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Quantum Growth Envisaged in Government Procurement for Pharmaceuticals: A Challenging Ball Game for Pharma Players

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Direct procurement by the Governments of various countries is attracting increasing importance not just at the domestic level, but internationally, as well. The systems adopted for Government Procurement (GP) globally are aimed at making a significant difference in the effectiveness of utilization of the exchequers’ fund and the quality of governance in the respective countries. Absolute transparency in the entire process of GP, extending fair and equal opportunities to all suppliers, is of utmost importance.

According to ‘The Center of International Development at the Harvard University, USA’, Government Procurement of goods and services typically accounts for 10-15% of GDP for the developed countries, and up to 20% of GDP for the developing nations. As a result, the local GP markets have started attracting attention of even the overseas suppliers to make this process an integral part of Free-Trade Agreements (FTAs) between countries.

GP was excluded in the General Agreement on Tariffs and Trade (GATT) negotiated in 1947. However, as the years progressed the members of WTO started exploring various ways to include GP in the multilateral trading system.

The proponents of WTO agreements on GP argue that the purchase decision of the governments on GP of goods and services should be non-discriminatory, irrespective of who produces the goods or renders required services, including foreign suppliers, if any.

GPA- The plurilateral Agreement:

In January 1, 1994 along with ‘Uruguay Round’ a landmark agreement was reached on GP, which is known as “The plurilateral Agreement on Government Procurement (GPA)”. This agreement was administered by a Committee of WTO members, who are Parties to the GPA and was signed by 41 of the 153 members of the WTO.

India joins as an observer in GPA – the first step for membership:

On Feb 11, 2010 ‘Reuters’ reported that “India has joined the World Trade Organization’s government procurement agreement as an observer, a first step to membership in the scheme regulating trade in goods bought by governments”. With this India joined other 22 WTO members with the same observer status, when 9 members including China are in the process of negotiation for full membership of the GPA.

On December 15, 2011, WTO reported a historic agreement by the members of GPA to ‘improve the disciplines for GP and expand the market access coverage valued at between 80 to 100 billion dollars a year’.

The opposition to GPA:

That said, those who oppose GPA also put forth strong arguments. They believe that such agreements instead of creating so called a ‘level playing field’ for all, would further complicate the situation where the developing countries, leave aside the least developed ones, would continue to remain at a disadvantage as compared to  the developed industrial nations.

The developing countries and the relief organizations argue that the growing industries of the developing nations will suffer most, if matured global companies are allowed to compete for GP together with the domestic players. Such a situation, they apprehend, could snow ball into huge balance of payment issues for the developing and the least developed nations.

Pharmaceuticals: Second largest item in public healthcare budget:

According to WHO, for the developing countries like India pharmaceuticals are the second largest item of expenditure, after personnel costs, ranging from 8 per cent to 12 per cent of the public health budget. Thus, such fund should be utilized with utmost care within a transparent and highly efficient GP system. It is envisaged, that efficient GP systems will play critical role in improving access to medicines in India.

GP for Pharmaceuticals in India:

The process of procurement of drugs and pharmaceuticals by the Ministry of Health of the Government of India is usually entrusted to an agency known as ‘Hospital Services Consultancy Corporation (HSCC)’. This multidisciplinary consultancy organization was set up to extend quality consultancy services in healthcare and other social sectors of the country.  HSCC undertakes the following:

  • Procurement of drugs and pharmaceuticals
  • Tendering process
  • Placement of orders
  • Follow-up, inspection and dispatch

So far, many World Bank supported programs for procurement of drugs and pharmaceuticals for Malaria, Tuberculosis, and Reproductive Child Health etc. were initiated by the HSCC. The procurement services of HSCC are in line with the procedures adopted by the World Bank.

Health being a State subject in India, pharmaceutical procurement is made by both the Central and State Governments, besides large private health institutions.

Though over 25 per cent of the total public sector drug volume is procured by the Central Government, there is no single Central Government procurement agency. Following are the key agencies currently handling the Central Government procurement for pharmaceuticals through competitive tendering process:

  • Central Government Health Services (CGHS)
  • Armed Forces Medical Services (AFMS)
  • Medical Stores Organization (MSO)

Examples of GP in the states:

Many state Governments have already started putting in place the GP process for pharmaceuticals in their respective states. This process is expected to gain momentum as we move ahead. Examples of GP system of some of the State Governments in India are as follows:

Delhi:

In 1996, to promote rational drug use with high quality of medicines, the ‘Delhi Society for Promotion of Rational Use of Drugs (DSPRUD)’ with the technical assistance from WHO introduced a pooled procurement system for all state-run hospitals and 150 Primary Health Centers (PHCs) in Delhi.

