Tag Archives: Quantum

Deliver Patient-Perceived Value – Not Incrementally But In Quantum Measure

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Many critical functional areas of most drug companies, such as, marketing, manufacturing, supply chain, medical affairs, human resource, R&D, quality assurance, information technology – traditionally work in silos. It doesn’t mean, though, that there isn’t any interaction between them. Nevertheless, a large majority of them don’t work as a team with a purpose or to achieve a shared goal of delighting customers with value delivered. Such a silo-mindset could often be detrimental to smooth and sustainable business operations. This was also vindicated during the recent pandemic.

Having gone through the harrowing experience of recent disruptions in the lifesaving pharma business operations, a fresh realization has dawned on many leaders’ mind. This point also came to the fore in many studies. One such is the article on ‘Overcoming industry obstacles with a cross-functional strategy’, published by the strategy&, which is a part of PwC network.

The paper came out with some thought-provoking findings. It said, while in the pre-Covid days, mostly competing business pressures used to drive the operational strategies, today the drivers are quite different. ‘Factors such as the COVID-19 pandemic, inflation, geopolitics, new therapeutic modalities, and new ways of working make it vital’ for pharma players to make such transformational operational overhaul for long term excellence.

The spotlight needs to shift from continuous incremental improvement, such as, cost savings, quality assurance, and readiness to deliver—to long-term external challenges. ‘These include high inflation and an increase in complexity and risk, as well as the compounding effects these forces have on each other.”

Several studies have underscored that this approach can ‘make sure operations can protect enterprise continuity while still delivering to patients.’ this article will venture to simplify this complex, yet critical issue. The aim is to achieve a quantum increase in value offering to customers that this strategic approach can potentially deliver to accelerate growth momentum the pharma business.

Some see pharma business as usual, astute leaders see a unique opportunity for change:

An interesting point to note. As the disruptions caused by the Covid pandemic are fading away, some critical health safety norms are also being eased by the authorities. Apparently, the overall daily working-life seems to be limping back to normal. Many pharma leaders are, therefore, considering that the industry operations are going back to pre-pandemic normal, and the business operations will soon revert to the old normal mode soon.

On the other hand, we find some astute leadership who could derive a long-term lesson from the above disruptions and are already in the process of executing those operational changes. This leadership mindset gets reflected in two recent media reports related to two pharma majors – Sanofi and GSK.

On November 28, 2022, it was reported, ‘Sanofi moves into swanky new Paris HQ designed around hybrid work and sustainability.’ Again, on December 12, 2022, another media headline flashed as ‘GSK embraces hybrid work for the long haul at new London HQ.’

To me these are interesting examples to convert problems into opportunities for long-term business success and sustainability, in the new normal. These tasks entail the transformation of business infrastructure alongside its operational strategies.

The need for re-strategizing reverberates across several recent studies:

The need for such an action, as captured by researchers, is prompted by more waves of innovation coming in various operations and functions of pharma business, mostly triggered by the pandemic. The spectrum of innovation, as reports reveal, ranges ‘from new treatment modalities, to smart machines, advanced analytics, and digital connectivity.’

Hence, the future of pharma operations strategy needs to be different now from the past. This finding was also published by the McKinsey & Company on October 10, 2022. It reiterated, as pharma companies are emerging from two years of intense firefighting, now is exactly the right time for their renewed emphasis on a new operations strategy. It emphasized: ‘Succeeding in pharma under these new and challenging conditions will require succeeding in operations.’

This point was further vindicated by the results of the latest McKinsey Global Survey, which states:‘Less than one-third of the surveyed respondents, all of whom had been part of a transformation in the past five years, said their companies’ transformations had achieved a sustained performance improvement.’

Another study very specific to India:

Another survey on ‘Indian consumer sentiment during the coronavirus crisis,’ published by theMcKinsey & Company on October 13, 2022, also reconfirms the subtle changing trend in Indian consumer behavior. Its findings include some of the following areas:

  • More than 70 percent consumers are engaging in modified out-of-home behavior, even as social gathering returning to almost normalcy.
  • Digital continues to hold sway with more than 75 percent consumers using either digital or omnichannel while purchasing across categories.
  • Social media continues to be an important influence while shopping.
  • Gen Z and millennial are leading in new shopping behavior, with value being the top reason and sustainability as an emerging factor.

