already exists in the Form 44. This procedure needs to be implemented.

India has instances where marketing permission has been granted by the DCGI for a generic product even when a product patent already exists for the same molecule in India. Such instances put the patent holder in a hardship and avoidable litigation involving huge resources both in terms of time and money. Situation like this can be effectively avoided by ascertaining the patent status before granting marketing permission to a generic manufacturer through an appropriate drug regulatory system, as indicated above.

By Tapan Ray

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

Changing recipe for growth in the new paradigm of Indian Pharmaceutical Industry… for its effective implementation there appears to be more questions than answers:

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India, the world’s largest democracy with its economy on a sustained growth track is creating an overall environment for high performance for all key sectors, including pharmaceuticals. In terms of GDP growth India is second only to China and is expected to become the fifth largest economy by 2017.
Dawn of a New Era:
Over a period of time, India has emerged as a fast growing pharmaceutical industry through various policy measures taken by the government of India (GoI). Such policy measures have been very supportive to the domestic companies. The absence of product patents from 1970 to 2005 enabled the Indian pharmaceutical companies to become world’s leading producers of ‘copycat’ versions of patented drugs. Lower cost base and expertise in ‘reverse engineering’ immensely helped the domestic industry to sustain its competitive edge during this period.

New product patent regime in 2005 heralded the dawn of a new era triggering a transformation of the industry. Return of large global companies like, MSD, Roche, Eli Lilly and entry of other company’s like Biogen, Genzyme, Allergan, Astellas, Eisai etc together with the emergence of many Indian companies to become research-based multinationals, are making this transformation more interesting.

Generic pharmaceuticals will continue to play a significant role:

Even with all these changes, generic pharmaceutical products will continue to play a significant role towards the growth of the industry. While being major global generic players, some large Indian companies like Dr. Reddy’s laboratories (DRL), Glenmark, Ranbaxy, Piramal Healthcare etc have commenced their journey on the long road of product discovery research with reasonable amount of initial success. There are now several new drug development programs by many of these Indian pharmaceutical companies, which will hopefully result in global product launches in not too distant future. India’s emphasis on research and development and new drug discovery is indeed growing since the country signed WTO agreement for product patent in 1995.

An industry with high success quotient:

Currently India is the world’s fourth largest producer of pharmaceuticals by volume and directly employs about 5 lakh people. The market is crowded with 20,000 pharmaceutical firms, 60,000 distributors and 700,000-800,000 retailers. Although there are around 5,600 licensed generics players, in reality around 3,000 of them are engaged in pharmaceutical production. The domestic pharmaceutical companies now cater to about 70% of the country’s requirements for medicines. The top 10 companies control about 30% and 250 companies control around 70% of the market.

Key determinants of success:

Following in my view are the key determinants, which will decide the extent of success of the Indian pharmaceutical industry as a whole:

• Healthcare delivery and infrastructure

• Access and affordability of modern medicines

• IPR environment

• Domestic R&D success

• Speed of regulatory reform process

• Disease trends and prescription patterns

• Public and private healthcare spending

• Penetration of health insurance

Domestic companies adopting different business model:

In this changing scenario different domestic companies are adopting different business models, as follows:

1. Penetration to the regulated generics markets:

- With partnership agreements with established generic companies

- Setting up own sales and marketing organisations both greenfield and also through acquisitions

- With acquisition of manufacturing facilities

2. Contract Research and Manufacturing Services (CRAMS):

Ballooning costs for research and development and low productivity have prompted the research-based global pharmaceutical companies to outsource part of their research and manufacturing activities to lower-cost, developing nations like, India and China.

India is gradually emerging as a competitive hub for CRAMS. The country is playing a significant role in manufacturing Active Pharmaceutical Ingredients (APIs) and intermediates for the global pharmaceutical industry. We have also seen the global pharmaceutical companies signing-up long-term outsourcing contracts with the Indian manufacturing and contract research organizations.

Generic pharmaceuticals produced in India are increasingly being accepted all over the world, excepting some recent US-FDA related issues. Many Indian companies like Piramal Healthcare, Aurobindo, DRL etc are taking up global generic manufacturing contracts for the global players like, Allergan, Pfizer and GSK, in addition to marketing generic pharmaceuticals themselves. Outsourcing of such business processes to India has undoubtedly been proved to be not only effective in saving costs, but also in saving valuable developmental time for the Multinational companies (MNCs).

Besides all these, India is emerging as the preferred destination for outsourcing clinical trials because of its both high quality and lower cost facilities of global standards.