This robust procurement system with a competitive bidding process has reportedly resulted in price reduction of high quality medicines by 30-40 per cent. State-run hospitals and the PHCs now supply these prescriptions medicines to over 80 per cent of patients.

WHO, encouraged by the success of the ‘Delhi Model’, has recommended it to the other States of India. Currently the following State Governments are implementing the program in their respective states:

  • Maharashtra
  • Rajasthan
  • Punjab
  • Himachal Pradesh

Tamil Nadu:

In January 1995, Tamil Nadu Government had set up a Government-run Company known as, Tamil Nadu Medical Services Corporation (TNMSC). The main purpose of TNMSC was to make all essential drugs available in nearly 2000 government medical institutions throughout the State, with a well-structured, uniform and standardized system for procurement, storage and distribution of medicines.

To ensure efficient procurement of high quality drugs at competitive prices, TNMSC follows an open tendering system for purchases only from reputed manufacturers with a pre-specified minimum overall business turnover, having a market standing of not less than three years. Standby suppliers are also selected at the same time to eliminate any drug shortages for delayed or non-supply by the first supplier.

The competitive procurement bid system has reportedly enabled TNMSC to save on drugs to the tune of 36% of the allocation.

Andhra Pradesh (AP):

In AP public health care system delivers services at all levels of primary, secondary and tertiary care.

In 1998, a centralized pooled drug procurement system was implemented in AP with the establishment of the Drug Procurement Wing (DPW) within the ‘Andhra Pradesh Infrastructure State Development Corporation (APISDC)’.

For high quality GP they introduced a two tier system for bidding and procurement, starting with the technical bid and followed by the actual financial bidding process.

In this system, details of drug requirements are collected from public hospitals within the state, collated by the DPW and thereafter consolidated orders are placed to the competitive bid winners for supplying required essential medicines at the medical stores of each district of the state.

Odisha:

Odisha has a centralized system of procurement of drugs featuring in the National List of Essential Medicines (NLEM).

To ensure quality procurement, a pre-qualification stipulation of quality parameters and competitive price quotations are looked at.

Small Scale Industries (SSIs) are entitled to 5 per cent price preference along with other relaxations like, partial exemption from earnest money deposit and concession in sales tax.

A recent evaluation of the Drugs Distribution System in Odisha by WHO has highlighted that the key NLEM drug availability in all the centers except one in the state ranged from 80 to 100%.

UHC – A potential GP growth booster:

The recommendation no. 3.1.10 of the report titled ‘High Level Expert Group Report on Universal Health Coverage (UHC) for India’, instituted by the Planning Commission, clearly indicates that purchases of all health care services under the UHC system should be undertaken either directly by the Central and state governments through their Departments of Health or by quasi-governmental autonomous agencies established for the purpose.

PMO push for free drugs at Government hospitals:

Quoting the Prime Minister’s Office (PMO), ‘The Times of India’ on February 13, 2012 reported that availability of free medicines to all patients visiting any government health facility across the country will soon be a reality, as the Ministry of Health (MoH) is planning to spend around Rs 30,000 Crore under ‘free-medicines-for-all’ scheme with the  strong support of the PMO.

Quantum growth envisaged in the GP system:

UHC along with the above free medicine initiative by the MoH and expanded coverage of the National Rural Health Mission (NRHM)/ National Urban Health Mission (NUHM) are expected to make GP for pharmaceuticals a critical procurement initiative of the nation.

This appears more realistic when seen together with the increase in public spend allocation on health by the Planning Commission of India from current 0.9 per cent to 2.5 per cent of GDP during the Twelfth Five Year Plan period.

Thus a quantum growth is envisaged in the GP system for pharmaceuticals within the country.

Conclusion:

From all available indicators, it appears that GP for pharmaceuticals in India will assume immense importance to both the global and local pharmaceutical companies.

The Central Government, with ‘The Draft Public Procurement Bill, 2011’, seems to have already started moving in this direction. The enactment of this Bill will facilitate the Government not only to effectively leverage the state bargaining power for the prices of medicines, but also to ensure efficient delivery of high quality products to a very large section of the society.

Quite in tandem various State Governments should also either create afresh or revamp the existing procurement system, as the case may be, to put in place a robust GP mechanism in their respective states.

