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After Mollycoddling China Cracks Down on Pharma MNCs…But Why Now?

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In tandem with exemplary growth in the healthcare sector, China has started confronting with some consequential hazards in form of serious regulatory violations involving, besides many others, hospitals, pharmaceutical pricing and food and drug safety, which reportedly include contaminated milk powder and rat meat sold as mutton.

A recent report indicates, there are rampant kickbacks at various stages in the healthcare delivery process. For example, hospitals get kickbacks from drug and device companies, and hospital executives give a portion of these kickbacks to their doctors, involving even the pharma MNCs.

While looking back, in 1997, China took its first healthcare reform measures to mend the earlier not so good practices, when medical services used to be considered just as any other commercial product or services in the country. As a result, staggering healthcare expenses made Chinese medical services unaffordable and difficult to access for a vast majority of the local population.

In April 2009, China, a country with over 1.35 billion population, unfolded a blueprint of a new phase of healthcare reform to provide safe, effective, convenient and affordable healthcare services to all its citizens. An incremental budgetary allocation of US$ 124 billion was made for the next three years to achieve this objective.

The core principle of healthcare reform in China:

The core principle of the new phase of Chinese healthcare reform is to provide basic health care as a “public service” to all its citizens, where more government funding and supervision will play a critical role.

This reform process will ensure availability of basic systems of public health, medical services, medical insurance and medicine supply to the entire population of China. It was also announced that priority would be given to the development of grass-root level hospitals in smaller cities and rural China. The general population will be encouraged to use these facilities for better access to affordable healthcare services. However, public non-profit hospitals would continue to remain one of the important providers of medical services in the country.

Medical Insurance and access to affordable medicines:

Chinese government has planned to set up diversified medical insurance systems to provide basic medical coverage to over 90 percent of the country’s population. In tandem, the new healthcare reform measures will ensure better availability of affordable essential medicines at all public hospitals.

Highly lucrative healthcare business destination:

New Chinese healthcare reform process carries an inherent promise of a large additional spending worth billions of US dollars every year catapulting China as one of the most lucrative healthcare markets of the world.

China’s healthcare spending has reportedly been projected to grow from US$ 357 billion in 2011 to US$1 trillion in 2020.

Consequently, this huge investment has started attracting a large number of global companies of various types, sizes and nationality competing for the right size of their respective pies of profits.

In that process, as the media reports highlight, global pharmaceutical players started fast increasing both their top-line revenue and bottom-line profits from the booming Chinese healthcare market.

Pharma MNCs growing bigger, outpacing local industry:

Another report highlighted, “60% of China’s healthcare stimulus money ended up going to non-Chinese multinationals”. Quoting a recent JP Morgan report the article indicated AstraZeneca, Sanofi, Roche, GlaxoSmithKline, Novo Nordisk, Johnson & Johnson and Pfizer realized over 30 percent growth from their China operations in the early part of 2011.

With the slow down of business in Europe and in the United States, even large global pharmaceutical players like, Bayer, Sanofi, Novartis, Eli Lilly, Novo Nordisk and many more have reportedly invested huge resources for capacity building in sales and distribution channels, local manufacturing and R&D.

Chinese Government woke-up:

Kick starting the reform process and in the face of high level of corruption, Chinese government initiated monitoring the effective management and supervision of healthcare operations of not only the medical institutions, but also the health services, together with basic medical insurance system, in good earnest.

It has been reported, though the public hospitals will receive more government funding and be allowed to charge higher fees for quality treatment, they will not be allowed to make profits through expensive medicines and treatment, which has been a common practice in China.

Violations meted with harsh measures:

Accordingly, with increased vigil in many of these areas since last couple of years, Chinese regulators have started cracking down on the culprits, who are being meted out severe and harsh punishments, consequently.

In 2012, seven public hospital directors were reportedly sent to jails for accepting kickbacks. One corrupt drug regulator was even executed along with two food-company managers involved in a poisoned milk scandal, as the report mentions.

Pharma MNCs targeted for alleged corrupt practices:

As stated above, the new healthcare reform measures include regulation of prices of medicines and medical services, together with strengthening of supervision of health insurance providers, pharmaceutical companies and retailers.

China has now reportedly targeted Multinational Companies (MNCs) for allegedly corrupt practices, including price-fixing, quality issues and consumer rights. This has forced some MNCs to defend their reputations in China where global brands often have a valuable edge over local competitors in terms of public trust.

Recently, in an effort to reduce drug prices, China has initiated probes involving 60 drug manufacturers.

According to a recent report, to make the pricing system for medicines more effective, the regulatory agencies in China are investigating the costs and prices of drug manufacturers including global pharma majors like:

  • GlaxoSmithKline Plc (GSK)
  • Merck & Co.
  • Novartis AG
  • Baxter International Inc.

The regulators are expected to go through the details of 27 companies for costs and 33 companies for pricing, as per the July 2, 2013 statement posted on China’s National Development and Reform Commission’s (NDRC) Evaluation Center of Drug Pricing.

The report highlights that a possible impetus for the NDRC to probe into pricing and costs of domestic and foreign drug companies was the announcement of China’s National Essential Drugs List in March, which increased the items on the list to 500 from 305.

Clampdown on government spending:

To exercise control on public expenditure towards drugs, the government has also reportedly clamped down on drug spending, placing some foreign drug makers’ products under price controls for the first time.

Since 2011, the Chinese Government has reduced the drug prices four times, including 15 percent reduction earlier in 2013, though the price reduction will be as much as 20 percent for the expensive drugs. At the same time, the government has reduced tax rebates on investments.

Mr. Chen Zhu, Health Minister of China has reportedly expressed that healthcare in China is still too expensive and there is still inadequate control over improper use of drugs in the country.

Another report indicates that Nestlé, Abbott Laboratories and Danone are under investigation in China for “monopolistic” pricing.

Crackdown on bribery and kickbacks:

An article in a similar context mentions that the “Chinese police started an investigation into the Chinese unit of the biggest pharmaceutical manufacturers of UK – GlaxoSmithKline and Senior executives at the unit are suspected of ‘economic crimes”.

On the same subject, a different news report also indicates, a senior Glaxo finance executive in Shanghai and employees in Beijing were detained as part of a corruption investigation.

Recently a Chinese Security Ministry official has reportedly said that GlaxoSmithKline (GSK) executives in China have confessed to bribery and tax violations.

The same report quoting the ministry highlighted that the case against GSK involved a large number of staff and a huge sum of money over an extended period of time, with bribes offered to Chinese government officials, medical associations, hospitals and doctors to boost sales and prices. Concerned executives also used fake receipts in unspecified tax law violations.

Interestingly, earlier in 2012, Global CEO of GSK reportedly admitted that the company made “unacceptable” mistakes in “mismarketing” their antidepressants Paxil and Wellbutrin, which were the subject of a US$ 3 billion settlement with the Justice Department of the United States. At that time the CEO was reported to have said “very sorry” for the incident and “determined that this is never going to happen again.” 

Another very recent news highlights that currently China is investigating at least four pharma MNCs as it widens its probe. Chinese enforcers had suggested that these pharma companies were using the same tactics to boost their businesses in the country.

It is now learnt that anti-trust body of China - State Administration for Industry and Commerce (SAIC)  has also visited  Shanghai office of UCB. 

Happening elsewhere too:

Reports of similar alleged malpractices have started surfacing from elsewhere in the world too. For example, in Denmark, a country known for low incidence of corrupt practices, a Norwegian cardiologist was reportedly charged with taking 2 million kronor, or about US$ 350,000, from Merck and Pfizer, despite the fact, Danish law prohibits doctors from accepting money directly from the drug makers. The concerned doctor allegedly used the cash to buy expensive furniture and salmon-fishing holidays in his home country.

