Balancing Strong IP Protection, Public Health Safeguards and Declining R&D Productivity – A Crafty Gutsy Ball Game

Posted on April 16, 2012 by Tapan Ray

Pharmaceutical innovation has always been considered the lifeblood for the pharmaceutical industry and very rightly so. However, many studies do point out that such innovation has benefited the developed world more than the developing world.

Product Price and Access:

In the paper titled ‘TRIPS, Pharmaceutical Patents and Access to Essential Medicines: Seattle, Doha and Beyond’, published in ‘Chicago Journal for International Law, Vol. 3(1), Spring 2002’, the author argues, though the reasons for the lack of access to essential medicines are manifold, there are many instances where high prices of drugs deny access to needed treatments for many patients. Prohibitive drug prices, in those cases, were the outcome of monopoly due to strong intellectual property protection.

The author adds, “the attempts of Governments in developing countries to bring down the prices of patented medicines have come under heavy pressure from industrialized countries and the multinational pharmaceutical industry”.

While the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) of the World Trade Organization (WTO) sets out minimum standards for the patent protection for pharmaceuticals, it also offers adequate safeguards against negative impact of patent protection or its abuse in terms of extraordinary and unjustifiable drug pricing. The levels of these safeguards vary from country to country based on the socio-economic and political requirements.

The Doha Declaration:

Many independent experts in this field consider the Doha Declaration as an important landmark for recognizing the primacy to public health interest over private intellectual property and the rights of the members of WTO to use safeguards as enumerated in TRIPS, effectively.

To protect public health interest and extend access to innovative medicines to majority of their population whenever required, even many developed/OECD countries do not allow a total freehand for the patented products pricing in their respective countries.

Early signals of global empathy:

While expressing similar sentiment ‘The Guardian’ reported that Andrew Witty, the global CEO of GlaxoSmithKline, has decided to slash prices on all medicines in the poorest countries, give back profits to be spent on hospitals and clinics and more importantly share knowledge about potential drugs that are currently protected by patents.

Witty further commented that he believes, drug companies have an obligation to help the poor patients getting appropriate treatment and reportedly challenged other pharmaceutical giants to follow his lead.

An interesting study:

A study titled, ‘Pharmaceutical innovation and the burden of disease in developing and developed countries’ of Columbia University and National Bureau of Economic Research, to ascertain the relationship across diseases between pharmaceutical innovation and the burden of disease both in the developed and developing countries, reported that pharmaceutical innovation is positively related to the burden of disease in the developed countries but not so in the developing countries.

The most plausible explanation for the lack of a relationship between the burden of disease in the developing countries and pharmaceutical innovation, as pointed out by the study, is weak incentives for firms to develop medicines for the diseases of the poor.

Point – Counterpoint:

A contrarian view to this study argues 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.

A solution emerging:

Responding to the need of encouraging pharmaceutical innovation without losing focus on public health interest, in 2006 the ‘World Health Organization (WHO)‘ created the ‘Inter-governmental Working Group on Public Health, Innovation and Intellectual Property (IGWG)‘. The primary focus of IGWG is on promoting sustainable, needs-driven pharmaceutical R&D for the diseases that disproportionately affect developing countries.

Declining R&D productivity:

Declining R&D productivity adds another dimension to this raging debate with a snowballing effect, as it were.

Over a period of decades, the business models for small-molecule based blockbuster drugs have 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 very many ‘me too’ types of new drugs, does no longer promise a strong commercial incentive.

The impact of the above scenario also gets reflected in the status of International patent filings under the Patent Cooperation Treaty (PCT) of the ‘World Intellectual Property Organization (WIPO)’ as follows:

A. Last five years, PCT filings:

The last five years’ PCT filing status does not seem to be encouraging either.

Year	PCT Filings	Change %
2007	159,926
2008	163,240	2.1
2009	154,406	(5.4)
2010	164,316	6.4
2011	181,900	10.7 *(E)

* Estimate

B. Country-wise PCT Filing in 2011:

While having a closer look at the data, it becomes quite evident that in terms of percentage increase in the PCT filings two Asian countries, China and Japan, have registered their overall dominance. However, in terms of absolute number USA still ranks first.

County	No. Of PCT Filings	% Increase
USA	48,596	8
China	16,401	33.4
Japan	38,888	21
Germany	18,568	5.7
South Korea	10,447	8

C. Technical-field-wise PCT Filing in 2011:

In terms of the technical fields, pharmaceuticals ranked fifth in 2011.

Rank	Industry	No. Of PCT Filings
1.	Electrical Machinery, Apparatus, Energy	11,296
2.	Digital Communication	11,574
3.	Medical technology	10,753
4.	Computer technology	10,455
5.	Pharmaceuticals	7,683
6.	Organic fine chemistry	5,283
7.	Biotechnology	5,232

D. Biotech/Pharma companies featuring in WIPO’s Top 100 filers list:

Very few biotech and pharmaceutical companies featured in the Top 100 PCT filers’ list of WIPO as follows:

	Company
1.	Procter & Gamble
2.	Sumitomo Chemical
3.	DuPont
4.	Dow Global
5.	Novartis AG
6.	Roche
7.	Merck GmbH
8.	Sanofi-Aventis GmbH
9.	Bayer CropScience AG

E. The top five university PCT filers in 2011:

Universities of the US dominated among the PCT filings by the Academic institutions as follows:

University	No. Of PCT Filings
University of California, US	277
Massachusetts Institute of Technology, US	179
University of Texas System, US	127
Johns Hopkins University, US	111
Korea Advanced Institute of Science and Technology, South Korea	103

Need to encourage pharmaceutical innovation:

Based on the WIPO data, as mentioned above, the current status of the global pharmaceutical innovation does not seem to be very encouraging.