One clear outcome of the expansion of GP system for sure will be enormous pricing pressure on the pharmaceutical players in India, which will be quite challenging to navigate.

The scenario will get even more complex and heated up, especially for the smaller pharmaceutical players, as and when India becomes a signatory to the GPA of the WTO, opening its door wide ajar for the large global players to participate in the pharmaceutical bidding process of the Government, well facilitated by various FTAs.

In this rapidly evolving environment, are the pharma players, both global and local, ready with appropriate strategies and systems in place to participate in yet another challenging new ball game of low margin and high volume pharmaceutical business in India?

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.

The Game Changer: Effective transition from ‘blockbuster’ to an integrated ‘niche buster’ plus ‘generic drugs’ business model

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Since quite some time global pharmaceutical majors have been operating within the confines of high risk – high reward R&D based business model with blockbuster drugs (annual sales of over US$ 1 billion).

Blockbuster brands, mostly in the chronic-care segments have been driving the business growth, since long, of the global R&D based pharmaceutical companies. Many such blockbuster drugs are now at the end of their patent life like, Lipitor (Atorvastatin) of Pfizer.

Patent expiry of such drugs, especially in the environment of patent cliff, could make a severe adverse impact on the revenue and profit stream of many companies, leading to drastic cost cut including retrenchment of a large number of employees.

In addition ballooning costs of R&D failure coupled with the decisions of the governments all across the world, including the US , EU and even in Asia, to contain the healthcare cost – the recent examples being Germany, Spain, Korea and China, have become the major cause of concern with the business model of blockbuster drugs.

Availability of low cost and high quality generics coupled with increasing consumerism, growing relevance of outcome-based pricing model are making the global pharmaceutical business models more and more complex.

The need to realign with the new climate:

Accenture in its report titled, “The Era of Outcomes – Emerging Pharmaceutical Business Models for High Performance” had commented, “Unless pharmaceutical companies act now to adjust to the new climate, they will be pressured to sell their proprietary drugs at low profits because the market will no longer bear the premium price”.

‘Blockbuster drugs’ business model is under stress:

Over a period of so many years, the small-molecule blockbuster drugs business model made the global pharmaceutical industry a high-margin/high growth industry. However, it now appears that the low hanging fruits to make blockbuster drugs, with reasonable investments on R&D, have mostly been plucked.

These low hanging fruits mostly involved therapy areas like, anti-ulcerants, anti-lipids, anti-diabetics, cardiovascular, anti-psychotic etc. and their many variants, which were relatively easy R&D targets to manage chronic ailments. Hereafter, the chances of successfully developing drugs for ‘cure’ of these chronic ailments, with value addition, would indeed be a very tough call and enormously expensive.

Thus the blockbuster model of growth engine of the innovator companies effectively relying on a limited number of ‘winning horses’ to achieve their business goal and meeting the Wall Street expectations is becoming more and more challenging. It is well known that such business model will require a rich and vibrant R&D pipeline, always.

The changing scenario with depleting R&D pipeline:

The situation has started changing since quite some time from now. In 2007, depleting pipeline of the blockbuster drugs hit a new low. It is estimated that around U.S. $ 140 billion of annual turnover from blockbuster drugs will get almost shaved off due to patent expiry by the year 2016.

IMS reports that in 2010 revenue of more than U.S. $ 27 billion was adversely impacted due to patent expiry. Another set of blockbuster drugs with similar value turnover will go off patent by the end of 2011.

According to IBIS World, the following large brands will go off patent in 2011 and 2012:

Patent Expiry in 2011

Condition

Company

 2010 US Sales $ billion
Lipitor cholesterol Pfizer

5.3
Zyprexa antipsychotic Eli Lily

2.5
Levaquin antibiotics Johnson & Johnson

1.3
Patent Expiry in 2012

Condition

Company

 2010 US Sales $ billion
Plavix anti-platelet Bristol-Myers Squibb / Sanofi-Aventis

6.2
Seroquel antipsychotic AstraZeneca

3.7
Singulair asthma Merck

3.2
Actos type 2 diabetes Takeda

3.4
Enbrel arthritis Amgen

3.3

Proactive shift is required from ‘Blockbuster’ to Niche buster’ model:

Companies with blockbuster-drug business model without adequate molecules in the research pipeline may need to readjust their strategy even if they want to pursue similar R&D focused business model effectively.

