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Does India need an equivalent of ‘The Physician Payment Sunshine Act’ of the US for transparency in pharmaceutical marketing?

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Currently a strong and palpable public sentiment against corruption has engulfed India albeit more than what we witness in movements like ‘Occupy Wall Street’ against systemic corruption not only in the US but in a large number of cities across the world.

Long suppressed public sentiment against corruption is fast spreading like a wild fire in India and has now become all pervasive and almost irreversible, as it were.

That said, this strong sentiment is not just against corruption, but also for greater transparency and clean governance both in the government and corporate sectors of the country.

In a situation like this, there is a wide spread belief within the civil society not just in India, but across the world that the pharmaceutical companies try to skew the ‘prescription decision making process’ of the doctors towards their respective brands largely through different types of allurements and not based solely on robust health outcome criteria.

The key reason:

The entire issue arises out of the key factor that the patients do not have any say on the use/purchase of brand/brands that a doctor will prescribe.

It is generally believed by the civil society that doctors predominantly prescribe mostly those brands, which are promoted to them by the pharmaceutical companies in various ways.  Thus, in today’s world and particularly in India, the degree of commercialization of the noble healthcare services, as reported often by the media, has reached a new high, sacrificing the ethics and etiquette both in medical and pharmaceutical marketing practices in the rat race of unlimited greed, want and conspicuous consumption.

Growing discontentment:

Many within the civil society feel, as a result of fast degradation of ethical standards, moral and the noble values, just in many other areas of public life, in the healthcare space as well, the patients in general have started losing their absolute faith and trust both on the medical profession and the pharmaceutical companies, by and large. However, health related multifaceted compulsions do not allow them, either to avoid such a situation or even raise a strong voice of protest against the vested interests.

Growing discontentment of the patients both in the private and public healthcare space in the country, is being regularly and very rightly highlighted by the media all over the world, including reputed medical journals like, ‘The Lancet’ to help arrest this moral and ethical decay with demonstrable and tangible proactive measures.

A global issue, not just local:

For quite some time from now this issue has indeed become a global phenomenon. Many countries, including India, have seriously taken note of such examples of socioeconomic decay.

Just the other day, the November 3, 2011 edition of ‘The Guardian’ reported, “British drugs giant GlaxoSmithKline has agreed to pay $3bn (£1.9bn) to settle a series of old criminal and civil investigations by the US authorities into the sales and marketing of some of its best-known products”.

The Scenario in India:

The current scenario in India though not very much different, in terms of seriousness of the issue, from what is being reported in the US, the evolving regulatory standards in the US on this subject are definitely more robust and far superior to what we see India.

In India over 20, 000 pharmaceutical companies of varying size and scale of operations are currently operating. It has been widely reported in the media that the lack of regulatory scrutiny is prompting many of these companies to adapt to ‘free-for-all’ types of aggressive sales promotion and cut-throat marketing warfare involving significant ‘wasteful’ expenditures. Such practices reportedly involve almost all types of their customer groups, excepting perhaps the ultimate consumer, the patients.

It has been well reported that industry’s gifts to physicians in India can range from expensive cars, dinners in exotic locations, pricey vacations at various places of interest of the world and sometimes with the doctors’ families to hefty consulting and speaking fees.

Unfortunately in India there is no single government agency, which is accountable to take care of the entire healthcare needs of the patients and their well-being, in a holistic way.

The pharmaceutical industry of India, in general, has expressed many a time, the need for self-regulation of marketing practices in the absence of any regulatory compulsion, as is not uncommon in many other countries of the world, in various ways.

Be that as it may, after a protracted debate on the alleged ‘unethical marketing practices’ by the pharmaceutical companies, in May 2011, the Department of Pharmaceuticals (DoP) came out with a draft ‘Uniform Code of Pharmaceutical Marketing Practices (UCMP)’ to address this issue squarely and effectively in India. It has been reported that the final draft of UCMP is now lying with the Ministry of Health and Family Welfare of the Government of India for its clearance.

This decision of the government is the culmination of a series of events, covered widely by the various sections of the press, at least, since 2004.

However, many activists groups and NGOs still feel that the bottom-line in this scenario is the demonstrable transparency by the pharmaceutical companies in their dealings with various customer groups, especially the physicians.

“Market malpractices is a barrier to healthcare access”: The WHO report of 2006:

A 2006 report of the ‘World Health Organization (WHO) and ‘The Ministry of Health and Family Welfare, Government of India’ titled ‘Options for Using Competition Law/Policy Tools in Dealing  with Anti-Competitive Practices in Pharmaceutical Industry and Health Delivery System’ states:

“The right to health is recognized in a number of international legal instruments. In India too, there are constitutional commitments to provide access to healthcare. However despite the existence of any number of paper pledges assuring the right to health, access to health remains a problem across the world”.

“There are several factors that are responsible for such deprivation. Market malpractices in general, and in particular, anti-competitive conduct in the pharmaceutical industry and the health delivery system are also among them.”

The scenario in the US:

Like in India, a public debate started since quite some time in the US as well, on allegedly huge sum of money being paid by the pharmaceutical companies to the physicians on various items including free drug samples, professional advice, speaking in seminars, reimbursement of their traveling and entertainment expenses etc. All these, many believe, are done to adversely influence their rational prescription decisions for the patients.

As the financial relationship between the pharmaceutical companies and the physicians are getting increasingly dragged into a raging public debate, making disclosure of all payments made to the physicians by the pharmaceutical companies’ is being made mandatory by the Obama administration, as a part of the new US healthcare reform process of the last year.

Some global pharmaceutical majors have set examples by taking absolutely voluntary measures to make their relationship with the physicians transparent. Eli Lilly, the first pharmaceutical company to announce such disclosure voluntarily around September 2008, has already uploaded its physician payment details on its website.

US pharma major Merck followed suit and so are many other large companies like, Pfizer, GSK, AstraZeneca and Johnson & Johnson.

Cleveland Clinic and the medical school of the University of Pennsylvania, USA are in the process of disclosing details of payments made by the Pharmaceutical companies to their research personnel and the physicians. Similarly in the UK the Royal College of Physicians has been recently reported to have called for a ban on gifts to the physicians and support to medical training, by the pharmaceutical companies.

The New York Times (NYT) in its April 12, 2010 edition in an article titled, “Data on Fees to Doctors is Called Hard to Parse”, reported that though some big pharmaceutical companies have started disclosing payments to doctors who act as consultants or speakers, many still find it far too difficult to follow the money trail.

NYT reported in the same article, “Senate researchers have found that some prominent doctors at academic medical centers have failed to disclose millions of dollars in drug company payments, despite university requirements that they do so. Federal prosecutors say some payments are really kickbacks for illegal or excessive prescribing”.

‘The Physician Payment Sunshine Act’:

To address this issue effectively in the US, ‘The Physician Payment Sunshine Act’, which was originally proposed in 2009 by Iowa Republican Charles Grassley and Wisconsin Democrat Herb Kohl, became a part of the US healthcare law in 2010. This Act came as an integral part of the healthcare reform initiatives of President Obama to reduce healthcare costs and introduce greater transparency in the system.

The Act requires all pharmaceutical and medical device companies of the country to report all payments to doctors above US $10. As stated earlier, the industry’s gifts to physicians in the US, reportedly, can range from expensive hospitality/dinner in exotic locations, pricey golfing vacations in various places of interest to consulting and speaking fees. After the Act comes in force with all its rules in place, failure to provide such details will attract commensurate penal provisions.

However, on November 1, 2011 Reuters reported that the Department of Health and Human Services of the US Government missed the October 1, 2011 deadline for drafting the regulations for ‘The Physician Payment Sunshine Act’ to outline procedures for the concerned companies for reporting the requisite information and sharing the same with the public.

US health officials will now delay the enforcement of the Act to ensure that they can implement the statutory goals of the Act with minimal regulatory burden on the pharmaceutical and the medical device companies.

