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Prescriptions in Generic Names Be Made A Must in India?

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Would prescriptions in generic names be made a must in India?

Yes, that’s what Prime Minister Modi distinctly hinted at on April 17, 2017, during the inauguration function of a charitable hospital in Surat. To facilitate this process, his government may bring in a legal framework under which doctors will have to prescribe generic medicines, the PM assured without any ambiguity whatsoever.

“In our country doctors are less, hospitals are less and medicines are expensive. If one person falls ill in a middle-class family, then the financial health of the family gets wrecked. He cannot buy a house, cannot conduct the marriage of a daughter,” he reiterated.

“It is the government’s responsibility that everybody should get health services at a minimal price,” the Prime Minister further reinforced, as he referred to the National Health Policy 2017. His clear assurance on this much-debated issue is indeed music to many ears.

Some eyebrows have already been raised on this decision of the Prime Minister, which primarily include the pharma industry, and its traditional torch bearers. Understandably, a distinct echo of the same one can also be sensed in some English business dailies. Keeping aside these expected naysayers, in this article, after giving a brief backdrop on the subject, I shall argue for the relevance of this critical issue, in today’s perspective.

Anything wrong with generic drugs sans brand names?

At the very outset, let me submit, there aren’t enough credible data to claim so. On the contrary, there are enough reports vindicating that generic drugs without brand names are generally as good as their branded equivalents. For example, a 2017 study on this subject and also in the Indian context reported, ‘93 percent of generic and 87 percent branded drug users believed that their drugs were effective in controlling their ailments.’

Thus, in my view, all generic medicines without any brand names, approved by the drug regulatory authorities can’t be inferred as inferior to equivalent branded generics – formulated with the same molecules, in the same strength and in the same dosage form; and vice versa. Both these varieties have undergone similar efficacy, safety and quality checks, if either of these are not spurious. There isn’t enough evidence either that more of generic drugs sans brand names are spurious.

However, turning the point that generic drugs without brand name cost much less to patients than their branded generic equivalents on its head, an ongoing concerted effort of vested interests is systematically trying to malign the minds of many, projecting that those cheaper drugs are inferior in quality. Many medical practitioners are also not excluded from nurturing this possible spoon-fed and make-believe perception, including a section of the media. This reminds me of the famous quote of Joseph Goebbels – the German politician and Minister of Propaganda of Nazi Germany till 1945: “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”

The lower prices of generic drugs without brand names are primarily because their manufacturers don’t need to incur huge expenditure towards marketing and sales promotion, including contentious activities, such as, so called ‘Continuing Medical Education (CME)’ for the doctors in exotic locales, and several others of its ilk.

Thus, Prime Minister Modi’s concern, I reckon, is genuine to the core. If any doctor prescribes an expensive branded generic medicine, the concerned patient should have the legal option available to ask the retailer for its substitution with a less expensive generic or even any other branded generic equivalent, which is supposed to work just as well as the prescribed branded generic. For this drug prescriptions in INN is critical.

Provide Unique Identification Code to all drug manufacturers:

When in India, we can have a digitally coded unique identification number, issued by the Government for every individual resident, in the form of ‘Aadhaar’, why can’t each drug manufacturer be also provided with a similar digitally coded number for their easy traceability and also to decipher the trail of manufacturing and sales transactions. If it’s not possible, any other effective digital ‘track and trace’ mechanism for all drugs would help bringing the wrongdoers, including those manufacturing and selling spurious and substandard drugs to justice, sooner. In case a GST system can help ferret out these details, then nothing else in this regard may probably be necessary.

Past initiatives:

In India, ‘Out of Pocket (OoP) expenditure’ as a percentage of total health care expenses being around 70 percent, is one of the highest in the world. A study by the World Bank conducted in May 2001 titled, “India – Raising the Sights: Better Health Systems for India’s Poor” indicates that out-of-pocket medical costs alone may push 2.2 percent of the population below the poverty line in one year. This situation hasn’t improved much even today, as the Prime Minister said.

Although, ‘prescribe drugs by generic names’ initiative was reported in July 2015, in the current context, I shall focus only on the recent past. Just in the last year, several initiatives were taken by the current Government to help patients reduce the OoP expenses on medicines, which constitute over 60 percent of around 70 percent of the total treatment cost. Regrettably, none of these steps have been working effectively. I shall cite hereunder, just three examples:

  • On February 29, 2016, during the Union Budget presentation for the financial year 2016-17 before the Parliament, the Finance Minister announced the launch of ‘Pradhan Mantri Jan-Aushadhi Yojana (PMJAY)’ to open 3,000 Stores under PMJAY during 2016-17.
  • On August 04, 2016, it was widely reported that a new digital initiative of the National Pharmaceutical Pricing Authority (NPPA), named, “Search Medicine Price”, would be launched on August 29, 2016. According to NPPA, “Consumers can use the app before paying for a medicine to ensure that they get the right price.”
  • In October 2016, a circular of the Medical Council of India (MCI), clearly directed the medical practitioners that: “Every physician should prescribe drugs with generic names legibly and preferably in capital letters and he/she shall ensure that there is a rational prescription and use of drugs”

A critical hurdle to overcome:

Besides, stark inefficiency of the MCI to implement its own directive for generic prescriptions, there is a key legal hurdle too, as I see it.

For example, in the current situation, the only way the JAS can sell more of essential generic drugs for greater patient access, is by allowing the store pharmacists substituting high price branded generics with their exact generic equivalents available in the JAS. However, such substitution would be grossly illegal in India, because the section 65 (11) (c) in the Drugs and Cosmetics Rules, 1945 states as follows:

“At the time of dispensing there must be noted on the prescription above the signature of the prescriber the name and address of the seller and the date on which the prescription is dispensed. 20 [(11A) No person dispensing a prescription containing substances specified in 21 [Schedule H or X] may supply any other preparation, whether containing the same substances or not in lieu thereof.]”

A move that faltered:

To address this legal issue, the Ministry of Health reportedly had submitted a proposal to the Drug Technical Advisory Board (DTAB) to the Drug Controller General of India (DCGI), for consideration. In the proposal, the Health Ministry reportedly suggested an amendment of Rule 65 of the Drugs and Cosmetics Rules, 1945 to enable the retail chemists substituting a branded drug formulation with its cheaper equivalent, containing the same generic ingredient, in the same strength and the dosage form, with or without a brand name.

However, in the 71st meeting of the DTAB held on May 13, 2016, its members reportedly turned down that proposal of the ministry. DTAB apparently felt that given the structure of the Indian retail pharmaceutical market, the practical impact of this recommendation may be limited.

The focus should now move beyond affordability:

In my view, the Government focus now should move beyond just drug affordability, because affordability is a highly relative yardstick. What is affordable to an average middle class population may not be affordable to the rest of the population above the poverty line. Similarly, below the poverty line population may not be able to afford perhaps any cost towards medicines or health care, in general.

Moreover, affordability will have no meaning, if one does not have even easy access to medicines. Thus, in my view, there are five key factors, which could ensure smooth access to medicines to the common man, across the country; affordable price being one of these factors:

1. A robust healthcare infrastructure
2. Affordable health care costs, including, doctors’ fees, drugs and diagnostics
3. Rational selection and usage of drugs by all concerned
4. Availability of health care financing system like, health insurance
5. Efficient logistics and supply chain support throughout the country

In this scenario, just putting in place a legal framework for drug prescription in generic names, as the Prime Minister has articulated, may bring some temporary relief, but won’t be a long-term solution for public health care needs. There arises a crying need to put in place an appropriate Universal Health Care (UHC) model in India, soon, as detailed in the National Health Policy 2017.

Brand names aren’t going to disappear:

Prime Minister Modi’s assertion to bring in a legal framework under which doctors will have to prescribe generic medicines, probably will also legally empower the retailers for substitution of high priced branded generics with low priced generic or branded generic equivalents.

This promise of the Prime Minister, when fulfilled, will facilitate making a larger quantum of lower price and high quality generic drugs available to patients, improving overall access to essential medicines. Hopefully, similar substitution will be authorized not just for the JAS outlets, but by all retail drug stores, as well.

Brand names for generic drugs will continue to exist, but with much lesser relevance. the Drugs & Cosmetic Rules of India has already made it mandatory to mention the ‘generic names or INN’ of Drugs on all packing labels in a more conspicuous manner than the trade (brand) name, if any. Hence, if a doctor prescribes in generic names, it will be easier for all retail pharmacists and even the patients, to choose cheaper alternatives from different available price-bands.

Possible changes in the sales and marketing strategies:

If it really happens, the strategic marketing focus should shift – from primarily product-brand marketing and stakeholders’ engagement for the same, to intensive corporate-brand marketing with more intense stakeholder engagement strategies, for better top of mind recall as a patient friendly and caring corporation.

Similarly, the sales promotion strategy for branded generics would possibly shift from – primarily the doctors to also the top retailers. It won’t be unlikely to know that the major retailers are participating in pharma company sponsored ‘Continuing Pharmacy Education (CPE)’ in similar or even more exotic places than the doctor!

There are many more.

International examples:

There are enough international examples on what Prime Minister Modi has since proposed in his speech on this issue. All these are working quite well. To illustrate the point with a few examples, I shall underscore that prescribing in generic name or in other words “International Nonproprietary Name (INN)’ is permitted in two-thirds of OECD countries like the United States, and is mandatory in several other nations, such as, France, Spain, Portugal and Estonia. Similarly, pharmacists can legally substitute brand-name drugs with generic equivalents in most OECD countries, while such substitution has been mandatory in countries, such as, Denmark, Finland, Spain, Sweden, Italy. Further, in several different countries, pharmacists have also the obligation to inform patients about the availability of a cheaper alternative.

However, the naysayers would continue saying: ‘But India is different.’

Impact on the pharma industry:

The March 2017 report of ‘India Brand Equity Foundation (IBEF)’ states that Indian pharmaceutical sector accounts for about 2.4 per cent of the global pharmaceutical industry in value terms, 10 per cent in volume terms and is expected to expand at a Compound Annual Growth Rate (CAGR) of 15.92 per cent to US$ 55 billion by 2020 from US$ 20 billion in 2015. With 70 per cent market share (in terms of value), generic drugs constitute its largest segment. Over the Counter (OTC) medicines and patented drugs constitute the balance 21 percent and 9 percent, respectively. Branded generics constitute around 90 percent of the generic market. In my view, if the above decision of the Prime Minister is implemented the way I deliberated here in this article, we are likely to witness perceptible changes in the market dynamics and individual company’s performance outlook. A few of my top of mind examples are as follows:

  • No long-term overall adverse market impact is envisaged, as ‘the prices of 700 essential medicines have already been capped by the National Pharmaceutical Pricing Authority (NPPA). However, some short-term market adjustments are possible, because of several other factors.
  • There could be a significant impact on the (brand) market shares of various companies. Some will have greater exposure and some lesser, depending on their current sales and marketing models and business outlook.
  • Valuation of those companies, which had acquired mega branded generics, such as Piramal brands by Abbott Healthcare, or Ranbaxy brands by Sun pharma, may undergo considerable changes, unless timely, innovative and proactive measures are taken forthwith, as I had deliberated before in this blog.
  • Together with much awaited implementation of the mandatory Uniform Code of Pharmaceutical Marketing Practices (UCPMP) sooner than later, the sales and marketing expenditure of the branded generic players could come down significantly, improving the bottom-line.
  • Pharma marketing ballgame in this segment would undergo a metamorphosis, with brighter creative minds scoring higher, aided by the cutting-edge strategies, and digital marketing playing a much greater role than what it does today.
  • A significant reduction in the number of field forces is also possible, as the sales promotion focus gets sharper on the retailers and digitally enabled patient engagement initiatives.