That said, in the environment of declining R&D productivity of the global pharmaceutical industry, there is indeed a strong requirement to encourage pharmaceutical innovation across the globe, based on the socio-economic environment of each country, together with adequate safeguards in place to protect public health interest.

Why protect patent?

The pharmaceutical major Eli Lilly has very aptly epitomized the reason for patent protection in their website called ‘LillyPad’, as follows:

“Pharmaceutical companies continue to invest in innovation not only because it is good for business, but it is what patients expect. If we want to continue to have breakthrough products, we need patent protection and incentives to invest in intellectual property. The equation is simple, patents lead to innovation – which help lead to treatments and cures”.

Conclusion:

Currently, various socio-economic expectations, demands and requirements, not just for the poor, but also of the powerful growing middle class intelligentsia are gradually getting unfolded on this subject from many parts of the globe. These collective demands cannot be either wished away or negotiated with a strong belief that the future should be a replication of the past.

There should be full respect, support and protection for innovation and the product patent system in the country. This is essential not only, for the progress of the pharmaceutical industry, but also to alleviate sufferings of the ailing population, effectively.

At the same time, available indicators point out that the civil society would continue to expect in return just, fair, responsible and reasonably affordable prices for the innovative medicines, based on the overall socio-economic status of the local population. Some experts have already opined that prices of life saving innovative drugs, unlike many other patented products, will no longer remain ‘unquestionable’ in increasing number of countries.

Thus, even at the time of declining pharmaceutical R&D productivity, striking a right balance between a strong patent regime and safeguarding overall health interest of its population, particularly of those with a very high ‘out of pocket’ expenditure towards healthcare, will indeed be a crafty gutsy ball game for a 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.

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

Posted on March 26, 2012 by Tapan Ray

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

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

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

Sorafenib:

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

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

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

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

Mixed reaction:

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

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

Granting CL should be the last resort:

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

Working of a patent:

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

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

The Article 27.1 of TRIPS:

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

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

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

Form 27 vindicates the fact:

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

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

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

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

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

A statutory requirement:

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

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

Delhi High Court Judgment:

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

India specific pricing for innovative drugs is not uncommon:

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

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

Manufacturing of a small quantity locally – an issue:

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

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

Conclusion:

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

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

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

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

By: Tapan J Ray

Healthcare Industry of India: Being catapulted from a labyrinth to an accelerated growth trajectory

Posted on March 12, 2012 by Tapan Ray

As reported by the ‘World Health Statistics 2011′, India spends around 4.2 percent of its Gross Domestic Product (GDP) on health, which is quite comparable with other BRIC countries like, China and Russia.This has been possible mainly due to increasing participation of the private players in the healthcare sector.

The following table will highlight this point:

Health Expenditure:

Type	Brazil	Russia	India	China
Exp. on Health (% of GDP)	8.4	4.8	4.2	4.3
Govt. Exp. on Health (% of Total Exp. on Health)	44	64.3	32.4	47.3
Pvt. Exp. on Health (% of Total Exp. on Health)	56	35.7	67.6	52.7
Govt. Exp. on Health (% of Total Govt. Exp.)	6	9.2	4.4	10.3
Social Security Exp. on Health (% of General Govt. Exp. on Health)	-	38.7	17.2	66.3

However, the following healthcare indicators suggest quite clearly that the total expenditure on healthcare by a country is not always directly proportional to its health outcome. This holds good for many countries across the world, including the USA, as the overall healthcare system and more importantly its cost effective delivery mechanism are the key determinants of success:

Health Indicators:

Type	Brazil	Russia	India	China
Life Expectancy at birth	73	68	65	74
Neonatal Mortality Rate (Per 1000)	12	06	34	11
Infant Mortality Rate MDG 4 (Per 1000)	17	11	50	17
Maternal Mortality Rate MDG 5(Per 1000,000 birth)	58	39	230	38

Source: World Health Statistics 2011

Fueled by the increasing participation of private players, coupled with a hefty hike in public expenditure on health to 2.5 percent of GDP during the 12^th Five Year Plan Period, the Indian healthcare sector, currently at US$ 65 billion, is expected to reach US$ 100 billion by 2015 (Source: Fitch), increasing the total spend of the country on health to around 6.8 percent of GDP during this period.

The expenditure towards healthcare infrastructure is expected to grow by 50 percent from its 2006 number to reach US$ 14.2 billion in 2013, as reported by KPMG.