Last year, ‘The New York Times (NYT)’ in its April 12, 2010 edition commented that come 2013, under the new ‘The Physician Payment Sunshine Act’, disclosure of such database will become mandatory for all pharmaceutical and medical device makers, who will then be subjected to stricter disclosure requirements aimed at making their marketing practices much more transparent.

Conclusion:

In the US, ‘The Physician Payment Sunshine Act’ is now in place, though its effective implementation has got delayed. It appears that Obama Administration, with the help of this new law, will make the disclosure of payments to physicians by all pharmaceutical and medical device companies transparent and effective as the rules and procedures for the same are being worked out.

If President Obama administration can take such an important regulatory step with the enactment of ‘The Physician Payment Sunshine Act’ to ensure transparency in pharmaceutical marketing practices, will Dr. Man Mohan Singh government stay much behind in taking similar measures or give the self-regulatory mechanism, as is being charted by the Department of Pharmaceuticals, one last chance?

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 branding of generic drugs offer value to the patients in India?

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It appears that the government has accepted the submission of the ‘Parliamentary Standing Committee for Health and Family Welfare’ made to the ‘Rajya Sabha’ of the Indian Parliament on August 4, 2010, recommending prescription of medicines by their generic names.

It has now been reported that the Drugs Technical Advisory Board (DTAB) has already considered the proposal to amend the rules of the Drugs and Cosmetics Act of India for approval of all drug formulations containing single active ingredient only in the generic names by the State Licensing Authorities. The proposal to publish the draft rules has been forwarded to the Ministry of Health for necessary approval. The Fixed Dose Combinations (FDC) will be kept out of the purview of this amendment.

This recommendation of the  ‘Parliamentary Standing Committee for Health and Family Welfare’  appears to be based on the premises that the ‘Brand Building’ exercise of the generic drugs in India, includes ‘very high sales and marketing expenditure’, which  can easily be eliminated to make medicines available to the common man at much cheaper prices. ‘Jan Aushadhi’ scheme of the Government is often cited as an example to drive home this point.

This recommendation, on the face of it, makes immense sense. However, the moot question remains, “Is it a practical proposition to implement in India?”

The generics and the branded-generic drugs and their value proposition: As we know generic name is the actual chemical name of a drug. The brand name is selected by the producer of a formulation and is built on various differential value parameters for its proper position in the minds of health professionals as well as the patients. Thus, brand names offer a specific identity to a chemical name in their value proposition.

Some other countries are also taking similar steps:

Just to cite an example, as reported by ‘The Guardian” on August 23, 2011, the Spanish government recently enacted a law compelling the doctors of Spain to prescribe generic drugs rather than more expensive patented and branded pharmaceuticals, wherever available. This move is expected to help the Spanish government to save €2.4 billion (£2.1billion) a year, as in Spain the drugs are partly reimbursed by the government.

As a result, the doctors in Spain will now have to prescribe only in the generic or chemical names of the respective drugs. Consequently the pharmacies will be obliged to dispense ‘the cheapest available versions of drugs, which will frequently mean not the better-known brand names sold by the big drugs firms’.

Quality standards of both generic and branded generic drugs are no different:

Drugs and Cosmetics Act of India requires all generic or branded generic drugs to have the same quality and performance. Thus when a generic drug is approved by the drug regulator, one should logically accept that it has met the required standards with respect to identity, strength, quality, purity and potency. It is not uncommon that there could be some variability taking place during manufacturing process for both branded generic and generic drugs and for that matter it is applicable to all drugs. However, all formulations of both types of these drugs manufactured by different manufacturers do not need to contain the same inactive ingredients.

In any case, all formulations of both generic and branded drugs must be shown to be bioequivalent to the reference drugs with similar blood levels to the respective reference products. Regulators even in the USA believe that if blood levels are the same, the therapeutic effect will be the same.

A recent study:

As reported by the US FDA, ‘A recent study evaluated the results of 38 published clinical trials that compared cardiovascular generic drugs to their brand-name counterparts. There was no evidence that brand-name heart drugs worked any better than generic heart drugs. [Kesselheim et al. Clinical equivalence of generic and brand-name drugs used in cardiovascular disease: a systematic review and meta-analysis. JAMA. 2008;300(21)2514-2526]‘.

Prescriptions for generic medicines were a record high in America in 2010:

As per published reports, last year i.e in 2010, generic medicines accounted for more than 78%  of the total prescriptions dispensed by retail chemists and long-term care facilities in the US. This is a record high and is four percentage points more than what it was in 2009 and came up from 63% as recorded in 2006.

Points to ponder and resolve in the current Indian situation:

While the intention of the Government is indeed good, some practical issues must be considered before its implementation, which are as follows:

1. Increased chances of error while dispensing:

Chemical names of medicines are complex. In case of any mistake of dispensing the wrong drug by the chemist inadvertently, the patients could face serious consequences.

2. There could be differences even within single ingredient formulations:

Different brands of even single ingredient medicines may have inherent differences in their formulations like, in the drug delivery systems (controlled/sustained release), kind of coatings allowing dissolution in different parts of alimentary canal, dispersible or non-dispersible tablets, chewable or non-chewable tablets etc. Since doctors are best aware of their patients’ conditions, they may wish to prescribe a specific type of formulation based on specific conditions of the patients, which may not be possible by prescribing only in generic names.

3. Price differences between branded generics and generic generics may not exist:

It is intriguing to fathom, just for a switch over from the brand name to the generic name how will the Maximum Retail Price (MRP) of a single ingredient formulation, bearing only the generic name, come down. Currently, MRPs printed on the product packs of generic formulations without any brand name, as available in the retail outlets, are similar to comparable branded generic formulations. In that case, what benefits that Government will expect a patient to get out of this well hyped change?

4. Manufacturers may switch from single ingredient formulations to FDCs:

There is a theoretical possibility that to retain brand names, the pharmaceutical companies may be encouraged to change their formulations from single ingredient to FDCs. In that situation, single ingredient formulations may not be available and comparable FDCs could cost more to the patients.

5. The key decision will shift from physicians to retail chemists:

The major issue with prescriptions by the chemical/generic names is that retail chemists will then be the sole decision makers to choose the prescribed product from within a whole lot of over 30 to 40 manufacturers for a particular product.

What then will prompt the retailers to buy, store and sell different generic formulations of various companies and what could possibly be the key selection criteria for such drugs by them?

I reckon, there could only be one criterion for the choice of such medicines by a chemist i.e. to select only those which will give them highest margin of profits.

In such a case, the ultimate decision making authority for the prescription medicines shifts from the physicians to the chemists. This could make the situation far worse for the patients.

In interest of the patients, it is, therefore, extremely important that the government, regulators, physicians, chemists and even the patients’ groups are aware of such risks and ensure that patients are not adversely impacted in any way.

Conclusion: Viewing purely from the Indian perspective, while the generic drugs per se are not bad for the patients, weighing all the above issues and possible risk factors against expected benefits, I reckon, without effectively addressing the above issues to start with, if the prescriptions of single ingredient formulations are made mandatory only in generic names, it could seriously jeopardize patients’ safety and interest.

In any case, when single ingredient formulations contribute just around 30% of the total prescriptions in India, how could then prescriptions of all single ingredient formulations only in generic names address the stated concern of the government, in a holistic way?

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.

Should India follow the US way to regulate all types of lobbying in the country?

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Currently, India is one of the fastest-growing economies of the world along with China. Even during the recent global financial meltdown process both India and China could register a very impressive average GDP growth of around 7% consistently during the last so many years. This growth is over three times more than that of the developed countries like the US, which has been growing just around 2% in the recent years.

India growth story, I reckon, is now attracting a large number of companies across the industries from all over the world including India to lobby hard and participate in the process of spectacular growth across many industry sectors. Such lobbying activities in India are expected to increase by manifold in the years ahead.

As per newspaper reports the large corporations involved with these activities, besides pharmaceuticals, include the world’s largest retailers, the coffee shop giants, financial services, insurance companies and technology majors in addition to chemicals, telecom, defense and aerospace giants.

