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Big Pharma: Now A ‘Chink in Its Armor’?

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Emerging trends bring to the fore a possible ‘Chink in the Armor’ of the ‘Big Pharma’, despite a number of recent belligerent moves.

One such move I had deliberated in my earlier blog post. There I mentioned that 2014 report on ‘International Intellectual Property (IP) Index’ of the US Chamber of Commerce’s Global Intellectual Property Centre (GIPC) highlights India’s featuring at the bottom of 25 countries on Intellectual Property (IP) protection. Accordingly, the US Chamber having put forth a set of recommendations reportedly urged the US Trade Representive (USTR) to classify India as a ‘Priority Foreign Country’. This nomenclature is usually attributed to the worst offenders of ‘Intellectual Property Rights (IPR)’, which could culminate into trade sanctions.

The move attempts to dissociate IPR from ‘access to medicines’:

Though the methodology and alleged biases of this report were the topics of raging debates, according to USTR, this move of the US Chamber of Commerce is reportedly just against the IP regime in India and ‘not about access to medicines.’

This clarification is indeed bizarre, as most of the issues related to creation of intense political pressure from overseas for stringent IP regime in a country, such as India, revolve around access to patented medicines. The twin issue of IP and ‘access to patented medicines’ can hardly be separated.

Same old contentious example of ‘Glivec Access Program’:

The example of ‘Glivec Access Program’ does not appear to have many takers within the experts either for well-argued reasons.

Even then, to substantiate the point that the IP issues in India are not related to ‘access to patented medicines’, the US Chamber of Commerce states, yet again:

“In the case of Glivec, Novartis provided the leukemia drug to 95 per cent of patient population for free. The annual cost for Glivec generic treatment is approximately three to for times the average annual income in India”.

It is worth noting that the Swiss drug-maker Novartis reportedly gave the same example while defending the patent protections of Glivec before the Supreme Court without success. The apex judiciary ultimately dismissed the case last year.

Post Glivec judgment, the same ‘patient access program’ was debates in television programs too. However, its relevance for enhancing access could not be established in either of these two high profile public deliberations, as there were hardly any takers.

That said, I do not have any inkling, whether the protagonists of this much-touted “Glivec Access Program” would at anytime, in future, be able to establish their claim beyond any reasonable doubt that, ‘95 percent of the total patients population suffering from chronic myeloid leukemia receive Glivec free of cost from Novartis’.

Visible ‘Chink in its Armor’:

Not so long ago, Global CEO of Bayer reportedly proclaimed in public that:

“Bayer didn’t develop its cancer drug, Nexavar (sorafenib) for India but for Western Patients that can afford it.”

In tandem various other tough uttering, well crafted by the global communication agencies of ‘Big Pharma’, followed on the same IPR related issues, projecting its tough monolithic dimension.

However, after keenly watching a good number of much contentious moves being taken on IP and various other related areas by its lobby groups, both in India and overseas, it appears that all constituents of the ‘Big Pharma’ are not on the same page for all these issues, clearly exposing the ‘Chink in its Armor’, as it were.

Let me now give some examples, spanning across various issues, to vindicate this point:

I. Differences on ‘public disclosure of all Clinical Trial data’:

As discussed in my blog post earlier, The Guardian reported an incident on the above issue in July 2013. The article stated that the global pharmaceutical industry has “mobilized” an army of patient groups to lobby against the plan of European Medicines Agency (EMA) to force pharma companies publishing all Clinical Trial (CT) results in a public database for patients’ interest.

Important global pharma industry associations strongly resisted to this plan. The report indicated that a leaked letter from two large pharma trade associations, the Pharmaceutical Research and Manufacturers of America (PhRMA) of the United States and the European Federation of Pharmaceutical Industries and Associations (EFPIA), had drawn out the above strategy to combat this move of EMA.

The Chink:

However despite this grand strategy, some constituents of Big Pharma, such as, Abbott, GlaxoSmithKline (GSK), Johnson & Johnson decided to disclose the results of all applicable/covered clinical trials, regardless of outcome, in a publicly accessible clinical trials results database.

II. Differences on ‘leaked pharma lobbying plan against South African draft IP Policy’:

February 3, 2014 issue of ‘The Lancet’ states, among other issues, the draft IP policy of South Africa seeks to address patent ever-greening, a contentious strategy in which drug firms tweak formulations to extend the 20-year life of a patent.

The leaked 9 page document of the PR firm, Public Affairs Engagement (PAE), titled, ‘Campaign to Prevent Damage to Innovation from the Proposed Draft National IP Policy in South Africa’, was reportedly prepared for ‘Pharmaceutical Researchers and Manufacturers of America (PhRMA)’ based at Washington DC and the lobby group representing research-based pharmaceutical companies in South Africa – ‘Innovative Pharmaceuticals Association of South Africa (IPASA)’.