Brand proliferation, though innovative, within similar class of molecules competing in the same therapy area, is making the concerned markets highly fragmented with no clear brand domination. In a situation like this, outcome based pricing and competitive pressure will no longer help attracting premium price for such brands anymore.

Being confronted with this kind of situation, many companies are now shifting their R&D initiatives from larger therapy areas with blockbuster focus like, cardiovascular, diabetes, hypertension and more common types of cancer to high value and technologically more complex niche busters in smaller therapy areas like, Alzheimer, Multiple Sclerosis, Parkinsonism, rare types of cancer, urinary incontinence, schizophrenia, specialty vaccines etc.

This trend is expected to continue for quite some time from now.

Generics to continue to drive the growth in the emerging markets:

It is expected that the global pharmaceutical market will record a turnover of US $1.1 trillion by 2014 with the growth predominantly driven by the emerging markets like, Brazil, Russia, India, China, Mexico, Turkey and Korea growing at 14% – 17%, while the developed markets are expected to grow just around 3-6% during that period.

The United States of America will continue to remain the largest pharmaceutical market of the world, with around 3-6% growth.

IMS predicts that over the next five years the industry will have the peak period of patent expiry amounting to sales of more than US$ 142 billion, further intensifying the generic competition.

The experts believe that the growth in the emerging markets will continue to come primarily from the generic drugs.

Integrated combo-business model with ‘niche busters’ and generic drugs:

Some large companies have already started imbibing an integrated combo-business model of innovative niche busters and generic medicines, focusing more on high growth emerging pharmaceutical markets.

The global generic drug market was worth US $107.8 billion USD in 2009 and is estimated to be of US$ 129.3 billion by 2014 with a CAGR of around 10%. However, there are some companies, who are still ‘sticking to knitting’ with the traditional R&D ‘blockbuster drugs’ based business models.

The process of innovative and generic drugs ‘combo-business model’ was initiated way back in 1996, when Novartis AG was formed with the merger of Ciba-Geigy and Sandoz. At that time the later became the global generic pharmaceutical business arm of Novartis AG, which continued to project itself as a research-based global pharmaceutical company. With this strategy Novartis paved the way for other innovator companies to follow this uncharted frontier, as a global ‘combo-business strategy’. In 2009 Sandoz was reported to have achieved 19% of the overall net sales of Novartis, with a turnover of US$ 7.2 billion growing at 20%.

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

Similarly another global pharma major Sanofi is now seriously trying to position itself as a major player in the generics business, as well, with the acquisition of Zentiva, an important player in the European generics market. Zentiva, is a leading generic player in the markets like, Czechoslovakia, Turkey, Romania, Poland  and Russia, besides the Central and Eastern European region. In addition to Zentiva, in the same year 2009, Sanofi also acquired other two important generic players, Medley in Brazil and Kendrick in Mexico.

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

Keeping a close vigil on these developments, even Pfizer, the largest pharmaceutical player of the world, has started curving out a niche for itself in the global market of fast growing generics, following the footsteps of other large global players like, Novartis, GlaxoSmithKline, Sanofi, Daiichi Sankyo and Abbott.

Yet another strategy – splitting the company for greater focus on both generic and innovative pharmaceuticals:

In the midst of the above trend, on October 19, 2011 Chicago based Abbott announced with a ‘Press Release’ its plan to separate into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals. The announcement said, the diversified medical products company will consist of Abbott’s existing diversified medical products portfolio, including its branded generic pharmaceutical, devices, diagnostic and nutritional businesses, and will retain the Abbott name. The research-based pharmaceutical company will include Abbott’s current portfolio of proprietary pharmaceuticals and biologics and will be named later. Both companies will be global leaders in their respective industries, the Press Release said.

Such splits are based on the belief of many that in the pharmaceutical business two entirely different business models of new drug discovery and generics will need different kind of business focus, which may not complement each other for the long term growth of the overall business.

OTC Switch of prescription drugs will continue:Prescription to ‘Over the Counter (OTC)’ switch of pharmaceutical products is another business strategy that many innovator companies have started imbibing from quite some time, though at a much larger scale now.This strategy is helping many global pharmaceutical companies, especially in the Europe and the US to expand the indication of the drugs and thereby widening the patients’ base.Recent prescription to OTC switches will include products like, Losec (AstraZeneca), Xenical (Roche), Zocor (Merck), etc. Perhaps Lipitor (Pfizer) will join this bandwagon soon.
Conclusion:

PwC in its publication titled “Pharma 2020: The Vision” articulated:

“The current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets. In order to make the most of these future growth opportunities, the industry must fundamentally change the way it operates.”

