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

Posted on February 18, 2013 by Tapan Ray

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

A paradigm shift has taken place:

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

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

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

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

The lessons learnt:

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

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

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

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

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

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

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

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

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

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

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

Need to think outside the box:

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

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

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

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

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

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

A different concept of “Building Mega Brands”:

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

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

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

A thought:

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

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

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

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

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

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

Conclusion:

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

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

By: Tapan J. Ray

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

Takes ‘Two to Tango’: Encashing Opportunities with Biologic drugs in India

Posted on February 11, 2013 by Tapan Ray

Despite current ‘Patent Cliff’ ongoing research on biologics is now at the forefront of the Global Pharmaceutical Industry. The bottom-line impact of a successful new biologic molecule to treat intractable ailments like, cancer, blood disorders, Parkinson’s, Myasthenia Gravis, Multiple Sclerosis, Alzheimer’s diseases, will be huge.

Currently, faster growth of this segment as compared to conventional small molecules is primarily driven by novel technologies and highly targeted approaches, the final outcome of which is being more widely accepted by both physicians and patients.

Lesser generic competition makes it more attractive:

After patent expiry, innovators’ small molecule brands become extremely vulnerable to cut throat generic competition with as much as 90% price erosion.This is mainly because these small molecules are relatively easy to replicate by many generic manufacturers and the process of getting their regulatory approval is also not as stringent as biosimilar drugs in most of the markets of the world.

On the other hand biologic drugs involve difficult, complex and expensive processes for development. Such resource intensive scientific expertise together with stringent regulatory requirements for obtaining marketing approval, especially in the developed markets of the world like, EU and USA, help creating a significant market entry barrier for many players. That is why even after patent expiry, biologics enjoy significant brand protection from generic competition for quite some time, in many cases.

It is for this reason brands like the following ones are expected to go relatively strong even for some more time, without any significant competition from biosimilar drugs in many of the major markets of the world:

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

Global Market:

In 2011 the turnover of Biologic drugs increased to over US$ 175 billion in the total market of US$ 847 billion. The sale of Biosimilar drugs outside USA exceeded US$ 1 billion.

Six biologic drugs featured in the top 10 best selling global brands in 2012 with Humira of AbbVie emerging as the highest-selling biologics during the year. Roche remained the top company by sales for biologics with anticancer and monoclonal antibodies.

According to IMS Health, by 2015, sales of biosimilars are expected to reach between US$ 1.9 – 2.6 billion, an increase from US$ 378 million for the year to the first half of 2011.

Attractiveness:

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.
Higher percentage of biologics 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 2012 report by PwC titled ‘From Vision to Decision: Pharma 2020’ states that “the next few years may look bleak for pharma, but we’re convinced that the following decade will bring a golden era of renewed productivity and prosperity.”

The document also points out that the global pharmaceutical industry is now focusing its R&D initiatives on biologics for the treatment of cancer and rare diseases. Nearly 30 percent of the 7,891 molecules currently in clinical testing cover cancer and autoimmune conditions.

Another emerging opportunity:

As stated above, unlike commonly used ‘small molecule’ drugs, ‘large molecule’ biologics are developed from living cells using very complex processes.

It is virtually impossible to replicate these protein substances, unlike the ‘small molecule’ drugs. One can at best develop a biologically similar molecule with the application of high degree of biotechnological expertise. These drugs are known as ‘Biosimilar Drugs’ and usually cost much less than the original ones.

Biosimilar drugs market is currently fast evolving across the world with varying degree of pace and stages of developments. The U.S currently holds the leadership status in the production of biologics, with around 45 percent of the total share. India’s share, now being at 7 percent is continuously increasing.