3. Operating in domestic generic market

4. Investing more in R&D for discovery of NCE/NME

Key growth drivers:

A recent study jointly undertaken by the Organization of Pharmaceutical Producers of India (OPPI) and Yes Bank identified following key growth drivers for the domestic pharmaceutical Industry:

• Consolidation leading to better pricing

• Population growth, changing demographics and urbanization

• Increasing per capita income leading to higher penetration

• Access to quality healthcare through health insurance schemes

• Robust product patent regime, although generics will continue to grow

The questions to ponder:

1. Whether domestic Indian pharmaceutical companies will make large-scale investments in R&D to compete effectively with the global companies across the world?

2. Whether global pharmaceutical companies will be successful in marketing drugs patented in India?

3. Whether the government, physicians and patients keep supporting the generics?

4. How will the new Drug Policy be?

5. How will the government go about improving access to modern medicines from the current level of 35% to 100% of the Indian population?

Conclusion:

It is not quite easy to gauge the rate of progress of the Indian pharmaceutical industry in the new paradigm, at this stage. One of the key growth drivers of the domestic pharmaceutical industry has been the launch of a slew of new products of various types. The pipe line of such products has already started drying up in a comparative yardstick, in post product patent regime. Consequently, as already launched such new products reach the maturity stage from the growth phase of their ‘product life cycle’, a possible slowdown in the rate of growth of the respective companies in the domestic market is well anticipated.

There are other growth drivers though, for the industry, but how will these drivers actually drive the industry growth will, to a large extent, depend on proper answers to the above five questions. Thus, in the new paradigm though the growth recipe is ready, in its effective implementation there are more questions than answers.

By Tapan Ray

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

Union Budget 2009-10: there is something to cheer for the Pharmaceutical Industry

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Union Budget 2009-10 has reflected the intention of the new UPA Government to sharpen its focus on healthcare through various budgetary/fiscal measures and support. Although general expectations were more for a significant increase in the healthcare expenses as a % of GDP, the union budget proposals have satisfactorily addressed the key issues in the following five key areas of healthcare, to the extent possible by the Government at this stage:A. Infrastructure buildingB. Improving access to medicines

C. Reduction in transaction costs of Medicines

D. Incentivising R&D

E. Reduction in tax burden

A. Infrastructure building:

The Finance Minister has rightly focused on improvement of healthcare infrastructure of the country by increasing allocation under National Rural Health Mission (NRHM) by Rs.2,057 crore over interim budget 2009-10 of Rs.12,070 crore.

B. Improving access to medicines:

The budget proposal of covering all BPL families under Rashtriya Swasthya Bima Yojana (RSBY) with an increase in allocation by 40% is expected to help improving healthcare access. This is an increase over previous allocation of Rs. 350 crore.

C. Reduction in transaction costs of Medicines:

Reduction of Customs Duty for drugs used for cardiovascular diseases, influenza vaccine, breast cancer, hepatitis B, rheumatic arthritis and also for bulk drugs used for the manufacture of such drugs from 10% to 5% and total exemption of Excise and Countervailing Duty for these drugs will help in reduction of transaction costs of these medicines.

The drugs in question are Abatacept, Daptomycin, Entacevir, Fondaparinux Sodium, Influenza Vaccine, Ixabepilone, Lapatinib, Pegaptanib Sodium injection, Suntunib Malate, Tocilizumab.

Basic Custom duty on specified heart devices, namely Artificial Heart (left ventricular assist device) and Patent Ductus Arteriosus(‘PDA’)/Atrial Septal Occlusion device has also been reduced from 7.5% to 5%. Drugs and Pharmaceutical products of Chapter 30 and medical equipment continue to attract central excise duty of 4%.

However, the Industry expected that Government will take similar action for all life-saving drugs.

D. Incentivising R&D:

Extension of scope of current weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses except for a small negative list, is a welcome step.

E. Reduction in tax burden:

Following tax proposals of the Finance Minister will benefit the pharmaceutical Industry:

• Abolition of Fringe Benefit Tax (FBT)

• Extension of tax holidays for exporters upto 2011

• Tax incentives for the business of setting up and operating “Cold Chain” which is an integral part in the logistics for vaccines and many biotech products.

The Economic Survey 2008-09 highlights that the economy of the country has grown by 6.67% despite global economy meltdown. It indicates a sign of revival in domestic investment and the return of a climate of optimism. For the Pharmaceutical Industry, the Economic Survey comments as follows:

“The drugs price control should be limited to essential drugs in which there are less than 5 producers. All others should have been decontrolled”.

This issue I hope will be addressed in subsequent policy announcements by the Government.