The above examples are just illustrative. I hasten to add that at this stage it should not be considered as any more than an educates guess. We all need to wait, and watch how these promises get translated into reality, of course, without underestimating the quiet lobbying power of the powerful pharma industry. That said, the long-term macro picture of the Indian pharma industry continues to remain as bright, if appropriate and timely strategic interventions are put well in place, as I see it.

In conclusion:

It is an irony that despite being the 4th largest producer of pharmaceuticals, and catering to the needs of 20 percent of the global requirements for generic medicines, India is still unable to ensure access to many modern medicines to a large section of its population.

Despite this situation in India, Prime Minister Modi’s encouraging words on this issue have reportedly attracted the wrath of some section of the pharma industry, which, incidentally, he is aware of it, as evident from his speech.

Some have expressed serious concern that it would shift the decision of choosing a specific generic formulation of the same molecule for the patients from doctors to chemists. My counter question is, so what? The drug regulator of the country ensures, and has also repeatedly affirmed that there is no difference in efficacy, safety and quality profile between any approved branded generic and its generic equivalents. Moreover, by implementing an effective track and trace system for all drugs, such misgiving on spurious generic medicines, both with or without brand names, can be more effectively addressed, if not eliminated. Incidentally, reported incidences of USFDA import bans on drug quality parameters and breach of data integrity, include many large Indian branded generic manufacturers. Thus, can anyone really vouch for high drug quality even from the branded generics in India?

Further, the expensive branding exercise of essential medicines, just for commercial gain, and adversely impacting patients’ access to these drugs, has now been questioned without any ambiguity, none else than the Prime Minster of India. The generic drug manufacturers will need to quickly adapt to ‘low margin – high volume’ business models, leveraging economies of scale, and accepting the stark reality, as was expressed in an article published in Forbes – ‘the age of commodity medicines approaches’. Even otherwise, what’s wrong in the term commodity, either, especially when generic medicines have been officially and legally classified as essential commodities in India?

Overall, the clear signal from Prime Minister Modi that ‘prescriptions in generic names be made a must in India ‘, well supported by appropriate legal and regulatory mechanisms – is indeed a good beginning, while paving the way for a new era of Universal Health Care in India. God willing!

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.

What Happens To Pharma’s Incredible Ride On The ‘Gravy Train’?

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India continues to be one of the fastest growing pharmaceutical market of the world with its over 40 percent of the total pharmaceutical produce is exported around the world. Over half of the total exports constitute of formulations, and the balance comprises of bulk drugs. India has been consistently maintaining its supremacy in the formulation exports since my salad days.

According to Export Statistics (2014-15) published by the Pharmaceutical Export Promotion Council of India (Pharmexcil), United States (US) is the largest market for the India’s pharmaceutical exports with a share of 27 percent of the total, followed by the United Kingdom (UK), South Africa, Russia, Nigeria, Brazil and Germany.

A red flag raised: 

Up until recently, it has almost been like walking over a bed of roses in this front for Indian pharma exporters. However, it does not seem to be so now, and at least in the foreseeable future, for a number of reasons.

The Press Release of ‘CRISIL Research’ dated May 17, 2016 has also raised a red flag in this area. The report foresees growth in pharma formulations (in US dollar terms) declining sharply to 10-12 percent annually over the next 5 years, as compared with a growth of ~19% seen in the last decade.

This adverse impact will be felt mostly in the US – the largest export destination of India, followed by the UK.

I reckon, there are three basic reasons for this changing scenario, namely, pricing, quality and lesser number of branded small-molecule blockbuster drugs going off patent.

The ride on the ‘gravy train’:

Pharma companies across the world consider that doing business in the US market would provide them a lot of money without facing any head wind, fundamentally driven by the drug pricing freedom in the country, as compared to any other market of the world.

This unfettered freedom of charging a hefty price premium in the largest pharma market of the world, on an ongoing basis, has been a critical factor of attraction for many pharma players to do business in the US, coming from various corners of the globe, including India, just as honey attracts the bees, as it were.

Thus far, it has been an incredible ride on the ‘gravy train’, as it were, for most of them.

However, ongoing activities of a large number of drug companies, dominated by blatant self-serving interests, have now given rise to a strong general demand for the Government to initiate robust remedial measures, soon. The telltale signs of which indicate that this no holds barred pricing freedom may not be available to pharma, even in the US, any longer.

In this article, I shall focus mainly on this point, drawing both global and local examples, as this development has a strong potential to add more to the existing miseries of many Indian drug exporters, of course in tandem with many other large MNCs.

Some recent developments: 

The April 21, 2016 issue of ‘The Financial Times’ quoted Joe Jimenez, the Global Chief Executive (CEO) of Novartis, where he said that pharma companies can no longer count on the “hockey-stick” trajectories for new products in the US. This is primarily due to the aggressive control of the drug expenses by the insurers and other healthcare payers, besides lawmakers and the public at large, of this most lucrative pharma market of the world.

As Jimenez said in the report, yesterday’s business model that pharma companies have followed since long, has now changed, slowing the pace of growth of innovative patented products in the US.

This trend is now heading north, primarily driven by the consolidation among the US insurers and healthcare providers. Consequently, the payers are making effective use of their greater bargaining power over the drug companies, especially to avail new incentives for cost savings, as provided in President Barack Obama’s Affordable Care Act, the article highlights.

To give a feel of it, I am quoting the example of a Novartis drug from the same ‘Financial Times’ article. It states, “Entresto, a treatment for heart failure, launched last year on the back of stellar clinical trial results, has so far sold more quickly in Europe than the US, marking a reversal of usual patterns in the pharma industry.”

A key differentiator in global ranking:

In this emerging scenario, all global companies will be adversely impacted for increasing pricing pressure in the US market.

This factor remaining the same for all the pharma players in the world, one of the key differentiating factors that would now play even more important role, is the richness of the advanced stage R&D pipeline of each innovator company.

For example, according to ‘Evaluate Pharma World Preview 2016, Outlook to 2022’ report, the overall R&D pipeline value of Roche is US$ 43.2 billion, far ahead of the same of Novartis’ US$ 24.1 billion and AstraZeneca’s at US$ 23.2 billion, followed by Eli Lilly, AbbVie, Pfizer, Sanofi, Celgene, Biogen and J&J and in that order. As a result, Roche is expected to overtake Novartis and Pfizer in the ranking by 2022, just when the global pharma industry would possibly cross as US$ 1Trillion mark.

Currently Novartis, though quite a small player in the Indian Pharmaceutical Market (IPM) holding the rank of 23 (AIOCD Pharmasofttech AWACS retail audit report, MAT August 2016), is number three in the global ranking, just ahead of Roche.

Indian generic players to feel the heat:

According to the Reuters report of September 11, 2016, US Department of Justice has sent summons this month to the US arm of Sun Pharma – Taro Pharmaceutical Industries Inc. and its two senior executives seeking information on generic drug prices. In 2010, Sun Pharma acquired a controlling stake in Taro Pharmaceutical Industries.

On September 14, 2016, quoting a September 8, 2016 research done by the brokerage firm IIFL, ‘The Economic Times’ reported that some large Indian generic drug manufacturers, such as, Sun Pharma, Dr. Reddy’s, Lupin, Aurobindo and Glenmark have also hiked the prices of some of their drugs between 150 percent and 800 percent in the US. This invites even more apprehensions in the prevailing scenario.

As I wrote in this Blog on September 12, 2016, the subject of price increases even for generic drugs has also reverberated in the ongoing Presidential campaign in the US.

The Democratic Party’s presidential nominee – Hillary Clinton has already promised, if elected in November 2016, she would constitute an ‘Oversight Panel’ to protect the consumers of her country from hefty price increases for long-available life-saving drugs.

Import bans:

In the midst of all this, import bans of a large number of formulations and bulk drugs by the US-FDA from several manufacturing facilities of Indian drug manufacturers of various scales and sizes, have further compounded the future risk potential of Indian pharma business growth in the US.

As investors are raising concerns, the following comment of the Co-Chairman and Chief Executive of Dr. Reddy’s Laboratories, reported by ‘Financial Express’ on August 24, 2015, well captures the pharma business risks in this area:

“The U.S. market is so big that there is no equivalent alternative. We just have to get stronger in the U.S., resolve our issues, build a pipeline and be more innovative to drive growth.”

However, this still remains a good intent. It is worth noting, for most Indian pharma exporters, the US is the single largest export market, with a stake, as high as nearly half of most of these companies’ annual revenue, and probably much more in profit, both of which are now showing a declining trend.

Price control coming in the UK:

On September 15, 2016, the Department of Health of the United Kingdom (UK) reportedly introduced a new Bill in Parliament to use its statutory power to limit the price of generic medicines where competition in the market fails, and pharma companies charge the NHS unreasonably high prices.

The Bill would also allow the government to apply penalties for non-compliance and to recover any payments owed through the courts following a right of appeal to a tribunal. The penalties can be a single penalty not exceeding £100,000 or a daily penalty not exceeding £10,000.

UK drug regulatory authorities had also announced import bans of APIs and formulations from some manufacturing facilities of a couple of leading Indian drug manufacturers, but on a lesser scale as compared to the USFDA.

Action in EU:

As reported by Bloomberg on July 22, 2016, The European Medicines Agency (EMA) has called for a halt to sales of hundreds of medicines that were tested in India, after an inspection of a research site found “substitution and manipulation” of the study samples. The affected companies include both large Indian and multi-national players.

According to a PTI report of July 27, 2015, after this incident Pharmexcil estimated that exports worth US$ 1-1.2 billion are likely to be affected, if cancellation of 700 generic drugs by the EU stands.

Conclusion:

All these developments, particularly on pricing and mostly in the US, could have a retarding effect on the business growth trend of a large number of global and local pharma companies.

Focusing nearer home, the evolving scenario in the world’s top pharma market, viewed together with what’s happening in Europe, both on pricing and the data integrity fronts, send a strong cautionary signal to the Indian drug exporters, in general.

Inadequate remedial measures could unleash this pressure to reach a dangerous threshold, impacting sustainable performance of the concerned companies. On the other hand, adequate remedial action, both strategic and operational in nature, could lead to significant cost escalation, with no space available for its neutralization through price increases, gradually squeezing the margin.

As I see it, ease of doing pharma business in these top export markets will no longer be quite the same as in the past. Many believe, pharma industry has invited these measures sans perceptible self-control, over a long period of time.

Is it mostly a self-inflicted injury of the industry players? The drug companies, in general, don’t believe so. Will this change be irreversible?  Only the future could unravel this. However, regarding the possibility of future US Government legislation on drug pricing, it’s now a wait and watch game for the stakeholders. On a shorter time-frame, the ghost in this area, would keep haunting globally, primarily for business in the US market, at least, till the end of this year.