Hence, to engage with such healthcare consumers and deliver the value as they perceive, pharma operational strategies may call for a rejig – for longer term success and sustainability. That said, a key point to remember is that the marketing function is central while redrawing new operational strategy.

The marketing function is central while redrawing new operational strategy:

The need for the above was well articulated in another study published by ResearchGate in May 2020. It pointed out that many drug companies invest lots of funds to be more productive in various key operational areas, like R&D, manufacturing, or supply chain. However, if marketing strategies are not in sync with contemporary market dynamics and customer behavioral trends, despite game changing improvements in those areas, achieving business growth objectives will be challenging.

Based on the study, the researchers concluded, “an effective marketing in the organization has significant impact in achieving Organizational goals and Operational Excellence in Pharmaceuticals.” The study further emphasized, ‘Operational Excellence and marketing are always interlinked. Therefore, marketing plays a vital role in achieving Operational Excellence in Pharmaceuticals or any other industry.”

Conclusion:

As we know, market dynamics keep changing with time. Generally, some strong trigger factors, such as, Covid related disruptions of lives and livelihoods, may hasten the process of this crucial change. Such changes necessitate long-term transformation of pharma operational strategies, as initiated, for example, by GSK and Sanofi.

As McKinsey & Company articles have articulated, the transformation process and scale may differ from company to company with common long-term challenges remaining the same. Such operating model transformations – involving digital tools, data science with analytics capabilities across the company, often ‘help companies interact with healthcare professionals and other stakeholders more effectively’.

Consequently, the company garners greater capabilities to deliver new patient-perceived value – not just for incremental, but quantum business growth. This, I reckon, could be a game changer for long-term success and sustainability in the pharma business.

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.

 

Nine Major Challenges Constraining Indian Pharmaceutical Industry From Taking a Quantum Leap

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Among the developing nations of the world, India has already carved out a special niche for itself in many business verticals of the pharmaceutical industry and is currently being recognized as the ‘pharmacy of the world’ for the generic medicines.

Even over seven years after ushering-in of the product patent regime in India in January 2005, domestic pharmaceutical companies keep dominating the Indian market overwhelmingly in all respect. Nonetheless, rejuvenated interest of the global players on India, because of unignorable business potential in the country, can now be quite palpably felt, despite many formidable challenges all around.

In the post product patent regime, though Indian companies have started investing in R&D, the first ‘Made in India’ new and innovative drug is yet to receive marketing approval anywhere in the world, including India. Thus the much needed thrust on innovation should continue unabated.

Unfortunately, despite continuous growth of the Indian pharmaceutical market and that too at a reasonably brisk pace since over decades, quite a large number of small-scale pharmaceutical units were compelled to shut their operations since 2008, just for not being able to adequately cope with the tough business challenges and competitive pressure. As the country moves ahead, these challenges, coupled with fierce competitive pressure, could further escalate, if not attended to with crafty strategies by the individual companies ably supported by the robust healthcare-reform oriented policy measures by the government.

In this article, I shall flag nine such major challenges, not necessarily in the same sequence, that the industry and the government should jointly address to create a win-win situation for all – the industry, patients, government and all other stakeholders.

 I.  High ‘Out of Pocket (OoP)’ expenditure limiting access to medicines:

While India is making reasonably rapid strides in its economic growth, the country is increasingly facing constraints in providing healthcare benefits to a vast majority of its population with ballooning ‘Out of Pocket (OoP)’ expenditure of around 74 percent and 72 percent of which is the cost of medicines (Source: HLEG  Report).