By Tapan Ray

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

Global ‘Contract Research and Manufacturing Services’ (CRAMS) – a new growth opportunity for mid-cap Indian pharmaceutical companies… Are we ready?

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Intense competition within global pharmaceutical industry, patent expiries of blockbuster drugs, ballooning R&D costs together with low R&D productivity, more and more stringent regulatory standards coupled with intense cost containment measures are exerting intense pressure on the bottom lines of the global pharmaceutical companies. The situation, which is continuing for quite some time from now has triggered two important strategic business considerations:1. A rapid consolidation process through ‘mega mergers’ and ‘mega acquisitions’ while medium to smaller M&As continued mostly with an intent to bridge strategic business gaps.2. Increase in interest towards ‘Business Processes Outsourcing’ initiatives of various scales and types, which include contract manufacturing and contract research to lower cost countries with clear objectives of saving both cost and time.

Such a situation has given rise to the evolution of Contract Research and Manufacturing Services, popularly known as CRAMS, especially in countries like India and China.

India is fast emerging as one of the key outsourcing hubs for contract research and global formulations manufacturing activities by improving its manufacturing standards through global benchmarking and simultaneously honing its competitive edge.

CRAMS market – Global and Local:

In 2006 the global market for CRAMS was reported to be of US$52 billion, which is expected to grow to US$76 billion by 2010.

However, the CRAMS market in India was just around US$1.00 billion in 2006, which is expected to grow to around US$3.50 billion by 2010, with an estimated CAGR of around 38% during the period.

Contract Research Market:

In 2006, including clinical trials with data management, contract research market in India was estimated to be around US$370 million with an annual growth of around 45%. In that year out of total contract research market, clinical trials activities contributed over 50%, closely followed by pre-clinical trials with a contribution of around 30%. Custom synthesis together with chemistry and biology related R&D activities contributed balance 18% of the contract research market.

Contract Manufacturing market:

In 2007, the global market for contract manufacturing was around U.S$26 billion. The market is estimated to be of U.S$40 billion in 2011 registering a CAGR of around 12%.

Contract manufacturing market in India was reported to be of U.S$ 660 million with an annual growth of 48% in 2007. However, both India and China are expected to grow faster during this period with a CAGR of around 20% because of availability of skilled human resource and world class manufacturing facilities.

The global market for contract manufacturing is highly fragmented. The market share of top 10 companies in this field is just around 30%. As Catalent Pharma Solutions, USA is the largest contract manufacturer of the world with a turnover of U.S$1.8 billion in 2007; Piramal Healthcare is the largest contract manufacturer in India, which has registered a growth of over 30% in 2007-08. In the field of biotechnology Lonza of Switzerland is the largest contract manufacturer with a growth of over 75% in 2007.

Key Services provided by the CRAMS in India:

Contract Manufacturing Organizations:

They provide mainly:

• Manufacturing capacities to the global pharmaceutical companies
• Formulations development
• Value-added services like process development and process optimization

Contract Research Organizations:

They provide services mainly related to:

• Drug discovery
• Pre-clinical and clinical trial management

The Growth Divers for CRAMS business:

• Collaboration with global pharmaceutical companies in various areas of manufacturing, like local country-specific packaging of finished formulations from bulk packs imported from the originator, to complete manufacturing of the finished formulations, including supply of indigenously made raw material as per originators specifications.

• Outsourcing of formulations of off-patent molecules by the global companies to effectively compete with generics, as has happened between Pfizer and Aurobindo Pharma of Hyderabad, India.

• Expertise in cost-effective custom synthesis for global innovator companies of various scales of operation.

• Clear and sharp focus on CRAMS business by constantly improving manufacturing and supply chain management efficiencies. As is currently being practised by Piramal Healthcare. They have already spun off their R&D activities into a separate legal entity to unleash its commercial potential.

• Anytime readiness for audit of the approved site/s by any global regulator.

CRAMS space in India offers an emerging growth opportunity of global scale, especially to mid-cap domestic pharmaceutical companies. Many of these companies are still engaged in their old business model of the old paradigm of pre-IPR regime – manufacturing and marketing of generic brands and Active Pharmaceutical Ingredients (API). This business model can still work. But not without its huge inherent risk of continuous heavy pressure on the bottom lines due to intense cut-throat competition.

A strategic shift in the business model by those mid cap Indian pharmaceutical companies, who have wherewithal of creating world class CRAMS facilities for their global collaborators, would, to a great extent, be able to insulate their current high risk generic brands or API manufacturing and marketing business. At the same time, it will be quite possible for them to register a decent business growth by availing the emerging opportunities of the new paradigm of post IPR regime-CRAMS.