However, for the Indian pharma exporters, pricing appears to be just one among several other critical issues, especially, in the two most lucrative markets of the world. The overall situation in this area, by and large, remains unchanged till today, besides expression of a plethora of good intents.

Thus, pharma analysts’ quest to ferret out an answer to the Gordian knot on the continuity of Indian pharma exporters’ incredible long ride on the ‘gravy train’, has also not been plain sailing, so far. Further mired by the local manufacturers’ prolonging errors of judgement, the status quo ante is expected to still remain elusive, at least, for now.

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. 

On Serious Healthcare, Some Bizarre Decisions

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On August 04, 2016, it was widely reported by the media that the Union Minister of Chemicals and Fertilizers – Mr. Anant Kumar, would launch a new digital initiative of the National Pharmaceutical Pricing Authority (NPPA), named, “Search Medicine Price”, on August 29, 2016.

This is an app developed by the National Informatics Centre, for android smartphones ‘that will enable patients to check the prices of essential medicines on-the-go’. It will be an extension of NPPA’s “Pharma Jan Samadhan” web-portal facility. The Indian price regulator believes that wide use of this app would successfully reduce the instances of overcharging the consumers by the pharma companies and retail chemists, especially for lifesaving, and other expensive medicines. 

India’s drug pricing watchdog is planning to introduce this app to enable the patients check the prices of essential medicines on-the-go, and expects that this measure will hold drug companies and medicine retail outlets more accountable to patients.

In the test version of the app, which has since been released for stakeholder feedback, patients can search for the ceiling price of all medicines under the National List of Essential Medicines (NLEM), on the basis of its generic name and the state they’re buying it from.

The Chairman of NPPA, reportedly, further said, “Consumers can use the app before paying for a medicine to ensure that they get the right price. At present, whatever action we take against the companies, including recoveries, the consumer does not get back the overcharged amount he or she has paid.”

Good intent with a basic flaw:

The intent of the Government in this regard is indeed laudable. However, the initiative seems to underscore the blissful ignorance of the prevailing ground realities in India.

The media report highlights that with this app, the patients can search for the ceiling price of all medicines featuring in the NLEM on the basis of their generic names.

Whereas, the ground reality to make any meaningful use of this app is quite different. This is primarily because, in the Indian Pharmaceutical Market (IPM), over 90 percent of drugs are branded generics. An overwhelming majority of the doctors, as well, follow this trend while writing prescriptions for their patients, in general. For any single ingredients or Fixed Dose Combination (FDC) formulation, there are as many as even 30 to 40 brands, if not more. 

In that case, when the prescriptions given to patients are mostly for branded generic drugs, how would that person possibly get to know their generic names, to be able to check their ceiling prices with the help of the new “Search Medicine Price” app?

Not just a solitary example: 

This is just not a solitary instance of ignorance of the Government decision makers on the realities prevailing in the country.

With an admirable intent of making drugs more affordable for increased access, especially, to all those patients incurring out-of-pocket health expenditure, the Government has been taking several such measures, and is also trying to create a hype around these. Unfortunately, most of these efforts, miss the core objective of increasing access to drugs at the right price, by miles. 

Another recent example: 

This particular example, in my view, is even more bizarre.

It happened on February 29, 2016, the day when the Union Budget proposal for the financial year 2016-17 was presented before the Parliament of India.

In this budget proposal, the Union Finance Minister announced the launch of ‘Pradhan Mantri Jan-Aushadhi Yojana (PMJAY)’. 3,000 Stores under PMJAY will be opened during 2016-17.

Many consider this scheme as a repackaged old health care initiative, only adding the new words ‘Pradhan Mantri’ to it.

Just to recapitulate, Jan-Aushadhi is an ongoing campaign launched by the Department of Pharmaceuticals in 2008, in association with Central Pharma Public Sector Undertakings (PSU), to provide quality medicines at affordable prices to the masses.

Under this scheme, Jan Aushadhi Stores (JAS) are being set up to provide generic drugs, which are available at lesser prices, but are equivalent in quality and efficacy as expensive branded drugs.

The Department of Pharmaceuticals had initially proposed to open at least one JAS in each of the 630 districts of the country, so that the benefit of “quality medicines at affordable prices” is available to at least one place in each district of India.

If the initiative becomes successful, based on its inherent merit and the cooperation of all stakeholders, the scheme was to be extended to sub divisional levels as well as major towns and village centers by 2012. However, after 5 years, i.e. up to February, 2013, only 147 JAS were opened, and out of those only 84 JASs are functional. 

More recently, according to a June 02, 2015 report, “under the new business plan approved in August 2013, a target of opening 3,000 Jan Aushadhi stores during the 12th plan period i.e. from 2013-14 to 2016-17 was fixed. As per the Standing Committee on Chemicals and Fertilizers report in March 2015, till date only 170 JAS have been opened, of which only 99 are functional.”

Tardy progress:

The tardy progress of the scheme was largely attributed to:

  • A lackluster approach of State governments
  • Poor adherence to prescription of generic drugs by doctors,
  • Managerial/ implementation failures of CPSU/ BPPI.
  • Only 85 medicines spread across 11 therapeutic categories were supplied to the stores and the mean availability of these drugs was found to be 33.45 percent, with wide variations across therapeutic categories. 

There is no doubt, however, the intent of ‘Pradhan Mantri Jan-Aushadhi Scheme’ of 2016 is as laudable as the earlier “Jan-Aushadhi Scheme”, launched by the Department of Pharmaceuticals in 2008, was at that time. But, the moot question that comes at the top of mind:  Is it robust enough to work effectively in the present situation? 

Why it may not fetch the desired outcome?

Besides strong support from the State Governments, and other factors as enlisted above, making the doctors prescribe drugs in generic names would be a critical issue to make the “Pradhan Mantri Jan-Aushadhi scheme’ a success, primarily to extend desirable benefits to a sizeable section of both the urban and rural poor. Another relevant question that comes up now, how would the Government ensure that the doctors prescribe drugs in the generic names?

A critical challenge:  

Since, the generic drugs available from ‘Jan Aushadhi’ retail outlets are predominantly prescription medicines, patients would necessarily require a doctor’s physical prescription to buy those products.

Despite some State Government’s circulars to the Government doctors for generic prescription, and the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, that states: “Every physician should, as far as possible, prescribe drugs with generic names and he/she shall ensure that there is a rational prescription and use of drugs”, the doctors, in India, prescribe mostly branded generics. It includes even many of those prescriptions, generated from a large number of the Government hospitals.

The legal hurdle for generic substitution:

In a situation such as this, the only way the JAS can sell more for greater patient access to essential drugs, if the store pharmacists are allowed to substitute a high price branded generic with exactly the same generic molecule that is available in the JAS, without carrying any brand name, but in the same dosage form and strength, just as the branded ones. 

However, this type of substitution would be grossly illegal in India. This is because, the section 65(11)(c) in the Drugs and Cosmetics Rules, 1945 states as follows:

“At the time of dispensing there must be noted on the prescription above the signature of the prescriber the name and address of the seller and the date on which the prescription is dispensed. 20[(11A) No person dispensing a prescription containing substances specified in 21[Schedule H or X] may supply any other preparation, whether containing the same substances or not in lieu thereof.]” 

Thus, I reckon, the most important way to make ‘Jan Aushadhi’ drugs available to patients for greater access, is to legally allow the retailers substituting the higher priced branded generic molecules with their lower priced equivalents, sans any brand name.

A move that did not work:

Moving towards this direction, the Ministry of Health had reportedly submitted a proposal to the Drug Technical Advisory Board (DTAB) to the Drug Controller General of India (DCGI), for consideration.

In this proposal, the Health Ministry reportedly suggested an amendment of Rule 65 of the Drugs and Cosmetics Rules, 1945 to enable the retail chemists substituting a branded drug formulation with its cheaper equivalent, containing the same generic ingredient, in the same strength and the dosage form, with or without a brand name.

However, in the 71st meeting of the DTAB held on May 13, 2016, its members reportedly turned down that proposal of the ministry. DTAB apparently felt that given the structure of the Indian retail pharmaceutical market, the practical impact of this recommendation may be limited.

Conclusion:

Considering all this, just as ‘Pradhan Mantri Jan Aushadhi Yojana’, the likes of ‘Search Medicine Price app’, apparently, are not potentially productive health care related initiatives, if not just one-offs, ‘feel good’ type of schemes for the general population. 

These are not robust enough either, to survive the grueling of reality, impractical for effective implementation, and thus, seriously handicapped to fetch any meaningful benefits for the patients, on the ground.

It is, therefore, still unclear to me, how would the needy patients, and the Indian population at large, could derive any benefit from such bizarre decisions, on so serious a subject as health care.

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.

PE Investment In Pharma: The Changing Need Of Due Diligence

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From an international perspective, a Bain & Company report of April 2016 highlighted setting a new healthcare M&A record in the year 2015. During this year the total deal value was over 2.5 times higher than the average annual deal value of the previous decade. The report also mentioned that the Asia-Pacific Region grew in the same year by about 40 percent, fuelled by a number of activities in India and China. 

Commenting on India, the Bain report specifically mentioned that during the year, the Private Equity (PE) investors prioritized their investments in the country, not just targeting the global demand for pharmaceuticals, but also based on rapid domestic demand growth.

More popular targets in India were tertiary care, specialty care and laboratories. This is vindicated by TPG’s investment of US$146 million for a minority stake in Manipal Health, which operates multi-specialty and teaching hospitals in the country. Similarly, The Carlyle Group made a minority investment in the pathology lab chain – Metropolis Healthcare. This trend is expected to continue in the coming years and would in all probability include pharma companies of various sizes, with high performance or with high future potential.

In this article, I shall focus only on generic pharma companies in India.

A changing need of due diligence:

Despite some major uncertainties in the generally thriving domestic generic pharma market, this sector has the potential and possibility to come under the radar of many PE investors during the coming years.

However, in this scenario, to embrace success with lucrative returns, I reckon, there is a changing need of due diligence to follow, before suitable pharma companies are appropriately targeted. Conventional pharma due diligence, however stringent it is, may not capture appropriately the high-impact, up and down sides of long term business sustainability for the desired return on investments.

The rationale:

Consideration of significant cost savings in the pharma value chain won’t be just enough, any longer, to tide over any unforeseen rapid downturn in many pharma company’s business performances in the country.

This is largely because, many pharma companies in India have been thriving, so far, taking full advantage of some major loopholes in the regulatory area, including clinical trial; ethical marketing strategy and practices; overall generic product portfolio selection; new generic product developments; besides many others.

The need of a changing format of pharma due diligence in India is largely prompted by this prevailing scenario, even in the midst of stellar success of some companies, and plenty of lush green shoots, as they appear to many. 

The process of tightening the loose knots has commenced:

All these loose knots are expected to be tightened by the governments, sooner or later. In fact, while watching the intent of the Government and from some of its recent actions, it appears that the process has just commenced. Public and judicial pressure in these areas would also increasingly mount, with several related and major Public Interest Litigations (PIL) still remaining pending before the Supreme Court of India.