Currently, many US-based companies, as reported in the lobbying disclosure reports filed by them with the US Senate, are lobbying for various issues ranging from facilitating the market access to easing of foreign direct investment caps in retail, insurance and other financial services sectors in India to facilitate their business expansion in the country.

Indian Pharmaceutical sector is becoming more and more attractive to many:

Keeping pace with other high growth industries of the country, Indian Pharmaceutical Market (IPM) with the current domestic turnover of around US$ 12.1 Billion has been registering a scorching pace of CAGR growth of around 15%, since over a decade. The domestic pharmaceutical industry now caters to about 20% of global requirements of high quality and affordable generic medicines of all types.

IPM is, therefore, a global success story and India has already established itself as a major force to reckon with, especially in the development and manufacturing of high quality generic pharmaceuticals, as well as in Contract Research and Manufacturing Services (CRAMS), in the pharmaceutical industry of the world.

IPM is creating newer jobs:

As per reports, in roughly around 20,000 pharmaceutical organizations and its ancillary units over one million people are currently employed by the Industry. As mentioned above, though India has globally established itself as a producer of high-quality medicines available at reasonable prices, predominantly due to a very high of around 80% ‘Out of Pocket’ expenses towards healthcare in India, ‘common man’ still finds it extremely difficult to bear the cost of illness. Such critical public health interests India can ill afford to ignore.

Spectacular progress of the Indian Pharmaceutical Industry:

India, during its independence on August 15, 1947 inherited the patent system of its British colonial masters. Drugs and Pharmaceuticals used to be largely imported from the developed world in that period with local production being absolute minimal.

This abysmal trend and pattern of the IPM of pre-independent India took another 20 years to make any significant change worth mentioning. It will be quite difficult even for the staunchest skeptics to brush aside the fact that the Indian pharmaceutical industry started blossoming since 1970, mainly due to abolition of product patent act and government encouragement with various fiscal and tax incentives paving the way for the emergence of a vibrant high quality drug manufacturing sector in the country. However, that was the need of the 70’s and certainly not for now.

It is good to know that so far as national self-sufficiency in pharmaceuticals is concerned, as per Indian Drug Manufacturers Association (IDMA), it is far above 70% despite many tough challenges.

Patent regime of many ‘developed economies’ had a stormy beginning:

While deliberating on product patents, it should be noted that in many industrial nations of the world, the protection of inventions through patents started taking place in around the last 40 years.

For example, pharmaceuticals product patents in Switzerland came into effect only since 1978. History tells us that at the fag end of the 19th century the pharmaceutical industry in Switzerland fought vehemently against the enactment of a patent law to be able to imitate foreign drugs, such as Aspirin of Bayer. Mainly because of this reason, at that time, Germany used to consider Switzerland a ‘state of robber barons’. Similarly, France used to be known as a ‘country of counterfeiters’.

Some historians have written that exactly in the same way like India, as mentioned above, the economies of Korea, Taiwan and the ‘land of the rising sun’ – Japan were able to thrive in their formative years due to absence of patent protection in those countries.

Young India is possibly crossing, if not has already crossed that stage much sooner than many others.

Innovation is the ‘Wheel of Progress’ of any nation:

However, it is an undeniable fact that ‘innovation’ is the wheel of progress of any nation. Without innovation, it is virtually impossible for any country to make significant economic progress. The Prime Minister of India has thus termed the current decade of 2010 as the ‘decade of innovation’ for India.

It has been well established by now that ‘Technology Transfer’ from the developed nations not only brings profit to those countries from patent protection and shields them from low-cost competition, but also helps the developing nations to add requisite speed to their growing economy.

However, most developing nations want access to such technological innovations at an affordable and lesser cost without any possible future risk of oligopoly and ‘technological recolonisation’.

New Product Patent regime in India came much after China and Brazil:

India signed the WTO agreement to become its member in January 1, 1995 and following a 10-year transition period, on January 1, 2005 the country amended its national patent legislation to usher in the product patent regime. The lose knots, if any, in the amended Patents Act of India are widely expected to get strengthened as the domestic innovators will feel the need for the same and possibly not due to any extraneous pressure.

Compared to India, product patent came much earlier in China and Brazil. China enacted its first patent law on March 12, 1984. However, it provided little protection to pharmaceutical and chemical inventions.  In 1992, China amended the 1984 patent law in compliance with an agreement between China and the United States, as well as to join the WTO. Similarly, the new patent law came into force in Brazil way back on October 6,1999, which also has the provision of issuing Compulsory Licenses (CL).

International independent domain experts feel that it will take some more time for India to gauge the real benefits of product patents for the country.

Public interest for ‘Health and Nutrition’:

The philosophy of India since decades has been to ‘promote the principle of relying on one’s own strength’, especially in the critical and a very sensitive areas of public interest for ‘Health and Nutrition’. Many independent experts in this field both from India and abroad have opined that India seems to be following this path without compromising on its TRIPS compliance status. However, there are some dissenting voices in this area, who feel that a more rigorous and robust patent regime in India is in the best interest of the country.

Should the government regulate lobbying activities?

Considering the fast emerging environment, as mentioned above and arising out of some recent very sensational lobbying related financial/policy scams in India, the moot question, as is being raised by many across the country is: “Should the government regulate the lobbying activities in India?”.

Even in the Pharmaceutical Industry, some instances of lobbying activities carried out both within and outside India, had led to raging debates and controversies.

To cite an example, not so very long ago, some consumer activists from the civil society vehemently protested against the ‘Intellectual Property Conferences’ held in India, which were allegedly sponsored by some interested groups in a guise to influence the policy makers and the judiciary of India.

It was widely reported that the consumer activists viewed these IP summits, organized by the George Washington University Law School of USA as ‘attempts to influence sitting judges on patent law enforcement issues that are pending in Indian courts.’

In a letter dated February 26, 2010 addressed to Shri Anand Sharma, Minister of Commerce and Industry of India, over 20 NGOs demanded transparency and more information on such meetings and wanted the government of India ‘to put a stop to such industry sponsored lobbying with Indian judges and policymakers to promote their own requirements for intellectual property and to lobby for either law amendments or even to plead their cases currently pending before, various courts and the Indian Patent Office,”

In raising their concerns, the civil society groups argued that the posture adopted by the lobbyists and their supporters is to “force India to adopt greater standards” of IP protection “beyond the mandatory levels” required by the WTO, which may go against public health interest in India.

Lobbying activities are expected to gain further momentum:

It is quite logical to expect that lobbying activities in such and many other areas both ‘for’ and ‘against’ are expected to gain momentum in the times to come. However, it is widely believed that long-term interest of India is expected to ultimately prevail in this closely watched ball game.

Lobbying is legal in many countries like the US with the government ground rules firmly in place:

We all know that in many countries like the US, lobbying is a legal activity. Many Indian companies, including the government of India have been lobbying in the US since so many years to present their cases and argument with the American law and policy makers.

When President Obama came to power in the US, it was reported: ‘one of the first acts of the Obama administration in office was to have an executive order which prohibited the Obama Administration either from hiring lobbyists – those who had lobbied within two years of joining the administration or allowing people who had left the Obama administration to service lobbyists for two years. The idea is that you want to break the chains where there is undue influence of special interest groups upon the government’.

However, there are no government ground rules still in place for lobbying in India either for the local or the global companies and their lobbyists, across the industry sectors.

Surrogate lobbying:

It was discussed somewhere about ‘surrogate lobbying’ in many industries from various parts of the world. I have really no idea about what these are and the legality of such activities without appropriate well-drafted government specified disclosures in place, for public interest.

Conclusion:

Be that as it may, in the US such activities are required to be intimated to the US senate by the companies concerned and their lobbyists highlighting their activities in form of a quarterly disclosure reports detailing not only the issues, but also the concerned government departments and institutions and the related expenses.