Last year, both the Department of Justice and the Securities and Exchange Commission of the United States reportedly charged Pfizer and its subsidiary Wyeth for paying millions of dollars in bribes to officials, doctors and healthcare professionals in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia during 2001-2007 in violation of the US Foreign Corrupt Practices Act. They had also set hefty fines on the two to settle the charges.

Conclusion:

To effectively address serious and longer term healthcare related issues of the country, the Chinese Government has already started implementing its new healthcare reform measures earnestly. Possibly to maintain equity, stay on course and uproot corrupt practices, they have now started cracking down on the violators in all seriousness, be they are from within the country or beyond its shores.

So far as the pharma MNCs are concerned, such harsh measures are being taken for alleged malpractices probably for the first time ever of this scale and that too with full media glare.

All these measures coupled with pricing pressure and gradual rise of local Chinese players, would make the Chinese market increasingly challenging to  pharma MNCs.

Some global players have already started feeling the scorching heat of tough Chinese measures. But China is too powerful a country and too lucrative a market for any entity to flex its muscle to stall the current juggernaut, at least, till the ‘Dragon’  achieves its objective of bringing down public healthcare expenditure to its expectations…Or is there more to the problem than meets the eye?

Thus, the key question emerges: 

Why has China, after mollycoddling the pharma MNCs for so many years, now started cracking down on them so hard?

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 Concept of Orphan Drugs for Orphan Diseases is Orphan in India

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Though the percentage of patients suffering from ‘Rare Diseases’ in India is reportedly higher than the  world average, unfortunately even today such cases get little help from our government.

According to experts, diseases manifesting patients representing maximum 6 to 8 percent of the world population are defined as ‘Rare Diseases’ and most of such diseases being ‘Orphaned’ by the global pharmaceutical industry, mainly because of commercial considerations, are termed as ‘Orphan Diseases’. Consequently when any drug is developed specifically to treat an ‘Orphan or a Rare Disease’ condition is called an ‘Orphan Drug’.

According to SanOrphan SA, Geneva, Switzerland, around 65 percent of rare diseases are serious and disabling. More interestingly, about 250 new rare diseases are discovered each year, corresponding to five new rare diseases per week.

However, without appropriate ecosystem being in place, developing a new drug (Orphan Drug) specifically to treat a very small number of patient populations suffering from any particular type of rare disease through highly cost intensive R&D initiatives, generating a low return on investments, has been extremely challenging for any pharmaceutical company.

The challenge and the need:

Public awareness drives for ‘Orphan Diseases’ first originated in the USA with the formation of a rare disease support group representing around 200,000 patients suffering from such ailments.

However, very limited market especially for those ‘Orphan Drugs’ , which are meant for the treatment of a single rare disease, has been discouraging the large pharmaceutical players to make major R&D investments for such molecules, as mentioned above.

In response to the public awareness campaigns and at the same time understanding the commercial imperatives of the pharmaceutical companies in developing “Orphan Drugs’, a path breaking legislation was formulated by the U.S government way back in 1983, known as ‘Orphan Drugs Act (ODA)’. The key purpose of ODA was to incentivize R&D initiatives for such drugs to treat around 25 million Americans suffering from ‘Orphan Diseases’.

Though similar legal and policy interventions are of utmost importance to allay the sufferings of millions of patients fighting rare diseases in India, precious little has been initiated in this direction by the government, thus far.

Orphan Drugs in the USA:

U.S Food and Drug Administration (US-FDA) provides orphan status to drugs and biologics which are defined as:

  • Those intended for the safe and effective treatment, diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the U.S.
  • Or, those affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug.

India perspective:

For the first time in India, to increase awareness for the rare diseases, Rare Diseases Day was observed in New Delhi on February 28, 2010. Subsequently 2nd and the 3rd ‘Rare Disease Days’ were observed in Chennai and Mumbai in 2011 and 2012, respectively.

About 6000 to 8000 rare diseases, mostly genetic in nature have been identified in India. It was initially estimated that over 31 million Indians are suffering from rare diseases in the country, many of these diseases still do not have any cure.

However, The Hindu in April 2012 reported, “Taking the lower limit of global prevalence estimate, populous nations like India and China should have more than 70 million rare disease cases each.”

Inaction in India:  

The report further highlights that enough awareness has still not been created in India to address this challenge, despite publication of several rare disease case reports in the peer reviewed journals and existence of a number of support groups, though with inadequate resources.

Use of ‘Social Media’ to increase awareness:

Even in the developed markets, leave aside India, it is still hard to get required health related information for individuals suffering from rare diseases. In many countries, finding no better alternatives, such patients decide to be virtual experts on the diseases they are suffering from, making full use of social media, like Facebook.

Interaction through social media often makes it easier for such patients not only to find each other, but also to share expertise and experience eventually to get proper medical care with affordable drugs.

‘Orphan Drugs Act’ must come with adequate incentives:

ODA, when enacted in India, should not be a half-hearted approach or be a zero-sum game for all. It should come with adequate financial and other incentives to create a sound business sense in this new ball game for the pharmaceutical players in India.

Just for example, the incentives of the ODA in the U.S include:

  • Funding towards investigation for “Orphan Disease’ treatment
  • Tax credit for Clinical Research
  • Waiver of fees for New Drug Application (NDA)
  • Offering more lucrative incentive than product patent (product patent requires the drug to be novel), as the orphan designation of the product by the US FDA and product approval by them are the only requirements for 7 year market exclusivity of an ‘Orphan Drug’ for the specified indication
  • Market exclusivity of ‘Orphan Drugs’ become effective from the date of regulatory approval, unlike product patent, product development time remains outside this period
  • The drugs, which are not eligible for product patent, may be eligible for market exclusivity as an ‘Orphan Drug’ by the US-FDA

Proof of the pudding is in the eating:

Thanks to this Act, currently around 230 ‘Orphan Drugs’ are available in the U.S for the treatment of around 11 million patients suffering from rare diseases. With the help of ‘Human Genome Project’ more orphan diseases are expected to be identified and newer drugs will be required to treat these rare ailments of human population.

‘Orphan Drugs Act’ encourages ‘Orphan Drugs’ development:

It is now a reasonably well accepted fact that ‘Orphan Drugs Act’ encourages ‘Orphan Drugs’ development.

In an article titled, “What the Orphan Drug Act has done lately for children with rare diseases: a 10-year analysis”, published by the National Center for Biotechnology Information (NCBI), U.S, National Library of Medicine, the authors articulated that in the U.S. 1138 orphan drugs were designated and 148 received marketing approval, of which 38 (26%) were for pediatric diseases, from 2000 to 2009. The percentage of approvals for pediatric products increased from 17.5 (10 of 57) in the first half of the decade, as compared to 30.8 (28 of 91) in the second half.

Based on the data the paper concluded that incentives provided in the ‘Orphan Drugs Act (ODA)’ of the United States of America, have led to increased availability of specific drugs for the treatment of ‘Rare Diseases’ in the country.

Others followed… but when will India…?

As stated above, 1983 signaled the importance of ‘Orphan Drugs’ with the ‘Orphan Drugs Act (ODA) in the U.S. A decade after, in 1993, Japan took similar initiative followed by Australia in 1999. Currently, Singapore, South Korea, Canada and New Zealand are also having their country specific ODAs.

Following similar footsteps, India should also encourage its domestic pharmaceutical industry to get engaged in research to discover drugs for rare diseases by putting an ‘Orphan Drugs Act’ in place, extending financial support, tax exemptions and regulatory concessions like smaller and shorter clinical trials, without further delay.

Every day millions of Indians will continue to suffer from ‘Orphan Diseases’ without affordable treatment, in the absence of an appropriate policy framework in the country for ‘Orphan Drugs’.

