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A time to keep our nose to the Grindstone – Competition Act will take care of M&As, come June 2011

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Full control of powers on Mergers and Acquisitions of the Competition Commission of India (CCI) effective June 1, 2011, has now been notified.

In this evolving scenario, it is indeed difficult to understand, why is the FDI issue on M&A in the Pharmaceutical space of India is still catching headlines of both national and international media. Instead, should we not now keep our nose to the grindstone and take strategic measures to accelerate the inclusive growth of this life-line industry of the nation?

Stipulations for M&As under the Competition Act:

Section 6(1) of the Act prohibits any person or enterprise from entering into a combination which has an “appreciable adverse effect” on competition in India. It also stipulates that any enterprise which intends to enter into such M&A, shall give notice to the CCI furnishing details of the proposed M&A within thirty days of:

(i)  Approval of the merger by the Board of Directors of the concerned enterprise

or

(ii) Execution of any agreement relating to acquisitions referred to in clause 5(a) & (b) of the Act. S.6(2A) provides a period of 210 days to the CCI to complete the investigation relating to such combinations (if the CCI is unable to come to any conclusion within this period then the combination is deemed to be approved)

S.5 of the Act lays down the transactions which will qualify as combinations for the purposes of the Act. The following is the threshold limit for Mergers and Acquisitions:
• Transactions among Indian companies with combined assets of Rs. 1000 Crores or Rs 3000 Crores in turnover of the merged entity
• Cross-border transactions involving both Indian and foreign companies with combined assets of US $500 million or US $1.5 billion in turnover

• Transactions that have a territorial nexus with India, where the acquirer has US $125 million in assets or US $375 million in turnover in India.

Once any transaction reaches the threshold limit as specified in S.5, the enterprise has to take recourse to the procedure as specified in the Competition Act.

A time to keep our nose to the Grindstone:

Last year, though the growth of the Global Pharmaceutical Industry with a turnover of US$ 752 billion significantly slowed down to just 6.7% due to various contributing factors, the Indian Pharmaceutical Industry continued to maintain a robust of growth of 19% with a turnover of US$ 10.1 billion (IMS October, 2010).

R&D will fuel future growth:

However, on a longer term perspective, the domestic industry growth will be significantly driven by the newer products, which will be the outcome of painstaking innovative research and development initiatives. Keeping this point in mind, the fact that today India accounts less than one per cent of over US$130 billion of the worldwide spending on research and development for pharmaceuticals, despite its known strength in process chemistry and abundant talent pool, has started attracting attention of the government.

Government taking appropriate measures:

It is encouraging to note that the Department of Pharmaceuticals of the Government of India through its ‘Vision 2020’ initiatives is planning to create a new echo-system in the country to promote new drug discovery platforms. This is expected to catapult the country as one of the top five global pharmaceutical hubs, by 2020 attracting additional investments of around US$ 20 billion to the GDP of the country.

Primary role of the industry:

The Primary role of the Research based Pharmaceutical Industry in India, like in many other countries of the world, is to make significant contribution to the healthcare objectives of the nation by meeting the unmet needs of the ailing patients, with innovative medicines. This role can be fulfilled by developing newer medicines through painstaking, time-consuming, risky and expensive basic research initiatives. The research based Pharmaceutical Industry in India is committed to its prime function of discovering and developing new medicines not only for the patients in India but all over the world.

Encouraging innovation will be critical:

Despite immense progress made over the past decades in developing new medicines for numerous acute and chronic illnesses, innovation still remains critically important in the continuous and ever complex battle between disease and good health. Ongoing efforts in Research & Development (R&D) would require a robust national policy environment that would encourage, protect and reward innovation. Improving healthcare environment in partnership with the Government remains a priority for the Research based Pharmaceutical Companies in India, both global and local.

Continuous improvement in ‘Access to Medicines’ is critical:

Therefore, improving access to healthcare in general and medicines in particular should be on the top priority agenda of the policy makers in our country. High incidence of mortality and morbidity burden in a country like ours can only be addressed by improving Access to healthcare through a concerted partnership oriented strategy.