This is mainly because of the following key reasons:

  • Low public spending on healthcare at around just 1.1 percent of the GDP
  • Fragile healthcare infrastructure
  • Very low penetration of health insurance system for all strata of society
  • Poor healthcare delivery system
  • Absence of ‘Universal Health Coverage’

Government Share in Total Healthcare Spend is One of the Lowest in the World 

Country

Brazil

China

Mexico

South Africa

Pakistan

Bangladesh

Sri Lanka

India
% of Healthcare Spend

47

62.5

49

44

33

34

45

29

(Source: data compiled)

Changing disease pattern increases healthcare expenditure, further limiting access

As the disease pattern is undergoing a shift from acute to non-infectious chronic illnesses, requiring longer duration of treatment, OoP expenditure on healthcare will increase even more, bringing greater misery to the population in general and creating even greater access barrier, if no action is taken immediately.

It is worth acknowledging that one finds some good initiatives though, especially for the population Below the Poverty Line (BPL) and hears about the success of ‘Rashtriya Swasthya Bima Yojna (RSBY)’ and other health insurance schemes through rural micro health insurance units. It has been reported that currently around 40 such schemes are active in the country, which is far from enough.

II.  Public and government pressure to make drug prices more affordable:

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

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

Thus, one of the critical challenges of the Indian Pharmaceutical Industry continues to be delivering affordable medicines for a large section of the population of the country, as expected by the government. Reported high profitability, at least, of the listed pharmaceuticals companies gives an impression to the stakeholders, including the government, that there is a scope for further reduction of pharmaceutical prices in India.

Pharmaceuticals being covered under the ‘Essential Commodities Act’, empower the government to announce the ‘administered price’ for essential medicines. Current debate and deliberations on the New Drug Policy both by the Supreme Court and the Group of Ministers is a case in point.

Be that as it may, the proposed pricing methodology and the span of price control in the long overdue New Drug Policy have just been announced by the Group of Ministers (GoM) on September 27, 2012, which is in line with what I had recommended in my article of May 21, 2012 in this blog.

In my view, the new proposal of the GoM is expected to improve both the availability and affordability of the essential medicines, significantly.

 III.  Inadequate penetration of current health insurance schemes:

Health insurance coverage is still very low in India as compared to, among many other countries, Brazil and South Africa and at-par with our neighboring island state Sri Lanka. The details are as follows:

Country

Brazil

South Africa

Sri Lanka

India
% of Healthcare Spend

21

39

10

10

(Source: data compiled)

Moreover, currently health insurance schemes only cover expenses towards hospitalization. Ideally, medical insurance schemes in India should also cover domiciliary or in-patient treatment costs and perhaps loss of income too, if India wants to bring down the OoP expenditure for its population or at least till such time the ambitious ‘Universal Health Coverage’ project gets translated into reality.

IV. Pricing of Patented Drugs: 

Innovative pharmaceutical products patented in India are expected to facilitate access to latest modern medicines to the country’s population to meet their unmet needs, if available at a reasonably affordable price.

To respond to this important need of the patients, many innovator companies like, Merck, GlaxoSmithKline (GSK) have already announced a differential pricing mechanism for their patented medicines in India.

Recent grant of compulsory license of Bayer’s Nexavar to Natco, among other reasons on pricing issue by the Indian Patent Office, has raised serious concerns among the innovator companies across the world on their Intellectual Property Rights (IPR) in India, but not on their pricing strategy for the country, as of now.

It appears rather impractical to envisage that routine grant of compulsory license by the Indian Patent Office will be able to resolve the critical issue of improving access to patented medicines on a long term basis.  Such decisions may be taken only after exhausting all other access improvement measures.

Moreover, to improve access of such medicines to the common man, the Government of India should have a robust procurement plan for these products, at a well negotiated price, for supply through Government hospitals and dispensaries.

Despite all these, it remains a hard reality that pressure on pricing of patented products, very likely, will continue to pose a challenge in India.

An innovative approach

To effectively address the challenge of pricing of patented medicines in India, Swiss drug major Roche, has reportedly  entered into a ‘never-before’ technology transfer and manufacturing contract for biologics with a local Indian company, Emcure Pharma, for its two widely acclaimed Monoclonal Antibodies’ anti-cancer drugs – Herceptin and MabThera.