Another vindication of the argument:

It is worth repeating that an ODA with proper incentives has been the key motivating factor for the development of many drugs and treatment for a large number of rare diseases, since 1983.

Looking at the increasing number of approvals, it appears that CAGR of ‘Orphan Drugs’ will now be far greater than other drugs. Even in 2011 as many as 11 ‘Orphan Drugs’ have been approved by the US-FDA, as stated below:

Company Brand Name Generic Name Type of Approval Indication Month in 2011
Bristol-Myers Squibb YERVOY Ipilimumab New biologic licence application Metastatic Melanoma March
IPR Pharmaceuticals CAPRELSA Vandetanib New molecular entity Advance medullary thyroid cancer April
Bristol-Myers Squibb NULOJIX Belatacept New biologic licence application Prevent organ transplant rejection June
Seattle generics ADCETRIS Brentuximab vedotin New biologic licence application Hodgkin lymphoma and systemic anaplastic large cell lymphoma August
Roche ZELBORAF Vemurafenib New molecular entity Metastatic melanoma August
Shire FIRAZYR Icatibant acetate New molecular entity Hereditary angioedema August
Pfizer XALKORI Crizotinib New molecular entity Late stage lung cancer August
ApoPharma FERRIPROX Deferiprone New molecular entity Thalassemia October
Lundbeck ONFI Clobazam New molecular entity Seizures associated with Lennox-Gastaut syndrome October
Incite JAKAFI Ruxolitinib New molecular entity Myelofibrosis November
EUSA Pharma ERWINAZE Asparaginase Erwinia chrysanthemi New biologic licence application Acute lymphoblastic leukemia November

(Source: Ernst & Young, FDA and company website. 2012)

The above facts, once again, vindicate the argument that the ODA of the kind of the U.S, broadly speaking, is worth emulating by India with appropriate modifications as relevant to the country.

The global Market:

A new report from Thomson Reuters indicate that the global market for ‘Orphan Drugs’ was over US$50 billion in 2011.

It has also been reported that ‘Orphan Drugs’ contribute 6 percent of US$ 880 billion global pharmaceutical market with a CAGR of 25.8 percent as compared to 20.1 percent for ‘Non-Orphan Drugs’ during 2001 to 2010 period.

High price of ‘Orphan Drugs’ is an issue:

The most challenging part in the fight against ‘Orphan Diseases’ is access to an affordable treatment, especially to affordable ‘Orphan Drugs’.

For obvious reasons, the prices of ‘Orphan Drugs’ are usually very high, some even costs as high as US$ 400,000 annually and thus beyond affordability of many who are outside the purview of any drug price reimbursement scheme.

Most of such drugs are rarely available in India and there is no reasonably affordable ‘rupee’ price for these drugs. Indian patients suffering from rare diseases will currently have no other alternative but to import these drugs directly in US$ term, unless Indian policy makers wake-up some day and take appropriate measures in this important area.

Additional commercial opportunities could be available with appropriate ODA:

Thomson Reuters reported additional commercial opportunities with an appropriate ODA, which are as follows:

  • 15 percent of the ‘Orphan Drugs’ analyzed by them had subsequent launches for other rare illnesses.
  • 6 out of the top 10 ‘Orphan Drugs’ had more than one rare disease indication with an average peak sales of US$ 34.3 billion in overall sales potential against around US$ 8.1 billion of the same for drugs with single indication.
  • Time taken for Clinical Trials (CT) focused on orphan drugs is significantly shorter with a quicker review time than trials involving non-orphan drugs.

Conclusion:

It is interesting to note that some of the ‘Orphan Diseases’ are now being diagnosed also in India. As the nation takes rapid strides in the medical science, more of such ‘Orphan Diseases’ are likely to be diagnosed in our country. Thus the moot question is how does India address this pressing issue with pro-active measures, now?

One of the ways to properly address this issue in India could well be to follow the model of our very own the Council of Scientific and Industrial Research (CSIR) for an ‘Open Source Drug Discovery’ (OSDD) program with global partnerships, wherever necessary.

Thus in my view, with an appropriate ODA in place, leveraging the knowledge of OSDD acquired by CSIR and framing a robust win-win Public Private Partnership (PPP) model to discover and commercialize the ‘Orphan Drugs’, India could well demonstrate that the concept of Orphan Drugs for Orphan Diseases is really not Orphan 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.

Replication of ‘Old Paradigm’ of the developed pharmaceutical markets is unlikely to yield results in the evolving new paradigm of India

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“Health leaps out of science and draws nourishment from the society around it”

- Gunnar Myrdal (Swedish Nobel Laureate Economist)

The success concoction of the global pharmaceutical industry for India, by and large, still remains to be sustained attempts in various forms of replication of the ‘Old Paradigm’ of the developed world, even when a ‘Public Health Interest’ oriented new paradigm has started evolving in the country, faster than ever before.

Very interestingly, efforts to arrest this paradigm change still continue, even when healthcare related government policies are getting more and more ‘Public Health Interest’ oriented under increasingly assertive public opinion, together with healthcare cost containment initiatives of various governments also in the OECD (Organization for Economic Co-operation and Development) countries.

Commercial and public relations strategies for replication or recreation of more or less similar business excellence environment of the developed pharmaceutical markets of the world now in India, though some may say is possible and would work, but in my view is highly improbable, at least in the foreseeable future. To be equally successful in India, creation of India centric robust and differentiated business models, broadly aligning with the new evolving paradigm of the country, could probably make more commercial sense for all concerned.

“See things as they are, not way you want them to be”:

“Maintain and sharpen your intellectual honesty so that you’re always realistic. See things as they are, not way you want them to be”, wrote the Management Guru – Mr. Ram Charan in his book titled, ‘Execution: The Discipline of Getting Things Done’ co-authored by Larry Bossidy. In the same book the authors deliberated on ‘The 10 Greatest CEOs Ever’.

One of these 10 greatest CEOs ever, George Merck of the global pharmaceutical giant Merck & Co articulated his vision for the Company way back in 1952 as follows:

“Medicine is for people, not for the profits.”

George Merck believed, the purpose of a corporation is to do something useful, and to do it well, which also ensures decent profits.

I have personally witnessed the Merck (MSD) employees to start their business presentations quoting the above famous vision, even today. George Merck’s vision, I reckon, is more relevant today than any time in the past.

In the same context, another very senior official of a global pharmaceutical major was quoted in the Harvard Business Review in its April 28, 2010 edition saying:

“As western pharmaceutical companies consider how to be successful in emerging markets, they must address two key questions:

  • How will we bring high-quality health care to patients wherever in the world they may live?
  • How do we effectively manage the transformation of the traditional pharmaceutical business model to one that meets the diverse range of needs of the emerging markets?”

He further said, “Our approach to providing patients with access to our medicines is evolving. We have extended a flexible-pricing strategy for middle-income countries to improve the affordability of our medicines and increase access for patients with lower income levels, while remaining profitable.”

Though some companies have been able to carefully pick up this important signal and strategize accordingly, many others still prefer to follow ‘their own ways’.

Increasing healthcare consumption of India attracting global players:

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, AHC for ‘healthcare’ shows a significant growth potential in India, over a period of time. Hence, this important area needs to attract as much attention of the policymakers, as it is attracting the pharmaceutical players from all over the world, to help translate the potential into actual performance with requisite policy, fiscal support and incentives.

Such a scenario in the pharmaceutical space is difficult to ignore by any player with an eye for the future.

Sectoral break-up of the Healthcare Industry:

Even while looking at the sectoral break-up of the healthcare industry, the significant share of the pharmaceutical industry should be quite enticing to many global companies.