Let me hasten to add that despite a long history with regulated and legalized lobbying in the US, still there has been severe criticism in that country of the way lobbying has worked there in the past so many years. India has plenty to learn from such experiences.

Thus, as a part of following the global ‘public interest best practices’, a large section of the civil society in India has been voicing in so many ways, mainly after the recent financial and policy related mega scams, that it may be a good idea, if the government also puts system driven adequate checks and balances in place for lobbying activities in India, sooner.

It is believed by many that such regulations will ensure perfectly legal lobbying initiatives in India always maintain complete transparency and follow appropriate processes/procedures of disclosures to maintain a right balance between long-term public interest and the growing requirements of a healthy business ecosystem to accelerate the inclusive economic growth of the nation.

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 domestic API players are fast losing their dominance in the Indian API market

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There are two broad categories of markets for the Active Pharmaceutical Ingredients (API) across the world namely, highly regulated and semi regulated markets. Countries like, USA, Europe and Japan will fall under highly regulated category with high entry barriers for the global API players like, robust Intellectual Property (IP) regime and stringent regulatory requirements to meet their product quality standards. Such an environment prompts a premium price for the APIs. On the other hand, the semi regulated markets, which offer low entry barriers with not so stringent IP and regulatory requirements, attract more number of API players engaging in cut throat price competition.

The top three markets for Active Pharmaceutical Ingredients (APIs) are the US, Europe and Asia Pacific. According to ‘Business Wire (July 13, 2011), the API market in the Asia-Pacific is expected to grow from 6.7% between 2005 and 2010 to 9.6% between 2010 and 2016.

Currently a perceptible shift in API manufacturing is being noticed from the western markets to the emerging markets like, India and China. In the Asia Pacific region Japan and China enjoy the highest market share for API with 42.8% and 20.8%, respectively. India accounts for 10.3%, while South Korea holds an 8.1% share of the market. To avoid price erosions now seen in the US, Indian manufacturers have started exporting more APIs to Japan.

In 2010, contribution of generic API from the Asia-Pacific market was at 71.5%, with patented APIs contributing for the rest, where Japan enjoys a larger share than India and China. While this is the current scenario, many experts in this field contemplates that important players from the regulated markets will soon start making significant inroads in India.

Current API Market in India:
In 2007 the API output value in India was around US $4.1 billion registering a 5 year CAGR of around 19% and ranking fourth in the world API output. According to the Tata Strategic Management Group, Indian API export value is expected to increase to US $12.75 billion in 2012.

Currently in India about 400 different types of APIs are manufactured in around 3000 plants, Ranbaxy Laboratories, Lupin, Shasun Pharmaceuticals, Orchid Chemicals, Aurobindo Pharma, Sun Pharmaceuticals, Ipca Laboratories and USV being the top API manufacturers of the country. Indian domestic companies source almost 50 percent of their API requirements from China, because of lower cost in that country.

In terms of global ranking, India is now the third largest API producers of the world just after China and Italy and by end 2011 is expected to be the second largest producer after China. However, in Drug Master File (DMF) filings India is currently ahead of China.

In addition, India scores over China in ‘documentation’ and ‘Environment, Health and Safety (EHS)’ compliance. All these have contributed to India having around 125 US-FDA approved world class manufacturing facilities, which is considered the largest outside the USA.
Indian API manufacturers are facing a cut throat competition from their Chinese counterparts mainly because of lower costs in China. Considerably higher economies of scale and various types of support that the Chinese API manufacturers receive from their Government are the main reasons for such cost differential.
Growing competition from the regulated markets:
We now observe a new trend within the API space in India. Many of the global innovators and generic companies are keen to enter into the API space of India.

It is known that API manufacturers from the regulated markets are already selling their products in India. However, at present, the numbers of Indian registrations for API applied by some of the large global companies, as reported by ‘Thomson Reuters Newport Horizon Premium’, are quite significant, which are as follows:

1. Novartis, Switzerland: 20 2. Pfizer, USA: 16 3. Sanofi-Aventis, France: 26 4. Teva, Israel: 45 5. MSD, USA: 39 6. BASF: 37 7. DSM: 26 8. EON AG: 16 9. Kyowa Hakko: 23

All these companies, who are entering into the API business space in India, I reckon, have worked out a grand design to compete not only with the low cost domestic API manufacturers, but also with the cheaper imports, particularly from China.

China an emerging global force to reckon with in the API market:

An economy of scale leading to cost leadership is fast establishing China in the global API market as a force to reckon with. Dominant presence of China even in the bulk intermediate category with high level of technical expertise, especially in the fermentation technology, strong manufacturing base, supported by increasing standard of regulatory compliance and better IP protection, as perceived by the global pharmaceutical community, are helping the API manufacturers of China to gradually increase their presence even in the highly regulated markets of the world.

In this emerging scenario, when China throws a tough competition to the API producers of India,  developing and manufacturing niche APIs will be the key differentiating factors for the Indian players to maintain their global presence in future, especially with APIs involving non-fermentation technology.

What will then be the competitive edge of these companies in India?
It appears that each of these companies has weighed very carefully the existing strategic opportunities in the API sectors of India, both in terms of technology as well as domestic demand.

Strategic gap in API manufacturing technology:
India, undeniably, is one of the key global hubs in the API space, with competitive edge mainly in ‘non-fermentation technology’ product areas. This leaves a wide and perceptible technological gap in the areas of products requiring ‘fermentation technology‘.

Significant demand from domestic formulations manufacturing:
India is much ahead of China in pharmaceutical formulations manufacturing, especially in the area of exports to the regulated markets like, the USA and EU. Over 25 domestic Indian companies are currently catering to exports demand of the U.S market. However, it is interesting to note that the global manufacturers like Sandoz, Eisai, Watson, Mylan have already set up their formulations manufacturing facilities in India and some more are expected to follow suit over a period of time. Hence, fast growing domestic demand for APIs, especially for exports, will drive the business plan of the global API players for India.

Is the cost arbitrage of India sustainable?
Indian API manufacturers although currently have a cost advantage compared to their counterparts in the regulated market, this advantage is not sustainable over a period of time because of various reasons. The key reason being sharp increase in cost related to more stringent environmental and regulatory compliance, besides spiraling manpower and other overhead costs.

Indian regulatory requirements for the global API players:
To sell their APIs into India, global companies are now required to obtain the following regulatory approvals from the Indian authorities:

1. Foreign manufacturing sites for the concerned products

2. APIs which will be imported in the country

The Drug Controller General of India (DCGI) has stipulated a fee of U.S$1,500 to register the manufacturing premises and U.S$1,000 to register each individual API. Since January 2003, around 1,200 registration certificates have been issued in India. Large number of Indian registrations is attributed by many to the strategic technology gap in India, as stated above, demand of high-quality API for finished formulations required by the regulated markets like the U.S and EU, and relatively cheaper product registration process.

As we see above Teva has gone for maximum number of Indian registrations, so far and most probably selling the APIs to their contract formulations manufacturers in India. Similarly, Schering-Plough and Sanofi, if not Pfizer are perhaps catering to the API demand of their respective formulations manufacturing plants in the country.

Apprehension of counterfeit APIs from the emerging markets:

Growing apprehensions of counterfeit APIs from the emerging markets like, India and China must also be addressed expeditiously by all concerned.

‘The New York Times’ dated August 15, 2011 reported that APIs from India, China and elsewhere now constitute 80% of the active ingredients in US drugs. The US FDA Commissioner Margaret Hamburg was quoted saying, “Supply chains for many generic drugs often contain dozens of middlemen and are highly susceptible to being infiltrated by falsified drugs.”

Conclusion:

Be that as it may, some key global players mainly China, as mentioned above, are now exporting APIs at a much larger scale to India and in that process have started curving out a niche for themselves in the Indian API market. Impressive growth of the domestic pharmaceutical formulations manufacturing market fueled by increasing domestic consumption and exports to the regulated markets, coupled with gradual improvement in the regulatory environment of the country and some global collaboration for the pharmaceutical formulations sourcing from India, are expected to drive the growth of API business of the global players in India. However, the moot question still remains: will the Indian API players be able to thrive or even survive the tough competition from the global players, especially China?