A few examples in this critical area: 

Thus, for any successful PE investments, especially for relatively long term, alongside conventional areas of due diligence, several non-conventional, but high business impact areas, need to be effectively covered for the Indian generic pharma companies, in general. Following are just a few examples in this critical area:

  • Business practices that the promoters personally believe in and practice
  • Belief and practices of key company personnel
  • Quality of regulatory approval
  • Product portfolio scrutiny
  • Marketing demand generation process and its long-term sustainability
  • Ability to introduce high-tech formulations with differentiated value offerings
  • Ability to come out with cost-effective manufacturing processes
  • Are Independent Directors, if any, really ‘Independent’?

I shall now very briefly try to illustrate each of the above points.

I. Business practices that the promoters personally believe in:

A large number of successful generic pharma companies are directly or indirectly driven, or in all practical purposes managed, and in several cases even micromanaged by the company promoters. Many experts have opined, though a craftily worded handbook of ‘corporate governance’ may exist in many of these companies, on the ground, promoters’ thoughts, belief, ethical standards, business practices and work priorities may easily supersede all those. 

The practice of good governance on the ground, rigid compliance with all rules, laws and regulations may quite often go for a toss. The employees implementing promoter’s decisions, may try their level best to record everything perfectly and as required. Nevertheless, sometimes regulators do succeed to ferret out the fact, which leaves an adverse impact on the business, in multiple ways.

Recent reports of the US-FDA on ‘data fudging’ in the drug manufacturing process, product quality standards and also in Clinical Trials, would illustrate this point. According to a 2015 EY Report on data integrity, ‘Import Alerts issued against Indian plants in 2013 accounted for 49 percent of the total 43 imports alerts issued by the US FDA worldwide.’

In some successful generic pharma company’s repetition of such incidences has also been reported. In my view, for recurrence of ‘data fudging’, no promoter of the concerned companies can possibly wash his/her hands off, putting all the blame on concerned employees, and the system.

A situation like this necessitates personal due diligence for promoters. It will help ascertain the persons’ business integrity, alongside the company performance as a whole. Accordingly, the PE investors would be able to flag those critical soft areas, which are key determinants for long-term sustainability of any pharma generic business in the country. 

II. Belief and practices of key company personnel:

The findings of the above EY Report also suggest, while most of the generic pharma company professionals are aware of the current Good Manufacturing Practices (cGMP) guidelines, more than 30 percent had still received ‘Inspectional Observations’ from the regulators in the last three years.

This fact calls for due diligence on another critical issue, and that is on the belief and practices of the key company personnel in the new product development, manufacturing, drug quality, marketing, supply chain management, and also covering their interaction with key regulatory and other Government personnel. These are soft issues, but with potential to make the whole business topsy-turvy, virtually overnight.

Conventional due diligence based on the company records may not always reflect the real situation within the organization.

III. Quality of regulatory approval: 

To illustrate this point, let me give the example of a launch of a ‘new drug’ in India. 

A ‘new drug’ has been defined in the Drugs and Cosmetics Acts in India, as any new drug substance which is being introduced for the first time in India, including any off-patent generic molecule, with the permission of only the Drug Controller General of India (DCGI). A ‘new drug’ shall continue to be considered as ‘new drug’ for a period of four years from the date of its first approval or its inclusion in the Indian Pharmacopoeia, whichever is earlier.

Thus, for even for any generic pharma product, be it a single ingredient or a ‘Fixed Dose Combination (FDC)’, if a marketing license is granted by any State Drug Controller, whatever may be the reason, despite the product being a licensed one, it will deem to be unauthorized as the DCGI’s approval was not obtained during the valid period of the 4 years, as per the Act.

Hence, a proper due diligence on the ‘quality of regulatory approval’ to detect presence of any such successful products in the product portfolio, would enable the PE investors in India to flag a possible risk of a future ban, inviting adverse business impact.

IV. Product portfolio scrutiny:

This scrutiny may not be restricted to some conventional areas, such as, to find out the ratio between the price control and decontrol products, leaving future scope to improve the margin. It may also focus on many other important India-specific areas.

One such area could even be the non-standard FDCs in the product portfolio. Some of these FDCs could also be approved by the state drug controllers earlier, scrupulously following the drug laws and rules. However, if the medical rationale of any of these successful products can’t be credibly established, following the global standards, the risk of a future ban of such products would loom large.

Another area could be the percentage of those products in the product portfolio, where the medical claims are anecdotal, and not based on scientific data, generated through credible clinical trials. 

One may draw a relevant example from the Nutraceutical product category. Although, these products are high margin and currently do not come under price control, the stringent regulatory demands for this category of products have already started coming. Strict conformance to the emerging regulatory requirements of both the DCGI of FSSAI may be cost intensive, squeeze the margin, could also pose a great challenge in the conventional demand generating process. I hasten to add that such decision would possibly be dictated by the time scale of PE investment, and the risk-appetite of the investors.                                                            

Yet another example prompts the need to check the quality of generic brands in the product portfolio. According to the Drugs and Cosmetics Act of India, some of these brands would merit to be categorized as drugs. In practice, the company concerned could well be surreptitiously classifying those as nutritional supplements, or Nutraceuticals, with the support of some State Drug Controllers and promoted accordingly, simultaneously avoiding any risk of drug price control. 

V. Marketing demand generation process and long-term sustainability:

This assumes critical importance in the pharma industry, especially when the Government is mulling to give the current voluntary ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ legal teeth, by making it mandatory for all. As I understand, besides other penal action, in serious cases of gross violations of the code, even the marketing license of the offender may get suspended, or cancelled. Thus, compliance to UCPMP would be critical to business performance. Thus, the level of compliance of a company in this regard could well be a part of the due diligence process of the PE investors.

It is also important to understand, whether the pharma generic target asset is predominantly buying doctors’ prescriptions through various dubious means to increase its brand off-takes, or the prescription demand generation process primarily stands on robust pillars of a differentiated value delivery system. The latter is believed to be more desirable for sustainable long term business success.

It is also important to understand, whether the strategic marketing process adopted by the company can withstand robust ethical, legal and regulatory scrutiny, or it is just an outward impressive looking structure, unknowingly built as ‘House of Cards, waiting to be collapsed anytime, sooner or later.

I would now give just a couple of other examples in this area, out of so many – say, a health product, which has been categorized as a drug by the drug authority, is freely advertised in the media, at times even with top celebrity endorsements. This strategy is short term, may eventually not fly, and is certainly not sustainable in the longer term, avoiding regulatory scrutiny. Another example, big brands of Nutraceuticals are being promoted with off-label strong therapeutic claims, and have become immensely successful because of that reason.

VI. Ability to introduce formulations with high-tech value offerings:

India is basically a branded generic market with huge brand proliferations of each molecule, or their FDCs. Just like any other brand, for business success and to overcome the pricing barrier, differentiated value offerings are essential for long term success of any branded generic too. This differentiation may be both tangible and intangible. However, if such differentiation is based on high-technology platforms, it could provide a cutting edge to effectively fight any cut throat competition. Thus, appropriate due diligence to ascertain the robustness of the ability to introduce high-tech formulations with differentiated value offerings, would be an added advantage.

VII. Ability to come out with cost-effective manufacturing processes: 

This is not much new. Many PE investors would possibly look at it, in any case. Just like formulations, ascertaining similar ability to come out with cost-effective manufacturing processes to improve margin would also be very useful, especially for long term investments.

VIII. Are Independent Directors, if any, really ‘Independent’?

If the target company has ‘Independent Directors’ in its Board, as a mandatory legal requirement or even otherwise, there is a need to dispassionately evaluate how independent these directors are, and what value they have added to the company or capable of providing in the future, according to their legal status in the Board.

True independence, given to the high caliber ‘Independent Directors’ in the Board of promoter driven pharma companies, could usher in a catalytic change in the overall business environment of the company. It would, consequently, bring in a breath of fresh air in the organization with their independent thoughts, strategic inputs and involvement in the key peoples’ decisions.

As it is much known, that a large number of ‘Independent Directors’ are primarily hand-picked, based on their unqualified support to the Indian promoters. Many board resolutions, in various critical business impact areas, are passed as desired by the powerful promoters, may be for short term interest and fire fighting. In that process, what is right for the organization for sustainability of business performance, and in the long term interest of all the company stakeholders, may get sacrificed.

When this happens in any target company, mainly for short term business success, taking advantage of regulatory loopholes and inherent weaknesses in the system, a flag needs to be raised by the PE investors for further detailed analysis in the concerned areas.

Conclusion:

Going forward, it appears to me that PE investors would continue to look for attractive pharma investment opportunities in India, though with increasing level of competition. These investors would include both global and local PE firms. Some of them may like to stay invested for longer terms with lesser regulatory and other associated risks and a modest return, unlike a few other high risk takers, sniffing for commensurate windfall returns. 

In India – today’s land of seemingly unparalleled economic opportunities, the PE players should also take into consideration the prevailing complexities of the domestic pharma industry seriously and try to analyze the same properly, for appropriate target asset identification. Many successful local generic players may outwardly project sophisticated, and high standard of business practices. However, these need to be ascertained only through a structured format of India-specific due diligence process.

Corporate governance processes, regulatory compliance, marketing practices and financial reporting systems of many of these companies, may not pass the acid test of stringent expert scrutiny, for long term sustainability of business.

This mainly because, a number of generic pharma companies in India have been thriving, taking full advantage of some major loopholes in the regulatory area, marketing practices, overall product portfolio selection and new generic product development areas, besides many others.

These successful domestic drug companies have indeed the potential and overall attractiveness to come under the radar of many PE investors, who, in turn, should also realize that all the loose knots, fully being exploited by many such companies, are expected to be tightened by the governments, sooner or later.

Keeping this possibility in perspective, to embrace success with lucrative returns, I reckon, there is a changing need of due diligence to follow by the PE investors for right valuation, and much before any pharma generic company is identified by them.

That done, the Indian generic pharma market could soon emerge as an Eldorado, especially for those PE investors, who are looking for a relatively long term attractive return on investments.

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.

 

India’s China Dependence On API: A Time To Think ‘Outside The Box’

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The Department of Pharmaceuticals (DoP) has declared the Year 2015 as the Year of ‘Active Pharmaceutical Ingredient (API)’. Following it up on February 25, 2015, the Union Minister of Chemicals & Fertilizers Ananth Kumar assured the Pharmaceutical Industry that appropriate decisions will be taken soon to make India self-sufficient in Bulk Drugs (APIs).

The Minister also confirmed having received the recommendations of high level ‘Katoch Committee’ that was set up by the Government on October 8, 2013 to look into various issues concerning the API. This would be implemented expeditiously after taking the Union Cabinet’s approval, as the Bulk Drugs constitute the backbone of the Pharma Industry and the sector needs to be incentivized to take on the challenges from cheaper imports.

According to a recent report, in June 2015, the Ministry of Chemicals and Fertilizer has floated a draft cabinet note with the recommendations of the ‘Katoch Committee’. Quoting a senior official of the DoP the report mentioned that the cabinet note also proposes formation of a separate bulk drug authority, which will look into the implementation of such schemes.