Growth Drivers:

The key growth drivers are expected to be as follows:

A hefty hike in Government expenditure as a percentage to GDP for health
1% of the growing population coming above the poverty line every year
Growing middle class population
Increasing incidence of non-infectious chronic illnesses and other life style diseases
Reasonable treatment costs due to intense competition and government intervention on health related issues
Large public healthcare projects like, National Rural Health Mission (NRHM), National Urban Health Mission (NUHM), ‘Universal Health Coverage’, distribution of free medicines through Government hospitals
Expansion of Rashtriya Swasthya Bima Yojana (RSBY)
Increasing penetration of private health insurance
Increasing direct procurement of medicines both by the Central and also the State Governments
A boom in medical tourism

The basic Challenge:

Following areas will throw a tough challenge for a sustainable growth in healthcare:

To reach a doctor population ratio of 1 doctor and 2.3 nurses per 1000 population by 2025 from the current 0.06 doctors and 1.3 nurses.
To reach a ratio of 2 beds per 1000 population by 2025 from the current 1 bed, which means India would require creating additional 1.75 million beds by that time.
An investment of US$ 86 billion will be needed to achieve 1 doctor, 2 beds and 2.3 nurses per 1000 population by 2025
Although the health insurance had a penetration to a meager 2.3 percent of the population in 2007, the sector is expected to cover just around 20 percent of the population by 2015 (Source: ICRA).

Key Developments:

As per the Rural Health Survey Report 2009 of the Ministry of Health, the rural healthcare sector in the country is registering an appreciable growth with the addition of the following during the last five years:

- 15,000 health sub-centers

- 20, 107 primary health centers

- 28,000 nurses and midwives

According to a report by research firm RNCOS, the health insurance premium is expected to grow at a CAGR of over 25 per cent from 2009-10 to 2013-14.
India will curve out a share of 3 percent of the global medical tourism industry (Source:RNCOS)
Medical technology industry of India is expected to reach US$ 14 billion by 2020 from US$ 2.7 billion in 2008, according to a report by PwC.
E-healthcare in rural areas is gaining popularity with the involvement of both public and private players like, ISRO, Mazumdar Shaw Cancer Center and Narayana Hrudayalaya. Some telecom companies like, Nokia and BlackBerry are also contemplating to extend the use of mobile phones for remote disease monitoring as well as diagnostic and treatment support. Introduction of 3G and in the near future 4G telecom services will further enhance opportunities of e-healthcare through mobile phones.
Expansion of major healthcare players in tier-II and tier-III cities of India like, Apollo, Narayana Hrudayalaya, Max Hospitals, Aravind Eye Hospitals and Fortis will help improving access to affordable healthcare in the smaller places, significantly.

Examples of expansion in smaller places:

According E&Y report of November 2010, following key players are expanding their presence in tier II and tier III cities, besides metro and tier I cities:

Company	No. Of beds	Presence
Apollo Hospitals Enterprise Ltd	8,500	Chennai, Madurai, Hyderabad, Karur, Karim Nagar, Mysore, Visakhapatnam, Bilaspur, Aragonda, Kakindada, Bengaluru, Delhi, Noida, Kolkata, Ahmedabad, (Mauritius), Pune, Raichur, Ranipet, Ranchi, Ludhiana, Indore, Bhubaneswar, (Dhaka, Bangladesh)
Aarvind Eye Hospitals	3,649	Theni, Tirunelveli, Coimbatore, Puducherry, Madurai, Amethi, Kolkata
CARE Hospitals	1,400	Hyderabad, Vijaywada, Nagpur, Raipur, Bhubaneshwar, Surat, Pune, Visakhapatnam
Fortis Healthcare Ltd	5,044	Mumbai, Bengaluru, Kolkata, Mohali, Noida, Delhi, Amristar, Raipur, Jaipur, Chennai, Kota
Max Hospitals	800	Delhi and NCR
Manipal Group of Hospitals	+7,000	Udupi, Bengaluru, Manipal, Attavar, Mangalore, Goa, Tumkur, Vijaywada, Kasaragod, Visakhapatnam

Source: E&Y, November 2010

Healthcare sector is attracting FDI:According to the Department of Industrial Policy & Promotion (DIPP), the healthcare sector is undergoing significant transformation and attracting investments not only from within the country but also from overseas.The Cumulative FDI inflow in the healthcare sector from April 2000 to November 2011, as per DIPP publications, is as follows:

Sector	FDI inflow (US$ million)
Hospital and diagnostic centers	1100
Medical and surgical appliances	472.6
Drugs and pharmaceuticals	5,033

(Source: Fact Sheet on FDI (April 2000 to November 2011), DIPP)

Government Policy:

Government has also started focusing on increasing investments towards creation of a sustainable medical infrastructure, especially in the rural areas. The following policy initiatives could help facilitating this process:

100 per cent FDI for health and medical services.
Allocation of US$ 10.15 billion to the National Rural Health Mission (NHRM) for upgradation and capacity building of rural healthcare facilities.
Allocation of US$ 1.23 billion to create six AIIMS type medical institutes and upgradation of 13 existing Government Medical Colleges.

Overseas players started participating:

BCG Group will open shortly a multidisciplinary health mall that would provide a one-stop solution for all healthcare needs starting from doctors, hospitals, ayurvedic centers, pharmacies including insurance referral units at Palarivattom in Kochi, Kerala. BCG’s long-term plan, as reported in the media, is to set up a health village spanning across an area of a 750,000 sq. ft. with an estimated cost of US$ 88.91 million.

Along the same line, to set up more facilities for diagnostic services in India, GE Healthcare reportedly has planned to invest US$ 50 million for this purpose.