The report says that in the past, Emcure had signed licensing deals with US-based bio-pharmaceutical drug maker Gilead Life Sciences for Tenafovir and with Johnson and Johnson for Darunvir. Both are anti-HIV drugs.

In this regard, media reports further indicated that Roche would offer to Indian patients significantly cheaper, local branded versions of these two anti-cancer drugs by early next year. The same news item also quoted the Roche spokesperson from Basel, Switzerland commenting as follows:

“The scope is to enable access for a large majority of patients who currently pay out of pocket as well as to partner with the government to enable increased access to our products for people in need”.

Such ‘out of box’ strategies and initiatives by the global innovator companies could help keeping prices of patented products affordable to the Indian patients, improving their access significantly. 

 V. Fostering innovation and Intellectual Property Rights (IPR):

Innovation:

Many companies expect that ‘tomorrow’ will be a ‘mega today’ and prefer to continue to run their businesses more or less the same way, as what they are currently doing. At the same time the global market keeps sending, in very small measures though, but definite and continuous signals of changes. As we move on, we realize that ‘tomorrow’ will not be a ‘mega today’, just as ‘today’ is not a ‘mega yesterday’. To meet such challenges of change squarely and realistically, one will need to embrace a culture of ‘continuous innovation’ in all the fields of business processes in India.
Therefore, the name of the game, while competing within the globalized economy is “continuous innovation”, which is more than a novel idea or a set of novel ideas. It is, in fact, the process of translating the novel idea/ideas into reality.
Like other industries, the pharmaceutical sector in India will also have to innovate with cutting edge ideas, convert them to implementable business models and processes, which in turn would help these companies to remain competitive in the globalized market place. The innovation, which I am talking about, extends far beyond Intellectual Property Rights (IPR) for a product.
While innovation is an absolute must to remain and grow the business, having patented products and marketing these brands effectively are desirable, but not a ‘must do’ for the Indian pharmaceutical companies, just yet. Unfortunately, not much inclusive innovation is taking place within the industry as of now, which consequently poses a great challenge for a quantum leap of this knowledge based industry of the country.

IPR

From the perspective of the global innovator companies across the world, ‘lack of a robust innovation friendly ecosystem’ in India is still a major challenge. However, home grown companies feel otherwise. This is mainly because, before enactment of the Indian Patents Act (amended) 2005, it was widely reported that mainly for the interest of Public Health and probably also to ensure that the growth of the domestic pharmaceutical industry does not get very adversely impacted, the Parliament of India ensured inclusion of a number of ‘safeguards’ including checks on ‘ever-greening’ of pharmaceutical patents and broader provisions for the grant of ‘Compulsory License’ in the statute.

Such provisions in the Indian Patents Act throw a major challenge to the global innovator companies spreading across the continents to get many of their new molecules patented in India and subsequently launch in the country. 

 VI. Counterfeit Medicines:

India still needs to generate enough credible data to convince itself and then to establish that counterfeit drugs are posing a growing menace to the humanity. All stakeholders should join hands to address this public health issue, leaving aside petty commercial interests, be it generic pharmaceutical companies of India or research based pharmaceutical players across the world.

The other side of the coin is that counterfeit versions of high value and/or high volume brands of the pharmaceutical companies in India are adversely affecting their business performance posing another major challenge. 

 VII.  Talent Pool: 

As we know, access to healthcare comprises not just medicines but more importantly healthcare infrastructure like, doctors, paramedics, diagnostics, healthcare centers and hospitals. In India the demand for these services has outstripped supply. There is a huge short fall in ‘Healthcare Manpower’ of the country as demonstrated in the following table:

Target Actual Shortfall %
Doctors 1,09,484 26,329 76
Specialists 58,352 6,935 88
Nurses 1,38,623 65,344 53
Radiographers 14,588 2,221 85
Lab Technicians 80,308 16,208 80

Source: Rural Health Statistics 2011 in 12th Plan draft chapter

Besides above, other key challenge faced by the pharmaceutical industry in this area is dearth of industry-specific employable work force in important areas like, R&D, clinical research, pre-clinical and clinical studies, manufacturing, quality assurance, besides sales and marketing. 