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)

A promising market:

Pharmaceutical market of India holds an immense future promise already being 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 (NUHM)
  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

Need to strike a right balance:

The pharmaceutical companies need to strike a right balance between ‘Public Health Interest’ and their expectations for a high margin ‘free market-like’ business policies in India.

Pharmaceuticals come under the ‘Essential Commodities Act’ in India, where government administered pricing for all drugs featuring in the ‘National List of Essential Medicines 2011’ is expected and cannot be wished away, at least, for now.

Despite all these concerns, India still remains a promising market for the pharmaceutical players, both global and local. McKinsey & Company in its report titled, “India Pharma 2020: Propelling access and acceptance realizing true potential” estimated that the Indian Pharmaceutical Market (IPM) will grow to US$ 55 billion by 2020 and the market has the potential to record a turnover of US$ 70 billion with a CAGR of 17 per cent during the same period.

Domestic Pharmaceutical Industry has come a long way:

Domestic pharmaceutical companies have positioned themselves as formidable forces to reckon with, not just locally but in the global generics market too.

Currently India:

  • Ranks 3rd in the world in terms of pharmaceutical sales volume.
  • Caters to around a quarter of the global requirements for generic drugs.
  • Meets around 70 per cent of the domestic demand for Active Pharmaceutical Ingredients (API).
  • Has the largest number of US FDA approved plant outside USA
  • Files highest number of ANDAs and DMFs
  • One of most preferred global destinations for contract research and manufacturing services (CRAMS)

Patients are still being exploited:

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 by both the global and local players.

Pharmaceutical key business processes in India are almost a ‘free-for-all’ type:

Despite many challenges and damning reports of the Indian Parliamentary Standing Committees, overall key business processes in India are something like ‘free-for-all’ types, mainly because of the following reasons:

  • No pan-India voluntary or mandatory code exists for ethical Sales and Marketing practices
  • Many regulatory controls and standards are reportedly below par
  • Regulatory control on clinical trials done in India is reportedly sub-standard. In many cases even  adequate compensation towards trial related deaths is reportedly not paid to the victims families by the companies, mostly fixing responsibilities to the ‘Ethics Committees’.

Key factors to take note of in the changing paradigm:

While looking at the big picture, the global pharmaceutical players, I reckon, should take note of the following factors while formulating their India- specific game plan to be successful in the country without moaning much:

  • At least in the short to medium term, it will be unrealistic to expect that India will be a high margin / high volume market for the pharmaceutical sector in general, unlike many other markets, across the world.
  • India will continue to remain within the ‘modest-margin’ range with marketing excellence driven volume turnover.
  • The government focus on ‘reasonably affordable drug prices’ may get extended to patented products, medical devices / equipment and other related areas, as well.
  • Although innovation will continue to be encouraged in the country, the amended Patents Act of India is ‘Public Health Interest’ oriented and different from many other countries. This situation though very challenging for many innovator companies, is unlikely to change in the foreseeable future, even under pressure of various “Free Trade Agreements (FTA)”.

Government no longer accepts that medicine prices are cheapest in India:

Pharmaceutical companies in India will be constrained to live with the continuing focus of the government and also of the civil society on ‘reasonably affordable medicines’ irrespective of the fact whether they are generic or patented.

The Department of Pharmaceuticals has reportedly started comparing the Indian drug prices with international equivalents in terms of the ‘purchasing power parity’ and ‘per capita income’ and not just their prevailing prices in various developed markets converted to rupees.With such comparisons the government has already started voicing that prices of medicines in India are not the cheapest but on the contrary one of the costliest in the world.

The above argument though interesting, worth taking note of, by all concerned to successfully chart-out their respective game plans for India.

A recent media report highlighted that an inter-ministerial group constituted for regulating prices of patented medicines in India has recommended using a per capita income-linked reference pricing mechanism for such products.

The above news item also mentions that Tarceva, a Roche lung cancer drug, costs Rs 1.21 lakh in Australia and France while it costs Rs 35,450 in India. But when adjusted for per capita income, which is significantly more in these countries compared with India, the price falls to Rs 10,309 and Rs 11,643, respectively, for both countries as indicated below:

Country India France Australia
Per capita gross national income (PCGNI) (US$) 3260 33940 38510
Ratio of PCGNI of other countries to India 1 10.4 11.8
Eriotnib (Tarceva) 100 mg price in India (Rs.) 35450 121085 121650
Eriotinib (Tarceva) 100 mg Price in terms of weighted PCGNI (Rs) 35450 11643 10309
Sunatinib (Stutent) capsule 50 mg (Rs)       46925 363216 310384
Sunatinib (Stutent) 50 mg price in terms of weighted PCGNI (Rs)              46925 34925 26303

(Source: The Economic Times, August 16, 2012)

Government encouraging R&D Focus on the diseases of the poor:

Many in India, including ‘Council of Scientific & Industrial Research (CSIR)’ feel that the pharmaceutical R&D activities should also focus on the diseases of the poor, which constitute the majority of the global population.

However, global pharmaceutical companies argue that greater focus on the development of new drugs for the diseases of the poor should not be considered as the best way to address and eradicate such diseases in the developing countries. On the contrary, strengthening basic healthcare infrastructure along with education and the means of transportation from one place to the other could improve general health of the population of the developing world quite dramatically.

The counterpoint to the above argument articulates that health infrastructure projects are certainly very essential elements of achieving longer-term health objectives of these countries, but in the near term, millions of unnecessary deaths in the developing countries can be effectively prevented by offering more innovative drugs at affordable prices to this section of the society.

Recognition of India’s healthcare priorities is important:

Despite chaos in many areas, as mentioned above, a paradigm change in the way pharmaceutical business to be conducted in India, is slowly but surely taking place, where replication of any western business model could be counterproductive. The strategy has to be India specific, accepting the priorities of the countries, even with all its ‘warts and moles’

Participative strategies should yield better results:

To achieve excellence in the pharmaceutical market of India, there is a dire need for all stakeholders to join hands with the Government, without further delay, to contribute with their global knowledge, experience and expertise to help resolving the critical issues of the healthcare sector of the nation, like:

  • Creation and modernization of healthcare infrastructure leveraging IT
  • Universal Health Coverage
  • Win-Win regulatory policies
  • Creation of employable skilled manpower
  • Innovation friendly ecosystem
  • Reasonably affordable healthcare services and medicines for the common man through a robust government procurement and delivery system

Right attitude of all stakeholders to find a win-win solution for all such issues, instead of adhering to the age-old blame game in perpetuity, as it were, without conceding each others’ ground even by an inch, is of utmost importance at this hour. 

It is high time for the Government of India, I reckon, to reap a rich harvest from the emerging lucrative opportunities, coming both from within and the outside world in the healthcare space of the country. Effective utilization of this opportunity, in turn, will help India to align itself with the key global healthcare need of providing reasonably affordable healthcare to all.

Conclusion:

Thus in my view, just replication of the ‘Old Paradigm’ of the developed pharmaceutical markets is unlikely to yield results in the new evolving paradigm of India.

In this rapidly changing scenario, the name of the game for all players of the industry, both global and local, I believe, is recognition of the changing market dynamics of India, active engagement in the paradigm changing process of one of the most important emerging pharmaceutical markets of the world and finally adaptation to the countries changing aspirations and priorities to create a win-win situation for all.

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.

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.

Encourage vaccine research and improve its access to demonstrate ‘prevention is better than cure’

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Vaccines are one of the most successful and cost-effective public health interventions, which help preventing over 2 million deaths every year.

The World Health Organization (WHO) defines vaccines as:

“A vaccine is any preparation intended to produce immunity to a disease by stimulating the production of antibodies. Vaccines include, for example, suspensions of killed or attenuated microorganisms, or products or derivatives of microorganisms. The most common method of administering vaccines is by injection, but some are given by mouth or nasal spray.”