Examples of initiatives by State Governments:

In southern India, the Government of Andhra Pradesh has implemented a Health Management Project funded by the Department for International Development (DFID) of the UK costing US$ 59.68 million. It has been reported that many other State Governments of India are planning to go for similar Health Management models in their respective States.

Improving access to modern medicines in India:

Ten year CAGR in terms of volume of the domestic pharmaceutical industry has been around 15 percent, which clearly signals significant increase in the consumption of medicines, leading to their improving access to the general population of both rural and urban India.

Extension of focus of the Indian pharmaceutical Industry, in general, to the fast growing rural markets further vindicates this point.

The rate of increase in access to medicines may not be directly commensurate to the volume growth of the industry during this period, but a major part of the industry growth could certainly be attributed towards increasing access to medicines in India, which should cover over 60% of the population of the country, by now.

Unfortunately, even the Government of India does not seem to be aware of this gradually improving trend of access to medicines in the country. Official communications of the government still quote the outdated statistics of 1998 (published in 2004), which states that 65% of the population of India does not have ‘Access to Modern Medicines’ even today. No wonder, why many of us still prefer to live on to our past.

Conclusion:

Be that as it may, around 40% of the population still does not seem to have adequate ‘Access to Medicines’ in India. This issue though attracted attention of the policy makers, has still remained mostly unresolved and needs to be addressed following a holistic approach with the newer plans.

A robust model of healthcare financing for all socioeconomic strata of the society with plans like, ‘Universal Health Coverage’ and continuous improvement of healthcare infrastructure and delivery systems, as are now being planned by the astute brain trusts of India, are expected to bring significant reform in the healthcare space of India.

Let us also note at the same time that all these are happening, despite shrill voices of naysayer vested interests, continuously projecting to many of us a stagnant, dismal and never improving healthcare scenario of the country, more often than not.

Very fortunately, from an unenviable labyrinth, healthcare industry of India, at last, seems to be on the threshold of being catapulted to a higher growth trajectory riding on a decent number of both public and private initiatives, never than ever before.

Unless it is so, why will the healthcare players from across the world keep on increasing their operational focus, in every way, on India and China?

By: Tapan J Ray

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

Posted on March 5, 2012 by Tapan Ray

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

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

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

The situation continues to be grim:

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

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

Year	Number of Job cuts
2000	2,453
2001	4,736
2002	11,488
2003	28,519
2004	15,640
2005	26,300
2006	15,638
2007	31,732
2008	43,014
2009	61,109
2010	53,636
Total	297,650

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

Top of the list layoffs:

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

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

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

The old paradigm is no longer relevant:

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

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

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

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

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

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

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

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

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

Conclusion:

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

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

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

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

By: Tapan J Ray

Indian Pharmaceutical Landscape: Looking back (2011), Looking Ahead (2012)

Posted on January 2, 2012 by Tapan Ray

2011 witnessed many interesting developments within the pharmaceutical industry of India. All these developments may not be appreciated by all stakeholders alike, nonetheless had an impact on the industry of varying degree both in the qualitative and quantitative terms.

That said, the list of ‘unfinished agenda’ of the government to improve healthcare access and simultaneously to fuel the growth engine of the industry with reform oriented policy initiatives, kept on increasing staggeringly.

The issue of improving access to modern medicines with comprehensive measures continued to remain unaddressed even in the draft National Pharmaceuticals Pricing Policy 2011. Similarly, the Prime Minister’s dedication of the decade of 2010 as the decade of innovation remained a pipe dream for the pharmaceutical industry of the country. Policy paralysis of the decision makers during the year failed to translate even this praiseworthy intent into reality.

Increasing consumption of medicines in India:

Indian Pharmaceutical Market (IPM) continued to grow at a scorching pace of around 15% registering a turnover of Rs 59,621 Crore during the year. (Source: Nov 2011- AIOCD/AWACS).

Fast increasing consumption of medicines in the country continued to position IPM not just as another global success story, but also an emerging pharmaceutical force to reckon with, especially in the development and manufacturing of high quality and low cost generic pharmaceuticals together with its world-class Contract Research and Manufacturing Services (CRAMS). Indian pharmaceutical players now cater to about 20% of global requirements of high quality and affordable generic medicines of all types.

Consolidation process continues:

At the same time, ongoing consolidation process within the pharmaceutical industry continued in 2011 with Aventis Pharma (Sanofi) acquiring Universal Medicare and Zydus Cadila shopping for Biochem Pharma.

November 30, 2011: Signaled beginning of the end of the blockbuster drug era:

On November 30, 2011, the patent expiry of the world largest ever brand Lipitor (Pfizer), clocking an annual turnover of over US$ 14 billion and accounting for more than 20% of the company’s sales turnover until recently, I reckon, heralds beginning of the end of the blockbuster drug era. To equal the turnover of Lipitor with another brand will be a huge challenge not only for Pfizer, but also for any other company in the near to medium term.

Patent expiry of Lipitor will now help opening up the super size Atorvastatin market of the developed world to the Indian generic players.

Launch of innovative products:

Launch of several innovative and patented products in India by the global players during 2011, reconfirmed the attractiveness of the IPM to the global innovator companies. Some of these innovative products are Revolade (Eltrombopag) , Votrient (Pazopanib Hydrochloride) of GlaxoSmithKline, Flexbumin solution of Baxter and BD Ultra-Fine III Nano of Becton Dickinson.