The DoP Secretary Dr. V.K. Subburaj has lately reiterated that there is an urgent need to bring about self-sufficiency in the field of API.

In this article, I shall restrict my discussion only to those APIs, which are required for manufacturing the essential medicines in India.

Significant dependence on China:

For a large number of essential medicines, India heavily depends on API imports from China.

On December 12, 2014, the Minister of Commerce and Industry informed the Indian Parliament that in case of 12 essential drugs namely: Paracetamol, Metformin, Ranitidine, Amoxicillin, Ciprofloxacin, Cefixime, Acetyl salicylic acid, Ascorbic acid, Ofloxacin, Ibuprofen, Metronidazole and Ampicillin, there is significant dependence on imports. Approximately 80-90 percent of these imports are from China. He mentioned that the decision to import, and the country of origin for such imports, are based on economic considerations.

The Minister also informed the Parliament that a Committee of Secretaries, under the Chairmanship of the Secretary, Department of Health Research was set up on October 8, 2013 to study and identify the APIs of critical importance and to work out a package of interventions/concessions required to build domestic production capabilities, and examine the cost implication.

Interestingly, rapid and consistent increase in API import from China has been reported as follows:

Year API import from China (Rs. Crore)
April-September in 2014-15 6,521
2013-14 11,865
2012-13 11,000
2011-12 8,798

Ironically, though India manufactures over 30 percent of global generic drug consumption, more than 80 percent of APIs required to produce these medicines come from China.

In ‘RIS Policy Brief’ February 2015, Dr. Y. K. Hamied, Chairman of CIPLA was also quoted sounding an alarm bell, as follows:

“If China decided one bright day to stop export to India, we would be finished. The pharma industry is zero, both domestic and export, and we are looking at that danger objectively”.

Even, the National Security Adviser of India has reportedly expressed similar concern and urged to create adequate infrastructural facilities to make India self-reliant, at least, on the essential medicines, without further delay.

Another recent industry report:

A July 2014 report of ASSOCHAM, titled “Pharmaceuticals Sector in India: Challenges Faced & Suggested Way Forward” also underscores, since a very significant volume of India’s drug imports are concentrated in China, this lack of self–sufficiency in APIs poses significant risk to the drug security of the country. Any deterioration in relationships with China can potentially cause severe domestic shortages in the supply of essential drugs. 

Additionally, China could easily increase prices of some of these drugs where it enjoys virtual monopoly, noted the ASSOCHAM study.

The report further points out that this risk extends beyond the domestic market to export markets, as Chinese pharmaceutical companies, that have traditionally focused on large-volume intermediates and unregulated markets are beginning to “forward integrate”, with increasing focus on exports to regulated markets.

This emerging trend is supported by the recent improvements in local Chinese cGMP and product quality standards, increase in the number of manufacturing sites approved by the USFDA, and current filings of Abbreviated New Drug Applications (ANDAs) by the local companies of China. Given their overall dominance in intermediates and API manufacturing, Chinese players can pose a serious competitive threat to their Indian counterparts, much beyond the APIs for essential drugs, the above study noted.

‘Katoch Committee’ recommendations:

The recommendations of the ‘Katoch Committee’, as revealed by the the Minister to the law makers of India, appears to me a long list of ‘Things to Do’ without addressing the intricacies involved with the complicated core issue.

On May 8, 2015, the Minister of State of the Ministry of Chemicals and Fertilizers informed the Rajya Sabha of the Indian Parliament that in its report on API manufacturing in India, the Katoch Committee has inter-alia recommended:

  • Establishment of Mega Parks for APIs with common facilities such as common Effluent Treatment Plants (ETPs), Testing facilities, Captive Power Plants/assured power supply by state systems, Common Utilities/Services such as storage, testing laboratories, IPR management, designing, etc., maintained by a separate Special Purpose Vehicles (SPV)
  • A scheme for extending financial assistance to states to acquire land and also for setting up common facilities
  • Revival of public sector units for starting the manufacturing of selected and very essential critical drugs (e.g., penicillins, paracetamol etc.)
  • Financial investment from the Government for development of clusters which may be in the form of a professionally managed dedicated equity fund for the promotion of manufacture of APIs
  • Extending fiscal benefits to creation of the entire community cluster infrastructure and individual unit infrastructure
  • Extension of fiscal and financial benefits to promote the bulk drugs sector
  • Promoting stronger industry-academia interaction
  • Synergizing R&D promotion efforts by various government agencies
  • Incentivizing scientists
  • Duty exemptions for capital goods imports

On the face of it, the recommendations appear to be good. However, are these not too simplistic, based on just what is visible on the surface, without going into the complexity of the issue?

I shall now briefly dwell upon some of these areas, from my own perspective of the core issue and the key challenges involved.

Major challenges:

Profitability is undoubtedly a major reason why the indigenous production of important APIs, required to formulate widely used essential medicines, has paved the way for low priced Chinese equivalents. This has been acknowledged by all concerned and has happened more with APIs involving fermentation technology.

Besides other factors, API profitability and commensurate return on capital employed (RoCE) are primarily driven by the product design, process technology in use together with its associated requirements, cost of capital goods and utilities, working capital requirement, quality of sustainable demand generated and achievement of ‘economies of scale’. The last one is so important, as it signifies that proportionate saving in costs is gained by an increased level of production. Simply speaking, the greater the yield and the quantity of a API produced, the lower will be the per-unit fixed cost, as these costs are shared over a larger number of goods.

Additionally, ‘any time cGMP-audit preparedness’ for the big customers, make the running of the operation really unenviable.

Highly competitive generic API market, with larger number of manufacturers, is driven by its customers’ requirement of the lowest possibly cost for any quality product. With this ascending trend, global API manufacturing business has started slowly shifting from the long time much preferred big-name players of the western world, to the upcoming ones in India and China. Unfortunately, now even India has started importing APIs in significant volume from China. APIs of Chinese origin for Indian essential drugs are not just cheaper, but are also available almost on the shelf.

This fiercely competitive scenario has compelled a sizeable number of bulk drug manufacturers to shut shops in India. Many other ‘API only’ Indian manufacturers are now venturing into production and marketing of higher margin formulations, moving up the pharma value chain.

Some API producers have also entered into contract manufacturing of formulations in large quantities. A few others have already entered or are trying to enter into their API based formulation manufacturing agreements with large pharma MNCs for the regulated markets, and by filing DMFs and ANDAs.

To sum up, the challenges before the API sector, in my view, are predominantly as follows:

  • Intense price competition
  • Requirement of attaining ‘economies of scale’ for business sustainability, at times leading to overcapacity
  • Low profitability and RoCE
  • ‘Any time technical audit’ preparedness for high-end customers
  • Capital intensive business
  • High inventory carrying cost both for intermediates and finished goods
  • Long credit demand
  • High working capital requirement
  • Undifferentiated capabilities
  • Product obsolescence with changing disease profile or newer off-patent molecules coming in the same therapy area

Need to think ‘outside the box’:

I do not have access to the complete report of the Katoch Committee, just yet. However, going by what the Government has reported to the Indian Parliament on this subject, it appears that overall recommendations made by the Committee of Secretaries on the subject, are steps in the right direction.

If all the suggestions are implemented, the cost of manufacturing infrastructure and utilities are expected to come down. However, I am not quite sure, whether just these steps would be good enough making India self-reliant on APIs required to manufacture the essential medicines.

Nevertheless, to achieve the desired goal, some critical questions would still need to be answered with high clarity, such as:

  • Despite lowering cost of manufacturing, would it still be enough to neutralize Chinese competition?
  • Stakes being very high for China, if it feels threatened of loosing the booming API generic business from India, won’t the Chinese Government not find out ways and means to retain its ground? If so, are there proactive measures ready to negate the possible counter-move by China?
  • Would this cost reduction help most of the Indian API manufacturers achieving ‘economies of scale’ for reasonable sustainability, with cost competitiveness in the business?
  • Most of the essential drugs are low cost products. Thus, what happens, if Indian API manufacturers in clusters, thus created, decide to produce and sell only higher margin APIs and intermediates, including for the global innovator companies, without getting engaged in APIs for essential medicines?

Since this crucial problem is multi-faceted one, the recommendations should address all possible ‘what if’ scenarios, thinking ‘outside the box’. Mere creation of infrastructural and financial support base, may not help addressing all the key challenges, effectively. After all, it’s an open market competition, and Chinese players are tough nuts to crack, as they have been demonstrating time and again in various fields of activities.

Conclusion:

Having achieved dominance in the Indian generic API market, Chinese bulk drug manufacturers are now concentrating on continuous improvement in process technology to drive down the cost further. According to available reports, they are achieving it too, with great success, focusing on multiple critical areas starting from product and reactor design to much wider use of catalysis.

To effectively compete with Chinese APIs, especially for essential drugs, Indian API manufacturers in the clusters would require to start, at least, from where China is today in this area, and take off from there. This is possible, though quite challenging too.

Moreover, manufacturing overcapacity for generic APIs is already existing in China. If it gets further aggravated with overcapacity created in India for the same molecule, the overall scenario may lead to a desperate sales and marketing situation of survival for the fittest.

No doubt, over-dependence on Chinese APIs for the essential medicines may pose a threat to the drug security of India, as many have already opined, including the National Security Advisor of the country. Nonetheless, the situation could possibly turn even worse, without imposition of artificial tariff barrier, if India decides to rely on a simplistic solution for a multi-factorial complex problem.

‘Katoch Committee’ report is a good initiative for the domestic API business, in general. Nonetheless, to significantly reduce over-dependence on imported Chinese bulk drugs and be self reliant on  high quality and competitively priced APIs for essential medicines, India would need to think ‘outside the box’, undoubtedly.

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.

Data Manipulation: Leapfrogging Dangerously Into Clinical Trial Domain

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Over the last several years, repeated allegations of gross data manipulative practices, detected by global drug regulatory agencies, such as USFDA and MHRA, have shaken the Indian pharma exporting companies hard.

This has been hurting the overall business performance of most of these players, considerably, besides other consequential fallouts

Significant numbers of pharma manufacturing facilities of different scale and size have been receiving ‘Import Alerts/Warning Letters’, at regular intervals, from the overseas drug regulators. All such steps have resulted in refusal of entry of medicines manufactured in those plants into the importing countries. As on date, most of these bans are for the United States (US), some for the United Kingdom (UK) and now a fresh one that covers all the 28 countries of the European Union (EU).

Consequently, the drug export performance of the country has started moving south, as I indicated in my blog post of September 29, 2014, titled “Make in India…Sell Any where in The World”: An Indian Pharma Perspective.

While looking at the future, the situation seems to be even more concerning than what is generally envisaged today, as it involves many homegrown local pharma behemoths, including the topper of the Indian pharma league table – Sun Pharma.

Time to take the bull by the horns:

These are regular and serious episodes of allegedly deliberate wrong doings involving life saving medicines. It is about time that without further delay the Indian Government and the country’s drug regulators accept unequivocally that there is something fundamentally wrong in this area that needs to be set right urgently.