The Chink:

As deliberated in my earlier blog post, when the above lobbying plan was leaked out, Swiss drug maker Roche and Denmark’s Novo-Nordisk reportedly resigned from the IPASA. Both the companies said that neither do they support this campaign nor have they given any approval to it and hence they are resigning from IPASA. However, the above report quoting IPASA states, “IPASA maintains that the departure of Roche and Novo-Nordisk did not weaken the association’s position.”

III. Other recent major differences within ‘Big Pharma’ constituents:

The Chink:

A. Merck Sereno:

Indian pharma regime may appear to be not encouraging or protecting innovation to the US Chamber of commerce, but one of the oldest constituents of the ‘Big Pharma’ – Merck Sereno has reportedly articulated quite a different take on this score.

In an interview to ‘The Economic Times’, Stefan Oschmann, member of the executive board and CEO, Merck, Germany made some very important observations on:

Patentability:

“Some of the strategies used in the past were developing 20 products and slightly differentiating them. That doesn’t work anymore. This industry has to do its home work.” He added that it makes little sense to adopt a confrontationist attitude towards sensitive issues.

Access:

Oschmann said, “Companies are rightly or wrongly criticized in spending all their money on 20 percent of the richest people of the world and neglecting the rest of the population. This is changing.”

Pricing:

He would not criticize governments such as India for trying to protect consumers from spiraling health-care costs. “Pricing and tier-pricing are worth looking into”.

Governments across emerging markets have been trying to find a way to the same challenges of increasing access to affordable healthcare. Oschmann feels, “This is legitimate to any government. What matters is rules are transparent, fair and non-discriminatory. Rules shouldn’t be used as a tool for industrial policy to only foster local industry.”

Another Chink:

B. GlaxoSmithKline:

Another icon in the global pharmaceutical industry Sir Andrew Witty, the CEO of GlaxoSmithKline, reportedly commented a few months ago on the following, with a pragmatic approach to the situation:

Pricing:

“I think it is wholly reasonable for a country that is having a tremendous growth with challenges has to think about pricing. I don’t think that it is a ridiculous proposition. Of course it hurts the period you go through that price adjustments, there are alternative ways to achieve and having a good dialogue may create positive ways to do it.”

Patented medicines:

“I am not one of those CEOs who is gonna stand here and say that you have to have a same approach as you have in other country. India is a very unusual country. It starts from different place than a Britain or a France or a USA, therefore we have to think about what is the right way for India to balance its needs.”

IP:

Sir Andrew emphasized, “And the key to that isn’t to get rid of patents; the key to that is to fix the R&D and manufacturing processes. And that’s what we’ve got to realize in the world we are going to be living in the next 30 or 40 years; companies cannot just turn up and have any price they want. Companies will have to come with a competitive and efficient business model, which will bring real innovation to the people.”

Conclusion: 

Culling all these important developments together, while traveling back in recent times, it does appear, whether the issues are on IP, access or even pricing of medicines, seemingly overpowering might (or may just be simple bullying tactics) of US Chamber of commerce is drowning some very important ‘Big Pharma’ constituents’ voices and numbing many others, despite a visible ‘Chink in its Armor’.

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.

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.

Pharmaceutical Brand Building in a Changing Scenario: Thinking Outside the Box

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In this article, I shall explore unconventional ways of “Building sustainable Pharmaceutical Brands” thinking  outside the box, after quickly taking you through the “Challenges of Change” in the evolving dynamics of  the Indian branded generic market.

A paradigm shift has taken place:

To get insight into the future challenges of the pharmaceutical industry in general ‘Complete Medical Group’ of U.K conducted a study with a sizable number of senior participants from the pharmaceutical companies of various sizes and involving many countries. The survey covered participants from various functional areas like, marketing, product development, commercial, pricing and other important areas.

The findings in the paper indicate that a paradigm shift has taken place in the global pharmaceutical industry, where continuation with the business strategies of the old paradigm will no longer be a pragmatic approach.

The situation is not much different in India too, due to rapidly evolving change in the dynamics of pharmaceutical business environment.

Besides the above finding, my own experience also vindicates that just as today is not a mega yesterday, tomorrow will never be a mega today.

The lessons learnt:

Taking a cue from the above study, which brought out several big challenges facing the global pharmaceutical industry in general and turning it into Indian perspective particularly in the post product patent regime beginning in 2005, my submissions are as follows:

- The increasing interventions of the Government is creating an all pervasive pricing pressure both for branded generics and patented drugs in various ways. The critical issue of predictability in the business environment along with the factors related to gaining greater market access are the ‘top of mind’ concerns of the pharmaceutical players in India.

- Better understanding of the new and differential value offerings that the doctors and patients will increasingly look for beyond the physical pharmaceutical products; will indeed be the cutting edge for the winners in this new ball game.

- Top management of the pharmaceutical companies should start evaluating the long term sustainability of the current pharmaceutical business model, especially for the branded generics. They will now need to include in their strategy wider areas of healthcare value delivery system with a holistic disease management focus.