Biosimilar Monoclonal Antibodies (mAbs) in the Pipeline:

Company	Location	Biosimilar mAbs	Development Status
BioXpress	Switzerland	16	Preclinical
Gene Techno Science	Japan	6	Preclinical
Zydus Cadilla	India	5	Preclinical
PlantForm	Canada	3	Preclinical
BioCad	Russia	3	Preclinical
Celltrion	South Korea	2	Phase 3
LG Life Sciences	South Korea	2	Preclinical
Gedeon Richter	Hungary	2	Preclinical
Cerbios-Pharma	Switzerland	1	Preclinical
Hanwha Chemical	South Korea	1	Preclinical
PharmaPraxis	Brazil	1	Preclinical
Probiomed	Mexico	1	Phase 3
Samsung BioLogics	South Korea	1	Preclinical
Novartis	Switzerland	1	Phase 2
Teva	Israel	1	Phase 2
Zenotech	India	1	Phase 3
Spectrum	US	1	Preclinical
Biocon/Mylan	India/US	1	Preclinical

(Source: PharmaShare; as of September 10, 2011 from Citeline’s Pipeline database)

Future business potential with cost arbitrage of India:

In 2013, products like, Avonex of Biogen Idec, Humalog of Eli Lilly, Rebif of Merck KgaA, Nupugen of Amgen will go off-patent, paving the way of entry for lower priced biosimilar drugs. The sum total of revenue from all such drugs comes to over U.S$ 15 billion.

The report from the ‘Business Wire’ highlights that, ‘the manufacture and development of a biosimilar molecule requires an investment of about US$ 10 to 20 million in India, as compared to US$ 50 to 100 million in developed countries’, vindicates the emergence of another lucrative business opportunity for India for such drugs with significant cost arbitrage.

Government support in India:

In India, the government seems to have recognized that research on biotechnology has a vast commercial potential for products in human health, including biosimilars, diagnostics and immunobiologicals, among many others.

To give a fillip to the Biotech Industry in India the National Biotechnology Board was set up by the Government under the Ministry of Science and Technology way back in 1982. The Department of Biotechnology (DBT) came into existence in 1986. The DBT currently spends around US$ 300 million annually to develop biotech resources in the country and has been reportedly making reasonably good progress.

The DBT together with the Drug Controller General of India (DCGI) has now prepared ‘Regulatory Guidelines for Biosimilar Drugs’ in conformance to international quality and patient safety standards.

Currently, a number of both financial and non-financial incentives have been announced by the Central and the State Governments to encourage growth of the biotech industry in India, which include tax incentives, exemption from VAT and other fees, grants for biotech start-ups, financial assistance with patents, subsidies on investment from land to utilities and infrastructural support with the development of ten biotech parks through ‘Biotechnology Parks Society of India’.

A commendable DBT initiative:

Towards this direction, the Department of Biotechnology (DBT) of the Government of India has taken a commendable step to encourage the small and medium scale business outfits by setting-up ‘The Small Business Innovation Research Initiative (SBIRI)’. This scheme has been launched to boost ‘Public-Private-Partnership (PPP)’ projects in the country.

SBIRI supports ‘the high-risk pre-proof-of-concept research’ and ‘late stage development’ in small and medium size companies to get them involved in the development of biologics.

Some examples:

Examples of some among many of the PPP initiatives in the healthcare space under SBIRI are as follows:

No.	Company Name with Collaborator	Title of the Project Supported
1.	IcubedG Ideas Private Limited, New Delhi	Risk based Process Design for large scale Manufacturing of male injectable contraceptive (Phase I)
2.	Incozen Therapeutics Pvt. Ltd., Hyderabad	Discovery and Development of Novel, Selective and Potent Dihydroorotate Dehydrogenase Inhibitors in Inflammatory Bowel diseases. (Phase I)
3.	Mediclone Biotech Private Limited, Chennai	Commercial Production of Monoclonal Antibodies as an import substitute with special reference to Red Blood Cell Phenotyping (Phase II)
4.	Orchid Chemicals & Pharmaceuticals Ltd., Chennai in collaboration with AU-KBC Research Center, Chennai	Development and validation of a cell-tissue co-culture model for aiding liver specific studies and drug discovery applications. (Phase I)
5.	Reliance Life Sciences Pvt. Ltd., Navi Mumbai	An open label, multicenter, prospective clinical study to evaluate the safety and efficacy of tissue engineered R-STE-001 in patients with symptomatic cartilage defect of femoral condyle (Phase II)
6.	USV Limited, Mumbai	Development of a Vaccine capable for eliciting immunological memory for the prevention of Typhoid (Phase II)
7.	Virchow Biotech Private Limited, Hyderabad	Development of commercialization of a recombinant uricase for the prevention and treatment of tumor lysis syndrome associated with leukemia, lymphoma & solid tumor malignancies (Phase II)
8.	Virchow Biotech Private Limited, Hyderabad	Indigenous development of a recombinant Fuzeon for the treatment of AIDS (Phase II)
9.	Zenotech Laboratories Limited., Hyderabad	Development of humanized monoclonal antibodies against human epidermal growth factor receptor (Phase I)