 VIII.  Requirement of Stringent Regulatory Practices:

In the increasingly globalized economy, strict conformance to high regulatory standards like, Good Manufacturing Practices (GMP), Good Clinical Practices (GCP) and Good Laboratory Practices (GLP) pose another major challenge for the pharmaceutical industry in India.

Those pharmaceutical companies who are involved in manufacturing and export of drugs and pharmaceuticals are required to meet standards set up not only by the Drug Controller General of India (DCGI) and/or the State Drug controllers, but also of the regulatory authorities of the respective countries, where their products will be exported.

 IX.   Ethics and Compliance: 

We have been witnessing for quite some time that ethical concerns related to the pharmaceutical industry, spanning across clinical trials to ethical marketing practices, are hugely bothering a large section of the stakeholders, solely for the interest of the patients.

Such concerns are assuming greater proportion, as the pharmaceutical industry is increasingly facing stringent regulatory and media scrutiny in gradually expanding areas of business operations. Thus, to overcome this challenge, there is a dire need for the industry to move beyond its usual bottom-line centric model to a transparent, comprehensive and implementable ‘Ethics and Compliance Models’, which are well meshed with all other business processes.

The Department of Pharmaceuticals has not delivered yet:

To help the pharmaceutical industry overcoming all the above nine major challenges in India, even the Department of Pharmaceuticals (DoP), considered being the nodal department for the pharma sector does not seem to have delivered, as yet.

In 2008, when the DoP was formed, it was widely expected that the department will be able to address the following key pharmaceutical industry related issues, with an integrated approach, to strike a right balance between the growth fundamentals of the industry and the Public Health Interest:

  • A modern, both growth and access oriented, drug policy and pricing mechanism.
  • Continuous improvement of access to high quality and affordable modern medicines for all.
  • An efficient, transparent and non-discretionary drug price regulatory system.
  • An appropriate ecosystem to encourage R&D and foster pharmaceutical innovation.
  • Addressing the issue of high ‘Out of Pocket (OoP)’ expenditure of the general population towards medicines in particular and healthcare in general together with the Ministry of Health.
  • Facilitating fiscal and tax incentives required by the Micro-Small and Medium Enterprises (MSME) within the pharmaceutical industry of India to help driving their growth.

It is worth mentioning, all these will necessitate a close coordination and integration of work of various departments falling under different ministries of the government, DoP being the nodal department. Unfortunately, this is not happening today, the way it should. 

Conclusion:

If remedial measures are not taken, sooner than later, to overcome these nine major challenges  bothby the pharmaceutical industry and the government working in tandem, it will be difficult for the industry to take a quantum leap in the foreseeable future, as is being envisaged by many.

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.

Quantum Growth Envisaged in Government Procurement for Pharmaceuticals: A Challenging Ball Game for Pharma Players

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Direct procurement by the Governments of various countries is attracting increasing importance not just at the domestic level, but internationally, as well. The systems adopted for Government Procurement (GP) globally are aimed at making a significant difference in the effectiveness of utilization of the exchequers’ fund and the quality of governance in the respective countries. Absolute transparency in the entire process of GP, extending fair and equal opportunities to all suppliers, is of utmost importance.

According to ‘The Center of International Development at the Harvard University, USA’, Government Procurement of goods and services typically accounts for 10-15% of GDP for the developed countries, and up to 20% of GDP for the developing nations. As a result, the local GP markets have started attracting attention of even the overseas suppliers to make this process an integral part of Free-Trade Agreements (FTAs) between countries.

GP was excluded in the General Agreement on Tariffs and Trade (GATT) negotiated in 1947. However, as the years progressed the members of WTO started exploring various ways to include GP in the multilateral trading system.

The proponents of WTO agreements on GP argue that the purchase decision of the governments on GP of goods and services should be non-discriminatory, irrespective of who produces the goods or renders required services, including foreign suppliers, if any.

GPA- The plurilateral Agreement:

In January 1, 1994 along with ‘Uruguay Round’ a landmark agreement was reached on GP, which is known as “The plurilateral Agreement on Government Procurement (GPA)”. This agreement was administered by a Committee of WTO members, who are Parties to the GPA and was signed by 41 of the 153 members of the WTO.