Types of Vaccines:

As per the ‘National Institute of Health (NIH)’ of USA, following are some types of vaccines that researchers usually work on:

  • Live, attenuated vaccines
  • Inactivated vaccines
  • Subunit vaccines
  • Toxoid vaccines
  • Conjugate vaccines
  • DNA vaccines
  • Recombinant vector vaccines

The first vaccine:

In 1796, Edward Anthony Jenner not only discovered the process of vaccination, alongside developed the first vaccine of the world for mankind – smallpox vaccine. To develop this vaccine Jenner acted upon the observation that milkmaids who caught the cowpox virus did not catch smallpox.

As per published data prior to his discovery the mortality rate for smallpox was as high as up to 35%. Thus, Jenner is very often referred to as the “Father of Immunology”, whose pioneering work has “saved more lives than the work of any other person.”

Later on in 1901 Emil Von Behring received the first Nobel Prize (ever) for discovering Diphtheria serum therapy.

The future scope of vaccines:

The future scope of vaccines is immense as several potentially preventable diseases, as indicated below remain still unaddressed.

Examples of effective Vaccines Examples of Potentially VaccineTreatable Diseases
Bacterial
  • Diphtheria
  • Haemophilus influenza type B
  • Meningitis A, C
  • Pneumococcus
  • Enterococcus
  • Meningitis B, W, Y
  • Group A Streptococcus
  • Staphylococcus
Viral
  • Varicella
  • Hepatitis B and C
  • Influenza
  • Polio
  • Pandemic influenza
  • RSV
  • West Nile Virus
  • Epstein Barr Virus
Other
  • Cancer
  • Alzheimer’s disease
  • Substance abuse
  • Autoimmune disorders

Source: Deutsche Bank Report 

Expanded focus for vaccines:

The focus of the global vaccine industry also has been expanded from prophylactic vaccination for communicable disease (e.g. DTP vaccine) to therapeutic vaccines (e.g. Anti-cancer vaccines) and then possibly non-communicable disease vaccines (e.g. vaccines for coronary artery disease).

The Issues and Challenges:

To produce a safe and effective marketable vaccine, it takes reportedly around 12 to 15 years of painstaking research and development process involving an investment ranging between US $500 million and over $1 billion dollars (Ibid, 7).

Moreover, one will need to realize that the actual cost of vaccines will always go much beyond their R&D expenses. This is mainly because of dedicated and highly specialized manufacturing facilities required for mass-scale production of vaccines and then for the distribution of the same mostly using cold-chains.

Around 60% of the production costs for vaccines are fixed in nature (National Health Policy Forum. 25. January 2006:14). Thus such products will need to have a decent market size to be profitable.

Unlike many other medications for chronic ailments, which need to be taken for a long duration, vaccines are administered for a limited number of times, restricting their business potential.

Thus, the long lead time required for the ‘mind to market’ process for vaccine development together with high cost involved in their clinical trials/marketing approval process, special bulk/institutional purchase price and limited demand through retail outlets, restrict the research and development initiatives for vaccines, unlike many other pharmaceutical products.

Besides, even the newer vaccines will be required mostly for the diseases of the poor, like Malaria, Tuberculosis, HIV and ‘Non Communicable Diseases (NCDs)’ in the developing countries, which may not necessarily guarantee a decent return on investments for vaccines, unlike many other newer drugs. As a result, the key issue for developing a right type of newer vaccine will continue to be a matter of pure economics.

A great initiative called GAVI: 

Around 23 million children of the developing countries are still denied of important and life-saving vaccines, which otherwise come rather easily to the children of the developed nations of the world.

To resolve this inequity in January 2000, the Global Alliance for Vaccines and Immunization (GAVI) was formed. This initiative was mainly aimed at generating sufficient fund to ensure availability of vaccines for children living in the 70 poorest countries of the world.

The GAVI Alliance has been instrumental in improving access to six common infant vaccines, including those for hepatitis B and yellow fever. GAVI is also working to introduce pneumococcal, rotavirus, human papilloma virus, meningococcal, rubella and typhoid vaccines in not too distant future.

A recent example:

As if to vindicate the above points, Reuters on December 16, 2011 reported that  “Pfizer and GlaxoSmithKline are increasing sales of cut-price pneumonia vaccine to developing countries by more than 50 percent, marking the scale-up of an international program to protect millions of children.

GAVI is buying an additional 180 million doses of Pfizer’s pneumococcal vaccine Prevenar 13 and a similar quantity of GSK’s Synflorix at a deeply discounted price of US $3.50 a shot.”

Success with vaccines in disease prevention:

Diphtheria incidence in the US  – Mortality 5/10,000 cases Peak Incidence (1921) Incidence today

2,06,939

1

 

Tetanus incidence in the US – Mortality 3/10 cases Peak Incidence (1927) Incidence today

1,314

40

 

H. Influenza type B incidence in the US – Mortality 2-3/100 cases Peak Incidence (1927) Incidence today

20,000

363

Source: Ehreth Vaccine 21:4105-4117

Development of vaccines through the passage of time:

No. of vaccines

Year

Vaccines
1. 1780-1800

Smallpox

(first vaccine for any disease)
2. 1860-1880

Cholera
1880-1900

Rabies
6.

Tetanus

Typhoid fever

Bubonic plague
11 1920-1940

Diphtheria

Pertussis

Tuberculosis

Yellow fever

Typhus
16 1940-1960

Influenza

Polio

Japanese encephalitis

Anthrax

Adenovirus-4 and 7
24 1960-1980

Oral polio

Measles

Mumps

Rubella

Chicken pox

Pneumonia

Meningitis

Hepatitis B
28 1980-2000

Haemophilus influenzae type b

Hepatitis A

Lyme disease

Rotavirus
29 2000-2010

Human papilloma virus

Current trend in vaccine development:

Malarial Vaccine:

Reuters on December 20, 2011 reported that an experimental malaria vaccine has been developed by the British scientists, which has the potential to neutralize all strains of the most deadly species of malaria parasite.

In October 2011, the data published for a large clinical trial conducted in Africa by GlaxoSmithKline on their experimental malaria vaccine revealed that the risk of children getting malaria had halved with this vaccine. Reuters also reported that other teams of researchers around the world are now working on different approaches to develop a malaria vaccine.

Tuberculosis vaccines:

On August 11, 2011, Aeras and the Oxford-Emergent Tuberculosis Consortium (OETC) announced with a ‘Press Release’ the commencement of a Phase IIb ‘proof-of-concept efficacy trial’ of a new investigational tuberculosis (TB) vaccine. OETC indicated that clinical trial for the drug will be undertaken by them in Senegal and South Africa with primary funding support from the European and Developing Countries Clinical Trials Partnership (EDCTP).

Cancer vaccines:

Cancer vaccines are, in fact, biological response modifiers, which work by stimulating or restoring the ability of the immune system to fight the disease. There are two broad types of cancer vaccines:

  • Preventive vaccines:  To prevent cancer in healthy people
  • Therapeutic vaccines:  To treat cancer by strengthening the natural defense mechanism of the human body against the disease.

The United States Food and Drug Administration (US-FDA) has approved the following cancer vaccines, which protect against two types of HPV that cause approximately 70% of all cases of cervical cancer globally:

  • Gardasil of Merck & Company
  • Cervarix of  GlaxoSmithKline

The US FDA has also approved a cancer preventive vaccine that protects against HBV infection, which can cause liver cancer. It has been reported that the original HBV vaccine was approved in 1981 and currently most children in the US are vaccinated against HBV after their birth.

In addition, the US regulator has also approved a cancer vaccine for treatment of certain types of metastatic prostate cancer.