10.	Advanced Neuro-Science Allies Pvt. Ltd, Bangalore in collaboration with Vittal Mallya Scientific Research Foundation, Bangalore	Pre-clinical studies of Human mesenchymal stem cells (MSCs) isolated and characterized from different sources in autoimmune disease, namely rheumatoid arthritis (RA) and type 1 diabetes (TIDM)(Phase I)
11.	Avesthagen Ltd., Bangalore	Hepatocyte-like cells generated from human embryonic stem cells (hESC) for hepatotoxicity screening of xenobiotics in the drug discovery process(Phase I)
12.	Avesthagen Limited, Bangalore	Scale-up and evaluation of high-value biosimilar product (Etanercept) aimed at providing cost-effective healthcare solutions to the emerging markets(Phase II)
13.	Bharat Serum and Vaccines Limited, Mumbai	Expression of recombinant proteins for development of synthetic pulmonary surfactant for Respiratory Distress Syndrome(Phase I)
14.	Cadila Pharmaceuticals Ltd., Ahmedabad	Development of Mycobacterium was an adjuvant for anti – rabies vaccine(Phase I)

Besides, Indian pharmaceutical majors like Dr. Reddy’s Laboratories (DRL), Reliance Life Science, Shantha Biotech, Ranbaxy, Biocon, Wockhardt and Glenmark have made good investments in biotech drugs manufacturing facilities keeping an eye on the emerging opportunities with Biosimilar drugs in the developed markets of the world.

Funding remains a critical issue:

That said, many industry experts do feel that R&D funding for the Biotech sector in the country is grossly inadequate. Currently, there are not many ‘Venture Capital’ funds for this sector and ‘Angel Investments’ almost being non-existent, Indian biotech companies are, by and large, dependent on Government funding.

Making India a global hub for biosimilar manufacturing:

However, with around 40 percent cost arbitrage, adequate government support and without compromising on the required stringent international regulatory standards, the domestic ‘biologic’ players should be able to establish India as one of the most preferred manufacturing destinations to meet the global requirements for particularly ‘biosimilar drugs’.

Experience in conforming to stringent US FDA manufacturing standards, having largest number of US FDA approved plants outside USA, India has already acquired a clear advantage in manufacturing high technology chemical based pharmaceutical products in India. Significant improvement in conformance to Good Clinical Practices (GCP) standards will offer additional advantages.

Conclusion:

With increasing support from the government and fueled by creative, scientific and technological inputs from various experts and entrepreneurs in the country, India has the potential to emerge as one of Asia’s best powerhouses in the field of biosimilars drugs by the end of this decade. It will take ‘two to tango’.

By: Tapan J. Ray

An El Dorado…But Not Without Responsible Pricing:The Cancer Segment in India

Posted on February 4, 2013 by Tapan Ray

The affordability issue for cancer treatment has been the subject of a raging debate since quite some time, as the incidence of cancer is fast increasing across the world. Just for example a very recent report highlighted that cancer has now become the greatest health risk in the UK, with an average British boy born in 2010 running a 44 percent chance of being diagnosed with any form of cancer during his lifetime. The risk for a baby girl is slightly lower at 40 percent.

In India too, the problem of affordable cancer treatment has now become the center piece of a fiercer public opinion in the healthcare space, more than even HIV, prompting the Government to intervene in this dreadful disease area and address the problem in a holistic way both in the short and also on a longer term basis. This demand is supported by rapidly growing number of cancer patients in the country.

Out of the total number of new cancer patients globally, India now reportedly ranks third as follows:

Rank	Country	% Of total
1.	China	22
2.	USA	11
3.	India	7.5

As a consequence, cancer now reportedly accounts for one of the main causes of deaths in India, which is nearly 19 percent higher than deaths caused by heart diseases.