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.

‘Maira Committee’ delivers: Resolves 100% FDI issue in the pharma sector of India

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On October 10, 2011, Dr Man Mohan Singh, the Prime Minister of India accepted the recommendation of the ‘Maira Committee’ on Foreign Direct Investment (FDI) in the Pharmaceutical Sector of India and decided that the Competition Commission of India (CCI) will continue to scrutinize all Mergers and Acquisitions (M&A) in this area to avoid any possible adverse impact on Public Health Interest arising out of such deals.

Finance Minister Mr. Pranab Mukherjee, Health Minister Mr. Ghulam Nabi Azad, Commerce and Industry Minister Mr. Anand Sharma, Deputy Chairman of the Planning Commission Mr. Montek Singh Ahluwalia and the head of the ‘Maira Committee’ Mr. Arun Maira were reported to be present in the meeting.

Finer details are still not known:

Although the details of the ‘Maira Committee Report’ nor the discussion with the Prime Minister are not known, as yet, the key recommendation, as reported by the press was to be in relaxation of the threshold limits of CCI scrutiny for pharmaceutical M&As, which under the current law involve target companies with a turnover of above Rs 750 Crore (Rs 7.5 billion) and assets worth more than Rs 250 Crore (Rs 2.5 billion).

The CCI will now be strengthened and directed to set up a standing advisory committee especially to look into M&A in the pharmaceutical sector of India to  address the concerns of the stakeholders in this matter.

The new system in CCI within six months:

The new system will be put in place within a period of six months. By the time CCI equips itself to handle the recommendations of the ‘Maira Committee’, as an interim measure, all brownfield pharma M&A proposals will be routed through Foreign Direct Investment Promotion Board (FIPB) for a period not exceeding six months.

A press note from the commerce & industry ministry announced at the same time that “India will continue to allow FDI without any limits (100 per cent) under the automatic route for Greenfield investments in the pharma sector. This will facilitate the addition of manufacturing capacities, technology acquisition and development.”

Looking back:

While looking back, the consolidation process within the Pharmaceutical Industry in India started gaining momentum since 2006 with the acquisition of Matrix Lab by Mylan. 2008 witnessed one of the biggest mergers in the Industry till that period, when Daiichi Sankyo of Japan acquired Ranbaxy of India for USD 4.6 billion.

Key apprehensions and counter arguments ‘for and against’ FDI cap:

Last year, Abbott’s acquisition of Piramal Healthcare with USD 3.72 billion followed several media reports on the Government’s keen interest in instituting new restrictions on Foreign Direct Investment (FDI) in the pharmaceutical sector for the following apprehensions:

The first apprehension of some stakeholders was that such FDI will create ‘Oligopolistic Market’ with adverse impact on ‘Public Health Interest’. It was argued by others that Indian Pharmaceutical Market (IPM) has over 23,000 players and around 60,000 brands. Consolidated Abbott, being the largest domestic player, enjoys a market share of just 6.1% in a highly fragmented market. Thus, the apprehension that an ‘Oligopolistic Market’ will be created through acquisitions by the MNCs is unfounded.

The second apprehension was on limiting the power of government to grant Compulsory License (CL). With a CL, the Government, under the Indian Patents Act can authorize any pharmaceutical company to manufacture any medicine required by the country in an emergency situation for ‘Public Health Interest’. On this point the argument put forth was that with more than 20,000 registered pharmaceutical manufacturing companies operating in India, many of them with high skill sets, there will always be skilled manufacturers willing and be able to make needed medicines in an emergency situation, as happened during H1N1 influenza pandemic.

Creation of a legal barrier by putting a cap on FDI to prevent domestic pharma players from voluntarily selling their respective companies at a lucrative price, just from the CL point of view, others argued, sounds highly protectionist in the globalized economy.

The third apprehension was that lesser competition will push up drug prices. The counter-argument was that equity holding of a company has no bearing on prices or access, especially when prices are governed by the National Pharmaceutical Pricing Authority (NPPA) and competition pressure. Thus, prices of medicines of Ranbaxy, Shantha Biotechnics and Abbott have reportedly remained stable even after their acquisition.

India needs FDI in the Pharmaceutical sector:

Both ‘Greenfield’ and ‘Brownfield’ FDI contribute not only to the creation of high-value jobs for the country, but also improve access to high-tech equipment and capital goods. Technology cooperation with the MNCs stimulates growth in manufacturing and R&D spaces of the domestic industry. It was articulated that any restriction to FDI in the pharmaceutical industry could make overseas investment even in the R&D sector less attractive.  India has already suffered a 40% drop in FDI between 2009 and 2010 with a 17% drop in pharmaceutical FDI.

Foreign investors look up to India for cost arbitrage and expertise in Contract Research and Manufacturing Services for improved market access. Thus, it is believed by many that FDI can lead to increased domestic pharmaceutical exports by India, as happened in countries like China and Brazil, where they have programs to encourage partnerships with MNCs to bolster their domestic industry, helping the nation to benefit more from FDI.

India is against protectionist measures by other countries – Safeguards are in place:

Moreover India as a country, is known to be quite vocal and against any form of protectionist measures by other countries which will adversely impact the trade and commerce of our nation. It was perhaps felt by the ‘Maira Committee’ that any policy decision to do away with the current practice of allowing 100% FDI will be taken by the international community as a ‘protectionist measure’ in the pharmaceutical sector of India. It was reportedly felt by them that any possible adverse impact of M&A on competition could be effectively scrutinized by the Competition Commission. At the same time, it is a known fact that any unreasonable price increase is currently being effectively addressed by the NPPA. Thus it appears, effective safeguards to protect ‘Public Health Interest’ arising out of any M&A in the pharmaceutical sector of India, have been put well in place.

FDI policy needs predictability and stability to attract more investments:

Pharmaceutical sector was opened up for 100% FDI through automatic route only in 2002 as a part of the financial reform process, positioning India as an attractive investment destination for pharmaceuticals. This reform process, investors feel, needs stability, as by partnering with MNCs local drug companies have begun to gain access to international expertise, technology, resources, good manufacturing practices and markets.

It now appears that the ‘Maira Committee’, some key ministers present in the meeting and the Prime Minister himself felt that any move, at this stage of economic progressive of the country to restrict FDI in the pharmaceutical sector, especially when appropriate safeguards are in place, will be a retrograde step in the financial reform process of India. This could adversely impact FDI not only in the Pharmaceutical sector but possibly far beyond it.

Conclusion:

The final decision of the PM is a victory to all participants in this raging debate. All stakeholders seem to be satisfied with the decision, as their concerns have been well taken care of by the ‘Maira Committee’.

The issue of 100% FDI in the pharmaceutical sector, without putting any cap on it, has now been finally resolved, as it has come from the highest decision making authority of the country.

Both ‘Greenfield’ and ‘Brownfield’ FDI in the pharmaceutical industry of India, I reckon, will continue to contribute not only to high-value job creation, improving access to high-tech equipment and capital goods, boosting global technology cooperation in manufacturing and R&D spaces of the domestic industry, but will also make a significant contribution to the overall progress of the pharmaceutical industry of India.

The decision taken by the PM on the ‘Maira Committee’ report on October 10, 2011, therefore, seems to be a right step towards a long term nation building process without compromising with the ‘Public Health Interest’ of our country in any form.

‘Maira Committee’ has indeed delivered!

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.

Maintaining Supply Chain Security in pharmaceuticals: The need is now more than ever before.

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In today’s globalized economy maintaining Supply Chain Security (SCS), especially in the pharmaceutical sector across the world, is more critical than ever before. We have many instances of SCS being seriously breached, not only in the emerging pharmaceutical markets but also in the developed markets of the world.

