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Increasing Healthcare Consumption in India with equity

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

Share of Average Household Consumption (AHC) (%)

Household Consumption 1995 2005 E 2015 F 2025 F CAGR %
1. Healthcare

4

7

9

13

9
2. Education & Recreation

3

5

6

9

9
3. Communication

1

2

3

6

 12
4. Transportation

11

17

19

20

7
5. Personal Products and Services

4

8

9

11

8
6. Household Products

2

3

3

3

 5
7. Housing & Utilities

14

12

12

10

 5
8. Apparel

5

6

5

5

 5
9. Food, Beverages & Tobacco

56

42

34

25

3

(Source; McKinsey India Report 2007)

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

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

Thus, over a period of time AHC for ‘healthcare’ shows a very significant growth potential in India. Hence, this important area needs much greater attention of the policymakers to help translate the potential into actual performance with requisite policy and fiscal support/incentives.

Sectoral break-up of the Healthcare Industry:

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

Industry

%
Hospitals

50
Pharma

25
Diagnostics

10
Insurance & Medical Equipment

15

(Source: IDFC Securities Hospital Sector, November 2010)

Therefore, as per this above report, the top two sectors of the healthcare industry are hospitals with 50 percent share and pharmaceuticals at 25 percent.

Public sector drives the healthcare expenditure in the developed countries:

Almost all OECD countries now provide universal or near-universal health coverage for a core set of health services, which are primarily funded by the public sector.

The report titled, ‘Health at a Glance 2011’ indicates that adjusted for purchasing power parity United States of America (USA) at US$ 7290 per capita expenditure on health in 2007, which is almost two and a half times more than the OECD average of US$ 2984, towers above other OECD countries. However, the same for Turkey and Mexico was less than one-third of the OECD average.

India and South East Asia are different:

Unlike OECD countries, according to the World Health Organization (WHO), in South East Asia, except Thailand and Indonesia, healthcare is primarily driven by private expenditure, as seen in the following table:

Public and Private Expenditure on Health as % of Total

Country

Public %

Private %
Laos

17.60

82.40
Cambodia

23.80

76.20
India

32.40

67.60
Philippines

34.70

65.30
Vietnam

38.50

61.50
Malaysia

44.10

55.90
Indonesia

54.40

45.60
Thailand

74.30

25.70

Source: World Health Statistics 2011, World Health Organization (WHO)

In India, the critical healthcare industry is heavily dependent on private sector investments, where the total public expenditure on health is just around one third of the country’s total expenditure for the same, though in the 12th Five Year Plan period the the government is likely to increase its health expenditure as a percentage to GDP to 2.5 percent.

Healthcare – a more sensitive sector in India:

According to an article titled, ‘Financing health care for all: challenges and opportunities’, published in ‘The Lancet’ dated February 19, 2011 ‘Out of Pocket’ expenditure on health in India (78 per cent) is one of the highest as compared to its neighboring, except Pakistan (82.5 percent). The details are as follows:

Country ‘Out of Pocket’ expenses (%)
1. Pakistan

82.5
2. India

78
3. China

61
4. Sri Lanka

53
5. Thailand

31
6. Bhutan

29
7. Maldives

14

Such a high out of pocket expenditure for health in India, makes ‘affordability’ of healthcare products and services so sensitive to all concerned.

Just Hospital oriented health insurance plans are not adequate enough:

The above article from ‘The Lancet ‘also indicates that 74 per cent of the total healthcare expenditure goes for only outpatient or in-clinic treatment of the patients. Only 26 per cent of healthcare expenditure goes for inpatient treatment in the hospitals.

Thus coverage of only expenditure towards hospitalization by the health insurance companies will not be able to provide significant benefits to most of the citizens of India.

Further, the article says that from 1986 to 2004, there has been three times increase in the average real expenditure per hospital admission, both in the government and private hospitals.

Threefold increase in the drug prices from 1993-94 to 2006-07 was mentioned as the key factor for cost escalation in the medical care in India.

Private healthcare sector needs more fiscal incentives and lesser cost of capital:

As indicated above, private healthcare players will increasingly play a very significant role to increase healthcare consumption with equitable span across the population of India. To encourage them to spread their wings in the semi-urban and rural areas of the country effectively, lucrative fiscal/ financial incentives along with the availability of low cost capital, are absolutely necessary.

It is worth mentioning that the growth of rural middle class population is now faster than ever before and much more than their urban counterpart.

Exploitation of the patients must stop:

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

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

“Reported problems (which patients face while getting treated at a private doctor’s clinic) include unnecessary tests and procedures, rewards for referrals, lack of quality standards and irrational use of injection and drugs. Since no national regulations exist for provider standards and treatment protocols for healthcare, over diagnosis, over treatment and maltreatment are common.” Prevailing situation like this calls for urgent national regulations for provider-standards and treatment-protocols, at least for the common diseases in India and more importantly their stricter implementation across the country.

UHC will significantly improve healthcare consumption:

In October 2010, the Planning Commission of India constituted a ‘High Level Expert Group (HLEG)’ on Universal Health Coverage (UHC) under the chairmanship of the well-known medical professional Prof. K. Srinath Reddy. The HLEG was mandated to develop a framework for providing easily accessible and affordable health care to all Indians.

UHC will guarantee access to essential free health services to all. However, because of the uniqueness of India, HLEG proposed a hybrid system that draws on the lessons learnt not only from within India, but also from other developed and developing countries of the world.

UHC is expected to ensure guaranteed access to essential health services to every Indian, including cashless in-patient and out-patient treatment for primary, secondary and tertiary care. All these services will be available to the patients absolutely free of any cost.

Under UHC all citizens of India will be free to choose between Public sector facilities and ‘contracted-in’ private providers for healthcare services.

It is envisaged that the people would be free to supplement the free of cost healthcare services offered under UHC by opting to pay ‘out of pocket’ or going for private health insurance schemes, as per their individual requirements.

Conclusion:

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

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

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

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

All these interesting developments adequately fueled by rising income levels and improving access to healthcare though albeit slowly at present, equitable consumption of healthcare in India, I reckon, is expected to improve by manifold in the years ahead, despite shrill voices of  naysayers of vested interests, orchestrated many a times from beyond the shores of India.

By: Tapan J Ray

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

In the Pharmaceutical Space: The Dragon breathes fire

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Currently both China and India, the two most populous nations of the world are also the front runners of the global economy in terms of the pace of GDP growth. The economies of the two countries are greatly influenced by their respective sociopolitical environment. However, the economy of China is more robust ranking second in the world, against eleven of India. The dragon is indeed breathing fire.

A comparison of the economy of the two countries, as reported by ‘MapsofIndia.com’ updated in July 2011, is as follows:

Facts India China
GDP US$1.31 trillion US$ 4.90 trillion
GDP growth 8.90% 9.60%
Per capital GDP US$1124 US$7,518
Inflation 7.48 % 5.1%
Labor Force 467 million 813.5 million
Unemployment 9.4 % 4.20 %
Fiscal Deficit 5.5% 21.5%
Foreign Direct Investment US$12.40 billion US$9.7 billion
Gold Reserves 15% 11%
Foreign Exchange Reserves US$2.41 billion US$2.65 trillion
World Prosperity Index 88th Position 58th Position
Mobile Users 842 million 687.71 million
Internet Users 123.16 million 81 million.