Some concerns still linger:

However, in the new paradigm, which has been designed to foster innovation in the country, there are still some loose knots to be tightened up to achieve the set objectives for the inclusive growth of the nation, in the longer term perspective.

These measures, in turn, will help improving the competitiveness of India vis-à-vis countries like China to attract appreciable investments towards R&D related to pharmaceutical and bio-pharmaceutical products. The Government has already initiated measures to expand the capacity of Indian judiciary and setting- up of fast-track specialized courts that can more effectively enforce Pharmaceutical patents with requisite technical expertise.

Industry should set examples in ‘Good Corporate Governance’ and ‘Global Good Manufacturing Practices’:

Another area of focus should be on corporate good governance. This encompasses adherence to high ethical standards in clinical trials, regulatory and legal compliance, working to prevent corrupt practices, high ethical standard in promotion of medicines and addressing all other issues that support good healthcare policies of the Government. In addition, Pharmaceutical Industry should take active measures to involve all concerned to fight the growing menace of counterfeit and spurious medicines, which significantly affect the lives of the ailing patients, all over the country.

All stakeholders should work in tandem:

It is obvious that the Pharmaceutical Industry alone will have a limited role to address key healthcare issues of our nation, especially when around 400 million Below the Poverty Line (BPL) population will not be able to afford any expenses towards healthcare, at all. All stakeholders like the government, corporate and the civil society in general, must work together according to their respective abilities, obligations and enlightened societal interests to effectively address such pressing issues.

Let us move ahead from ‘Price Control’ to ‘Price Monitoring’:

Despite Medicine Prices in India being one of the lowest in the world, mainly because of stiff competition within the industry and watchful eye of an effective price regulator, 100% of the Pharmaceutical market in the country is currently being price regulated by the Government even with the growth restrictive and ‘draconian’ ‘Third Schedule’ of the DPCO 95.

To enable the Industry to be globally competitive in all aspects of its operations, the government should move ahead from ‘Price Control’ to effective ‘Price monitoring’ mechanism and scrap the growth restrictive measures like, ‘third schedule’ of the current DPCO.

Transaction costs of medicines are too high:

Current transaction costs (all taxes) on medicines in India including trade margins is as high as over 50% of the ex-factory cost of a product.

This cost has been further increased in 2011-12 Union Budget proposal. The government should reduce exorbitantly high transaction costs to make medicines even more economical to the common man.

Conclusion:

I am confident, the entire Pharmaceutical Industry in India would continue to act responsibly with demonstrable commitment to help achieving the healthcare objectives of the nation.

Global players will keep on searching for their suitable targets in the emerging markets like India, just as Indian players are searching for the same in the global markets. This is a process of consolidation in any industry and will continue to take place across the world. Adverse impact of M&A on competition, if any, will now be effectively taken care of by the CCI.

So far as the ‘Financial Reform’ process is concerned, India has always been a slow starter, but it never walked backwards. This tradition, I reckon, will continue in the vibrant democracy of the country, in future too.

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.

Healthcare reform for the needy and poor in the richest and the most populous countries of the world. What about the largest democracy of our planet?

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Healthcare reform to ensure access to affordable high quality healthcare services for all, is considered as an integral part of the economic progress of any country. During recent global financial meltdown, this need became visible all over the world, even more.In my last article, I wrote how the most populous country of the earth – China, unfolded the blueprints of a new healthcare reform process in April, 2009, taking an important step towards this direction.Around the same time, in the richest country of the world, after taking over as the new President of the United States of America, President Barak Obama also reiterated his election campaign pledge for a comprehensive healthcare reform process in the USA.

These measures, in both the countries, intend to ensure access to affordable, high quality health care coverage and services to every citizen of the respective nations. In America, the reform process also intends to bridge the healthcare coverage gap in their Medicare prescription drugs program for the senior citizens.

The pharmaceutical industry response to healthcare reform in the USA:

Responding to this major policy initiative of the government, very responsibly David Brennan, Chief Executive Officer of AstraZeneca and the Chairman of Pharmaceuticals Research and Manufacturers of America (PhRMA) announced recently:

“PhRMA is committed to working with the Administration and Congress to help enact comprehensive health care reform this year. We share a common goal: every American should have access to affordable, high-quality health care coverage and services. As part of that reform, one thing that we have agreed to do is support legislation that will help seniors affected by the coverage gap in the Medicare prescription drug benefit.”