Global examples of serious SCS violations:

Following are some at random examples of serious SCS violations globally in the recent times:

  • In 2007, over 300 people died in Panama in Central America after consuming a cough medication containing diethylene glycol, which was labeled as glycerin. The adulterant diethylene glycol was sourced from China and was relabeled as glycerin by a middleman in Spain, as reported by the media.
  • In March 2008, the US FDA prompted by around 81 drug related deaths in the USA, announced a large scale recall of Heparin injection, a well-known blood thinner from Baxter Healthcare suspecting contamination of a raw material sourced from China. Standard technology used by Baxter could not detect the contaminant, which the regulator considered as a deliberate adulteration. The contaminant was eventually identified as an over sulfated derivative of chondroitin sulfate, which costs a fraction of original heparin derivative. The ‘Heparin tragedy’ raised, possibly for the first time, the need of working out an algorithm to put in place a robust system for ‘supply chain security’. This need has now become critical as many pharmaceutical players, including those in India, are increasingly outsourcing the API, other ingredients and almost entire logistics from third parties.
  • ‘Business Standard’ dated August 24, 2011 reported that Ranbaxy Laboratories and the US health regulator are negotiating a settlement to lift a ban on the sale of the drugs produced at 2 of the company’s plants in India, which could involve payments and fines exceeding $1 billion. This ban, as the report says, dates back to 2008, when the US regulator banned 30 generic drugs produced by the company at its Dewas (Madhya Pradesh) and Paonta Sahib and Batamandi unit in Himachal Pradesh, citing gross violations of approved manufacturing norms.
  • ‘Business Ethics’ – the Magazine of Corporate Responsibility reported, “GSK facility in Puerto Rico suffered from long standing problems of product mix-ups, which caused tablets of one drug type and strength to be commingled with tablets of another drug type and/or strength in the same bottle…the subsidiary’s manufacturing operations failed to ensure that Kytril, an anti-nausea medication, and Bactroban, a topical anti-infection ointment, were free of contamination from micro organisms.” As a result, the US Justice Department reportedly announced, “GlaxoSmithKline, PLC (GSK) and the subsidiary agreed to pay US$750 million to settle charges that between 2001 and 2005 they distributed adulterated drugs made at GSK’s now-closed manufacturing facility in Cidra, Puerto Rico”.
  • As reported by Reuter, on April 30, 2010 recalled over 43 children’s medicines involving 136 million units and 12 countries in response to complaints from regulators and customers.  This recall included liquid versions of Tylenol, Tylenol Plus, Mortin, Zyrtec and Benadryl, as they “may not fully meet the required manufacturing specifications.”

Despite presence of one of the most stringent drug regulators, the issue bothers even the US:

In the wake of all these, ‘The New York Times’ dated August 15, 2011 reported, despite the fact that US now imports more than 80% of APIs and 40% of finished drugs mainly from India, China and elsewhere, the agency conducts far fewer foreign inspections as compared to domestic inspections. The US FDA Commissioner Margaret Ann Hamburg was quoted saying, “Supply chains for many generic drugs often contain dozens of middlemen and are highly susceptible to being infiltrated by falsified drugs.”

At another conference Ms. Hamburg said, “I think people have no idea in this country and around the world about the vulnerability of things that we count on every day and that we have a system that has big gaps in our protective mechanisms.”

FDA inspects only a fraction of foreign drug plants in the global outsourcing wave:

The investigative arm of US Congress, the Government Accountability Office reported, while US FDA inspected 40% of domestic manufacturing facilities in 2009, it inspected just 11% of the foreign manufacturing facilities, as the later outnumbered the domestic sites since 2008.

INSPECTIONS BY FDA

ESTIMATED PLANTS IN FDA INVENTORY 2009

2007

2008

2009

 TOTAL
India

64

64

59

187

502
China

19

36

52

107

920
Germany

26

34

36

96

228
Italy

28

28

30

86

168
Canada

20

19

35

74

310
U.K.

16

17

32

65

191
France

24

14

26

64

188
Japan

22

17

20

59

207
Switzerland

17

15

18

50

100
Ireland

14

11

19

44

63
All others

83

69

97

249

888
Total

333

324

424

1,081

3,765

NOTE: Most frequently inspected foreign countries. SOURCE: Government Accountability Office.

US FDA’s Counterfeit Drug Initiative:

The initiative includes the following measures:

  • Secure the product and packaging
  • Secure the movement of drugs through the supply chain
  • Secure business transactions
  • Ensure appropriate regulatory oversight and enforcement
  • Increase penalties
  • Heighten vigilance and awareness
  • International cooperation.

If such instances are available from the developed markets of the world, especially from the US, one can well imagine what is happening in the emerging markets of the world. In the developed markets, at least these are detected and rectifying measures are taken. Unfortunately, in the emerging markets scores of such criminal instances go undetected taking innocent lives of the patients.

Fast growing global outsourcing initiatives have increased the risks by manifold:

Thus even the US FDA acknowledged that fast growth of globalization in drug manufacturing has outstripped the agency’s resource pool for effectively inspecting all overseas outsourcing facilities.

As a result of the outsourcing wave in the US, the number of US FDA approved local drug manufacturing sites in the country is gradually coming down since 2008, with a commensurate increase in the number of foreign sites.

2000

2002

2004

2006

2008a*

Domestic

Foreign

Domestic

Foreign

Domestic

Foreign

Domestic

Foreign

Domestic

Foreign

2625

1150

2700

1500

2900

2000

3000

2500

2480

3800

NOTE: US FDA-registered drug-manufacturing sites with at least one product listed in FDA database. *a Preliminary estimates. SOURCE: US FDA

Stakeholders need to be extremely vigilant:

Pharmaceutical players and the drug regulators from across the world should put proper ‘fool proof’ systems in place to eliminate the growing menace of criminal adulteration of APIs, drug intermediates, excipients entering in the supply chain together with preventing any breach in their logistics support systems.

Regulators fail to keep pace with the fast growth of global generic industry:

Many feel a shift in prescription towards generic drugs, especially in the largest pharmaceutical market of the world – the US, is making the regulatory task of the FDA to inspect all drug ingredient suppliers indeed quite challenging.

Currently, 70% of all prescriptions in the US are contributed by the generic drugs, which indeed play an important role to contain the health care cost. However, as an innovative drug goes off patent a single manufacture’s product gets transferred to multiple manufacturers located across the world, making the task of the drug regulator to ensure high quality and safety standard of the same drug extremely challenging.

Conclusion:

SCS, therefore, deserves to be of prime importance for the pharmaceutical companies across the globe. Recent high profile SCS related cases, as mentioned above, have exposed the vulnerability in addressing this global menace effectively. All pharmaceutical players should realize that an integrated approach is of paramount importance to eliminate this crime syndicate, which is taking lives of millions of patients the world over.

It is worth repeating, securing pharmaceutical supply chain on a continuous basis is of critical importance for all the pharmaceutical players across the globe. However, the process will no doubt be expensive for any company, especially when counterfeiters find ways to bypass any such system very quickly.

Like other industries, in the pharmaceutical sector, as well, cost effective procurement is critical, which makes many pharmaceutical players, especially, in the generic industry not to go for such expensive process just to maintain the SCS.

Thus a strong corporate governance mechanism in all pharmaceutical companies must ensure, come what may, putting in place a robust SCS system is not compromised in any way… ever… for patients’ sake.

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.

FDI in ‘Brownfield’ Pharma acquisitions and the growth of ‘Greenfield’ projects in India

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Just when global multinational companies are inking deals to get more and more drugs manufactured in India, because of various financial and other considerations, giving a fillip to the domestic manufacturing capacity, recent media reports are carrying news items expressing apprehensions on possible declining trend of pharmaceutical manufacturing activities in the country due to ‘brownfield’ acquisitions of the domestic pharmaceutical companies by large multinationals.

Almost around this time, the Bureau of Labor Statistics data (USA) of May 2010 reported that the number of employees engaged in “pharmaceutical and medicine manufacturing” in the US went down by 5% from what it was about two years ago with around 35000 layoffs in the first half of 2010.