Global pharmaceutical ranking:

As reported by IMS, in global ranking, China was ninth largest pharmaceutical market against thirteenth of India in 2004, became  fifth largest in 2009 against thirteenth of India and is expected to be the third largest by 2014 against tenth of India, growing at a much faster pace.

2004 Rank

2009 Rank

2014 Rank
1 United States 1 United States 1 United States
2 Japan 2 Japan 2 Japan
3 France 3 Germany 3 China
4 Germany 4 France 4 Germany
5 Italy 5 China 5 France
6 United Kingdom 6 Italy 6 Brazil
7 Canada 7 Canada 7 Italy
8 Spain 8 Spain 8 Canada
9 China 9 United Kingdom 9 Spain
10 Brazil 10 Brazil 10 India
11 Mexico 11 Russia 11 Russia
12 Australia 12 Mexico 12 United Kingdom
13 South Korea 13 India 13 Venezuela
14 India 14 Australia 14 Turkey
15 Netherlands 15 Turkey 15 South Korea

Source: IMS Health MIDAS, Market Prognosis September 2010; Market size ranking in constant US$

Healthcare coverage:

In China, out of a population of 1.3 billion, 250 million are covered by health insurance, another 250 million are partially covered by insurance and balance 800 million are not covered by any insurance.

Against these statistics of China, in India total number of population who have some sort of healthcare financing coverage will be around 200 million and penetration of health insurance will be just around 3.1% of the population. India is fast losing grounds to China in this respect mainly due to better response to healthcare infrastructure and regulatory challenges by China.

Commitment to globalization:

A very high level of commitment of the Chinese Government to make China a regional global hub for pharmaceutical R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is now paying rich dividends.

Department of Pharmaceuticals (DoP) of the Government of India (GoI) also expressed its intention to make India a R&D hub in not too distant future. Unfortunately, this cannot be achieved with just good intent of investments of couple of million US$ through Public Private Partnership (PPP) initiatives, as announced by the DoP earlier.

A strong commitment of the GoI to hasten regulatory reform processes with visible action will be the deciding success factor. IPR regime in the pharmaceutical industry has been put in place, but an appropriate to foster innovation in the country is yet to be created.

Healthcare Infrastructure:

Korn/Ferry International has reported that China’s infrastructure in the pharmaceutical space is better than India, primarily due to firm commitment of the Chinese government to accelerate reform measures to fetch maximum benefits of globalization process in the country.

It has been reported that China has not only better healthcare infrastructure as compared to India, but they are also more open  to of foreign trade and investments to improve these further in their country.

R&D Comparison:

Talent Pool and no. of Patents granted:

According to WIPO, China has better R&D talent pool and grants more patent per year than India as follows:

India

China
R&D Talent Pool

45,000

56,000
Patents Granted (2008-09)*

16,061

48,814

*Patent Granrted in India during 2009-10:6168

Source: FE Bureau / WIPO / IPO

Scientific Publications:

India also lags behind China in the number of scientific publications as follows:

Pre 2000 (A)

Post 2000 (B)

B/A*
India 3,04,737 4,98,394 1.64
China 2,30,154 19,94,706 8.67

*Multiple of Post-2000 over Pre 2000

Between pre-2000 and post-2000 era, China’s count of scientific publications rose more than eight times compared to India’s 1.6 times. (Source: Search on Scopus Sciverse (Database from Elsevier)

Based on ‘WIPO PCT’ applications, it has been reported that 5.5% of all global pharmaceutical patent applications named one inventor or more located in India as against 8.4% located in China.

Biology Research:

China is taking faster strides in the Biology Research area as follows:

INDIA

CHINA
  1. Only about five companies with proven skills in basic molecular biology and protein expression

2. Innovative research focused on bioinformatics and bio-chips

3. Limited biology talent pool owing to historic focus on generics1. Established skills in basic molecular biology and protein expression

2. Innovative research in stem cells, bio-chips, and gene sequencing

3. Expanding biology talent pool

(Source: BCG report, Looking Eastward)

Clinical trials:

In the area of clinical trial, though by amending  the Schedule Y of the Drugs and Cosmetics Act in line with ICH GCP, India has already put in place the Good Clinical Practices (GCP), China has, on the other hand, brought its GCP, GLP, and GMP standards in line with ICH guidelines.

May be because of all these reasons ‘A.T. Kearney’ in its ‘Country Attractiveness Index’ (CAI) for clinical trials has given 6.10 to China against 5.58 to India.

BCG compared India with China in the Clinical Trial space as follows:

INDIA

CHINA
1. Experienced CROs with full service range and output of similar quality to that of developed markets.

3. Limited FDA approved hospitals

4. Shorter trial approval times than in China

5.Uneven infrastructure and shortage of clinical research assistants

  1. Experienced CROs and growing vendor pool providing full spectrum of services
  2. High quality FDA-approved hospitals
  3. Low-cost and efficient enrollment compared to the US and Europe
  4. Trial approvals lengthy and complex

(Source: BCG report, Looking Eastward)

Despite all these, both India and China pose challenges to both global and the local pharmaceutical players in dealing with subjects of wide cultural diversity within the country besides illiteracy and poverty. Many cases of conflict between ethics and natural justice have been reported from both countries during recruiting process of the subjects for clinical trial.

Pharmaceutical outsourcing:

In terms of attractiveness for outsourcing among the emerging pharmaceutical markets of the world, India and China are outpacing others with their cutting edge offering of high quality services at lower cost together with large pool of skilled manpower.

India has the potential to be a contender of supremacy for Pharmaceutical outsourcing of all types with all the required success ingredients. However, putting these ingredients together for effective use to make it happen has indeed become a real challenge.

On the other hand China is racing ahead to effectively avail the global opportunities and in that process fast distancing itself from India, widening the competitive performance gap between the two countries. Brain drain:

Korn/Ferry International has reported that more and more Indian talent is being pulled to China to fill key roles, especially in the API sector, signaling ‘brain drain’ from India to China.

Where India is a high flier:

Chemistry Research:

India is globally considered as a more mature place for chemistry related drug-discovery activities than China. Probably, because of this reason, companies like, Aurigene, Advinus, Divis Lab and Jubilant Organosys could enter into long-term collaborative arrangements with Multinational Companies (MNC) to discover and develop New Chemical Entities (NCEs).

BCG report, ‘Looking Eastward’ compared India with China in the Chemistry Research area as follows:

INDIA

CHINA
  1. Large pool of vendors with full services and track record of strong capabilities

2. Generally better IP protection than in China

3. Trend toward project based alliances and emerging build-operate-transfer (BOT) contracts

4. Vast pool of skilled and low cost chemists

  1. Capabilities residing mostly with government institutes; only a few small private companies with a track record
  2. Established basic chemistry skills moving to more complex offerings, but no end to end capabilities
  3. Large and growing pool of raw talent, but limited English language skills still an issue

(Source: BCG report, Looking Eastward)

Earlier reform in China: It is important to mention that healthcare reform process started much earlier in China. The Product Patent regime in India was reintroduced in January 1, 2005. Well before that time China started creating and encouraging a large number of independently funded pharmaceutical R&D institutions to create an environment of innovation within the country. Many of these institutions are now viable profit centers, creating wealth for the country.