To come out of this peril soon, competent authorities need to first ascertain without squandering much time on the utopian “conspiracy theory”, whether this seemingly uncontrollable issue falls under:

  • Technical incompetence
  • Inadequate resource deployment
  • Or just an outcome of generally all pervasive and a very Indian “Jugaad” mindset

It could well be a mix of all the three above factors in different proportions.

‘Data manipulation’ dangerously leapfrogging into clinical trial domain:

So far, incidences of alleged data falsification were restricted mostly to drug manufacturing activities. Alarmingly, it has now leapfrogged into the immensely important domain of ‘Clinical Trials’, based on which the drug regulators decide on the ‘Marketing Approval’ of medicines for patients’ consumption, wherever required.

If the Government does not nip it in the bud, ruthlessly and now, it has the potential to heavily impact the innocent patients even costing their precious lives.

What it means commercially?

According to Pharmaceutical Export Promotion Council (Pharmexcil), the Indian pharmaceutical industry could lose around US$1 – US$1.2 billion worth of exports due to the latest decision of the European Union to ban 700 generic drugs that earlier received European Union (EU) clearance for sale in their member countries.

According to Pharmexcil, Europe accounts for US$3 billion out of total Indian pharma exports of US$15.4 billion, which includes both APIs and formulations. This is the first time, when there has been a negative growth in pharma exports to the EU.

Unrolling the GVK Bio saga:

On July 22, 2015 Federal Institute for Medicines and Medical Products of Germany reportedly posted the notice (in German language) of ban of 700 generic drugs effective August 21, 2015. This ban would be applicable to all 28 EU member nations.

Accordingly, from the above date, all these drugs of both the Indian and multinational companies for which clinical trials were done by India’s Hyderabad based GVK Biosciences, cannot be distributed or sold by pharma companies, wholesalers, drug stores and other outlets in the EU, as indicate in the above notice. This would be the largest ban of generic drugs imposed by the European Union, as it comes into effect.

This ban is reportedly the ultimate outcome of an inspection in 2014 by the French authorities of the GVK site that handled the clinical trials for those 700 drugs. The French inspectors found that a number of electrocardiograms were falsified by GVK Bio employees as part of 9 approval studies between 2008 and 2014.

Following this finding, earlier on January 23, 2015, by a Press Release, the European Medicines Agency (EMA) had announced that a number of medicines for which authorization in the European Union (EU) was primarily based on clinical studies conducted at GVK Biosciences in Hyderabad, India, should be suspended.

Though GVK Bio has disputed the claims, it has reportedly set aside up to US$6.5 million for new studies on these drugs.

Indian Government blames ‘vested interests supporting Big Pharma’!

Interestingly, on July 23, 2015, The Financial Express reported, “the Modi government has asked the heads of India’s diplomatic missions in EU member countries and at the European Commission (EC)-level to take up the issue with the concerned authorities and ensure that it is not ‘blown out of proportion’ by ‘vested interests’ supporting the Big Pharma (innovator drug companies).”

However, it is even more interesting that earlier on April 16, 2015, quoting the CEO of GVK Biosciences Private Limited Reuters reported, “India may go to the World Trade Organization (WTO) if the European Union does not reconsider a decision to suspend the sale of about 700 generic drugs that were approved based on clinical trials by GVK Biosciences.”

It is noteworthy, despite the above public announcement, between April and July 2015, India has not lodged any complaint to the WTO on this mega ban in EU, involving clinical trials conducted by GVK Biosciences.

In my view, any tangible immediate outcome of the Indian diplomatic move, particularly on this ban in the EU, as reported above, appears rather unlikely, if at all.

The rigmarole continues:

The narrative of alleged gross falsification of sensitive clinical trial data does not end here. Almost replicating what happened earlier with frequent incidences of drug manufacturing data manipulation, the same rigmarole now leapfrogs into another important domain with similar intensity.

On June 30, 2015, close on the heels of the above GVK Biosciences saga, the World Health Organization issued a ‘Notice of Concern’ after inspection of Chennai-based Contract Research Company, Quest Life Sciences facility.

It also brought to light, critical deviations from GCP (Good Clinical Practices), over data integrity, subject safety and quality assurance and in gross violation of procedures during clinical trials for HIV drugs, such as, Lamivudine, Zidovudine and Nevarapine dispersible tablets from Micro Labs.

WHO inspectors reportedly found that “two-thirds of electrocardiograms performed on patients were duplicates with dates and names changed by the company”.

The WHO letter also underscored, “These issues appear to be systemic in nature and occurring many times over a significant period of time, and not only as a one-time incident for the study submitted to WHO.”

Again, almost depicting the past, there does not seem to be any perceptible and strong regulatory interventions in India in this regard, event after the above ‘Notice of Concern’ from the WHO.

Could assume a snowballing effect:

This situation may eventually assume a snowballing effect, when data related malpractices in clinical trials would catch up with drug manufacturing related data manipulation detected by the foreign drug regulators in India. I have just given an example of its continuation in the clinical trial domain.

The following are a few examples of just the last six months of 2015 of the continuation of the same in the drug manufacturing area:

Cadila Pharmaceuticals Limited:

In a letter dated February 25, 2015 to Cadila Pharmaceuticals Limited, the USFDA wrote that in the pharma manufacturing facility of the company, located at 294 GIDC Industrial Estate, Ankleshwar, Gujarat, their (USFDA) investigator identified significant deviations from current good manufacturing practice (CGMP) for the manufacture of Active Pharmaceutical Ingredients (APIs). Those deviations cause the APIs manufactured there to be adulterated, in that the methods used in, or the facilities or controls used for, their manufacture, processing, packing, or holding do not conform to, or are not operated or administered in conformity with CGMP.

Emcure Pharmaceuticals Ltd.:

On July 13, 2015, by an ‘import alert’ posted on its website, the USFDA announced that the regulatory agency had barred imports from Hinjewadi manufacturing plant in Maharashtra of Emcure Pharmaceuticals Ltd., after their inspection revealed the company was not meeting manufacturing quality standards.

Aurobindo Pharma Ltd.:

Again, according to a July 22, 2015 media report, “Hyderabad-based Aurobindo Pharma is the latest addition to an expanding list of Indian drug firms that have come under the scanner of the US health regulator.” In this case also the USFDA reportedly raised issues related to the quality management systems of the company.

Business sustainability could be in jeopardy:

There are ample evidences that manipulations of specified drug quality standards, are making even the large home grown pharma companies to pay through the nose. In fact, it has already cost some of these companies an arm and a leg, at times jeopardizing even their very existence. One such company is Ranbaxy. The issues related to data fudging of Ranbaxy have been so complex and widespread that its recent acquirer Sun Pharma has already started struggling to keep its neck above water with this brand new acquisition.

According to July 27, 2015 media reports, GVK Biosciences are also in parleys to sell the business, following EU drug regulators’ serious allegations of clinical trial data manipulation at its Hyderabad facility.

Again, media reports of July 30, 2015 indicated that hit by the USFDA imposing import ban on three of its manufacturing facilities, Ipca Laboratories reported 86 per cent decline in net profit for first quarter ended June 30, 2015.

Though, some domestic pharma companies are still out of it, with grace, if this overall menace remains unchecked and not intervened by the Government, it could cost the nation dear, at least when it comes to near term exports business growth and global disrepute for the delinquency.

Are medicines for domestic consumption safe and effective?

When such rampant data manipulation can take place for ‘export quality’ of drugs, what about the quality standards of medicines, which are manufactured for consumption of local patients?

Despite intense furore on this subject, Indian drug regulators at the Central Drugs Standard Control Organization (CDSCO), very strangely, do not seem to be much concerned on this critical issue, at least, as perceived by majority of the stakeholders. It appears from the precedents, our drug regulators seem to act promptly, mostly when the Supreme Court of the country directs them for any specific action for public interest.

Considering blatant violations of GMP and GCP standards that are increasingly coming to the fore related to ‘export quality’ drugs in India, and that too only after the inspections by the foreign drug regulators, the following questions float at the top of my mind:

  • Why no such warnings are forthcoming at all from the Indian drug regulators?
  • Does it mean that the level of conformance to GMP and GCP is hundred percent for all medicines manufactured and clinically evaluated in India for the consumption of local patients?
  • If yes, why such incidences are not uploaded to the CDSCO website, just like USFDA?
  • If not, why?

Conclusion:

Increasing incidences of repeated GMP and GCP violations by the Indian drug exporters, as enunciated mostly by the USFDA, MHRA and now EMA are, in turn, fueling the apprehensions of many Indian stakeholders on the quality manufacturing and clinical evaluation of those drugs in the country.

In the critical public health safety area, there does not seem to be any room for diplomatic maneuvering by the Government, whatever is its financial impact on the drug exports performance of India.

This can be corrected, only if the Indian pharma industry and the Government, in tandem, wish to move in the right direction. Searching for justifications within imaginary ‘vested interests’ and self-created ‘conspiracy theory’ would be futile and counterproductive.

Making the wrongdoers swallow strong bitter pills would help salvaging the seemingly uncontrollable regulatory situation. Additionally, it would stop inviting disrepute to the country that the world was referring to, even until recently, as the ‘pharmacy of world’.

Any attempt to trivialize the situation, could meet with grave consequences  and prove to be foolhardy. The emerging scenario ultimately may even compel the local doctors and hospitals to avoid prescribing drugs of those companies involved in such wrong doings against patients’ interests. This actually happened earlier with Ranbaxy, though briefly. It is also possible that many erudite patients on their own may request the doctors to prescribe equivalent drugs of pharma MNCs, enjoying better brand equity in this regard.

Drug quality related avoidable malpractices and attempted hoodwinking to regulators, are taking place at a time when Prime Minister Modi is going global to give a boost to his much publicized ‘Make in India’ campaign.

In the current aspirational business climate of the country, it is an irony that alleged ‘Data Manipulation’, which was so far confined to pharma manufacturing activities in India, instead of getting mitigated, is now leapfrogging into the related clinical trial domain too, with utter disregard to patients’ health safety interest and the reputation of the country.

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.

 

Does ‘Free-Market Economy’ Work For Branded Generic Drugs In India?

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On April 20, 2015, a panel of 31 lawmakers of the Standing Committee on Chemicals and Fertilizers tabled its report in the Indian Parliament. The committee emphasized that patients in India should have access to all medicines, including life saving drugs, at affordable prices. Accordingly, it recommended expansion of the scope of price control to all medicines available in the country.

The Committee wondered why all medicines are still not listed in the ‘National List of Essential Medicines (NLEM)’ and is of the view that drugs of all kinds are essential and are required by the patients for treatment of various disease conditions.

Currently, the National Pharmaceutical Pricing Authority (NPPA) has fixed prices of 509 formulation packs, covering 348 drugs, based on NLEM, as specified in the Drugs Price Control Order (DPCO) 2013. Such price controlled essential drugs currently contribute less than 18 percent of the total pharmaceutical market of India in value terms. Whereas, according to reports, total number of formulation packs in India would be much over 60,000.

The panel noted that the ceiling prices of even all those medicines, which should come under price control under DPCO 2013, are yet to be announced by the NPPA. Accordingly, it advised the Government to expedite the process of notifying ceiling prices for all the remaining medicines featuring in the NLEM, without further delay.