According to ‘New York Times’, there has been around 15,000 manufacturing job loss in Europe around this period.

Where the global manufacturing capacity has started shifting then?

As compared to above, the Department of Pharmaceuticals of the Government of India, as reported by Fierce Pharma, have indicated that pharmaceutical manufacturing industry of the country employed 340,000 people during April 2008 to March 2009 period with a sizable increase in number compared to the previous period. Overall, the industry provides employment to over 4.2 million persons directly or indirectly in India (Source: IDMA). This is happening despite a series of large to medium brownfield acquisitions in the country.

Moreover, a study by the Organization of Pharmaceutical Producers of India and Ernst & Young, based on 50 survey respondents from 30 pharmaceutical companies in the US, Europe and Asia, projects growth of formulations manufacturing and intermediate drugs in India at a rate of 43%, which is three times more than the projected global rate.

Growth in manufacturing through global collaborations:

With a large number of the world class manufacturing facilities conforming to cGMP requirements of various regulatory authorities across the globe, India is fast emerging as a global hub for pharmaceutical manufacturing services.

Emerging pharmaceutical manufacturing environment in the country, no doubt, is attracting a large number of global pharma majors to ink contract manufacturing deals, as mentioned above, with their Indian counterparts. Such collaborative arrangements with global partners are giving a further thrust to the pharmaceutical manufacturing activities of the country. To cater to the growing demand in manufacturing, some domestic companies are setting up ‘greenfield’ projects, while others are getting engaged in major expansion of their existing manufacturing facilities.

As per Frost & Sullivan, contract manufacturing market in India registered a turnover of around US$ 2.3 billion with a CAGR of 33% on 2010. RNCOS, an Industry Research solution company estimates that this sector will grow at a CAGR of over 45% during 2011-2013, in India.

Large global pharma companies like, Eli Lilly, AstraZeneca, Abbott, Merck, GSK and Pfizer have already inked collaborative arrangements with Indian Pharmaceutical companies related to manufacturing.

Eisai Co. Ltd of Japan inaugurated its second largest active pharmaceutical ingredient (API) production facility (after their Kashima plant in Japan) at Visakhapatnam on December 2009. The company is also to start a Research & Development (R&D) center for formulation development around the same place starting with four to five projects.

In the recent past the following predominantly manufacturing collaborative agreements have been signed by the MNCs in India:

Collaborative Deals

Year

 Multinational Companies Indian Companies

2009

 GSK Dr. Reddy’s Lab
Pfizer Aurobindo Pharma

2010

 AstraZeneca Torrent
Abbott Cadila Healthcare
Pfizer Strides Arcolab
AstraZeneca Aurobindo Pharma
Pfizer Biocon

2011

 Bayer Cadila Healthcare
MSD Sun Pharma

 

This is happening mainly because of inherent cost arbitrage, other factors being the same:

Comparison of Cost Advantage in India (%)
Costs in the Western Countries 100.0
Production Costs 50.0
R&D Costs 12.5
Clinical Trials Costs 10.0
Source: Pharmexcil Research

ANDAs and DMFs are manufacturing growth boosters:

Large portfolios of ANDAs and DMFs of domestic pharmaceutical players will also spur manufacturing in India:

ANDA approval by country:

Final ANDA Approvals by Country  (2007) (figs. in Nos.)

Country

Numbers
USA 169
India 132
Israel 40
Germany 25
Canada 24
Switzerland 19
Iceland 14
Jordan 11
Other 25
Source: Thomson Scientific

 

DMF approval by country:

Comparison of Drug Master Filings (Type II) by India, China & World (1998-2007) (Figs. in Nos.)

Year

India

China

World Total

1998

 32 27 316

1999

 26 6 199

2000

 33 9 201

2001

 47 6 238

2002

 55 20 264

2003

 115 19 360

2004

 160 25 435

2005

 233 70 615

2006

 267 78 627

2007

 274 90 656
Source: Thomson Scientific,

Patent challenge to boost manufacturing for exports:

To further boost manufacturing, especially for exports, Indian pharmaceutical players have also started challenging global patents. In fact in patent challenge, India ranks just next to USA with a share of 21% of the total:

Country-wise Number of Patent Challenges (As on March 2008)

Country

Numbers
USA 200
India 113
Israel 89
Canada 43
Switzerland 34
Iceland 17
Germany 10
Other 32
Source: Thomson Scientific,

Boosting up domestic manufacturing with overseas acquisitions and collaborations:

At the same time, domestic Indian companies are also on a spree of overseas acquisition and collaborative deals. The following details from the Ministry of Commerce are a testimony to this fact:

Selected International Acquisitions and Foreign tie-ins by the Indian Pharmaceutical Industry

Company

International Acquisition (s)

Foreign Alliances, JVS, and other tie-ins
Nicholas Piramal Pfizer-Morpeth (UK), Avecia Pharmaceutical (UK), Dobutrex brand acquisition (US), Rhodia’s inhalation business (UK), Biosyntech (NPIL Pharmaceutical) (Canada), Torcan Chemical (Canada), 51 percent of Boots (S. Africa), Biosyntech Ethypharm (France), Genzyme (US), Eli Lilly (US), Biogen Idec (US), Chiese Farmaceutici (Italy), Minrad (US), Pierre Fabre (France), Gilead Sciences (US), Allergan (US), Hoffmann-La Roche (Switzerland)
Ranbaxy Terapia (Romania), Allen-GSK (Spain & Italy), Ethimed (Belgium), Betapharm (Germany), RPG Aventis (France), 40 percent stake in Nihom Pharmaceuticals (Japan), Brand-Veratide (Germany), Efarmes (Spain), Be-Tabs (S. Africa), Akrikhin (Russia), Basic (Germany), Ohm Labs (US) GlaxoSmithKline (UK), Janssen-Ortho (Canada), IPCA Labs (US), Zenotech (India), Sonkel (S. Africa), Cephalon (US), Gilead Sciences (US), Schwartz (Germany)
Dr. Reddy’s Betapharm Group (Germany), Trigenesis (US), BMS Laboratories and Meridian Healthcare (UK), Roche’s active ingredients business (Mexico), BMS Labs (UK) Novo Nordisk, Bayer AG (Germany), Par (US), Novartis (Switzerland), Merck (Germany), Clin Tech, Pharmascience (Canada), ICICI (India), Merck (Germany), Schwartz
Marksans Nova Pharmaceuticals (Australia) NA
Aurobindo Milpharm (UK), Pharmacin (Netherlands) Gilead Science (US), Citadel (India)
Sun Pharmaceutical Able Lab (US), Caraco (US), Valeant Pharmaceuticals (US & Hungary), ICN (Hungary), Caraco (US), MJ Pharmaceutical Dyax
Dishman Amcis (Switzerland), Solutia’s Pharma (Switzerland) Azzurro (Japan)
Orchid Bexel Pharma (US) Stada, Alpharma, Par, Apotex
Biocon Nobex (US) Centre of Molecular Immunology (Cuba)
Wockhardt Wallis Labs (UK), CP Pharmaceutical (UK), Esparma (Germany), Pinewood Laboratories (Ireland), Dumex (India) Pharmaceutical dynamics (S. Africa)
Cadila Alpharma (France-formulations), Dabur Pharma Redrock (UK) Schering (Germany), Boehringer Ingelheim (Germany), Vitaris (Germany), Novopharm (Canada), MCPC (Saudi Arabia), Cilpharm (Ivory Coast), Geneva (US), GSK (UK), Ranbaxy (India), Mallinckrodt (US), Mayne (Australia), Shinjuki (Japan), Zydus Atlanta
Jubliant Organosys Target Research Association (US), PSI (Belgium), Trinity Laboratories (US) NA
Matrix Labs 22 percent controlling stake in Docpharma (Belgium), Explora Lab (Switzerland), MCHEM (China), Fine Chemicals (S. Africa), API (Belgium) Aspen, Emchem, Docpharma, Explora Labs
Glenmark Kinger Lab (Brazil), Uno-Ciclo (Brazil), Srvycal (Argentina), Medicamenta (Czech), Bouwer Bartlett Forest Labs (US), Lehigh Valley Technologies (US), Shasun (India), KV, Apotex (US)
Source: Source: Ministry of commerce, Government of India .(IBEF, Ernst & Young, The Economic Times, Individual company web pages)

Conclusion:

M&A is a natural business processes in any country with appropriate safeguards for any possible adverse effect on competition.  India has already put similar safeguards in place with the scrutiny of the Competition Commission before acquisition and continuous price monitoring by the National Pharmaceutical Pricing Authority (NPPA) after the acquisition is over.