Quite in tandem a gradually emerging new ‘pharmaceutical sales and marketing model’ has started emphasizing the need for innovative collaboration and partnership within the global pharmaceutical industry by bundling medicines with patient oriented services. In this model, besides marketing just the medicines, as we see today, the expertise of a company to effectively deliver some key services like, patient monitoring and disease management could well be the cutting edge for business excellence. In this evolving scenario, those companies, which will be able to offer better value with an integrated mix of medicines with services, are expected to be on the winning streak.

Be that as it may, effective transition from ‘blockbuster’ to an integrated ‘niche buster’ plus ‘generic drugs’ business model, is expected to be “The Game Changer’ in the new ball game of the global pharmaceutical industry in the years ahead.

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.

India and China…Practical relevance of ‘Priority Watch List (PWL)’ status in ‘Special 301 Reports’ of America…and the REAL ‘Game Changers’

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Many stakeholders around the world believe that Intellectual Property Rights (IPR) environment in China is far better than what we have in India. Interestingly “2010 Special 301 Report” of the United States of America dated April 30, 2010, paints a totally different picture.

The priority watch list (PWL)’ countries:

The Office of The United States Trade Representative, in the Press Release of ’2010 Special 301 report’, mentioned the names of PWL countries as follows:
“Trading partners on the Priority Watch List (PWL) do not provide an adequate level of IPR protection or enforcement, or market access for persons relying on intellectual property protection. China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Pakistan, Thailand, and Venezuela are on the Priority Watch List. These countries will be the subject of particularly intense engagement through bilateral discussion during the coming year”.

It is, therefore, quite clear that so far as IPR environment is concerned both China and India feature in the PWL of America. This totally breaks the perceived myth, as is being very often made out to be by many, that China is a better implementer of IPR than India.
Reasons for featuring in the ‘Priority Watch List’ (PWL):
“2010 Special 301 Report” makes the following comments for China and India being in the PWL of the USA:

China:
1. China will remain on the Priority Watch List in 2010 and will remain subject to Section 306 monitoring. China’s enforcement of IPR and implementation of its TRIPS Agreement obligations remain top priorities for the United States…the overall level of IPR theft in China remains unacceptable.
2. The United States is heartened by many positive steps the Chinese government took in 2009 with respect to these issues, including the largest software piracy prosecution in Chinese history, and an increase in the numbers of civil IP cases in the courts.
3. The United States is also deeply troubled by the development of policies that may unfairly disadvantage U.S. rights holders by promoting “indigenous innovation” including through, among other things, preferential government procurement and other measures that could severely restrict market access for foreign technology and products.
4. China’s IPR enforcement regime remains largely ineffective and non-deterrent.
5. The U.S. copyright industries report severe losses due to piracy in China.
6. Counterfeiting remains pervasive in many retail and wholesale markets.
7. China maintains market access barriers, such as import restrictions and restrictions on wholesale and retail distribution, which can discourage and delay the introduction into China’s market of a number of legitimate foreign products that rely on IPR.
8. China’s market access barriers create additional incentives to infringe products.
9. China adopts policies that unfairly advantage domestic or “indigenous” innovation over foreign innovation and technologies.
10. Draft Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards, released for public comment in November 2009 by the Standardization Administration of China (SAC), raise concerns regarding their expansive scope, the feasibility of certain patent disclosure requirements, and the possible use of compulsory licensing for essential patents included in national standards.
11. With respect to patents, on October 1, 2009, the Third Amendment to China’s Patent Law, passed in December 2008, went into effect. While many provisions of the Patent Law were clarified and improved, rights holders have raised a number of concerns about the new law and implementing regulations, including the effect of disclosure of origin requirements on patent validity, inventor remuneration, and the scope of and procedures related to compulsory licensing, among other matters. The United States will closely follow the implementation of these measures in 2010.
12. The United States encourages China to provide an effective system to expeditiously address patent issues in connection with applications to market pharmaceutical products.
13. The United States continues to have concerns about the extent to which China provides effective protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.
14. Generally, IPR enforcement at the local level is hampered by poor coordination among Chinese government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes. As in the past, the United States will continue to review the policies and enforcement situation in China at the sub-national levels of government.