The Parliamentary Standing Committee observed that Rs 17,944 Crore was spent in 2013-14 to import medicinal and pharmaceutical products. It expressed dissatisfaction on the Department of Pharmaceuticals’ (DoP) explanation that imports were made on quality and economic considerations and not necessarily because the products were unavailable at home.

“The Committee is of the strong view that to realize the dream of ‘Make in India’ concept in pharmaceutical sector, the government should boost and incentivize domestic bulk drug industry and discourage Indian pharmaceutical firms from importing”, the report said.

It also observed that to make India self-reliant in this area, revival of sick public sector units was necessary to create capacity of bulk drugs. The Committee urged the DoP to expedite formulation of ‘Make in India’ policy for APIs (active pharmaceutical ingredients) in India.

Indictment against the DoP:

The committee reportedly came down heavily on the DoP for its inability to utilize funds allocated for various purposes, which clearly speaks about “the poor performance of the department in utilization of its plan allocation.”

The report clearly mentions, “The committee therefore feels that department could not achieve its avowed objectives and targets set for various scheme/programs unless the funds are utilized by the department optimally and efficiently.”

Stating that the department “should make earnest efforts for optimum utilization of funds allocated to them”, the committee expressed it would “like to be apprised of the initiatives undertaken by the department in this regard”.

A quick recapitulation:

In may 2012, the Department Related Parliamentary Standing Committee on Health and Family Welfare in its 58th Report also expressed great concern on rampant prescription of irrational and useless drugs by many doctors with ‘ulterior motives’ and expressed the need of inclusion of the essential and lifesaving drugs under strict price regulation.

As it usually takes a very long time to effect any perceptible change in India, the above critical observations, as well, remained virtually unattended, even today.

Does ‘Competition’ impact Branded generic pricing?

I am personally a strong believer of ‘free-market economy’, driven by ‘market competition’, for the industrial sectors in general. It ensures rapid economic progress and growth, creating much needed wealth to cater to the growing needs of various kinds for the citizens of a nation.

However, I would strongly argue that Indian pharma industry is one of the key exceptions in this regard; as it is basically a branded generic market contributing over 90 percent to the total domestic pharmaceutical retail market.

Although, domestic market of branded generic drugs is quite crowded with a large number of respective ‘brands’ of exactly the same off-patent molecule/molecules available at widely different price ranges, patients do not derive any economic benefit out of such intense competition in a ‘free-market economy’. This happens, as the patients have no say or role in the brand selection process of the doctors to choose a price of their likings and affordability, especially when the basic drug/drugs are the same for all those brands.

Examples of huge rice variation in branded generics of the same drug:

A Research Paper published in The Indian Journal of Applied Research’ of May 2014, titled, “Cost Variation Study of Anti-diabetics: Indian Scenario” observed as follows:

“In Single drug therapy, among sulfonylurea group of drugs, Glimepiride (2 mg) shows maximum price variation of 829.72%, while Glipizide (10mg) shows minimum variation. In Meglitinides groups of drugs Repaglinide (0.5mg) shows maximum price variation 194.73% and Nateglinide (120mg) shows Minimum price variation. In Biguanides & Thizolidinediones groups of drugs, Metformin (500 mg) & Pioglitazone (15 mg) show maximum price variation of 384.18% & 600 % respectively. In α-glucosidase inhibitor group of drugs, Voglibose (0.2mg) shows maximum price variation of 387.17%, while Miglitol (25mg) shows minimum price variation.”

“In combination therapies, Glimepiride+Metformin (1+500mg) combination shows the maximum variation up to 475 %. In case of Insulin Premixed 30/70 100IU/ml shows maximum price variation of 1881.24%, while minimum variation is found with short acting 40IU/ml.”

Similar scenario prevails virtually in all therapy categories in India.

No qualms on branding:

It is understandable that generic drugs are branded o create differentiation even within exactly identical drugs. There are no qualms on branding per se, which comes at a reasonably high cost though. However, the question is, who pays for this branding exercise and for what additional tangible value/values?

If no additional tangible value is added to a generic medicine through branding, why should most of the patients sweat to pay significantly extra amount, just to help the pharma companies fighting with each other to increase their respective pies of revenue and profit?

Why drug price control in a ‘Free Market Economy’?

It is indeed a very pertinent question. Equally pertinent answers are also available in a 2014 paper titled, “Competition Issues in the Indian Pharmaceuticals Sector” of Delhi School Economics (DSE). The paper deals with issues related to failure of ‘Free Market Economy’, despite intense competition, especially for branded generic drugs in India.

In an ideally free-market economic model, for each of these brands of identical drugs, having similar regulatory approvals from the Indian drug regulator on efficacy, safety and quality standards, competitive forces should have prompted uniform or at least near uniform prices for all such products.

Any brand of the same drug/drugs charging more, should generally have attracted lesser customers, if consumers would have exercised their purchase decisions directly; efficacy, safety and quality standards being the same, as certified by the drug regulator.

Interestingly, for prescription medicines, the much proven process of consumers exercising their free choice to select a brand, influenced by advertising, does not happen at all.

Branded generics pricing paradox:

In the pharmaceutical market place, the scenario is almost just the reverse of what should happen in a highly competitive ‘free market’ model.

This means, highest priced branded varieties of identical drugs, mostly enjoy highest market share too. This in turn proves that competition within the pharma brands do not bring down the prices, benefiting the consumers/patients.

Branding of generic drugs:

Unlike many developed nations, in India, even the off-patent generic drugs are branded and differentiated on flimsy perception based intangibles to the prescribers, along with other contentious and dubious sales tools, decrying unbranded generics.

This is done in the guise of so-called pharma ‘sales and marketing’ strategies, which are sometimes shrewd and many times equally blatant, if not crude.

The DSE paper, very clearly says, ‘head to head’ competition between undifferentiated (non-branded) products would certainly cause a precipitous fall in prices.

However, it is generally believed, the prescription demand of branded generic drugs is basically created by influencing the prescribing behavior of the medical practitioners. Not just by personal selling through medical representatives, medical advertising and publicity of different types, but also through a chain of processes that many stakeholders, including the Government and law-makers generally consider as grossly unethical.

In January 2015, the Government directive for implementation of the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ by the pharma industry in India, further reinforces the point.

 ‘Dorfman-Steiner’ condition vindicated:

The above paper from the DSE underscores the old and well-established ‘Dorfman-Steiner’ condition that mathematically proves that the price-cost margin is positively related to the ratio of advertising expenditure to sales revenue.

Quoting a practicing surgeon, the DSE article states:

“Sometimes it could be just plain ignorance about the availability of a cheaper alternative that makes doctors continue to prescribe costlier brands. But one cannot ignore the role of what are euphemistically called marketing “incentives”, which basically mean the inappropriate influence pharmaceutical companies exert on doctors. This runs deep. Hospitals choose to stock only certain drugs in their in-house pharmacies and insist that hospitalized patients buy drugs only from the hospital pharmacy. Drug companies sell drugs to hospitals at a price much lower than what the patient is charged, further incentivizing the hospital to stock their products. The cheaper brands often get left out in this game.”

Reasons for success of high-priced branded generics:

Low priced non – branded cheaper generics have been systematically made to perceive as of low quality. In several media reports, including some recent ones even some well-known doctors castigated the low priced non- branded cheaper generics. Pharma industry lobby groups, in tandem, has been strongly resisting various Government initiatives of un-branding the generic drugs.

Over a long time, a common public perception has been painstakingly created that high-priced branded generics are more of high quality; MNC brands are of better quality than their ‘Desi’ counterparts and branded generics are more reliable than their non-branded equivalents.

This perception is fuelled by poor enforcement of the Drugs and Cosmetics Act of India that also regulates drug-manufacturing standards in the country, besides the prevailing overall drug regulatory scenario in the country.

The New Government attributes “Market Failure for pharmaceuticals”:

In its price notification dated July 10, 2014, the NPPA has categorically stated the following:

  • There exist huge inter-brand price differences in branded-generics, which is indicative of a severe market failure, as different brands of the same drug formulation, which are identical to each other in terms of active ingredient(s), strength, dosage, route of administration, quality, product characteristics, and intended use, vary disproportionately in terms of price.
  • It is observed that, the different brands of the drug formulation may sometimes differ in terms of binders, fillers, dyes, preservatives, coating agents, and dissolution agents, but these differences are not significant in terms of therapeutic value.
  • In India the market failure for pharmaceuticals can be attributed to several factors, but the main reason is that the demand for medicines is largely prescription driven and the patient has very little choice in this regard.
  • Market failure alone may not constitute sufficient grounds for government intervention, but when such failure is considered in the context of the essential role of pharmaceuticals play in the area of public health, which is a social right, such intervention becomes necessary, especially when exploitative pricing makes medicines unaffordable and beyond the reach of most and also puts huge financial burden in terms of out-of-pocket expenditure on healthcare.

Civil Society echoed the same sentiment:

In this context, it is important to note that in a letter dated August 20, 2014 written by seven large Civil Society Organizations to Mr. Ananth Kumar, the present Minister of Chemicals and Fertilizers with a copy to Prime Minister Modi, articulated similar view, as follows:

“Limiting all price regulation only to a list of 348 medicines and specified dosages and strengths in the DPCO 2013 goes against the policy objective of making medicines affordable to the public. The National List of Essential Medicines, a list of 348 rational and cost-effective medicines, is not the basis for production, promotion and prescription in India. In reality the most frequently prescribed and consumed medicines are not listed in the NLEM.”

I broached on a similar issue in my blog post of April 6, 2015 titled, “Would Affordable ‘Modicare’ Remain Just A Pipe Dream In India?”

An opposite view: ‘Bad Medicine’

On April 23, 2015, an Editorial with the above headline, articulating exactly opposite viewpoint, was published in a leading English business daily.

With all due respect to the concerned editor, it appeared quite funny, if not ‘hilarious’ to me for several reasons. One of which is seemingly total lack of understanding on the issue by the concerned editor.

I am quoting below some of the most obvious ones, just to cite as examples:

A. Quoting the above recommendation of the Parliamentary Standing Committee on drug price control the Editorial states:

“Not only will this make investors from other countries look at India with suspicion – Japanese pharma firm Daiichi just exited its disastrous investment in Ranbaxy (later taken over by Sun Pharma) – it will ensure Indian patients are deprived of good quality medicines.”

It is known to everybody that drug price control in India had got nothing to do with the exit of Daiichi. It was primarily due to import bans by the USFDA, caused by alleged falsification of GMP related data in Ranbaxy’s manufacturing plants selling drugs to America.

B. The Editorial continues:

“So much for Make-in-India—the other problem with price controls is that, with little incentive to invest in fraud-prevention, between a fourth and a third of India’s pharmaceuticals production is estimated to be spurious. Also, price caps have resulted in a situation where R&D expenses are very low, and there is little research on drugs of particular relevance to India.”

Again, it is much known fact that over 82 percent of Indian pharmaceutical market is currently outside price control, offering free-pricing opportunity. What does then prevent the drug companies to come out robust ‘fraud-prevention’ measures for all those free-pricing drugs?

C. The Editor stated:

“Since Indian prices are amongst the lowest in the world, it is not clear what exactly the committee had in mind, more so since costs of medicine are not, in any case, the most expensive part of medical treatment.”