It is worth mentioning, just on September 16, 2011, the Competition Commission of India, after stringent scrutiny on the impact of competition, cleared the proposal of Danone Asia Pacific to acquire the nutrition business of Wockhardt Ltd.

In the wake of all these, the apprehension that the ‘brownfield’ pharmaceutical acquisitions will retard the growth of ’greenfield’ pharmaceutical projects or have adverse impact on competition in the country, does not seem to hold much water. To a great extent FDI in ‘brownfield’ pharmaceutical acquisitions and the growth of ‘greenfield’ pharmaceutical projects in India, are unrelated.

Be that as it may, India should perhaps not expect that the country will continue to remain one of the pharmaceutical manufacturing hotspots for any indefinite period mainly because of cost arbitrage, which, in any case is not sustainable over a long period of time by any country.

As we have seen above, with the emergence of Asia, USA and EU are gradually but surely losing their pharmaceuticals manufacturing hubs’ status to China (API) and India (formulations). Who knows, some time in future, with the awakening of sleeping Africa, Asia will also not have the same fate?

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.

Sanofi’s acquisition of Universal Medicare could redefine nutraceuticals business in India

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The Economic Times in its August 24, 2011 edition reported that Sanofi-Aventis has acquired the nutraceuticals business of Universal Medicare to scale up their business operations in the ‘wellness’ space of the healthcare sector in India.

What are ‘Nutraceuticals’?

Dr. Stephen DeFelice of the ‘Foundation for Innovation in Medicine’ coined the term ‘Nutraceutical’ from “Nutrition” and “Pharmaceutical” in 1989. The term nutraceutical is being commonly used in marketing such drugs/substances but has no regulatory definition.

It is often claimed that nutraceuticals are not just dietary supplements, but also help prevention and/or treatment of disease conditions.

Besides diseases, nutrition related risk factors contributing to more than 40% of deaths in the developing countries like India, nutraceutical products do show a promise as an emerging business opportunity within the healthcare space of the country.

The market:

The global nutraceuticals market is currently estimated to be around US$ 117 billion and expected to reach US$ 177 billion by 2013 with a CAGR of 7%, driven mainly by functional foods segment with a CAGR of 11%. The top countries in this category are Japan, USA and Europe with the former two together enjoying around 58% market share of the total nutraceuticals consumption of the world. In 2008 Indian nutraceuticals market was around US$ 1.0 billion, 54% of which being functional foods.

The prices of most nutraceuticals products, being outside government price regulations in India, are usually high.

Although current market share of India in the global nutraceuticals market is less than even 1%, a report from PwC predicts that India will join the league of top 10 by 2020. Increasing discretionary spending, changing lifestyles and growing awareness among Indians about healthy living, coupled with current overall low market penetration of high priced nutraceuticals products in India, could create a powerful trigger for the market growth.

Sanofi could sniff the opportunity in India:

Sniffing the market opportunity in this segment, especially in India, the Sanofi group’s Aventis Pharma, as mentioned above, has acquired the nutraceuticals business of Universal Medicare Private Ltd of worth Rs.110 Crore, in August, 2011. The nutraceuticals product portfolio of Universal Medicare consists of more than 40 brands, which include cod liver oil capsules, vitamins/ mineral supplements, antioxidants and liver tonics to name a few.

It will be interesting to watch whether Sanofi takes these nutraceutical products to other markets of the world, especially in Japan, Europe and the US.

Currently most global pharma companies are engaged in evidence based therapeutic substances:

So far, the large global pharmaceutical players have been focusing mainly, if not only on Evidence Based Medicines (EVM). Companies like, GlaxoSmithKline (GSK), were reported to have discontinued marketing those products, which do not fall under ‘Evidence Based Medicines (EVM), even in India.

Evidence-Based Medicine (EBM):

The term and concept of EBM originated at McMaster University of Canada in early 1990 and has been defined as “the integration of best research evidence with clinical expertise and patient values” (Sackett, 2000).

EBM is thus a multifaceted process of systematically reviewing, appraising and using clinical research findings to aid the delivery of optimum clinical care to patients/user. EBM also seeks to assess the strength of evidence of the risks and benefits of any particular treatment claim. This is mainly because increasingly the users are looking to authentic scientific evidence in clinical/wellness practice.

Thus many global pharmaceutical companies believe that EBM offers the most objective way to determine and maintain consistently high quality and safety standards of healthcare products in the healthcare practice.

The span of nutraceuticals ranges from prescription to OTC Products:

In India, nutraceuticals are being used/prescribed even by the medical profession, not only as nutritional supplements but also for the treatment of disease conditions, like arthritis, osteoporosis, cardiology, diabetes, pain management etc.

The challenge: Some experts believe, robust clinical data support is essential to substantiate ‘wellness’ claim with nutraceuticals:

Therapeutic efficacy in the treatment of a disease condition is established with pharmaceutical, pharmacokinetic and pharmacodynamics studies of the substances concerned. Some experts believe that these studies are very important also for nutraceuticals, as they are involved in a series of various reactions within the body, especially while making any therapeutic claims, directly or indirectly.

Similarly, to establish any long term toxicity problem with such products, generation of credible data including those with animal reaction to the products, both short and long term, using test doses several times higher than the recommended ones, is critical.

These experts, therefore, quite often say, “A lack of reported toxicity problems with any nutraceutical should not be interpreted as evidence of safety.”

The status in the USA:

In the USA, Congress passed the ‘Dietary Supplement Health and Education Act’ in 1994. This act allows ‘functional claims’ to Dietary supplements without drug approval, like “Vitamin A promotes good vision” or “St. Johns Wort maintains emotional well-being”, as long as the product label contains a specific disclaimer that the said claim has not been evaluated by the FDA and that the product concerned is not intended to diagnose, treat, cure or prevent disease.

The above Act bestows some important responsibility to the doctors in particular, who are required to provide specific and accurate scientific information for nutraceutical products to their patients. This process assumes critical importance as the patients would expect the doctors to describe to them about the usefulness of nutraceutical products as alternatives to approved drugs. In such cases, if any doctor recommends a dietary supplement instead of pharmaceutical products, the doctor concerned must be aware of the risk that the patient’s health may suffer, for which the affected patient could sue the doctor for malpractice.

The Point to ponder: What happens if nutraceuticals are regulated as pharmaceuticals?

It is worth mentioning, if generation of clinical data, though albeit less than the pharmaceuticals, ever becomes mandatory regulatory requirements for getting marketing approval of nutraceutical products in India, commensurate increase in price for such products could indeed push their commercial survival in jeopardy.

Conclusion:

Nutraceuticals bearing a tag of promise, in a conducive regulatory environment, to provide desirable therapeutic benefits with less or no side effects as compared to conventional medicines, is growing well with reasonably good financial success, across the world. India is no exception.

In India, many nutraceuticals products, which are currently in the market, do not seem to have been adequately tested to generate robust clinical data, leave aside being peer reviewed and published in the reputed international journals for either safety or efficacy. Entry of global majors, like Sanofi, with a sharp focus on EBM, brings in a hope and promise to get these loose knots, in this very important area, tightened very significantly, while driving their business growth in the country.

Under this backdrop, it is widely expected that Sanofi, with its well proven global marketing and technical leadership, would change the ball game of nutraceutical products business in the healthcare space of India.

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.