Looking back (2011):

During 2011, the industry witnessed a number of initiatives from the government as an ongoing process, some of which are as follows:

Establishment of dedicated Pharma Zones in Mumbai, Hyderabad and Delhi airports, including cold rooms to help achieving world-class cold-chain logistics in India in the medium term.
For the first time in 2011, the government initiated steps to put the ‘Biosimilar Guidelines’ in place to ensure high safety standards for follow-on biologics in India. The Department of Biotechnology (DBT) and the Central Drugs Standard Control Organization (CDSCO) prepared these guidelines in consultation with the industry, the effective implementation of which is keenly awaited. This important step will also help Indian biosimilar drug manufacturers to prepare themselves well to explore the opportunity of gradually opening-up biosimilar drugs markets in the western world, like the USA and EU.
The Department of Pharmaceuticals (DoP) came out with a draft Uniform Code of Pharmaceutical Marketing Practices (UCPMP) in 2011 to curb alleged unethical practices of ‘bribing doctors’ by pharma companies. The code initially is expected to be of voluntary in nature and its effective implementation will be ensured by the pharmaceutical companies and the industry associations over a period of six months. Thereafter, if the implementation level of UCPMP does not measure up to the expectations of the DoP, it will be made mandatory under strict regulatory control. However, the final UCPMP has not been announced by the government, as yet.
The Ministry of Health and Family Welfare constituted a twelve member task force to evolve a long term strategy to address various issues faced by the Indian Pharmaceutical Industry. Unfortunately, tangible outcome from this committee is still awaited.
Following the Supreme Court directive to the government to bring essential drugs under price control, after a very long time, the Government came out hurriedly with a draft National Pharmaceuticals Pricing Policy 2011 (Draft NPPP 2011) by increasing the span of effective price control to over 65% of the IPM. This flawed draft policy, if implemented, could stifle the growth of the industry.
During the year the Ministry of Health and Family Welfare finalized the National Vaccine Policy to strengthen the institutional framework required for the universal immunization program. The policy is also expected to streamline the decision-making process on new and underutilized vaccine introduction, besides addressing issues of vaccine security, management, regulatory guidelines and vaccine research and development.
The Ministry of Health and Family Welfare also came out with the National Health Research Policy in 2011 to overcome the weaknesses of the publicly funded health structures, which restrict research in the priority health areas. This policy is expected to help maximizing the returns on investments in health research through creation of a robust health research system.
New National Manufacturing Policy (NMP), which ultimately saw the light of the day during the year, is expected to promote the productivity of the pharmaceutical sector, as well. The policy will help enhancing the share of total manufacturing of all industrial sectors put together from the current level of 15% to 25% of the GDP within a decade and would also help creating 100 million jobs in the country.
100% FDI in the Pharmaceuticals sector of India remained unchanged, which will attract more foreign investments in this sunrise sector of India.
‘Universal Health Converge’, announced during the year by the Planning Commission of India, will help reducing significantly the ‘out of pocket’ expenses incurred towards healthcare, improving its access to all.

Looking Ahead (2012):

The good news for 2012 is that the Planning Commission has decided to increase the national spending on health to 2.5% of the GDP in the 12th Five Year Plan starting from 2012.
In 2012, if the ‘NPPP 2011’ is implemented as in its current draft form, it could seriously impede the court of the vibrant pharmaceutical industry of India.
Introductions of DTC and GST: The ‘Discussion Paper’ on the draft ‘Direct Taxes Code Bill, 2009’ highlighted the possibility that the GST regime could have multiple rates based on classification of goods that are to be listed under the exempted category, like goods which would attract lower rate and another category of goods qualifying for standard rate. This concept of multiple rate of tax under GST regime could impact the pharma/health science industry as the business models followed by this industry typically involves import/manufacture and sale of life saving drugs, medical devices and other formulations, which presently attract either NIL rate of duty under central excise/VAT or lower rate of excise duty at 4%. Presently clinical trial services/R&D services attract service tax at 10.30%.
The growth trajectory of the IPM is expected to continue to go north despite slowdown in the US and European economies in 2012.

Conclusion:

Like many other sectors, the pharmaceutical industry of India also witnessed the reform oriented policy paralysis of the government in 2011, barring some superficial, half- hearted and incomplete initiatives, as indicated above.

Key areas of general public health interest, encouraging innovation, fostering R&D and improving access to medicines to alleviate healthcare related problems of the common man and at the same time to propel the industry to the inclusive high growth trajectory, have still remained unanswered.

Faster recovery from reform-oriented policy paralysis of the government and effective translation into reality of the seemingly good intent of the policy makers, is now eagerly awaited in 2012.

By: Tapan J Ray

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

Posted on December 5, 2011 by Tapan Ray

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:

Truly innovative small molecule discovery is becoming more and more challenging and expensive with the low hanging fruits already being plucked.
More predictable therapeutic activity of biologics with better safety profile.
A higher percentage of biologic drugs have turned into blockbuster drugs in the recent past.
Market entry barrier for biosimilar drugs, after patent expiry of the original molecule, is much tougher than small molecule generics.
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.