India joins as an observer in GPA – the first step for membership:

On Feb 11, 2010 ‘Reuters’ reported that “India has joined the World Trade Organization’s government procurement agreement as an observer, a first step to membership in the scheme regulating trade in goods bought by governments”. With this India joined other 22 WTO members with the same observer status, when 9 members including China are in the process of negotiation for full membership of the GPA.

On December 15, 2011, WTO reported a historic agreement by the members of GPA to ‘improve the disciplines for GP and expand the market access coverage valued at between 80 to 100 billion dollars a year’.

The opposition to GPA:

That said, those who oppose GPA also put forth strong arguments. They believe that such agreements instead of creating so called a ‘level playing field’ for all, would further complicate the situation where the developing countries, leave aside the least developed ones, would continue to remain at a disadvantage as compared to  the developed industrial nations.

The developing countries and the relief organizations argue that the growing industries of the developing nations will suffer most, if matured global companies are allowed to compete for GP together with the domestic players. Such a situation, they apprehend, could snow ball into huge balance of payment issues for the developing and the least developed nations.

Pharmaceuticals: Second largest item in public healthcare budget:

According to WHO, for the developing countries like India pharmaceuticals are the second largest item of expenditure, after personnel costs, ranging from 8 per cent to 12 per cent of the public health budget. Thus, such fund should be utilized with utmost care within a transparent and highly efficient GP system. It is envisaged, that efficient GP systems will play critical role in improving access to medicines in India.

GP for Pharmaceuticals in India:

The process of procurement of drugs and pharmaceuticals by the Ministry of Health of the Government of India is usually entrusted to an agency known as ‘Hospital Services Consultancy Corporation (HSCC)’. This multidisciplinary consultancy organization was set up to extend quality consultancy services in healthcare and other social sectors of the country.  HSCC undertakes the following:

  • Procurement of drugs and pharmaceuticals
  • Tendering process
  • Placement of orders
  • Follow-up, inspection and dispatch

So far, many World Bank supported programs for procurement of drugs and pharmaceuticals for Malaria, Tuberculosis, and Reproductive Child Health etc. were initiated by the HSCC. The procurement services of HSCC are in line with the procedures adopted by the World Bank.

Health being a State subject in India, pharmaceutical procurement is made by both the Central and State Governments, besides large private health institutions.

Though over 25 per cent of the total public sector drug volume is procured by the Central Government, there is no single Central Government procurement agency. Following are the key agencies currently handling the Central Government procurement for pharmaceuticals through competitive tendering process:

  • Central Government Health Services (CGHS)
  • Armed Forces Medical Services (AFMS)
  • Medical Stores Organization (MSO)

Examples of GP in the states:

Many state Governments have already started putting in place the GP process for pharmaceuticals in their respective states. This process is expected to gain momentum as we move ahead. Examples of GP system of some of the State Governments in India are as follows:

Delhi:

In 1996, to promote rational drug use with high quality of medicines, the ‘Delhi Society for Promotion of Rational Use of Drugs (DSPRUD)’ with the technical assistance from WHO introduced a pooled procurement system for all state-run hospitals and 150 Primary Health Centers (PHCs) in Delhi.

This robust procurement system with a competitive bidding process has reportedly resulted in price reduction of high quality medicines by 30-40 per cent. State-run hospitals and the PHCs now supply these prescriptions medicines to over 80 per cent of patients.

WHO, encouraged by the success of the ‘Delhi Model’, has recommended it to the other States of India. Currently the following State Governments are implementing the program in their respective states:

  • Maharashtra
  • Rajasthan
  • Punjab
  • Himachal Pradesh

Tamil Nadu:

In January 1995, Tamil Nadu Government had set up a Government-run Company known as, Tamil Nadu Medical Services Corporation (TNMSC). The main purpose of TNMSC was to make all essential drugs available in nearly 2000 government medical institutions throughout the State, with a well-structured, uniform and standardized system for procurement, storage and distribution of medicines.