Number of new cancer patients staggering in India:

Over 60,000 new cases are reportedly diagnosed every year in India and 80 percent of them are at an advanced stage, which involve mostly the middle-aged and elderly population of the country, where affordability is even a greater issue.

Cervical and breast cancers are reportedly the most common, contributing over 26 per cent to the total cancer cases in India, followed by lung, mouth, pharynx, ovarian, pancreatic and esophagus cancers.

Whereas cervical cancer is reportedly most common in females with a mortality rate of nearly 15 per 10,000 females, lung cancer has the highest mortality rate of 28 per 10,000 males.

Incidentally, lung cancer is the most commonly diagnosed cancer even globally. Non-Small Cell Lung Cancer (NSCLC) accounts for approximately 90% of all lung cancers. The primary cause of lung cancer in up to 90% of patients is tobacco and represents one-fifth of all cancer-related deaths in India.

However, to address the havoc caused by this dreaded disease effectively, India will also need to bridge the huge gap of shortfall in disease diagnostic infrastructure in the country.

The humongous access gap for cancer patients needs to be effectively addressed by the Government sooner with Public-Private-Partnership (PPP) for diagnosis and treatment, in tandem with other proactive initiatives like, disease awareness campaigns targeted to ensure greater screening and disease prevention, wherever possible.

‘The Lancet’ finding:

Following are some of the important findings on cancer disease profile in India, as reported in May 12, 2012, edition of ‘The Lancet’:

- 6 percent of the study deaths were due to cancer

- 71 percent cancer deaths occurred in people aged 30—69 years

- Age-standardized cancer mortality rates per 100,000 were similar in rural and urban areas but varied greatly between the states, and were two times higher in the least educated than in the most educated adults.

This report further calls for immediate Government intervention in this area.

Growing patients number making ‘Oncology Market’ increasingly attractive:

As stated above, incidence of various types of cancer is rapidly increasing across the world, making oncology segment an ‘El Dorado’ for many pharmaceutical players prompting commensurate investments for product development in this area, be these are new molecules or biosimilars.

Thus, the global turnover of anti-cancer drugs, which was around US$ 50 billion in 2009, is expected to grow to US$ 75 billion in 2013 registering a jaw dropping growth rate in today’s turbulent global pharmaceutical market environment.

World Health Organization (WHO) has predicted over 20 million new cases of cancer in 2025 against 12 million in 2008.

Globally, the segment growth will mainly be driven by early detection, longer duration of treatment and the global ascending trend in the incidence and prevalence of cancer propelled by new treatments and improved access to cancer therapies in many countries.

Indian business landscape:

Oncology segment has now emerged as a leading therapeutic area in the Indian pharmaceuticals market too, being fourth largest in volume and tenth largest in value term, mainly driven by lower priced generic equivalents in volume term.

Despite only a smaller number of patients can afford any comprehensive cancer treatment protocol in India, the demand for cancer drugs in the country, where many drug companies follow various types of unconventional logistics systems to reach these drugs to patients, is increasing at a rapid pace.

Global players namely, Roche, BMS, Pfizer, Sanofi, GSK and Merck reportedly dominate the market with innovative drugs. Whereas, domestic companies like, Natco Pharma, Cipla, Sun Pharma, Dr. Reddy’s Lab (DRL), Biocon and others are now coming up with low price generic equivalents of many cancer drugs.

The fact that currently over 30 pharmaceutical companies market cancer drug in the country, demonstrates growing attractiveness of the Oncology segment in India.

Access to newer cancer drugs:

It has been widely reported that newer cancer therapies have significant advantages over available generic cancer drugs both in terms of survival rate and toxicity.

Unfortunately such types of drugs cost very high, severely limiting access to their therapeutic benefits for majority of patients. For a month’s treatment such drugs reportedly cost on an average US$ 3,000 – 4,500 or Rs 1.64 – 2.45 lakh to each patient in India.

More R&D investments in Oncology segment:

Another study recently published by ‘Citeline’ in its ‘Pharma R&D Annual Review 2012’ points out, more than half of the top 25 disease areas targeted for R&D falls under cancer therapy. Breast cancer comes out as the single most targeted disease followed by Type 2 diabetes.