At the same time, focusing on economies of scale, Chinese pharmaceutical players have now become globally competitive, may be a shade better than India. Clear dominance of China in the business of ‘Active Pharmaceutical Ingredient (API)’ among many others, will vindicate this point.

On other hand in the formulations business, India is miles ahead of China, catering to over 20 percent of global requirements for the generic pharmaceuticals. Even in ANDA and DMF filings, India is currently ahead of China. 

Conclusion:

While comparing India with China one should also take into consideration that not only the sociopolitical structure of India and China are quite different, but the difference exists also in their commerce and industry related political decision making process.

Moreover, the average age of Chinese population is much more than Indians and continues to increase rapidly. The factor of aging population may have an adverse impact on the overall productivity of their people in the coming years constraining the economic growth of China. In contrast, the percentage of young working people in India is expected to keep increasing through 2030, offering a very critical  demographic advantage to the country in the years ahead.

Though China will continue to have aging population and India the younger ones, both countries will have to deploy greater resources to cater to the growing healthcare needs for altogether different reasons. The net gainer will indeed be the pharmaceutical industry in both the countries.

That said, just a wishful thinking of the Government of India, sans expeditious and prudent regulatory and other related policy reforms, will helplessly make India watching the gap between the pharmaceutical industry of the two countries fast widening, making the dragon keep breathing fire, unabated.

By: Tapan J Ray

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

The New Drug Policy is languishing in a labyrinth

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Drug Price Control has remained the key feature of all Drug Policies of India, since their inception in early 70’s. Most of these policies continued to remain behind their times consistently, without any exception.

That said, the Drug Policy 1994 and the consequent Drug Price Control Order 1995 (DPCO  ’95) have now become the largest ‘Dinosaur’ of all Drug Policies. However, the most intriguing point though, both these have still been kept operational by the government and the very concept of a new and a more contemporary one is languishing in a labyrinth since over a decade, for reasons of anybody’s guess.

Drug Price Control system in India:

It appears that the drug price control system in India is here to stay, at least in the short to medium term and that too in a seemingly best case scenario.

The key reasons:

As we know, the key reasons of price control for pharmaceuticals in India are the following:

  • To contain cost of medicines, particularly the essential ones, at a reasonably affordable level, which is a very important part of the total healthcare expenditure of the common man.
  • To provide greater access to medicines to all, especially in view of very high  ‘out of pocket expenditure’ for health for a vast majority of population in the country.

The economic factors:

Some of the economic factors, which may cause impediments in achieving these objectives are the following:

  • Sub optimal public healthcare infrastructure, leaky delivery system and high cost of  private healthcare services
  • This is fueled by, as stated above, unabated increase in ‘out-of-pocket expenses’ on healthcare in general and medicines in particular at 78 per cent, as compared to 61 per cent in China, 53 per cent in Sri Lanka, 31 percent in Thailand, 29 per cent in Bhutan and 14 per cent in Maldives (Source: The Lancet)
  • High expenses on drugs for outpatient care

Though very important, drug cost alone, however, does not determine quality of access to healthcare.

Global scenario for drug price control:

As per published reports, all 34 developed nations of the world have ‘Universal Health Coverage’ mechanism in place in various different forms, including mandatory medical insurance requirements, to effectively address the issue of high access to healthcare including pharmaceuticals in their respective countries, significantly reducing ‘out of pocket expenses’ towards health.

All these 34 countries belong to ‘Organization for Economic Co-operation and Development (OECD)’, the governments of which, in some way or the other control and regulate drug prices.

The Governments/payors of most of these countries implement the price control measures by playing the role of a dominant market force directly, while negotiating a favorable price from the manufacturers, which are much lower than their equivalent free market prices.

Many other OECD governments set the drug reimbursement prices right at the time of introduction of new drugs through hard negotiation, which are also well below free market prices and acts as the bench mark market prices, in many ways.

In addition to all these mechanisms, the governments in many OECD countries periodically reduce the prices of already marketed drugs quite significantly.

A contrarian view on Drug Price Control:

Some industry experts feel that there is a hidden consequence for the ‘Drug Price Control System’, especially with the cost based one.

The cost based price control as is currently practiced by the government in India compels the pharmaceutical manufacturers to restrict to:

  • Minimum acceptable quality standard rather than maximum possible quality standards for the patients
  • Does not encourage innovation in formulation development like novel galenic formulations for better patient acceptance and compliance
  • Indirectly discourage innovation in product packaging
  • Ceiling Price mechanism does not encourage advanced anti-counterfeit measures for patients’ safety

These experts also feel that adverse consequences of price control will have a significant negative impact on the pharmaceutical players to plough back fund towards R&D projects to meet the unmet needs of the patients and thereby reducing the range of treatments that could be made available to the patients in the years ahead.

What is China doing?

On March 28, 2011 Reuters reported that China had cut the maximum retail price for more than 1,200 types of antibiotics and the drugs for the circulatory system by an average of 21 percent.

It has also been reported that the Chinese Government has put a cap on the prices of about 300 drugs featuring in their ‘National List of Essential Medicines (NLEM).’

Supreme Court directive on ‘Price Control’ of ‘Essential Medicines’:

It is worth noting in this context that in 2003, the Supreme Court of India, while setting aside the Drug Policy 2002 directed the government to work out effective mechanism to bring all essential and life-saving medicines under price control.

HLEG recommends ‘Price Control’ of ‘Essential Medicines’:

Even in its report the ‘High Level Expert Group (HLEG)’ on ‘Universal Health Coverage (UHC)’ in India, set up by the Planning Commission of India under the chairmanship of the well-known medical professional Prof. K. Srinath Reddy, under recommendation no. 3.5.1, postulated price control and price regulation on essential drugs, which is quite in line with the draft National Pharmaceutical Pricing Policy 2011 (NPPP 2011).

The HLEG report says:

“We recommend the use of ‘essentiality’ as a criterion and applying price controls on formulations rather than basic drugs. Direct price control applied to formulations, rather than basic drugs, is likely to minimize intra-industry distortion in transactions and prevent a substantial rise in drug prices. It may also be necessary to consider caps on trade margins to rein in drug prices while ensuring reasonable returns to manufacturers and distributors. All therapeutic products should be covered and producers should be prevented from circumventing controls by creating nonstandard combinations. This would also discourage producers from moving away from controlled to non-controlled drugs. At the same time, it is necessary to strengthen Central and State regulatory agencies to effectively perform quality and price control functions.”