For this purpose Brennan publicly announced the following:

1. America’s pharmaceutical research and biotechnology companies have agreed to provide a 50 percent discount to most beneficiaries on brand-name medicines covered by a patient’s Part D plan of Medicare, when purchased in the coverage gap.

2. The entire negotiated price of the Part D covered medicine purchased in the coverage gap would count toward the beneficiary’s out-of-pocket costs, thus lowering their total out-of-pocket spending.

American Pharmaceutical Industry pledges U.S$ 80 billion towards healthcare reform of the nation:

With the above announced commitment, it has been reported that the US Pharmaceutical and Biotech companies have offered to spend U.S$ 80 billion to help the senior citizens of America to be able to afford medicines through a proposed overhaul of the healthcare system of the country.

This is a voluntary pledge by the American pharmaceutical industry to reduce what it charges the federal government over the next 10 years.

What is the Medicare plan of America?

According to the explanation of the program given by Medicare, it is a prescription drug benefit program. Under this program, senior citizens purchase medicines from the pharmacies. The first U.S$ 295 will have to be paid by them. Thereafter, the plan covers 75 percent of the purchases of medicines till the total reaches U.S$ 2,700. Then after paying all costs towards medicines ‘out of pocket’ till it reaches U.S $ 4,350, patients make a small co-payment for each drug until the end of the year.

American citizens’ support on the new healthcare reform of President Barak Obama:

A leading American daily reports that American citizens overwhelmingly support substantial changes to the country’s healthcare system and are strongly behind a government run insurance plan to compete with private insurers.

According to the latest New York Times/CBS News poll most Americans would be willing to pay higher taxes, so that every individual could have health insurance. Unlike in India, Americans feel that the government could do a better job of holding down healthcare costs than the private sector.

Current American healthcare: High quality – high cost

85 percent of respondents in this survey said the country’s healthcare system should be completely overhauled and rebuilt. The survey also highlighted that American citizens are far more unsatisfied with the cost of healthcare rather than its quality.

President Obama has been repeatedly emphasizing the need to reduce costs of healthcare and believes that the health care legislation is absolutely vital to American economic recovery. 86 percent of those polled in the survey opined that the rising costs of healthcare pose a serious economic threat.

An interesting recent study from the George Washington University School of Public Health and Health Services:

A recent study conducted by the George Washington University School of Public Health and Health Services reports that as a part of the new healthcare reform initiative in the US, if the health centers are expanded from the current 19 million to 20 million patients, the country can save U.S$ 212 billion from 2010 to 2019 against a cost of U.S$ 38.8 billion that the government would have incurred to build the centers. This is happening because of lower overall medical expenses for these patients.

Last year the health centers already generated health system savings of U.S$ 24 billion.

What then is happening in the largest democracy of the planet – our own India, towards such healthcare reform?

India in its 1983 National Healthcare Policy committed ‘healthcare to all by the year 2000′. However, the fact is, in 2009, only 35 percent of Indian population is having access to affordable modern medicines. So many commendable policy announcements have been made by the government thereafter. Due to poor governance, nothing seems to work effectively in our country.

Conclusion:

People with access to the corridors of power appear to believe that when the country will clock the magic number of GDP growth of 9 percent, India will have adequate resources to invest in healthcare. Till then frugal healthcare initiatives will continue at the abysmal level of speed of execution, denying access to affordable modern medicines to 65 percent of population of the country.

If and when the healthcare reform plans will be unfolded in India, hopefully like in the USA, all stakeholders will come forward with their own slice of contribution to ensure access to affordable high quality healthcare to all the citizens of our nation.

When the world believes that healthcare reform measures to cover the entire population of the country to provide access to affordable, high quality healthcare services is fundamental to economic progress of a country, the government of India seems to nurture a diametrically opposite view in this regard. The policy makers appear to sincerely believe that 9 percent economic growth is essentiall to provide access to affordable high quality healthcare to all.

Are we engaged in the well known “Catch 22” debate at the cost of health to all?

By Tapan 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.