This will ensure steady growth of the Oncology segment over a long period of time and simultaneously the issue of access to these medicines to a large number of patients, if the product pricing does not fall in line with socioeconomic considerations of India.

Cancer drug sales dominated in 2012:

It is interesting to note that around one-third of the ‘Top 10 Brands in 2012′ were for the treatment of cancer as follows:

Top 10 global brands in 2012

Rank	Brand	Therapy Area	Company	Sales: (US$ bn)
1.	Humira	Rheumatoid Arthritis and others	Abbott /Eisai (now AbbVie/Eisai)	9.48
2.	Enbrel	Anti-inflammatory	Amgen/Pfizer/Takeda	8.37
3.	Advair/Seretide	Asthma, COPD	GlaxoSmithKline	8.0
4.	Remicade	Auto-immune	Johnson & Johnson/Merck/ Mitsubishi Tanabe	7.67
5.	Rituxan	Anti-cancer	Roche	6.94
6.	Crestor	Anti-lipid	AstraZeneca/ Shionogi	6.65
7.	Lantus	Anti-diabetic	Sanofi	6.12
8.	Herceptin	Anti-cancer	Roche	6.08
9.	Avastin	Anti-cancer	Roche	5.98
10.	Lipitor	Anti-lipid	Pfizer/Astellas Pharma/Jeil Pharmaceutical	5.55

(Source: Fierce Pharma)

Responsible Pricing a key issue with cancer drugs:

In the battle against the much dreaded disease cancer, the newer innovative drugs being quite expensive, even in the developed markets the healthcare providers are feeling the heat of cost pressure of such medications, which in turn could adversely impact the treatment decisions for the patients.

Thus, to help the oncologists to appropriately discuss the treatment cost of anti-cancer drugs with the patients, the ‘American Society of Clinical Oncology’ recently has formed a task force who will also try to resolve this critical issue.

In many other developed markets of the world, for expensive cancer medications, the patients are required to bear the high cost of co-payment. This may run equivalent to thousands of U.S dollars, which many patients reportedly find difficult to arrange.

It has been reported that even the ‘National Institute of Health and Clinical Excellence (NICE), UK’ considers some anti-cancer drugs not cost-effective enough for inclusion in the NHS formulary, sparking another set of raging debate.

‘The New England Journal of Medicine’ in one of its recent articles with detail analysis, also expressed its concern over sharp increase in the price of anti-cancer medications, specifically.

An interesting approach:

Experts are now deliberating upon the possibility of creating a ‘comparative effectiveness center’ for anti-cancer drugs. This center will be entrusted with the responsibility to find out the most cost effective and best suited anti-cancer drugs that will be suitable for a particular patient, eliminating possibility of any wasteful expenses with the new drugs just for newness and some additional features. If several drugs are found to be working equally well on the same patient, most cost effective medication will be recommended to the particular individual.

India should also explore this possibility without further delay.

Indian Government trying to find an answer in CL/NLEM/NPPP 2012:

Going by the recent developments in Compulsory License (CL) area for high priced new and innovative cancer drugs, it appears that in the times to come exorbitant prices for cancer drugs may prove to be loaded with risks of grant of CL in India due to immense public pressure.

It appears from the grapevine that Government may also explore the possibility to include some of the newer cancer drugs under National List of Essential Medicines (NLEM) bringing them under price control in conformance with the National Pharmaceutical Pricing Policy 2012 (NPPP 2012), if not through the provision of pricing of patented drugs.

Thus responsible pricing of cancer drugs assumes huge importance for avoidance of the above unpleasant situation in India.

Cancer drug pricing related developments in India:

As stated above, cancer being the second largest killer in India and the patented cancer drugs being generally expensive, a large Indian pharmaceutical player has been reportedly insisting on the government to allow widespread use of “compulsory licenses” for cancer drugs. About 11 years ago various news reports highlighted that this company broke ‘monopoly ‘ of the multinationals by offering to supply life-saving triple therapy AIDS drug cocktails for under US$1 a day, which is about one-thirtieth the price of the global companies.

In May 2012, this same Indian company named Cipla, significantly reduced the cost of three medicines to fight brain, kidney and lung cancers in India, making these drugs around four times cheaper than the originators, as per the above news report. The company reportedly wants to reduce the prices of more cancer drugs in future.