By Tapan Ray

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

Ensuring ‘health outcomes’ based drugs prescriptions will be more beneficial for the patients in India than just ‘price control’ of drugs

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Currently the global pharmaceutical market is undergoing a metamorphosis. The concept of ‘evidence-based medicine’ is gaining ground in the developed markets of the world, making the pharmaceutical companies generate requisite ‘health outcomes’ data using similar or equivalent products. Cost of incremental value that a product will deliver is of key significance. Some independent organizations like, the National Institute for Health and Clinical Excellence (NICE)in the UK have taken a leading role in this matter.Global pharmaceutical companies using more ‘health outcomes’ data to set pricing strategies:In early 2009, reported agreements between Sanofi-Aventis, Procter & Gamble and Health Alliance as well as Merck and Cigna vindicate this point. These agreements signify a major shift in the global pharmaceutical industry’s approach to gathering and using ‘health outcomes’ data

In the Sanofi-Aventis/Procter & Gamble-Health Alliance agreement, the concerned companies agreed to reimburse health insurance companies expenses incurred for patients suffering from non-spinal bone fracture while undergoing treatment with their drug Actonel.

In the Merck/Cigna agreement, Cigna will have the flexibility to price two diabetes drugs based on ‘health outcomes’ data.

‘Outcomes-based’ pricing strategies are expected to become the order of the day, in not too distant future, all over the world.

The ground realities in India:

Medicines constitute a significant cost component of modern healthcare systems, across the world. In India, overall healthcare system is fundamentally different from many other countries, even China. In most of those countries around 80% of expenses towards healthcare including medicines are reimbursed either by the Governments or through health insurance or similar mechanisms. However, in India situation is just the reverse, about 80% of overall healthcare costs including medicines are private or out of pocket expenses incurred by the individuals/families.

Since 1970, the Government of India (GoI) has been adopting various regulatory measures like cost based price control and price monitoring to make medicines affordable to the common man. For those products, which are patented in India, it has now been reported that GoI is mulling the approach of price negotiation with the respective companies.

However, we should keep in mind that making drugs just affordable in India, where about 65% of population does not have access to modern medicines, is indeed not a core determinant of either healthcare value or proven health outcomes or both.

Cost-effective ‘health outcomes’ based doctors’ prescriptions are more important:

Spending on medicines can be considered as an investment made by the patients to improve their health. To maximize benefits from such spending will require avoidance of products, which will not be effective and the use of lowest cost option with comparable ‘health outcomes’.

For this reason many countries have started engaging the regulatory authorities to come out with head to head clinical comparison of similar or equivalent drugs keeping ultimate ‘health outcomes’ of patients in mind. A day may come in India when the regulatory authorities will also concentrate on ‘outcomes-based’ pricing. However, in Indian context these appear to be very early days.

Till then…

1. Get Standard Treatment Guidelines (STG) prepared for the diseases more prevalent in India, based on, among other data, ‘health outcomes’ studies.

2. Put the STG in place for all government establishments and private hospitals to start with.

3. Gradually extend STG in private medical practices.

4. Make implementation of STG a regulatory requirement.

Thus we need to discuss first what these STGs are.

Standard Treatment Guidelines (STG):

STG is usually defined as a systematically developed statement designed to assist practitioners and patients in making decisions about appropriate cost-effective treatment for specific disease areas.

For each disease area, the treatment should include “the name, dosage form, strength, average dose (paediatric and adult), number of doses per day, and number of days of treatment.” STG also includes specific referral criteria from a lower to a higher level of the diagnostic and treatment requirements.

For a developing country like India formulation of STGs will ensure cost-effective healthcare benefits to a vast majority of population.

In India STGs have already been developed for some diseases by the experts in those areas. These are based on review of current published scientific evidence towards acceptable way forward in diagnosis, management and prevention of various disease conditions

STGs, therefore will provide:

- Standardized guidance to practitioners.
- Cost-effective ‘health outcomes’ based services.

GoI should encourage the medical professionals/institutions to lay more emphasis and refer to such ‘heath-outcomes’ based evidences while prescribing medicines. This will ensure more cost effective ‘health outcomes’ for their patients.

Conclusions:

Such an approach for drug usage will help both the doctors and the patients, significantly, to contain the cost of treatment in general and the cost of medicines in particular. Encouraging and implementing ‘health outcomes’ based medicines prescription in India will require, above all, a change in the mindset of all concerned. The use of an expensive drug with no significant improvement in ‘health outcomes’ should be avoided by the prescribers, initially through self regulation and if required through an appropriate regulation.

By Tapan Ray

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