India:
1. India will remain on the Priority Watch List in 2010.
2. India continues to make gradual progress on efforts to improve its legislative, administrative, and enforcement infrastructure for IPR.
3. India has made incremental improvements on enforcement, and its IP offices continued to pursue promising modernization efforts.
4. Among other steps, the United States is encouraged by the Indian government’s consideration of possible trademark law amendments that would facilitate India’s accession to the Madrid Protocol.
5. The United States encourages the continuation of efforts to reduce patent application backlogs and streamline patent opposition proceedings.
6. Some industries report improved engagement and commitment from enforcement officials on key enforcement challenges such as optical disc and book piracy.
7. However, concerns remain over India’s inadequate legal framework and ineffective enforcement.
8. Piracy and counterfeiting, including the counterfeiting of medicines, remains widespread and India’s enforcement regime remains ineffective at addressing this problem.
9. The United States continues to urge India to improve its IPR regime by providing stronger protection for patents.
10. One concern in this regard is a provision in India’s Patent Law that prohibits patents on certain chemical forms absent a showing of increased efficacy. While the full import of this provision remains unclear, it appears to limit the patentability of potentially beneficial innovations, such as temperature-stable forms of a drug or new means of drug delivery.
11. The United States also encourages India to provide protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products.
12. The United States encourages India to improve its criminal enforcement regime by providing for expeditious judicial disposition of IPR infringement cases as well as deterrent sentences, and to change the perception that IPR offenses are low priority crimes.
13. The United States urges India to strengthen its IPR regime and will continue to work with India on these issues in the coming year.

Responses and reactions in India:
‘Special 301 Reports’ have always been received with skepticism both by the Government of India and the domestic media. Even in the past, PWL status has hardly bothered either India or China to bring in a radical change in the IPR environment of the respective countries, as desired by the USA.

A recent article on the ‘Special 301 Report 2010’ that appeared in ‘Business Standard’, Sunday, May 2, 2010 comments as follows:

“India, in fact, continues to be on the ‘priority watch list’ of the USTR’s ‘Special 301’ report, despite a detailed submission of the intellectual property rights (IPR) compliance measures initiated by it in 2009”.

Many stakeholders in India feel and have also articulated that despite the country taking important steps to improve implementation of IPR within the country, the position of India in ‘Special 301 Reports’ has not changed much since last so many years. India, therefore, envisages no harsh measures by the US Government as a result of being continuously in the PWL of the ‘Special 301 Reports’.

Why then China attracts more Foreign Direct Investments (FDI) than India in the Pharmaceutical space?

In my view, this has got not much to do with the IPR environment in these two countries. The key ‘Game Changers’ for China, I reckon, are as follows:

1. Larger market size due to greater access to medicines:
Access to medicine in China covers 85% of their 1.2 billion population, against 35% of 1.1 billion population of India.

2. Larger market size due to better affordability of medicine:

Around 85% of the population in China is covered through various medicine price reimbursement schemes. Whereas in India around 78% of such expenditure is ‘out of pocket’ expenses. Conversely, not more than 22% of the population is currently covered by drug price reimbursement schemes in India.

3. Strong signals to the Government that ‘innovative companies’ are contributing to the ‘Economic Progress’ of the country:

In such a booming pharmaceutical market scenario, it is essential for the business to keep the government engaged to help create a more ‘innovative pharmaceutical business’ friendly environment, where even a slight improvement in the prevailing IPR conditions will give a significant boost to their business performance.

IMS forecasts that by 2013 China is going to be the third largest pharmaceutical market in the world with an estimated turnover of US $66.7 billion against 13 ranking of India in the same league table, with an estimated turnover of US $15.5 billion.

Similar trend was observed in the immediate past, as well. As reported by IMS MAT September 2009, China registered a turnover of US $24 billion with 27.1% growth against US $7.7 billion with 12.9% growth of India, during the same period. IMS, based on their research data forecasts that during 2008-13 period, China will contribute 36% of the growth of the Asia Pacific Region, against 12% of India.

Under this situation, it appears quite prudent for the ‘innovative pharmaceutical companies’ to send signals to the Chinese Government that they are contributing to the ‘Economic Progress’ of the nation by making significant direct investments, obviously with an expectation to get more business friendly environment in that country.

Recent ‘Healthcare Reform’ in China has further improved its market attractiveness.

Thus the business attractiveness of China as a pharmaceutical market scores much higher than India, fetching more FDIs for them, prevailing IPR environment and PWL status in the ‘Special 301 Reports’ for the country not withstanding.