‘Utility Models’: A process of winning in the world of innovation

Posted on July 11, 2011 by Tapan Ray

On May 13, 2011 the Department of Industrial Policy and Promotion (DIPP) uploaded in their website a Discussion Paper on “Utility Models (UM)”. It was reported that as a policy initiative on Intellectual Property Rights (IPR) and to encourage innovation in the country, without diluting the present strict criteria for patentability, this discussion paper intends to trigger a healthy national debate on a very relevant subject.

Benefits of UM:

A publication titled, Utility Models and Innovation in Developing Countries by International Centre for Trade and Sustainable Development (ICTSD), Geneva, Switzerland highlights the following benefits of the UM:

• Fosters local innovation for local industries to produce more goods and generate more employment.

• Protects valuable inventions which otherwise would not be protected under the patent law of the country.

• Prevents free-riding of inventions by copiers who do not make any investment in R&D.

• Generates additional revenue for the government in terms of fees towards registration, search, publication, etc.

• Acts as a source of valuable information via published specifications.

• Reduces incentives for industry to lobby for the inclusion of minor inventions in the patent regime, which in turn would limit the public domain much more than the less expansive utility model system.

Does India need UM Laws?

Though India is fast emerging as a global economic power to reckon with, the Micro, Small and Medium Enterprises (MSME) of the country still do not have adequate resources and wherewithal to invest in various R&D projects in the right scale. Thus many of them are unable to come out with the types of inventions, which would have global potential and also conform to the prevailing Patents Act of India (2005).

Moreover, even today the benefits of acquiring ‘Intellectual property (IP)’ in the business process is still not widely understood and made use of, across various Indian industries. The requisite culture, appropriate ecosystem and thereby a groundswell for innovation are yet to take shape in our country.

Imitating or copying something new developed within or outside India is the order of the day in most of the industries in India. As the UM would require neither a high-tech infrastructural support nor high level of investments, coming out with a commercially relevant innovation with limited exclusivity period may not be as difficult, especially, by the MSME sector of India. UM could thus effectively help creating both an appropriate ecosystem and groundswell for innovation in the country.

As indicated in the DIPP Discussion Paper, many countries of the world like, Australia, China, Japan, Germany, France, Korea, Netherlands and others still find the UM as an extensively used tool to foster innovation within the local industries.

Utility models in some countries:

As indicated in the above DIPP Discussion Paper, I am quoting below examples of UM being practiced in some important countries:

COUNTRY	DATE OF FIRST LAW	DURATION OF PROTECTION	NAME	SUBSTANTIVE EXAMINATION
AUSTRALIA	1979/2001	8 years	Innovation Patent	no
AUSTRIA	1994	10 years	Utility Model	no
BELGIUM	1987	6 years	Short Term Patent	no
BRAZIL	1945	10 years	Utility Model	yes
CHINA	1985	10 years	Utility Model	no
FRANCE	1968	6 years	Utility Certificate	no
GERMANY	1891	10 years	Gebrauchsmuster	no
INDONESIA	1991	5 years	Simple Patent	yes
ITALY	1934	10 years	Utility Model	no
JAPAN	1905	not > 15 years	Utility Model	no
KOREA	1961	not > 15 years	Utility Model	yes – but deferred
MALAYSIA	1986	15 years	Utility Innovation	yes
MEXICO	1991	10 years	Utility Model	yes
NETHERLANDS	1995	6 years	Short Term Patent	no

(Source: Petty Patents by John Richards – updated version of Proceedings of the Fordham University School of Law International Intellectual Property Law and Policy Conference 1995,Juris Publishing and Sweet & Maxwell, 1998).

Therefore, keeping in mind of the needs of, especially, the MSME sector, I reckon, the UM should be seriously considered by the Government for expeditious implementation. As stated earlier, the UM would enable a large section of smaller entrepreneurs to get a limited commercial exclusivity for their inventions, which otherwise would not have been possible by them within the current patent regime of India.

Moreover, such inventions being incremental in nature, subsequent inventions would be triggered much faster with a cascading effect on continuous innovation in the country.

In this scenario, it will be very important to keep the registration cost for the UM within affordable limits by the Indian Patent Offices (IPO).

Scope of protection:

I reckon, all types of inventions, including mechanical and chemical ones, should be covered under the UM. If this does not happen the UM law will only be useful to a small section of the entrepreneurs.

Further, a large number of useful developments and improvements that may fall short of requirements of getting patents, could be well accommodated under the UM to encourage more and more innovations for rapid economic growth of the country.

In case of chemical or pharmaceutical innovations there will also be a chance for the smaller players to apply for the UM for incremental innovation, when such inventions would not pass the stringent qualifying criteria of Section 3(d) of the Indian Patents Act. I hasten to add that some contentious issues could possibly crop-up in this area, which needs to be resolved with well informed debates.

I would recommend that in India UM may be considered for innovations in areas of chemicals, pharmaceuticals, devices, tools, working instruments or apparatus with appropriate qualifying standards.

Parameters for consideration:

The inventive threshold for the UM would obviously be less than what is required by the patent laws of India. These should be very clearly enunciated by the policy makers without ambiguity whatsoever. However, the product novelty criteria in no case should be compromised, which should be similar to patents.

The period of exclusivity for UM varies internationally, for example, from 5 years in Indonesia to 10 years in China and 15 years in Korea. In India, the protection period should not ideally exceed 5 to 7 years from the date of grant of the UM with a much simpler registration process than the patent.