HIV Vaccines:

‘The AIDS Vaccine 2011 conference’ held in Bangkok in the month of September, 2011 discussed some of the latest findings on the following two vaccines for prevention and control of HIV disease progression:

  • A large trial of RV 144 vaccine in Thailand demonstrated the proof of concept that a preventive vaccine with a risk reduction of 31% could effectively work.  The trial was supported by the World Health Organization (WHO) and UNAIDS.
  • Bionor Pharma announced that clinical trial participants who received Vacc-4x “experienced a 70% viral load decrease relative to their level before starting Anti-Retroviral Therapy (ART), compared with no notable reduction among placebo recipients.”

Promising ‘Therapeutic Vaccines’ undergoing clinical trial:

‘FierceVaccines’ in its October 27, 2011 reported the following 10 most promising therapeutic vaccines, which are now undergoing clinical trials on humans:

Molecule Company Indication
ICT-107 ImmunoCellular Therapeutics Glioblastoma
VGX-3100 Inovio Pharmaceuticals Cervical cancer
MAGE-A3 GlaxoSmithKline Skin, lung cancer
Neu-Vax RXi Pharmaceuticals Breast cancer
AE37 Antigen Express Breast cancer
NexVax2 ImmusanT Celiac disease
ADXS-HPV Advaxis Cervical, head and neck cancer
CRS-207 Aduro BioTech Pancreatic cancer
PEV7 Pevion Biotech Recurrent vulvovaginal candidiasis
GI-4000 GlobeImmune Pancreatic cancer

Future scope for cancer vaccines:

One school of scientists firmly believes that out of all cancers diagnosed each year globally, various types of microbes contribute 15% to 25% as a causative factor for this dreaded disease, as indicated below:

Infectious Agents

Type of Organism

Associated Cancers
Hepatitis B virus (HBV)

Virus

 Hepatocellular carcinoma(a type of liver cancer)
Hepatitis C virus (HCV)

Virus

 Hepatocellular carcinoma(a type of liver cancer)
Human papilloma virus (HPV) types 16 and 18, as well as other HPV types

Virus

 Cervical cancer; vaginal cancer;vulvar cancer; oropharyngeal cancer(cancers of the base of the tongue,

tonsils, or upper throat);

anal cancer; penile cancer;

squamous cell carcinoma of the skin
Epstein-Barr virus

Virus

 Cancer of the upper part ofthe throat behind the nose
Human herpes virus 8 (HHV8)

Virus

 Kaposi sarcoma
Human T-cell lymphotropic virus

Virus

 Adult T-cell leukemia/lymphoma
Helicobacter pylori

Bacterium

 Stomach cancer
Schistosomes

Parasite

 Bladder cancer
Liver flukes

Parasite

 Cholangio carcinoma(a type of liver cancer)

Source: The International Agency for Research on Cancer (IARC)

These findings open the doors of unique opportunities to develop both preventive and therapeutic vaccines to address the life threatening near fatal ailment of mankind – cancer.

Conclusion:

Developing countries of the world are now demanding more of those vaccines, which no longer feature in the immunization schedules of the developed nations. Thus to supply these vaccines at low cost will be a challenge, especially for the global vaccine manufacturers, unless the low margins get well compensated by high institutional demand.

To effectively focus on all important disease prevention initiatives, there is also a need to build a vibrant vaccine business sector in India. To achieve these dual objectives the government should create an enabling ecosystem for the vaccine manufacturers, academics and the government funded vaccine R&D centers to concentrate more with the relevant vaccine development projects ensuring a decent return on investments, for long term public health interest.

More often than not, the above stakeholders find it difficult to deploy sufficient fund to take their vaccine projects successfully through various stages of clinical development to obtain marketing approval from the drug regulator, working out a decent return on investments. This critical issue needs to be appropriately and urgently addressed by the Government to make the disease prevention initiatives in the country sustainable, demonstrating to all concerned that disease ‘prevention is better than cure’.

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.

Biologic Drugs: The hunt for the ‘Magic Bullets’ is on

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The global pharmaceutical industry is now navigating its way through very cautiously while negotiating an unprecedented ‘patent cliff’, simultaneously with gradually drying-up R&D pipelines. This unique situation has triggered off several global mega Mergers and Acquisitions (M&A) not only involving better protected biologic drugs business, but also in the large generic space mostly in the emerging markets of the world, which used to be ignored by many before the turn of the new century.

Patent Expiry in next 12 months:

According to an article published in the ‘FiercePharma’ dated October 24, 2011 titled, ‘10 largest U.S patent losses’, over the next 12 months the following best-selling drugs, ranked not by US sales volume but by their weight in each company’s US revenue stream, will face patent expiry:

Company Brand
1 Forest Laboratories Lexapro
2 Takeda Pharmaceuticals Actos
3 Bristol-Myers Squibb Plavix
4 AstraZeneca Seroquel
5 Eli Lilly Zyprexa
6 Pfizer Lipitor*
7 Merck Singulair
8 Novartis Diovan
9 Teva Pharmaceuticals Provigil
10 Abbott Laboratories TriCor

* Patent expired on November 30, 2011

Opening a new vista of opportunity:

In the midst of such a critical situation within the global pharmaceutical industry, application of biotechnology in the drug discovery process opened up a new vista of a broad range of new class of therapies. These include monoclonal antibodies, therapeutic protein hormones, cytokines tissue growth factors, cell or gene therapies and vaccines, just to name a few.

A recent report of the Organization for Economic Cooperation and Development (OECD) predicts that 80% of the total biotech products, which are expected to be commercialized by 2030, will be medicines and medical diagnostics.

Old business model signals a diminishing return:

Over a period of decades, the business model of small-molecule based blockbuster drugs has successfully catapulted the global pharmaceutical business to a high-margin, dynamic and vibrant industry. However, a time has now come when the golden path from the ‘mind to market’ of the drug discovery process is becoming increasingly arduous and prohibitively expensive.

Deploying expensive resources to discover a New Chemical Entity (NCE) with gradually diminishing returns in the milieu of ‘me too’ types of new drugs, does no longer promise a strong commercial incentive.

A shift in focus from ‘small molecules’ to ‘large molecules’:

Since last several years, the success of biologic drugs compared to conventional small-molecule chemical drugs, has been changing the area of focus of pharmaceutical R&D altogether, making the biotech companies interesting targets for M&A.

As per published data, although the market capitalization of the top ten large pharmaceutical companies dropped more than US$ 700 billion since 2001, the same for the biotech companies, on the other hand,  has gone up by more than 50% during this period. This trend signifies proliferation of biotech drugs in the years ahead for meeting unmet needs of the patients.

To keep pace with the biotech led growth of the global pharmaceutical industry, many companies have started imbibing biotech-like R&D structure within their respective organizations. For examples, the pharmaceutical majors GsK and Pfizer have already articulated the strategic intent to restructure their respective large monolithic R&D set-ups to smaller independent drug discovery units.

Such restructuring is expected to foster ‘can do’ spirit of the biotech entrepreneurs within the recreated smaller units of large R&D setups to accelerate overall R&D productivity for enrichment of the new product pipelines. However, future will be the best judge to evaluate the success of this experiment.

As if to vindicate this emerging scenario, on November 30, 2011 Bloomberg reported, “U.K.’s largest drug maker has broken up research into competitive teams and put scientists back at the center of the process. But freedom carries a price: researchers who don’t adapt must go. Scientists now ‘live or die with their project.’ This month, Glaxo (GsK) completed the first appraisal of its new model. The company is now deciding which teams deserve more funding and which ones don’t. The conclusions will probably be made public in February when Glaxo (GsK) reports full-year earnings.”