Types of drug price regulations in India:

  1. Cost based price control: e.g. as specified in the Drug Price Control Order 1995 (DPCO 95)
  2. Marked based price control: e.g. as was suggested by ‘The Pronab Sen Committee’ in 2005
  3. Price Monitoring with a cap on annual price increase: e.g. as is currently followed by the National Pharmaceutical Pricing Authority (NPPA) for all products which are outside DPCO ’95

The weaknesses of cost based pricing mechanism:

The key criticism of cost based pricing mechanism flows from the following arguments:

  • This system is not followed by any developed or developing countries worth mentioning, which follow drug price control mechanism in any form
  • A Complex, intrusive and inefficient system of pricing medicines
  • Does not consider important variations in the level of GMP standards and the quality of input costs
  • The conversion cost and packing norms are determined through a sample survey of less than one per cent of pharmaceutical manufacturing units

Pronab Sen Committee report – the basis of price control in the draft NPPP 2011:

The draft NPPP 2011 is based on the ‘Recommendations of the Task Force constituted under the Chairmanship of Dr. Pronab Sen to explore issues beyond Price Control to make available Life-saving Drugs at reasonable prices’ to all.

‘Pronab Sen Committee’ suggested the following principles of Price regulation to achieve part of the above objective:

1.       The National List of Essential Medicines (NLEM) should form the basis of drugs to be considered for intensive price monitoring, ceiling prices and for imposition of price controls, if necessary.

2.       The government should announce the ceiling price of the drugs contained in the NLEM (other than the drugs procured by hospitals directly and which an individual does not have to purchase from the market) on the basis of the weighted average prices of the top three brands by value of single ingredient formulations prevailing in the market as on 01.04.2005. In cases where there are less than three brands, the weighted average of all the existing brands would be taken. The Org–IMS data set can be used for this purpose initially with a 20 per cent retail margin provided. There is, however, a need to improve the available data coverage, which should be taken up with ORG-IMS or any other data provider.

3.       For drugs which are not reflected in ORG-IMS data, the NPPA should prepare the necessary information based on market data collection.

4.       During the transition period (i.e. till the time ceiling prices are fixed and notified) prices of all essential drugs may be frozen.

5.       The Government should specify the reference product in terms of strength and pack size for each product which would form the basis for price determination. The price ceiling would be specified on a per dosage basis, such as per tablet/per capsule or standard volume of injection. Where syrups and liquids are sold in bottles the ceiling price may be fixed on individual pack size.

6.       Price relaxations may be permitted for non-standard delivery systems, packaging and pack sizes through applications to the negotiations committee, which should become applicable for all similar cases.

7.       In the case of formulations which involve a combination of more than one drug in the NLEM, the ceiling price would be the weighted average of the applicable ceiling prices of its constituents.

8.       For formulations containing a combination of a drug in the NLEM and any other drug, the ceiling price applicable to the essential drug would be made applicable. However, the company would be free to approach the price negotiations committee for a relaxation of the price on the basis of evidence proving superior therapeutic effectiveness for particular disease conditions.

9.       In order to determine the reasonableness of the ceiling prices fixed as above, the prices quoted in bulk procurement by Government and other designated agencies may be examined for use, provided that the system of bulk procurement meets certain minimum prescribed standards. Recognizing that retail distribution has costs not reflected in bulk procurement, a markup of 100 per cent over this reference price is recommended.

10.    NPPA should set up a computer based system which would scan the price data provided by companies against the ceiling prices determined as above and identify formulations which breach the relevant price ceiling. The company manufacturing or marketing such a product would be required to reduce its price or to face penal action.

11.    Companies should be permitted to represent for any price increase on valid grounds, which should then become applicable to the entire class of products.

12.   The NLEM should be revised periodically, say every 5 years, in order to reflect new drugs and significant changes in pattern of drug sales within the therapeutic categories. However till the time the new list is finalized the existing list will continue to be valid for the purpose of price control.

13.   In the case of drugs not contained in the NLEM, intensive monitoring should be carried out of all drugs falling into a pre-specified list of therapeutic categories. Any significant variation in the prices (say above 10 per cent) would be identified for negotiation.

The stakeholders’ comments on NPPP 2011:

About 60 stakeholders have commented by now on the draft NPPP 2011. The views are quite divergent though. It is interesting to note that the new draft pricing policy, in its current form, has been rejected by all key stakeholders, like the Industry, Ministry of Health, Expert Groups, WHO, NGOs and reportedly even by the Economic Advisory Council of the Prime Minister, on quite different grounds.

As widely reported in the media, the pharmaceutical industry, though in favor of the marked based pricing  mechanism, feels that the draft NPPP 2011 will increase the span of drug price control to over 60 per cent of the Indian Pharmaceutical Market (IPM). This means over eight times increase in the span of price control from its current level, making the task unwieldy for even the NPPA.

Majority of other stakeholders including the Ministry of Health, on the contrary, are arguing in favor of cost based price control. They commented that the price control system of the draft policy would give legitimacy to high drug prices in India, leading to increase in the overall prices of medicines. This group feels that the top three brands in majority of cases will be the most expensive ones.

Two interesting observations by the World Health Organization (WHO) on ‘Trade Margin’:

The WHO  in their observations on the draft NPPP 2011 has made the following interesting comments:

  1. “The new price regulation uses a margin of16% to calculate the retail prices. This is a lower margin than currently – based on the market data 1.1 and 3.3 I calculated a current retail margin of 22%. So the new price regulation implies a margin reduction of 6%, alternatively the CP might be set at a 6% lower price than currently is the case.”

If the WHO observation is correct, there is a scope to reduce the price of essential medicines by 6 per cent only through proper regulation of the trade margin.

  1. WHO also comments that IMS data, the basis of all such calculations by the NPPA, has severe limitations as “Their data does not take into account the discounts, rebates and bundling deals and when the data is collected at the level of the wholesaler they estimate the retailer and patient prices”.

If such is the case, what could possibly be the basis of all calculations as captured in the draft NPPP 2011? 

Observation of a distinguished Parliamentarian: 

Dr. Jyoti Mirdha , a Member of the Lower House of the Parliament (Lok Sabha) commented as follows:

“Under this policy the weighted average of three top selling brands will be the ceiling price. There is no logic in restricting the formula to just three brands. Why not five? Why not 10 to arrive at a more representative and reasonable figure? Besides why base on sales figures? In any pricing policy the parameter should be the price. Why not weighted average of 10 least priced brands?”

This could well be a pertinent question.

How to break the logjam now?

Taking on from Dr. Mirdha’s argument , WHO observations and Pronab Sen Committee report, one could possibly try to resolve this logjam by exploring various other available alternatives like for example, the following broad points, to ascertain whether a win-win situation can be created for all through the new drug policy:

  1. What happens if ‘Weighted Average Price’ is calculated based on all brands, instead of top three or bottom three with some exclusion criteria, if required?
  2. When inclusion criteria for price control in the new draft NPPP 2011 is ‘essentiality’ of drugs, it sounds logical that price control should be restricted to National List of Essential Medicines 2011 (NLEM 2011). Only possible extension could perhaps be taking the entire molecule, instead of specified strengths of the same molecule.
  3. Enough non-price control checks and balances to be put in place to ensure proper availability of NLEM 2011 drugs to the common man and avoidance of any possible situation of shortages for such drugs.
  4. As commented by WHO, trade margin should be rationalized, the MRP needs to be reduced accordingly and the consequential benefits to be passed on to the patients.