- Offering just a better choice of medication for the treatment of a disease may no longer be considered enough without further value addition. Added value with disease prevention initiatives and help managing the ‘quality of life’ of patients, especially in case of chronic ailments, will assume increasing importance in the pharmaceutical business process.

- Greater and more frequent incremental innovation across the pharmaceutical value chain will be critical success factors.

- The ability to harness new technologies, rather than just recognize their potential and  flexibility to adapt to increasingly demanding regulatory environment together with newer value requirements of the patients, should be an important part of the business strategy of any pharmaceutical company in the changing paradigm.

- More complex, highly fragmented market with cut throat competition along with various questionable sales and marketing practices, especially in the area of branded generics, demand for better, more aligned and integrated decision making process across various functional areas of the pharmaceutical business.

- Avoiding silos and empire building have long been a significant issue, especially for big pharmaceutical companies. Better and high quality strategy will include more pragmatic and efficient sales and marketing investment decisions, a robust ethics and compliance mechanism and jettisoning all those activities, which will no longer deliver intrinsic or extrinsic differential value to the stakeholders.

- Growing regulatory control in the business environment, including change in the MCI regulations for the doctors, strict implementation of long overdue ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ drafted by the Department of Pharmaceuticals for the industry and recent developments in the Clinical Trial process, will prompt a drastic change in the existing business practices.

- There will be a greater need for more innovative management of the pharmaceutical communication channels, including social media, striking a right balance between ‘pushing’ information to the doctors and patients and helping them ‘pull’ the relevant information, whenever required, through various well structured processes.

Need to think outside the box:

Unfortunately, even in the changing paradigm, the fundamental way by which the pharmaceutical industry has been attempting to address all these challenges has not changed much.

Though one should hope for the best, it will not be a bad idea to have a contingency plan ready, just in case prescriptions in generic names are made mandatory in India, even if selectively. Otherwise effective marketing of branded generics may be in jeopardy.

To explore the future growth potential the pharmaceutical companies are still focusing on the areas like, new product development, conventional sales and marketing, leveraging IT in all areas of decision making process including supply chain and greater market penetration skills, to name just a few.

Though these areas are not totally irrelevant today, adhering only to such tools and responses steadfastly, do ring an alarm bell to me. In a changing  paradigm, only these tools are just not good enough for business excellence and to squarely address the new “Challenge of Change”.

The moot question will therefore be why have we not been able to address the needs of the new world order, as effectively as in the past, with these traditional tools?

More importantly, if we do not try to address today’s business issues thinking ‘outside the box’ or with ‘lateral thinking’, the implications could be rather serious in the times to come?

A different concept of “Building Mega Brands”:

Building brands, as we know, involve creating equity around an entity that delivers value to the customer, over and above the key functional properties of any product. Traditionally, the pharmaceutical companies have been largely focusing on building mega brands following widely varying strategies.

In the Indian scenario, rapidly evolving pharmaceutical business environment could make such strategies unsustainable or vulnerable, more for the branded generics, as mentioned above.

To meet those disruptive but emerging changes in the business environment, there is a need to take the conventional brand building exercises, especially for the likes of branded generics, beyond the confinement of just a single product.

A thought:

That said, I would now like to make a provocating submission.

Instead of investing huge sums in building a single product brand, can we build a larger brand with a well thought out cluster of products?

Cost efficient yet a powerful and different type of brand building process could well be thought around, say, the ‘Corporate franchise’ with a  cluster of products in different price bands for different customer segments belonging to a specific therapy category or disease area or falling in some other area, yet bonded with a strong commonality criteria?

Thus, instead of consistently watching large branded generics grow, mature and die following even an extended product life cycle, pharmaceutical companies could well explore another opportunity to build a more sustainable and a much longer term emotional equity into their brands.

Who knows, tomorrow’s list of India’s top mega brands may not be dominated by the likes of Augmentin, Corex, Monocef, Voveran or Human Mixtard, but perhaps by quite  different types of mega brands like, GSK Anti-infectives, Cipla Respiratory Care, USV Diabetic Care, Abbott Cardiac Care or Galderma Derma Care, just to cite a few examples.

‘Serum Institute Vaccines’ perhaps could well be considered as one such mega brand, incubated and grown in the pharmaceutical green field of India, over a long period of time and now known the world over.

Conclusion:

It is quite clear now that the pharmaceutical business models are undergoing an acid test and serious re-evaluation in the changing paradigm. There is a view that further changes are inevitable due to variety of factors that are squeezing both sales and profit margins, posing severe challenges to future growth at a brisk pace.

Some strategic measures to address this ‘Challenge of change’ are now being deliberated upon. However, how profound will these changes be or how effectively the pharmaceutical players counter these changes for a long term sustainability of business excellence, will indeed be quite interesting to watch.

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.