Biologic drugs offer greater promise to meet more unmet needs:

Unlike conventional chemical drugs, most genetically modified biologic drugs work with a very high degree of precision and accuracy on the cells of the diseased organ. Many clinical studies have amply demonstrated that such drugs not only ensure faster recovery, but also help saving incremental treatment cost because of their excellent safety profile.

As we see today, more and more of those global pharmaceutical companies, who used to spend around 15% to 20% of their annual sales for R&D projects are channelizing a large part of the same to effectively compete in the fast evolving market of biologic drugs mainly through M&A. This strategy well justifies their strategic intent to make good the loss of income from the blockbuster drugs going off-patent quite in tandem with their fast dwindling R&D pipeline, as it were.

The bottom-line impact of a successful well targeted new biologic molecule to treat intractable ailments like, various types of cancer and blood disorders, auto-immune and Central Nervous System (CNS) related diseases, neurological disorders such as Parkinson’s, Myasthenia gravis, Multiple Sclerosis and Alzheimer’s disease, are expected to be huge.

Faster growth of biologic drugs:

Despite patent cliff, large molecule biologic drugs like Enbrel, Remicade, Avastin, Rituxan and Humira continue to contribute more than the small molecule drugs of chemical origin to overall growth of the large global pharmaceutical majors. Many of these drugs were sourced by them either through acquisitions or collaborative arrangements.

Cash strapped biotech companies with molecules ready for human clinical trials or with target molecules falling in the well sought after growth areas like, monoclonal antibodies, vaccines, cell or gene therapies, therapeutic protein hormones, cytokines and tissue growth factor are becoming attractive acquisition targets of the small molecules dominated large pharmaceutical companies having deep pockets.

Global Market Scenario:

According to IMS Health, biologics contribute around 17% of global pharmaceutical sales and generated a revenue of US$ 120 billion during MAT March 2009

In 2010 Biologic drugs increased their turnover to US$ 140 billion in the total market of US$ 850 billion. The sale of Biosimilar drugs outside USA exceeded US$ 1 billion.

Six biologic drugs featured in the top 12 and eight in the top 20 best selling global brands. Remicade emerged as the highest-selling biologics in 2010, ahead of Enbrel. Roche remained the top company by sales for biologics with anticancer and monoclonal antibodies. (source: Knol 2010)

Major acquisitions from 2005-2011 for Biologic drugs:

The opportunity of meeting the unmet needs of the patients with effective biologic drugs, especially in high-growth therapy areas, has given the M&A activities in the pharma-biotech space an unprecedented thrust in the recent times.

Following are the major acquisitions in the field of biologic drugs from 2005 to 2011:

Company

Target company

The deal: $billion

Products
Roche Genentech 47 Rituxan, Avastin, Herceptin, MoAbs, Oncology
Sanofi Aventis Genzyme 20 Orphan biologicsCerezyme, Fabrazyme, Renagel, Synvisc
AstraZeneca MedImmune 15.6 Monoclonal Antibodies
Merck Serono 13.5 Biologics
Takeda Millennium 8.8 Velcade, Oncology
Lilly ImClone 6.0 Erbitux, Oncology
Novartis Chiron 5.8 Vaccines
Teva Cephalon 6.2 Nuvigil, Provigil, Treanda CNS, Oncology
Abraxis American BioScience 4.2 Oncology
Astellas OSI Pharma 4.0 Tarceva, oncology
Eisai MGI Pharma 3.9 Aloxi, Salagen, Hexalen, Oncology
Celgene Pharmion 2.9 Oncology
Celgene Abraxis 2.9 Oncology
Gilead Myogen 2.5 Biotechnology
BMS Medarex 2.4 Monoclonal antibodies
J&J Crucell 2.3 Vaccines
Amgen Abgenix 2.2 Monoclonal antibodies
Boehringer Ingelheim MacroGenics 2.1 Monoclonal antibodies
Gilead CV Terapeutics 1.4 Cardiovascular
Genzyme Osiris 1.4 Prochymal, Stem cells
GSK ID Biomed 1.3 Biologics
AstraZeneca Cambridge Antibody Technology 1.3 Monoclonal Antibodies
Merck Sirna 1.1 RNAi
Amgen BioVex 1 OncoVex

(Source: Mergers and Acquisitions Review2005-2011 Pharma Biotech by Knol)

Why do so many companies want to enter into the biotech space?

The answer to the key question of why do so many companies want to enter into the biotech space of the business, in summary, could lie in the following:

  1. Truly innovative small molecule discovery is becoming more and more challenging and expensive with the low hanging fruits already being plucked.
  2. More predictable therapeutic activity of biologics with better safety profile.
  3. A higher percentage of biologic drugs have turned into blockbuster drugs in the recent past.
  4. Market entry barrier for biosimilar drugs, after patent expiry of the original molecule, is much tougher than small molecule generics.
  5. A diverse portfolio of both small and large molecules will reduce future business risks.

A recent study:

In one of their recent collaborative studies published in an article titled, “Is R&D Earning its Investment?” Deloitte and Thomson Reuters (2009) have reported that the top 12 global pharma majors have 21% to 66% biologic drugs in their late stage product pipeline with the average being at 39%.

Another interesting trend:

Besides mega acquisitions, relatively smaller pharmaceutical players have started acquiring venture-backed biotech companies to enrich their product pipelines with early-stage drugs at a much lesser cost. For example, with the acquisition of Calistoga for US $ 600 million and venture-backed Arresto Biosciences and CGI Pharmaceuticals, Gilead known for its HIV drugs, expanded into blood cancer, solid tumor and inflammatory disease segments. In 2009 the same Gilead acquired CV Therapeutics for US $1.4billion to build a portfolio for cardiovascular drugs. In November 2011, Gilead acquired ‘Pharmasset’ for US$ 11 billion to include in its product pipeline a future Hepatitis C drugs offering 95% cure rates.

Smaller biotech companies usually do not get engaged in very large deals unlike the top pharma players, but make quick, decisive and successful smaller deals more effectively.

Much less generic competition for biologic space:

After patent expiry of NCEs, innovators’ brands become extremely vulnerable to cut throat generic competition with as much as 90% price erosion. This happens as the small molecules are relatively easier to replicate by the generic manufacturers. Moreover, the process of getting regulatory approval of NCEs is also not as stringent as biosimilar drugs in most of the markets of the world.

On the other hand biosimilar drugs involving difficult, complex and expensive processes for development with stringent regulatory requirements for getting their marketing approval in the developed markets of the world like the EU and the USA, offer significant brand protection from generic competition for quite some time, even after the patent expiry.

Mainly due to this reason, brands like the following are expected to go strong for some more time without any significant competition from the biosimilar drugs:

Brand Company Launch date
Rituxan Roche/Biogen idec 1997
Herceptin Roche 1998
Remicade Centocor/J&J 1998
Enbrel Amgen/Pfizer 1998

Smaller biotech companies to be the prime targets:

In my view, the voracious appetite of large pharmaceutical companies for inorganic growth through mega M&A, will ultimately subside due to various compelling reasons.  Instead, smaller biotech companies, especially with products in Phase I or II of clinical trials, without wherewithal to take them to subsequent stages of development, will be the prime targets for acquisition by the pharma majors at an attractive valuation.

Cost of treatment:

Despite so many positives, high priced biologic drugs do raise a critical concern about the incremental load on already ballooning healthcare costs to the patients.

The Wall Street Journal (WSJ) in its September 29, 2010 issue highlighted that biologic drugs can cost as much as $1.5 million annually to the user. Similarly Forbes.com on April 12, 2009 reported, “Biologic drugs can cost up to 22 times more than traditional medications – some as much as $400,000 a year”.

This is indeed a very serious issue that needs to be resolved sooner. Speedy entry of biosimilar drugs will partly address this critical issue.