Conclusion:

The issue of the new National Pharmaceutical Pricing Policy should be resolved sooner than later and that too by conforming to the directive given by the Supreme Court on essential medicines. At the same time, all the stakeholders must feel comfortable with the new drug policy.

The four points, as mentioned above, are just an illustration for choosing an alternative solution. If it works, let us move on. If it does not, let us search for the pathfinder who can break the decade old labyrinth rather quickly, without losing the way yet again.

However, the bottom-line remains that the solution should be a win-win one, both for the patients and the industry alike, benefiting the healthcare space of the country in the years ahead.

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.

Grant of Compulsory License for Bayer’s Nexavar in India raises more questions than answers

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On March 12, 2012, the Patent Office of India, in its landmark ruling, granted its first ever Compulsory License (CL) for Bayer’s patented kidney and liver cancer drug Nexavar (Sorafenib), to the generic pharma player Natco, broadly citing the following reasons:

  • Reasonable requirements of public under Section 84 have not been satisfied.
  • The Patented Drug was not available to the public at a reasonably affordable price as per Section 84 (1) (b).
  • Patented invention is not worked in the territory of India as per Section 84 (1) (c)

The 62 page order of the Controller General of Patents, Designs and Trade Mark (CGPDTM) granted the CL to Natco for the rest of patent life of sorafenib in India at the high end of the UNDP 2001 royalty guidelines at 6 percent.

Sorafenib:

Sorafenib was co-developed and co-marketed by Bayer and Onyx Pharmaceuticals  for the treatment of advanced  renal cell and hepatocellular carcinoma. The drug got its first regulatory approval from the US FDA for advanced renal cell carcinoma in 2005.

National Institute of Health and Clinical Excellence (NICE) of UK had indicated that the drug extends life of the kidney cancer patients by three months on an average.

As stated earlier, in March 2008, Indian patent for Sorafenib was granted to Bayer by the CGPDTM. Thereafter, in December 2010 Natco had requested for a voluntary license from Bayer, which was rejected by the patentee.

It has been reported that sorafenib was registered as an ‘orphan drug’ in the US. The R&D cost of sorafenib was partly subsidized by the US Orphan Drug tax credit.

Mixed reaction:

Though the research based pharmaceutical industry across the world expressed its disappointment over the judgment, many experts and NGOs from different parts of the globe have opined that CGPDTM has set a right precedence by granting a CL for sorafenib, which will ensure, in the times to come, that patent monopolies are kept limited, especially when the patented products are not “reasonably affordable”.

Many people, therefore, envisage that the grant of the first ever CL by the Indian Patent Office could ultimately open the door for other generics players of India to apply for the same on similar grounds and mainly for ‘non-working of patents’, as many patented medicines are now imported into India by the respective global players.

Granting CL should be the last resort:

While none can deny that all citizens of India should have access to innovative and lifesaving medicines, as will be required for their medical treatment, it appears rather impractical to envisage that routine issue of CL by the Indian Patent Office will be able to resolve this critical issue on a long term basis.  Grant of CL, if any, I reckon, should be taken only after exhausting all other access improvement measures.

Working of a patent:

In this particular case, it has been decided by the CGPDTM that working of a patent will require the concerned company to manufacture the drug in India in a reasonable quantity. The argument of the CGPDTM in this respect, many experts believe, is quite a stretch of an interpretation of the statute.

This is mainly because, as one of the signatories of TRIPS, India has a national commitment for adherence to this important international agreement. It is, therefore, widely believed, if importation is not considered as working of patent, the country could expose itself to the risk of  violation of the Article 27.1 of TRIPS, both in letter and spirit.

The Article 27.1 of TRIPS:

The Article 27.1 of TRIPS on ‘local working of patents’ indicates as follows:

“1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

Thus as per Article 27.1 of TRIPS, if commercialization of products patented in India, is done locally either through imports or local manufacturing, should be considered as ‘local working of patents’.

Form 27 vindicates the fact:

Form 27 of the Indian Patents Act, which is a statement regarding the working of patented inventions on commercial scale in India, in its point number 3, under ‘if worked’ states as follows:

“If worked: quantum and value (in Rupees) of the patented product:

  1. Manufactured in India
  2. Imported from other countries (give country-wise details)”

Thus, when Form 27 itself accepts importation as ‘local working of patent’, it is indeed intriguing why was the decision to the contrary taken by the CGPDTM?

Moreover, it is worth noting that the term ‘manufacture in India’ was deleted from the earlier Section 90 (a) of the Patents Act.

A statutory requirement:

CGPDTM through a circular dated December 24, 2009, directed all Patentees and Licensees to furnish information in ‘Form No.27’ on ‘Local Working of Patents’ as prescribed under Section 146 of the Patents Act.

It will be interesting to know, whether CGPDTM in response to Form 27 submissions of Bayer had informed them earlier that the Nexavar Patent has not been worked in India. If not, what is then the sanctity of Form 27 filing?

Delhi High Court Judgment:

Further, it has been well reported that in the legal case of ‘Telemecanique & Controls (I) Limited Vs. Schneider Electric Industries SA 94(2001)DLT865’ on working of patents, the Delhi High Court had concluded that importation would amount to working of Patents.

India specific pricing for innovative drugs is not uncommon:

At this stage, it is worth mentioning that India specific pricing for innovative drugs are not uncommon in the country at all. Following are some good examples:

  • GlaxoSmithKline  Pharmaceuticals has already announced its differential pricing system for India and will sell its innovative drugs at prices 25% to 40% less than what those are in the US.
  • MSD  has already introduced its India specific price for patented products. Their patented cervical cancer drug Gardasil is being sold in India at 75% -80% less than the global prices.
  • Moreover, MSD’s patented anti-diabetic drug Januvia (sitagliptin phosphate) is locally sourced and marketed at one-tenth of the global price.
  • In 2008 Novartis  reportedly tied up with the domestic pharma major USV to market its patented anti-diabetic drug Galvus (Vildagliptin) by pricing it lower than Januvia. According to reports, Novartis markets Galvus in the metros, while USV markets the same brand in tier two and three cities of India.
  • Roche  has recently collaborated with the domestic pharma player Emcure Pharmaceuticals to manufacture its two well-known biologics Herceptin and MabThera not only to cater to the domestic needs, but also for export to other developing markets.

Manufacturing of a small quantity locally – an issue:

As quoted in the order of the CGPDTM there are around 8842 eligible patients for sorafenib in India. All these patients put together will require Nexavar ranging from 27000 (Bayer’s figure) to 70000 boxes (NATCO’s figure) per year.  Thus, the moot question remains: even for such small annual requirements, should global companies set up manufacturing facilities in all the countries like, India.

Another question: if other smaller markets of the world also make local manufacturing mandatory for any pharmaceutical products that will be sold in their respective countries, will the Indian players find those markets attractive enough to expand their business? In that case who will be the net losers?… Patients?