Section 8(1) of Patents Act may be suitably amended to include provision of UM. At the same time, providing details of corresponding UMs, along with related patent applications, if any, should be made mandatory.

An innovator should be allowed to apply for both patent and UM together. However, when only an application for patent will be filed and after scrutiny, if the same does not qualify for grant of patent, the concerned applicant may be allowed to convert the same application into UM, without any adverse impact on priority.

It is important to ensure that filing of a new UM nearer end of the term of patent is not allowed. The patent may, in such cases, be regarded as prior art by the IPO. Moreover, any provision for temporary protection of an invention as an UM pending grant of a patent should not be included in the legislation. Patent grant is usually a slow process in India, which quite often gets caught in the quagmire of delays and backlogs. In such a scenario, if any temporary exclusivity is granted by way of UM to the applicant, the entire patent processing system may get further slowed down.

Promoting domestic filings by MSMEs:

There does not seem to be any need to provide any specific provision to promote domestic filing by the MSMEs other than by way of providing for express provisions of disposal of infringement actions or other related contentious issues. Specific non-extendable time frames should be provided for all.

Currently the Courts in India have very little exposure to IP laws. Keeping this in mind UM laws should have simple wordings, free of ambiguity enunciating specific measures in case of infringement. Any invalidity should be clearly spelt out to avoid unnecessary appeals and unproductive, protracted and expensive litigation process.

To make Indian industries feel and understand the need for the protection/exclusivity for the UM, suitable awareness campaigns should be designed and championed by the government and the industry bodies with a focused approach to achieve this goal within a given timeframe.

UM and Traditional knowledge:

Traditional knowledge is something, which is already available or known to public at large and any protection to such knowledge would deny the civil society its legitimate rights in India. Thus, I shall strongly recommend that no exclusivity is granted to any person or industry on traditional knowledge.

However, rights to traditional knowledge may be provided through a different fail-proof mechanism to safeguard the interest of specific communities in India, who have inherited such knowledge through practice for generations.

The enforcement mechanism:

The enforcement mechanism for the UM should be similar to the Patent System or else a special ‘Utility Model Appellate Board (UMAB)’ may be considered for speedy redressal of infringement disputes.

Obviating monopolistic dominance:

Compensation / royalty rather than other methods of restrain could be a better option as most applicants would be MSMEs.

The UM law makers should, however, bear in mind that individual innovators although will have remedy within the law in case of a breach, due to sheer practical considerations, could at times feel helpless when a rich licensee will fail to compensate or pay royalty as per the order of a Court of law.

I would, therefore, suggest that there should be specific clauses in the UM law, which will be strong deterrent to such behaviour by unscrupulous elements, for example, payment of the compensation in an amount exceeding about 15 to 20 times of the original award in the event of default for no good reason. However in such a case the appropriate value may be properly decided to effectively avoid any attempt of ‘extortionary measures’ by anyone.

Conclusion:

It is believed by many that the UM framework with a lower threshold of invention will be able to encourage domestic incremental innovation in many areas of business. Thus, by providing protection to UM for about 5 years vis-a-vis 20 years, as provided by the patents, India can further stimulate the process of innovation, while discouraging monopolies in the country.

I reckon, a suitably designed UM framework will immensely encourage the domestic players to seek protection and obtain exclusivity for continuous incremental innovation in various facets of their respective businesses.

This process, in turn, will promote innovation based commercial business models within the country by offering low cost and affordable innovative products to the common man, adding simultaneously speed to the wheel of economic progress of the nation with inclusive growth.

Open Innovation: Quo Vadis, Pharmaceutical R&D?

Posted on July 4, 2011 by Tapan Ray

Is the Pharmaceutical R&D moving from the traditional models to much less uncharted frontiers?

Perhaps towards this direction, in November, 2010 in a report titled, “Open Source Innovation Increasingly Being Used to Promote Innovation in the Drug Discovery Process and Boost Bottomline”, Frost & Sullivan underscored the urgent need of the global pharmaceutical companies to respond to the challenges of high cost and low productivity in their respective Research and Development initiatives, in general.

‘Open Innovation’ model, they proposed, will be most appropriate in the current scenario to improve not only profit, but also to promote more innovative approaches in the drug discovery process. Currently, on an average it takes about 8 to 10 years to bring an NCE/NME to market with a cost of around U.S$ 1.7 billion.

The concept of ‘Open Innovation’ is being quite successfully used by the Information Technology (IT) industry since nearly three decades all over the world, including in India. Web Technology, the Linux Operating System (OS) and even the modern day ‘Android’ – the open source mobile OS, are excellent examples of ‘Open source innovation’ in IT.

In the sphere of Biotechnology Human Genome Sequencing is another remarkable outcome in this area.

On May 12, 2011, in an International Seminar held in New Delhi, the former President of India Dr. A.P.J. Abdul Kalam commented, “Open Source Drug Discovery (OSDD) explores new models of drug discovery”. He highlighted the need for the scientists, researchers and academics to get effectively engaged in ‘open source philosophy’ by pooling talent, patents, knowledge and resources for specific R&D initiatives from across the world. In today’s world ‘Open Innovation’ in the pharmaceutical R&D has a global relevance, especially, for the developing world of ‘have-nots’.