Of course, all concerned knows that lowest range of generic drug prices in India, are perhaps the cheapest in the world. However, the point is, should it be considered in isolation? Not in relation to per capita income of the Indians? Not in terms of Purchasing Power Parity? In drug pricing context, one Committee Report of the DoP had shown, when adjusted against these two factors, drug prices in India are as high, if not more, as compared to the developed countries of the world.

I hasten to add that I fully resect all different view points. If I have made any mistakes in understanding this piece of bizarre editorial, I am more than willing to stand corrected with all humility, as this a very serious issue of ‘what is right’ and NOT ‘who is right’.

Conclusion:

India is a market of branded generics, where brand differentiation process involves creation of mostly unsubstantiated perceptions.

As the stakeholders, media and even the Indian Government have alleged, drug companies exert a strong influence in the brand prescription decision of the doctors, even at the cost of patients who cannot afford the same.

Even in a free-market economy with cutthroat competition, patients do not have any means to exercise their price preferences even within identical branded generic drugs. They are compelled to buy high priced brands, as prescribed by their doctors, even where low priced identical equivalents are available.

This condition gives rise into ‘Market Failure’, especially for branded generics in India. The NPPA has unequivocally enunciated it, which I have quoted above.

Being a strong believer and votary of ‘free-market economy’ and ‘market competition’, I find this pharma scenario unique. It is a rare example of failure of otherwise so successful free-market economy model, especially in the branded generic pharma space of India.

Around a decade ago, the ‘Indian Journal of Medical Ethics’ (IJME, January – March 2004 issue) captured the very essence of this deliberation, epitomized in the following sentence:

“If the one who decides, does not pay and the one who pays, does not decide and if the one who decides is ‘paid’, will truths stand any chance?”

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.

 

Awaiting ‘The Moment of Truth’ on ‘Working of Patents’ in India

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By a letter dated October 21, 2014 addressed to the Secretary, Department of Industrial Policy and Promotion (DIPP) of India, the domestic pharma major Cipla has sought for the revocation of five patents of Novartis AG’s respiratory drug Indacaterol (Onbrez) in India, under Sections 66 and 92 of the Indian Patents Act.

Launch of a generic equivalent:

Cipla also announced its decision to launch shortly a generic equivalent of Indacaterol with the brand name Unibrez Rotacaps to satisfy the unfulfilled requirement of the new drug in India.

The Maximum Retail Price for a strip of 10 capsules of Unibrez Rotacaps 150 mcg would cost Rs.130.00 to patients against the equivalent strength of Onbrez of Novartis costing Rs.677.00, which is 420 percent more expensive than the price at which Cipla would sell this drug.

What do the Sections 66 and 92 of the Indian Patents Act say?

- Section 66 of the Indian Patents Act:

“66. Revocation of patent in public interest: Where the Central Government is of the opinion that a patent or the mode in which it is exercised is mischievous to the State of generally prejudicial to the public, if any, after giving the patentee an opportunity to be heard, make a declaration to that effect in the Official Gazette and thereupon the patent shall be deemed to be revoked.”

- Section 92 of the Indian Patents Act:

“92. Special provision for compulsory licenses: (1) If the Central Government is satisfied, in respect of any patent in force in circumstances of national emergency or in circumstances of extreme urgency or in case of public non- commercial use, that it is necessary that compulsory licenses should be granted at any time after the sealing thereof to work the invention, it may make a declaration to that effect, by notification in the Official Gazette, and thereupon the following provisions shall have effect, that is to say –

(i) The Controller shall on application made at any time after the notification by any person interested, grant to the applicant a license under the patent on such terms and conditions as he thinks fit;

(ii) In settling the terms and conditions of a license granted under this section, the Controller shall endeavor to secure that the articles manufactured under the patent shall be available to the public at the lowest prices consistent with the patentees deriving a reasonable advantage from their patent rights.

(2) The provisions of sections 83, 87, 88, 89 and 90 shall apply in relation to the grant of licenses under this section as they apply in relation to the grant of licenses under section 84.

(3) Notwithstanding anything contained in sub- section (2), where the Controller is satisfied on consideration of the application referred to in clause (i) of sub- section (1) that it is necessary in –

(i) A circumstance of national emergency; or

(ii) A circumstance of extreme urgency; or

(iii) A case of public non- commercial use, which may arise or is required, as the case may be, including public health crises, relating to Acquired Immuno Deficiency Syndrome, Human Immuno Deficiency Virus, tuberculosis, malaria or other epidemics, he shall not apply any procedure specified in section 87 in relation to that application for grant of license under this section:

Provided that the Controller shall, as soon as may be practicable, inform the patentee of the patent relating to the application for such non-application of section 87.”

Two key reasons:

Anchored on the above two sections of the Indian Patents Act, the two key reasons cited by Cipla for revocation of five patents granted to Indacaterol of Novartis AG are, very briefly, as follows:

Lack of inventive steps and ‘evergreening’ of patents:

The exclusivity given to five patents of Indacaterol is contrary to law due to lack of inventive step, being obvious inventions. Novartis allegedly has indulged in ‘evergreening’ with a number of patents to extend monopoly of the drug much beyond the term of the first patent. Indian law expressly bars ‘evergreening’ as it impedes drug access to a large majority of the patients.

Lack of working of the patents:

Cipla also claimed lack of “working” of those patents in the country, as a mere 0.03 percent of the drug requirement is currently being fulfilled in India. This leaves the percentage of inadequacy in the requirement of the drug per year at a staggering number of around 99.97 percent.

With supporting details, Cipla has stated in its letter that Indacaterol under the brand name Onbrez is imported by Novartis through its licensee Lupin Pharma only. It further pointed out that the Indian law requires all patents to be “worked” within the territory of India.

While adequate quantity of imports may qualify as working, the present case is one in which the patents in question have not been worked through imports of adequate quantity of the drug. Thus reasonable requirements of the public have not been fulfilled, at all.

Abysmally low drug access to Indian patients:

According to Cipla, when there has been a necessity for the availability of Indacaterol to a much larger number of patients afflicted by COPD, that has assumed magnitude of an epidemic, just a miniscule of 0.03 percent of the total drug requirement is currently being met in the country. In 2013, the import of Indacaterol, as reportedly declared in Form 27 by Novartis to the Patent office, was just 53,844 units, which could meet this drug requirement at best of only 4,500 out of 15 million patients, annually.

Despite accepted drug benefits, the doctors are unable to adequately prescribe Indacaterol in India, due to low quantity of the drug import for the public.

Thus, while announcing the launch of cheaper generic equivalents of the drug, Cipla emphasized that its Unibrez Rotacaps would fulfill the requirements of the public, meet public health interest and at the same time increase access to this medicine, with an affordable alternative, for a large number of patients.

Increasing incidence of COPD in India:

In its application to the DIPP, Cipla underscored that Indacaterol is one of the preferred medications to treat widely prevalent Chronic Obstructive Pulmonary Disease (COPD) that has reached the magnitude of an epidemic in India with about 15 million Indians afflicted with the ailment.

COPD is now among the top ten causes of disease burden in India. According to Indian Council of Medical Research (ICMR), the overall prevalence rates of COPD in India are 5.0 and 3.2 percent respectively in men and women of and over 35 years of age. The World Health Organization (WHO) also reported that COPD is the cause of death of more people than HIV-AIDS, Malaria and Tuberculosis all put together in the South East Asian Region.

Cipla quoted an Indian Study on “Epidemiology of Asthma, Respiratory Symptoms and Chronic Bronchitis in Adults (INSEARCH)”, which estimated that about 7 percent of deaths annually are a result of Chronic Respiratory Diseases in India.

Importance of Indacaterol in COPD treatment:

Cipla reiterated that Indacaterol is the preferred drug over other beta adrenoceptor agonists, as it has to be consumed only once a day. Moreover, it has a higher potency and prolonged effect as compared to other beta adrenoceptor agonists.

Strong arguments make the case interesting:

Though appropriate legal authorities would take a final call on the subject, prima facie, Cipla seems to have a strong case resting on the pillars of Sections 66 and 92 of the Indian Patents Act.

Since, Cipla has already gone ahead and announced the launch of cheaper generic equivalent of Indacaterol in India, it gives a sense about the company’s confidence in its argument against five valid patents of Novartis on this drug.

On the other hand, one may also justifiably say that Cipla should have waited for the final verdict of the court of law on the validity of five Indacaterol patents in India, before deciding to actually launch a generic version of the patented drug.

It is worth noting that in 2013, Novartis lost a legal battle related to patent grant for its anti-leukemia drug Glivec in the Supreme Court of India. The case lasted over seven years in various courts of law. Interestingly, Cipla had followed similar course of action in the Glivec case too, and had won the case decisively.

‘Form 27’ and the Indian Patent office (IPO):

At this stage it is worth noting, a ‘Public Notice’ dated December 24, 2009 was issued by the Controller General of Patents, Design & Trade Marks, directing all ‘Patentees and Licensees’ to furnish information in ‘Form No.27’ on ‘Working of Patents’ as prescribed under Section 146 of the Patents Act read with Rule 131 of the Patents Rule 2003.

The notice also drew attention to penalty provisions in the Patents Act, in case of non-submission of the aforesaid information.

The information sought by the IPO in ‘Form 27’ can be summarized as follows:

A. The reasons for not working and steps being taken for ‘working of the invention’ to be provided by the patentee.

B. In case of establishing ‘working of a patent’, the following yearly information needs to be provided:

  • The quantity and value of the invention worked; which includes both local manufacturing and importation.
  • The details to be provided, if any licenses and/or sub-licenses have been granted for the products during the year.
  • A statement as to whether the public requirements have been met partly/adequately to the fullest extent at a reasonable price.

The ‘Public Notice’ also indicated that:

• A fine of up to (US$ 25,000 may be levied for not submitting or refusing to submit the required information by the IPO.

• And providing false information is a punishable offence attracting imprisonment of up to 6 months and/or a fine.

The important point to ponder now is, if Cipla’s allegation is correct, what has been the IPO doing with the ‘Form 27’ information to uphold the spirit of Indian Patents Act 2005, thus far?

Conclusion:

For various reasons, it would now be interesting to follow, how does the IPO deal with this case right from here. In any case, information provided through ‘Form 27’ cannot remain a secret. ‘The Right to Information Act (RTI)’ will help ferret more such details out in the open.

As the ‘Moment of Truth’ unfolds in this case, one would be quite curious to fathom how the strong voices against ‘non-working of patents’ and ‘evergreening’ drive home their arguments before the court of justice.

On the other hand, the global innovator companies, their highly paid lobby groups and the USTR are expected to exert tremendous pressure on the Indian Government to protect the global pharma business interests in India, come what may. All these would indeed create a potboiler, as expected by many.

In this complex scenario, striking a right balance between rewarding genuine innovation, on the one hand, and help improving access to affordable modern medicines to a vast majority of the population in the country, on the other, would not be an enviable task for the Indian Government.

As the juggernaut of conflicting interest moves on, many would keenly await for a glimpse of ‘the moment of truth’ based on the judicial interpretation of ‘evergreening’ and ‘working of patents’, for this case in particular.

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.