Conclusion:

If the issue of whether importation will be considered as ‘local working of patents’ or not is not answered conclusively under higher judicial scrutiny in conformity of Article 27.1 of TRIPS and CL is granted to local manufacturers for commercial benefits under similar situation, availability of life saving innovative products in the Indian market for the patients of India could be in a real jeopardy.

The objective of improving access to innovative medicines is a very desirable one for any country like ours. However, if India routinely starts granting CL for this purpose before exhausting all other avenues to achieve this goal, it would risk sending a very wrong signal to the outside world that the country is shirking its responsibilities to create an appropriate ecosystem to foster and support pharmaceutical innovation to offer better quality of lives to the citizens of the country in particular.

In the absence of both collaboration and foreign direct investments by the global innovators in the field of pharmaceutical research and development, India may feel handicapped, especially when our neighbor China is surging ahead in this field with longer strides.

Thus, routine grant of CL, as is being envisaged by many in India, on a similar situation could, on the contrary, make the issue of access to innovative medicines by the common man even more challenging, in the longer run.

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.

Are Preventive Medicines always cost effective to be an area of focus in healthcare management?

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American Board of Preventive Medicine defines ‘Preventive Medicine’ as follows:

“Preventive Medicine is the specialty of medical practice that focuses on the health of individuals, communities, and defined populations. Its goal is to protect, promote, and maintain health and well-being and to prevent disease, disability and death.”

The most basic examples of preventive medicines are known to be hand washing, breast feeding and immunization.

Simple preventive measures, such as, increasing awareness against tobacco smoking, misuse of alcohol or unprotected sex, especially in an emerging economy like India, will go a long way to prevent and control such habit related diseases, help saving significant expenditure of the nation towards healthcare.

The purpose:

The primary purpose of preventive medicines could well have dual objectives as follows:

  • Disease prevention of a large section of the population
  • Reduce the healthcare expenses

Primary, secondary and tertiary prevention:

As stated above, primary disease prevention usually would include vaccination against specific disease types, whereas secondary and tertiary prevention are usually done through early detection process and screening of the target population.

Relevance to chronic diseases:

A World Health Organization (WHO) report, titled, “Preventing Chronic diseases – a vital investment” argues that globally of the 58 million deaths in 2005, approximately 35 million were due to chronic diseases, which were expected to increase by 17% in the next 10 years thereafter.

It points out that 80% of all premature heart disease, stroke and diabetes are preventable. This assumes greater significance as 80% deaths due to chronic disease occur in low and middle income nations where most of the world population lives, against only 20% of the same in the high income countries.

The report, therefore, articulates that it is absolutely necessary for the countries to review and implement a comprehensive and integrated preventive public health strategy.

Regular preventive measures:

Experts recommend following regular preventive measures, which are very relevant to India:

  • Counseling on hygienic life style
  • Routine primary vaccinations
  • Counseling on quitting smoking, alcohol misuse, protected sex, losing weight, eating healthy food, treating depression etc.
  • Regular general health check-up
  • Cancer screenings like mammograms and colonoscopies

Immense potential in India:

In a country like India, with high prevalence of many preventable diseases involving a large section of the nation’s population, preventive medicine promises immense potential to reduce the healthcare expenditure of the country significantly and at the same time would promise a much better quality of life to its population.

A counter point:

Another school of thought, primarily US based, advocates that preventive medicines, on the contrary, would raise the healthcare expenditure.

  • Preventive Medicine increases healthcare cost:

In support of this contrarian view, a paper published in ‘The New England Journal of Medicine (NEJM)’ on February 14, 2008 based on 599 studies between 2000 and 2005 infers that though disease prevention in some cases may reduce the cost of healthcare, more preventive medicines in many cases could, in fact, increase  the overall healthcare expenditure.

  • Screening cost is more than savings:

It says that screening cost of a disease for a large section of the population may far exceed the savings from treatment avoidance in those cases where only a small part of the population would have become ill in the absence of preventive measures.

  • Treatment with medicine offers greater value:

The article also points out that:

“The drugs used to treat high cholesterol yield much greater value for the money, if the targeted population is at high risk for coronary heart disease, and the efficiency of cancer screening can depend heavily on both the frequency of the screening and the level of cancer risk in the screened population.”

  • Preventive medicine more expensive:

The authors argue that preventive medicine will be more expensive where to make a small populations free from a particular disease, preventive measures are taken involving a large population, most of whom even otherwise would not have suffered from that illness.

Conclusion:

Coming back to the WHO report which categorically says, contrary to the belief of some section of the society, especially in the USA that measures for control and prevention of chronic diseases are really not too expensive for any nation, not even for the low and middle income countries.

In reality, even chronic diseases can be prevented and effectively controlled to reduce the disease burden of any country very significantly. The WHO article also says that expensive patented medicines are no longer required for prevention of, for example, even cardiac ailments. The cheaper generic drugs, if used along with counseling on life style changes, will be quite affordable to a vast majority of population even in the middle and low income countries.

Weighing all pros and cons, WHO aims to reduce the death rates from all chronic diseases by 2% per year through preventive medicines, which would mean prevention of 36 million deaths due to chronic disease by 2015, mostly in the low and middle income countries.

These statistics will more than vindicate the argument that preventive measures and medicines are cost effective, in the long run for any nation, particularly for a country like India.

By: Tapan J Ray

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

Arresting continuous job losses in the global pharma industry call for innovation across the value chain

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In not too distant past, the stocks of the global pharmaceutical companies, by and large, used to be categorized as ‘blue-chips’ for their high return to investors, as compared to many other sectors.

Unfortunately, the situation has changed significantly since then. Most of those large players now appear to be under tremendous pressure for excellence in performance.

The issues of ‘Patent Cliff’, coupled with patent expiries, price and margin pressures from payors’ group in the developed world, have already started haunting the research based pharmaceutical companies and are assuming larger proportions day by day.

The situation continues to be grim:

Collective impact of all the above factors has prompted the major pharma players to resort to huge cost cutting exercises leading to employee layoffs, quite often, in a massive scale.

According to a study done by Challenger, Gray & Christmas, Inc., which was also quoted in the Forbes Magazine, April 13, 2011, 297,650 employees were laid off by the global pharma industry between the years 2000 and 2011.

Year

Number of Job cuts

2000

2,453

2001

4,736

2002

11,488

2003

28,519

2004

15,640

2005

26,300

2006

15,638

2007

31,732

2008

43,014

2009

61,109

2010

53,636

Total

297,650


Source: Challenger, Gray & Christmas, Inc. ©/Forbes Magazine, April 13, 2011

Top of the list layoffs:

Forbes, Pharma and Healthcare, June 10, 2011 reported ‘top of the list layoffs’ in the Global Pharmaceutical Industry from 2004 to 2011. This number reported to be comparable to as many people working at the three largest drug companies combined namely, Pfizer, Merck and GlaxoSmithKline GSK in 2011.