The ‘Open Innovation’ model:

As the name suggest, ‘Open Innovation’ or the ‘Open Source Drug Discovery (OSDD)’ is an open source code model of discovering a New Chemical Entity (NCE) or a New Molecular Entity (NME). In this model all data generated related to the discovery research will be available in the open for collaborative inputs. The licensing arrangement of OSDD where both invention and copyrights will be involved, are quite different from any ‘Open Source’ license for a software development.

In ‘Open Innovation’, the key component is the supportive pathway of its information network, which is driven by three key parameters of open development, open access and open source.

As stated earlier, ‘Open Innovation’ concept was successfully used in the ‘Human Genome Project’ where a large number of scientists, and microbiologists participated from across the world to sequence and understand the human genes. However, this innovation process was first used to understand the mechanics of proteins by the experts of the Biotech and pharmaceutical industries.

The Objectives of ‘Open Innovation’:

The key objective of ‘Open Innovation’ in pharmaceuticals is to encourage drug discovery initiatives, especially for the dreaded disease like cancer and also the neglected diseases of the developing countries to make these drugs affordable to the marginalized people of the world.

Key benefits of ‘Open Innovation’:

According to the above report of Frost & Sullivan on the subject, the key benefits of ‘Open Innovation’ in pharmaceuticals will include:

• Bringing together the best available minds to tackle “extremely challenging” diseases

• Speed of innovation

• Risk-sharing

• Affordability

Some issues:

Many experts feel that the key issues for ‘Open Innovation’ model are as follows:

Who will fund the project and how much?
Who will lead the project?
Who will coordinate the project and find talents?
Who will take it through clinical development and regulatory approval process?

However, all these do not seem to be an insurmountable problem at all, as the saying goes, ‘where there is a will, there is a way’.

Current Global initiatives for ‘Open Innovation’:

In June 2008, GlaxoSmithKline announced in Philadelphia that it was donating an important slice of its research on cancer cells to the cancer research community to boost the collaborative battle against this disease. With this announcement, genomic profiling data for over 300 sets of cancer cell lines was released by GSK to the National Cancer Institute’s bioinformatics grid. It has been reported that over 900 researchers actively contribute to this grid from across the industry, research institutes, academia and NGOs. Many believe that this initiative will further gain momentum to encourage many more academic institutions, researchers and even smaller companies to add speed to the drug discovery pathways and at the same time make the NCEs/NMEs coming through such process much less expensive and affordable to a large section of the society, across the globe.
The Alzheimer’s Disease Neuroimaging Initiative (ADNI) is another example of a Private Public Partnership (PPP) project with an objective ‘to define the rate of progress of mild cognitive impairment and Alzheimer’s disease, develop improved methods for clinical trials in this area and provide a large database which will improve design of treatment trials’.
Recently announced ‘Open invitation’ strategy of GlaxoSmithKline (GSK) to discover innovative drugs for malaria is yet another example where GSK has collaborated with European Bioinformatics Institute and U.S. National Library of Medicine to make the details of the molecule available to the researchers free of cost with an initial investment of US $ 8 million to set up the research facility in Spain involving around 60 scientists from across the world to work in this facility.

‘Open Innovation’ in India:

In India, Dr. Samir Brahmachari, the Director General of the Council of Scientific and Industrial Research (CSIR) is the champion of the OSDD movement. CSIR believes that for a developing country like India OSDD will help the common man to meet his unmet medical needs in the areas of neglected tropical diseases.

‘Open Innovation’ project of CSIR is a now a global platform to address the neglected tropical diseases like, tuberculosis, malaria, leishmaniasis by the best research brains of the world working together for a common cause.

To fund this initiative of the CSIR the Government of India has allocated around U.S $40 million and an equivalent amount of funding would be raised from international agencies and philanthropists.

Success of ‘Open Innovation’ initiative of CSIR:

Sometime in late November 2009, I received a communication from the CSIR informing that their OSDD project, since its launch in September 2009, has crossed 2000 registered users in a very short span of time. The pace of increasing number of registered users indeed reflects the confidence that this initiative has garnered among the interested researchers across the world.

CSIR has indicated that the next big leap planned by them in the area of ‘Open Innovation’ is to completely re-annotate the MTb genome for which they have already launched a project titled ‘Connect to Decode’ 2010.

Conclusion:

Currently pharmaceutical R&D is an in-house initiative of innovator global companies. Mainly for commercial security reasons only limited number of scientists working for the respective innovator companies will have access to these projects.

‘Open Innovation’ on the other hand, has the potential to create a win-win situation, bringing in substantial benefits to both the pharmaceutical innovators and the patients.

The key advantage of the ‘Open Innovation’ model will be substantial reduction in the costs and time of R&D projects, which could be achieved through voluntary participation of a large number of researchers/Scientists/Institutions in key R&D initiatives. This in turn will significantly reduce the ‘mind-to-market’ time of more affordable New Chemical/Molecular Entities in various disease areas.

Thus, to answer to ‘Quo Vadis, Pharmaceutical R&D’, I reckon, ‘Open Innovation’ model could well be an important direction for tomorrow’s global R&D initiatives to improve access to innovative affordable Medicines to a larger number of ailing patients of the world, meeting their unmet medical needs, more effectively and with greater care.

PILMAN

A Tapan Ray Website

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Open Innovation: Quo Vadis, Pharmaceutical R&D?