To ensure efficient procurement of high quality drugs at competitive prices, TNMSC follows an open tendering system for purchases only from reputed manufacturers with a pre-specified minimum overall business turnover, having a market standing of not less than three years. Standby suppliers are also selected at the same time to eliminate any drug shortages for delayed or non-supply by the first supplier.

The competitive procurement bid system has reportedly enabled TNMSC to save on drugs to the tune of 36% of the allocation.

Andhra Pradesh (AP):

In AP public health care system delivers services at all levels of primary, secondary and tertiary care.

In 1998, a centralized pooled drug procurement system was implemented in AP with the establishment of the Drug Procurement Wing (DPW) within the ‘Andhra Pradesh Infrastructure State Development Corporation (APISDC)’.

For high quality GP they introduced a two tier system for bidding and procurement, starting with the technical bid and followed by the actual financial bidding process.

In this system, details of drug requirements are collected from public hospitals within the state, collated by the DPW and thereafter consolidated orders are placed to the competitive bid winners for supplying required essential medicines at the medical stores of each district of the state.

Odisha:

Odisha has a centralized system of procurement of drugs featuring in the National List of Essential Medicines (NLEM).

To ensure quality procurement, a pre-qualification stipulation of quality parameters and competitive price quotations are looked at.

Small Scale Industries (SSIs) are entitled to 5 per cent price preference along with other relaxations like, partial exemption from earnest money deposit and concession in sales tax.

A recent evaluation of the Drugs Distribution System in Odisha by WHO has highlighted that the key NLEM drug availability in all the centers except one in the state ranged from 80 to 100%.

UHC – A potential GP growth booster:

The recommendation no. 3.1.10 of the report titled ‘High Level Expert Group Report on Universal Health Coverage (UHC) for India’, instituted by the Planning Commission, clearly indicates that purchases of all health care services under the UHC system should be undertaken either directly by the Central and state governments through their Departments of Health or by quasi-governmental autonomous agencies established for the purpose.

PMO push for free drugs at Government hospitals:

Quoting the Prime Minister’s Office (PMO), ‘The Times of India’ on February 13, 2012 reported that availability of free medicines to all patients visiting any government health facility across the country will soon be a reality, as the Ministry of Health (MoH) is planning to spend around Rs 30,000 Crore under ‘free-medicines-for-all’ scheme with the  strong support of the PMO.

Quantum growth envisaged in the GP system:

UHC along with the above free medicine initiative by the MoH and expanded coverage of the National Rural Health Mission (NRHM)/ National Urban Health Mission (NUHM) are expected to make GP for pharmaceuticals a critical procurement initiative of the nation.

This appears more realistic when seen together with the increase in public spend allocation on health by the Planning Commission of India from current 0.9 per cent to 2.5 per cent of GDP during the Twelfth Five Year Plan period.

Thus a quantum growth is envisaged in the GP system for pharmaceuticals within the country.

Conclusion:

From all available indicators, it appears that GP for pharmaceuticals in India will assume immense importance to both the global and local pharmaceutical companies.

The Central Government, with ‘The Draft Public Procurement Bill, 2011’, seems to have already started moving in this direction. The enactment of this Bill will facilitate the Government not only to effectively leverage the state bargaining power for the prices of medicines, but also to ensure efficient delivery of high quality products to a very large section of the society.

Quite in tandem various State Governments should also either create afresh or revamp the existing procurement system, as the case may be, to put in place a robust GP mechanism in their respective states.

One clear outcome of the expansion of GP system for sure will be enormous pricing pressure on the pharmaceutical players in India, which will be quite challenging to navigate.

The scenario will get even more complex and heated up, especially for the smaller pharmaceutical players, as and when India becomes a signatory to the GPA of the WTO, opening its door wide ajar for the large global players to participate in the pharmaceutical bidding process of the Government, well facilitated by various FTAs.

In this rapidly evolving environment, are the pharma players, both global and local, ready with appropriate strategies and systems in place to participate in yet another challenging new ball game of low margin and high volume pharmaceutical business in India?

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.