Company No of layoffs
Pfizer 58,071
Merck 44,400
Johnson & Johnson 9,900
Eli Lilly 5,500
Bristol-Myers Squibb 4,600

More recently ‘Mail online’ dated February 3, 2012 reported that ‘Pharmaceutical giant AstraZeneca announces 7,300 job losses as it pares back staff to save money’. Immediately, thereafter, on February 24, 2012 Reuters reported that ‘German drugs and chemicals group Merck KGaA has announced plans for a cost-cutting program across all its businesses that may include job cuts’.

The old paradigm is no longer relevant:

To get insight into the future challenges of the pharmaceutical industry in general ‘Complete Medical Group’ of U.K had conducted a study with a sizable number of senior participants from the pharmaceutical companies of various sizes and involving many countries. The survey covered participants from various functional expertise like, marketing, product development, commercial, pricing and other important areas. The report highlighted that a paradigm shift has taken place in the global pharmaceutical industry, where continuation with the business strategies of the old paradigm will no longer be a pragmatic option.

Learning from the results of the above study, which brought out several big challenges facing the pharmaceutical industry in the new paradigm, my submissions are as follows:

Collaborative Research to overcome R&D productivity crisis: The cost of each new drug approval has now reached a humongous proportion and is still increasing. This spiraling R&D cost does not seem to be sustainable any longer. Thus there emerges a need to re-evaluate the R&D model of the pharmaceutical companies to make it cost effective with lesser built-in risk factors. Could there be a collaborative model for R&D, where multiple stakeholders will join hands to discover new patented molecules? In this model all involved parties would be in agreement on what will be considered as important innovations and share the ‘risk and reward’ of R&D as the collaborative initiative progresses. The Translational Medicine Research Collaboration (TMRC) partnering with Pfizer and others, ‘Patent Pool’ initiative for tropical diseases of GSK and OSDD for Tuberculosis by CSIR in India are examples of steps taken towards this direction. Surely such collaborative initiatives are not easy and perhaps may also not be acceptable to many large global players as on date, but they are not absolutely uncommon either. The world has already witnessed such collaborative research, especially in the sectors, like Information Technology (IT). Thus, it remains quite possible, as the industry moves on, that the world will have opportunities to take note of initiation of various cost effective collaborative R&D projects to create a win-win situation for all stakeholders in the global healthcare space. Greater access to fast growing markets: The increasing power of payors in the developed world and the interventions of the Government on the ground of ‘affordability of medicines’ in the developing countries are creating an all pervasive pricing/margin pressure for the pharmaceutical players.

These critical emerging developments can be effectively negotiated with significant increase in market access, especially in the emerging economies of the world, with each country specific business strategies. ‘One size fits all’ type of standardized approach, currently adopted by some large global players in the markets like India, may not be able to fetch significant dividend in the years ahead.

Better understanding of the new and differential value offerings that the payors, doctors and patients will increasingly look for, much beyond the physical products/brands, would prove to be the cutting edge for the winners for greater market access in the emerging economies.

Current business processes need significant re-engineering: Top management teams of many global pharma companies have already started evaluating the relevance of sole dependance on the current R&D based pharmaceutical business model. They will now need to include in their strategy wider areas of healthcare value delivery system with a holistic disease management focus.

Only treatment of diseases may no longer be considered enough with an offering of just various types of medications. Added value with effective non-therapeutic/incremental disease management/prevention initiatives and appropriately improving quality of life of the patients, especially in case of chronic ailments, will assume increasing importance in the pharmaceutical business process in the emerging markets. Continuous innovation required not just in R&D, but across the value chain: Continuous innovation across the pharmaceutical value chain, beyond pharmaceutical R&D, is the most critical success factor. The ability to harness new technologies, rather than just recognize their potential, and the flexibility to adapt to the fast changing and demanding regulatory environment together with patients’ newer value requirements, should be a critical part of the business strategy of  the pharmaceutical companies in the new paradigm. Avoidance of silos, integrating decision making processes: More complex, highly fragmented and cut throat competition have created a need for better, more aligned and integrated decision making process across various functional areas of the pharmaceutical business. Creation of silos, duplication of processes and empire building have long been a significant trend, especially, in the larger pharmaceutical companies. Part of a better decision making will include more pragmatic and efficient deployment of investments and other resources  for organizational value creation and jettisoning all those activities, which are duplications, organizational flab producing and will no longer deliver differential value to the stakeholders. Finding newer ways of customer engagement: Growing complexity of the business environment is making meaningful interactions with the customers and decision makers increasingly challenging. There is a greater need for better management of the pharmaceutical communication channels to strike a right balance between ‘pushing’ information to the doctors, patients and other stakeholders and helping them ‘pull’ the relevant information whenever required. Questioning perceived ‘fundamentals’ of the old paradigm:

Despite a paradigm shift in the business environment, fundamental way the pharmaceutical industry appears to have been attempting to address these critical issues over a decade, has not changed much.

In their attempt to unleash the future growth potential, the pharmaceutical players are still moving around the same old dictums like, innovative new product development, scientific sales and marketing, satisfying customer needs, application of information technology (IT) in all areas of strategy making process including supply chain, building blockbuster brands, continuing medical education, greater market penetration skills, to name just a few. Unfortunately, despite all such resource intensive initiatives, over a period of time, nothing seems to have changed fundamentally, excepting, probably, some sort of arrest in the rate of declining process.

Conclusion:

Such incremental focus over a long period of time on the same areas, far from being able to ride the tide of change effectively, does ring an alarm bell to some experts. More so, when all these initiatives continue to remain their prime catalysts for change even today to meet new challenges of a different paradigm altogether.

The moot question therefore remains: what are the companies achieving from all heavy investments being continuously made in these areas since long…and why have they not been able to address the needs of the new ball game for business excellence, effectively, thus far?

When results are not forthcoming despite having taken all such measures, many of them have no options but to resort to heavy cost cutting measures including job losses to protect the profit margin, as much as one possibly can.

If the issues related to declining rate of global pharmaceutical business performance is not addressed sooner moving ‘outside the box’ and with ‘lateral thinking’, one can well imagine what would its implication be, in the endeavor towards arresting continuous job losses through business excellence, in the years ahead.

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.

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

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

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

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

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

GPA- The plurilateral Agreement:

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

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

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

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

The opposition to GPA:

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

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

Pharmaceuticals: Second largest item in public healthcare budget:

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

GP for Pharmaceuticals in India:

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

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

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

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

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

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

Examples of GP in the states:

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

Delhi:

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

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

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

  • Maharashtra
  • Rajasthan
  • Punjab
  • Himachal Pradesh

Tamil Nadu:

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

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

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

Andhra Pradesh (AP):

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

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

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

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

Odisha:

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

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

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

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

UHC – A potential GP growth booster:

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

PMO push for free drugs at Government hospitals:

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

Quantum growth envisaged in the GP system:

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

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

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

Conclusion:

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

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

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

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

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

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

By: Tapan J Ray

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

The Vaccine Market of India: A rejuvenation is in progress

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Even in couple of decades back, ‘Vaccines Market’ in India did not use to be considered as a focus area by many pharmaceutical companies. Commoditization of this market with low profit margin and unpredictable interest of the government/the doctors towards immunization were the main reasons. Large global players like Glaxo exited the vaccine market at that time by withdrawing products like, Tetanus Toxoid, Triple Antigen and other vaccines from the market.