Conclusion:

Overall IPR environment in India, many experts strongly believe, does not seem to be much different from China, if not a shade better. While interacting with Chinese experts recently in that part of the world, I understand, ‘Data Protection’ is just ‘on paper’ in China, causing a huge issue for the innovator companies in that country. Similar situation prevails so far as the effectiveness of patent enforcement mechanism is concerned, where innovator companies are fighting and required to fight such infringement cases in the provincial level and in so many provinces of the country, posing a huge challenge to the patent holders.

So far as PWL status in ‘Special 301 Reports’ is concerned, it seems to have almost lost its relevance, as both India and China become stronger economies with increasing global dependence on them, consistently registering double digit or near double digit GDP growth.

In china, the pharmaceutical market attractiveness, its size and growth are driven by two key factors as mentioned above, viz, huge domestic market access/ penetration and better affordability of medicines through various effective medicine price re-imbursement schemes, across the country. The recent ‘Healthcare Reform’ of the country has added further momentum to this progress.

So long as India does not take robust policy measures, followed by their effective implementation to address, much ignored, the access and affordability issues of medicines for the common man, the country will continue to be a laggard, compared to China in the race of market leadership within the global pharmaceutical 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.

Are common patients in India just as the pawns of the game of chess or the victims of circumstances or both, in the socio-economic milieu of the country?

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“Public healthcare in India has the power to deliver improved health outcomes, as demonstrated by a growing number of national and international examples. However, supportive policies need to be put in place in order to change traditional determinants of health,”said Professor Sir Andrew Haines, Director, London School of Hygiene and Tropical Medicine at the third foundation day function of the Public Health Foundation of India (PHFI), not so long ago.The healthcare industry of India has indeed this power, which can catapult the industry to a growth orbit to generate an impressive revenue of around US$.150 billion by 2017 as estimated by India Brand Equity Foundation (IBEF) in November 2009. This growth will be driven primarily by the private investments in country.Be that as it may, the current healthcare standard and infrastructure in India, as we all know, is far from satisfactory. Though we have some healthcare centers of excellence spread sporadically across various cities and towns of India, public healthcare facilities are grossly inadequate to satisfy the current healthcare demand of the common man of India.

Healthcare spends in India:

Although total health spending of the nation is around 6 percent of its GDP being one of the highest within the developing countries of the world, public expenditure towards healthcare is mere 0.9 percent of the GDP and constitutes just a quarter of the total healthcare cost of the nation. According to a World Bank study, around 75 percent of the per capita spending are out of pocket expenditure of individual households, state and the union governments contribute around 15.2 percent and 5.2 percent respectively, health insurance and employers contribute just 3.3 percent and foreign donors and state municipalities contributing the balance of 1.3 percent.

Out of this meager allocated expenditure only 58.7% goes for the primary care.

Four essentials in Primary Healthcare:

When it comes to Primary Healthcare, following are the well accepted essentials that the government should effectively address:

1. Healthcare coverage to all, through adequate supply of affordable medicines and medical services

2. Patient centric primary healthcare infrastructure and networks

3. Participative management of healthcare delivery models including all stakeholders with a change from ‘supply driven’ to ‘demand driven’ healthcare program and policies

4. Health of the citizens should come in the forefront while formulating all policies for all sectors including industry, environment, education, deployment of labor, just to cite a few examples.

It is unfortunate that most of these essentials have not seen the light of the day, as yet.

The key reason for failure:

Inability on the part of the central government to effectively integrate healthcare with socio-economic, social hygiene, education, nutrition and sanitation related issues is one of the key factors for failure in this critical area.

Moreover in the healthcare planning process, health being a state subject, not much of coordinated planning has so far taken place between the central and the state governments to address the pressing healthcare related issues.

In addition, budgetary allocation and other fiscal measures, as stated earlier, towards healthcare both by the central and the state governments are grossly in adequate.

National Rural Health Mission (NRHM) – a good beginning:

To address this critical issue, the National Rural Health Mission (NRHM) was conceived and announced by the government of India. NRHM aims at providing valuable healthcare services to rural households of the 18 States of the country namely, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Jammu and Kashmir, Manipur, Mizoram, Meghalaya, Madhya Pradesh, Nagaland, Orissa, Rajasthan, Sikkim, Tripura, Uttarkhand and Uttar Pradesh, to start with.