Conclusion:

Although the large pharma majors have already started experimenting to work with the pure biotech companies in terms of M&A and strategic alliances, it will be interesting to watch the long term ‘DNA Compatibility’ of the business models, organization/ work/employee culture and market outlook of these two different types of organizations while improving the global business performance of the overall entity, significantly.

Only future will tell us whether or not just restructuring of the R&D set up of companies like, Pfizer, Merck, Roche and perhaps Sanofi at a later date, helps synergizing the overall R&D productivity of the merged entities.

Be that as it may, despite serious cost concern, experts still believe that biologic drugs have all the potential to deliver the ‘magic bullets’ in the fight against many intractable diseases of mankind in not too distant future.

Hence the hunt is on.

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.

A National Regulatory Standard is necessary for MRs of the Indian Pharmaceutical Industry

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Medical Representatives (MR) form the bedrock of business success, especially for the pharmaceutical industry in India. The Job of MRs is tough and high voltage one, laced with moments of elation and sprinkles of frustration, while generating prescription demand for selected products in an assigned business territory. Though educational qualifications, relevant product and disease knowledge, professional conduct and ethical standards vary widely among them, they are usually friendly, mostly wearing a smile even while working in an environment of long and flexible working hours.

Currently, there is a huge challenge in India to strike a right balance between the level and quality of sales pitch generated for a brand by the MRs, at times even without being armed with required scientific knowledge and following professional conduct/ ethical standards, while doing their job.

It is critical for the MRs to understand scientific details of the products, its mode of action in a disease condition, precautions and side-effects in order to be fair to the job and be successful. As MRs are not just salesmen, they must always be properly educated in their respective fields and constantly hone their knowledge and skills to remain competitive.

A qualitative study:

Indian J Med Ethics, 2007 Apr-June; 4(2) reported a qualitative study to determine a wide range of pharmaceutical promotional practices by the MRs influencing prescription of medicines in Mumbai. The study highlighted:

“An unholy alliance: Manufacturers, chemists and doctors conspire to make profits at the expense of consumers and public health, even as they negotiate with each other on their respective shares of profits”.

The paper identified misleading information, incentives and unethical trade practices as methods to increase the prescription and sale of drugs. It reported, besides other points that MRs provide incomplete medical information to influence prescribing practices.

‘Code of Pharmaceutical Marketing Practices’ is necessary, but just not enough:

Gift-giving, ethical vs. unethical promotion, transparency and self-regulation appear to be the main issues in the pharmaceutical industry right across the globe. Owing to inadequate national legislation and the lack of universally accepted self-regulatory codes, the pharmaceutical industry in India has yet to tackle the problem of alleged “Unethical drug marketing practices”.

After a protracted debate on this subject 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.

This decision of the government is the culmination of a series of events, covered widely by the various sections of the media, since 2004. Be that as it may, the UCMP, in my view, is just not enough to address the issue of alleged, “Unethical drug marketing practices” holistically.

A mandatory ‘accreditation/certification’ program for MRs is the need of the hour:

Countries like United Kingdom (UK) and Australia with much longer experience of dealing with pharmaceutical industry than India, have appropriate mechanisms, safeguards and legislation in place to deal with the pharmaceutical marketing practices. Even the pharmaceutical industry in the UK and Australia have controlling authorities with comprehensive standards in place to deal with proper education, professional conducts and ethics for the MRs. Similar mandatory ‘accreditation/certification’ program for MRs, in my view, is also necessary in India without any further delay.

India should learn from others to work out a robust process:

Even with such systems and regulations in place, both in the UK and Australia, some ethical issues still remain unresolved. In Australia the largest consumer organization highlights, “that it is a conflict of interest for the Code to be administered by the industry peak body.” and “it is also concerned that the sanctions available in the Code do little to prevent breaches”. United Kingdom is no exception in this regard.

Other markets are fast catching up:

Very recently in Turkey, Turkish Ministry of Health published a new pharmaceutical promotion regulation, which specifies for the first time a certification obligation for the MRs.

In Philippines, ‘MR Accreditation Program (MRAP)’ started about 8 to10 years ago. MRAP is administered by the Pharmaceutical and Healthcare Association of Philippines. The certifying examination is accredited by the Professional Regulation Commission (PRC) under its Board of Pharmacy of the Government of Philippines.

In Japan there is a certification program for the MR since 1997, which is administered by the MR Education and Accreditation Center of Japan, a public service corporation. One has to receive over 450 hours education and training in Japan to be qualified for the examination. Even after being qualified in the certification examination, at least 50 hours of continuing education is required every year to keep the certification updated that expires after 5 years.

In Germany, under German law and practice, MRs have either the status of “pharma advisors” (“Pharmaberater”) as specified in German Drugs Act or they have to pass the examination for certified MRs (“Pharmareferent”), which is accessible online.

“Pharma Advisors” have science background as a pharmacist, chemist, physician, veterinarian etc. whereas other MRs are required to obtain scientific and medicinal knowledge through suitable education and training program, which will lead to an examination for certification by the German authorities. All MRs are required to start the program within 6 months of employment in the industry and complete the five modules within 2 years.

In Canada ‘the Code of Ethical Practices’ requires the MRs to complete an accreditation course offered by the Council for Continuing Pharmaceutical Education within two years of commencing their employment.

In USA, there is no official MR certification program.

In Hungary, the MR certification program is administered officially by the Health Authority of the country.

In Indonesia, this is administered officially by the state/ governmental bodies or by the industry through an outside consulting organization, which issues certificates after successful completion of the examination.

In Argentina, MR Certification Program is required by the law of the land. In order to include the name in the ‘Registry of MR’, a qualifying degree as medical sales representative, issued by a tertiary educational institution and/or officially acknowledged training institutions, is essential.

In South Africa, they have certification only for marketing code training, which is administered by an independent Marketing Code Authority.

In Sweden, this course is administered by an external course organizer on behalf of LIF Sweden.

However, Swedish companies nowadays prefer to employ pharmacists, who do not need to take the examination.

A National regulatory standard for MRs is necessary in India:

India is now one of fastest growing emerging pharmaceutical markets of the world with 3rd global ranking in volume of production and 13th in value terms. Domestic turnover of the industry is around US$ 12.1 billion in June 2011 (IMS) representing just over 1% of the global pharmaceutical industry turnover of US$ 850 billion (IMS). Since 1970, Indian pharmaceutical Industry has rapidly evolved from almost a non-entity to meeting around 20% of the global requirements for high quality and low cost generic medicines.

Unfortunately, despite a fast evolving scenario, appropriate regulations in various areas of the industry in India have not been worked out, as yet, to derive the best mileage out of this scorching pace of growth of the industry. India still does not have a national code of conduct or regulatory standards applicable to MRs.

Only the clause 4 of ‘The Magic Remedies (Objectionable Advertisement) Act, 1954’ deals with misleading advertisements. It is about time to formulate not just a national code on pharmaceutical marketing practices, but also a mandatory accreditation program and qualifying criteria for the MRs for entire pharmaceutical industry in India, like many other countries of the world.

Central Drugs Standard Control Organization (CDSCO) of the Ministry of Health and Family Welfare of the Government of India in its website lists the “Laws Pertaining to Manufacture and Sale of Drugs in India”. However, it does not specify any regulation for the MRs nor does it recommend any standard of qualification and training for them, which is so critical for all concerned.

Conclusion:

In the above scenario, the moot question is without any comprehensive and formalized uniform national standards of educational qualification, knowledge, ethics and professional conduct being in place for the MRs, are they getting right uniform inputs, across the board, to appropriately interact with the medical profession in a manner that will benefit the patients and at the same remain within the boundary of professional conduct and medical ethics?

Thus, a National regulatory standard for MRs, I reckon, is absolutely necessary in India… sooner the better.

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.