Currently, the above scenario is fast changing. The vaccine market is getting rejuvenated not only with the National Immunization Program (NIP) of the country, but also with the emergence of newer domestic vaccines players and introduction of novel vaccines by the global players, which we shall discuss below.

In addition, the ‘Indian Academy of Pediatrics (IAP) Committee on Immunization’ now recommends the ‘best individual practices schedule’ for the children in consultation with their respective parents. Such schedule may not conform to NIP and include newer vaccines, broadening the scope of use of vaccines in general.

Global Market:

According to GBI Research Report, overall global vaccines market was valued at US$ 28 billion in 2010 and is expected to reach US$ 56.7 billion by 2017 with a CAGR of 11.5%. The key growth driver of this segment will be introduction of newer vaccines, which are currently either in the regulatory filing stage or in the late stages of clinical development.

The important international players in the vaccines market are GlaxoSmithKline, Sanofi, Pfizer, Novartis AG, Merck and SP-MSD, representing around 88% of the total vaccine segment globally.

Indian Market:

Year

Value

   Rs. Cr.

Growth  %

2007

389

-

2008

383

-2

2009

476

24

2010

726

53

Source: IMS – Health MAT June 2010

India is one of largest markets for all types of vaccines in the world. The growth is being driven by the new generation and combination vaccines, like DPT with Hepatitis B, Hepatitis A and Injectable polio vaccine. The demand for veterinary vaccines is also showing ascending trend. Pediatric vaccines contribute to around 60% of the total vaccines market in India.

McKinsey in its report titled, “India Pharma 2020: Propelling access and acceptance, realizing true potential“ stated that at 2% penetration, the vaccines market of India is significantly under-penetrated with an estimated turnover of around US$ 250 million, where the private segment accounts for two-thirds of the total. McKinsey expects the market to grow to US$ 1.7 billion by 2020.

In India companies like, Serum Institute, Shantha Biotecnics, Bharat Biotech and Panacea Biotech are poised to take greater strides in this direction. Bharat Biotech is incidentally the largest Hepatitis B vaccine producer in the world. Likewise, Serum Institute is reportedly one of the largest suppliers of vaccines to over a 130 countries of the world and claim that ’1 out of every 2 children immunized worldwide gets at least one vaccine produced by Serum Institute.’

Indian Vaccine Market:  Domestic vs MNCs:

In the domestic vaccine market the market share of the Indian players is gradually improving as compared to their multinational counterparts.

Types

June 2009 MAT

% Value Growth

June 2010 MAT

% Value Growth
Indian Companies

55%

27

59%

64
MNCs

45%

21

41%

38

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 Companies:

Rank

Company

Value     (Rs. Cr)

%Market Share

%Value Growth
Vaccine Market

726

100

53

1

GSK

131

18

23

2

 Sanofi Aventis

129

18

>>

3

 Pfizer

71

10

75

4

 Novartis

68

9

-12

5

 Serum Institute

68

9

40

6

 Panacea Biotech

59

8

57

7

 VHB Lifesciences

33

5

>>

8

 Zydus Cadila

32

4

56

9

 MSD

31

4

>>

10

 Shantha Biotech

24

3

15

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top Therapies:

Therapies

Value

     (Rs.Cr.)

%Market Share

% Value Growth

Incr. Value          (Rs. Cr)

June’09 MAT

June’10 MAT

June’09 MAT

June’10 MAT
Vaccine Market

726.1

100

24

53

93

250
Toddler Vaccine

211

29

55

60

47

79
Adult Vaccine

205

28

-4

22

-7

37
Paediatric Combination Vaccines

146

20

67

>>

28

77
Paediatric Single Vaccines

131

18

25

32

20

32
All Other Vaccines

33

5

—

431

6

27

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 Brands:

Rank

Brands

Company

Value

       (Rs.Cr.)

Value Growth %

Incr. value   

(Rs. Cr.)

June’09 Mat

June’10 MAT

June’09 Mat

June’10 MAT
Vaccine Market

726

24

53

93.1

250
1 Prevenar Pfizer

71

150

75

24

30
2 Rabipur Novartis

68

4

-12

3

-9
3 Pentaxim Sanofi Aventis

46

>>

>>

7

39
4 Havrix GSK

37

9

47

2

12
5 Varivax VHB

33

59

>>

5

18
6 Vaxirab Zydus Cadila

32

-11

56

-3

11
7 Varil Rix GSK

25

-3

-9

-1

-2
8) Gardasil MSD

22

—-

>>

5

16
9 Verorab Sanofi Aventis

21

—-

—-

0

21
10 Rotarix GSK

21

—-

>>

10

11

Source: IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 New Introductions:

NIs

Company

Launch Date

Value

(Rs. Cr)

Incr. Value

(Rs. Cr)
Vaccine Market

104

79
Gardasil MSD 10/2008

22

16
Rotarix GSK 07/2008

21

11
Pentavac Serum Institute 10/2008

16

12
Cervarix GSK 02/2009

11

10
Polprotec Panacea Biotech 07/2008

9

6
Xprab Ranbaxy 10/2009

7

7
Quadrovax Serum Institute 11/2008

4

3
Comvac- 5 Bharat Biotech 02/2009

3

3
Pentavac – SD Serum Institute 11/2009

2

2
Shan HIB- DPT Shantha Biotech 09/2008

2

1

Source:IMS-Health – June 2010 MAT

Action areas to boost growth:

McKinsey in its above report ‘India Pharma 2020’ indicated that the action in the following 4 areas by the vaccine players will drive the vaccine market growth in India:

  • Companies need to go for local production of vaccines or leverage supply partnerships. GlaxoSmithKline’s local partnership for the HiB vaccine with Bio-manguinhos in Brazil has been cited as an example.
  • Companies will need to conduct studies on the economic impact of vaccination and establish vaccine safety and performance standards.
  • Extension of vaccine coverage beyond pediatricians and inclusion of general practitioners, consulting physicians and gynaecologists will be essential.
  • Companies will need to enhance supply chain reliability and reduce costs.

Conclusions:

On January 7, 2012, while requesting the ‘Overseas Indian Medical Professionals’ to partner with the institutions in India, the Health Minister, in his address, announced that the Ministry of Health has already introduced the second dose of measles vaccine and Hepatitis-B vaccination across the country. Moreover, from December, 2011 a ‘Pentavalent Vaccine’ has been introduced, initially in 2 States, covering 1.5 million children of India.

All these augur quite well for the country. However, keeping in view of the humongous disease burden of India, immunization program with various types of vaccines should receive active encouragement from the government as disease prevention initiatives, at least, keeping the future generation in mind.

If such policy measures are initiated in the country, without delay, the domestic vaccine market , in turn, will receive further growth momentum, together with newer players and modern vaccines coming in, to help addressing effectively a significant area of the healthcare concerns 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.