The key objectives of this novel scheme are as follows:

• Decrease the infant and maternal mortality rate
• Provide access to public health services for every citizen
• Prevent and control communicable and non-communicable diseases
• Control population as well as ensure gender and demographic balance
• Encourage a healthy lifestyle and alternative systems of medicine through AYUSH

As announced by the government NRHM envisages achieving its objective by strengthening “Panchayati Raj Institutions” and promoting access to improved healthcare through the “Accredited Female Health Activist” (ASHA). It also plans on strengthening existing Primary Health Centers, Community Health Centers and District Health Missions, in addition to making maximum use of Non-Governmental Organizations.

NRHM is expected to improve access to healthcare by 20 to 25 percent in the next three years:

To many the National Rural Health Mission (NRHM) has made a significant difference to the rural health care system in India. It now appears that many more state governments are envisaging to come out with innovative ideas to attract and retain public healthcare professionals in rural areas.

On January 11, 2010, the Health Minister of India Mr. Ghulam Nabi Azad, while inaugurating the FDA headquarters of the Western Zone located in Mumbai, clearly articulated that the NRHM initiative will help improving access to affordable healthcare and modern medicines by around 20 to 25 percent during the next three years. This means that during this period access to modern medicines will increase from the current 35 percent to 60 percent of the population.

If this good intention of the minister gets translated into reality, India will make tremendous progress in the space of healthcare, confirming the remarks made by Professor Sir Andrew Haines, Director, London School of Hygiene and Tropical Medicine, as quoted above.

Is NRHM scheme good enough to address all the healthcare needs of the country?

NRHM is indeed a very good and noble initiative taken by the government to address the basic healthcare needs of the rural population, especially the marginalized section of the society. However, this is obviously not expected to work as a magic wand to resolve all the healthcare related issues of the country.

Are patients the pawns of the game of chess or the victims of circumstances or both of the socio-economic systems?

Currently, some important stakeholders of the healthcare industry seem to be using the patients or taking their names, mainly for petty commercials gains or strategic commercial advantages. They could be doctors, hospitals, diagnostic centers, pharmaceutical industry, activists, politicians or any other stakeholders. It is unfortunate that they all, sometime or the other, want to use the patients to achieve their respective commercial or political goals or to achieve competitive gains of various types or just for vested interests..

‘The Patient centric approach’ has now become the buzz word for all – do we ‘walk the talk’?

There does not seem to be much inclusiveness in the entire scheme of things in the private healthcare system, excepting some odd but fascinating examples like Dr. Devi Shetty, Sankara Nethralaya etc. As a result, excepting the creamy layers, patients from all other strata of society are finding it difficult to bear the treatment cost of expensive private healthcare facilities.

I personally know a working lady with a name Kajol (name changed) whose husband is suffering from blood cancer. One will feel very sad to watch how is she fast losing all her life’s savings for the treatment of her husband, pushing herself, having no alternative means, towards an extremely difficult situation day by day. There are millions of such Kajols in our society, who are denied of effective public healthcare alternatives to save lives of their loved ones.

If all stakeholders are so “patient centric” in attaining their respective objectives, why will over 650 million people of India not have access to modern medicines, even today? Is it ALL for poor healthcare infrastructure and healthcare delivery system in the country? If so, why do we have millions of Kajol’s in our country?

Consumer awareness and pressure on healthcare services and medicines in India will increase – a change for the better:

With the winds of economic change, rising general income levels especially of the middle income population, faster awareness and penetration of health insurance among the common citizens, over a period of time Indian consumers in general and the patients, in particular, like in the developed countries of the world, will start taking more and more informed decisions by themselves about their healthcare needs and related expenditure through their healthcare providers.

As the private healthcare providers will emerge in India, much more in number, like the developed world, they will concentrate not only on their financial and operational efficiencies exerting immense pressure on other stakeholders to squeeze out the best deal at the minimal cost, but also to remain competitive will start charting many uncharted frontiers and explore ways of enhancing the ‘feel good factors’ of the patients through various innovative ways… God willing.

Conclusion:

All stakeholders of the healthcare industry need to think of inclusive growth, not just the commercial growth, which could further widen the socio-economic divide in the country, creating numbers of serious social issues. As we know, this divide has already started widening at a brisk pace, especially in the healthcare sector of the country

It is hightime for the civil society, as well, to ponder and actively participate to make sure that the inclusive growth of the healthcare sector in India takes place, where like primary education, primary healthcare should be the ‘fundamental right’ for ALL citizens of the country.

By Tapan Ray

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