Prompted by the above steps taken by Dr. Yusuf Hamied, the Chairman of Cipla, many global players have reportedly branded him as an Intellectual Property (IP) thief, while Dr. Hamied reportedly accused them of being “Global Serial Killers” whose high prices are costing many precious lives across the globe.

In the same interview Dr. Hamied said poverty-racked India “can’t afford to divide people into those who can afford life-saving drugs and those who can’t”.

Promising future potential for low cost newer generic cancer drugs:  

While R&D initiatives are going on full throttle for newer and innovative drugs for cancer, interestingly over a quarter of the following 15 brands, which will go off-patent in 2013 are for cancer, throwing open the door for cheaper newer generics entry and increasing access to these medicine for a larger population of cancer patients.

Patent expiry in 2013

Rank	Brand	Generic name	Therapy Area	Company	Patent Expiry	Sales US$ billion (2012)
1.	Cymbalta	Duloxetine	Antidepressant, musculoskeletal pain	Eli Lilly/Shionogi	Dec 11	4.9
2.	Avonex	Interferon beta1a	Multiple Sclerosis (MS)	Biogen Idec	Dec 31	2.9
3.	Humalog	Insulin lispro	Anti-diabetic	Eli Lilly	May 7	2,52
4.	OxyContin	Oxycodone	Pain	Perdue	August 31,	2.35
5.	Rebif	Interferon beta-1a	Multiple Sclerosis (MS)	Merck KgaA	Dec 31	2.3
6.	Aciphex	Rabeprazole	Acid-peptic disorder	J&J, Eisai	May 8	1.93
7.	Xeloda	Capecitabin	Cancer	Roche	Dec 14	1.63
8.	Procrit	Epoetin Alfa	Anemia	J&J	Aug 29	1.41
9.	Neupogen	Filgrastim	Cancer	Amgen, Kirin, Roche, Royalty Pharma	Dec 12	1.29
10.	Zometa	Zoledronic Acid	Cancer	Novartis	March 2	1.26
11.	Lidoderm	Lidocaine patch 5%	Pain-relieving patch	Endo Health Solutions/ EpiCept	Sep 15	0.918
12.	Temodar	Temozolomide	Cancer	Merck, Bayer	Aug 31	0.882
13.	Asacol	Mesalamine	Ulcerative Colitis	Warner Chilcott, UCB, Zeria Pharma	Jul 30	0.891
14.	Niaspan	Niacin	Anti-lipid	Abbott, Teva	Sep 20	0.835
15	Reclast	Zoledronic acid injection	Osteoporosis	Novartis	March 02	0.612

(Source: Fierce Pharma)

A thought:

Initiatives for faster resolution of a pressing issue like providing affordable treatment for cancer should not be put in the back burner of a longer term planning process. The issue is very real, humanitarian, here and now, for all of us. The Government is expected to display some sense of urgency through its expeditious intervention in all the four of the following treatment processes for cancer to make them affordable, if not free for the general population:

Medical intervention and consultation
Diagnostic tests and detection
Surgical procedure and hospitalization
Medicines and chemotherapy

As ‘The Lancet” study mentions, cancer in India is all-pervasive. It has no rich or poor, urban or rural or even any gender bias. It needs to be addressed in a holistic way for the benefit of all.

Conclusion:

High incidence of cancer in India with even higher mortality rate, coupled with very high treatment cost has positioned this disease area in the eye of a stormy debate for quite some time. The naked fact that a large number of Indian population cannot afford the high treatment cost for cancer as ‘Out of Pocket’ expenditure, has made the issue even more sensitive and socially relevant in India.

Pricing issue for cancer drugs is not just India centric. Even in the developed countries, heated debate on expensive new drugs, especially, in the oncology segment is brewing up for a while. This could possibly assume a much larger proportion in not too distant future.

It is about time for also the private players to come forward and extend support to the Government in a joint endeavor to tame the destructibility and catastrophic effect of this dreaded disease on human lives, families and the society in general. Setting access improving tangible examples through Public Private Partnership (PPP) initiatives, rather than mere pontification of any kind, is the need of the hour.

If it does not happen, soon enough, willy-nilly the concerned players in this area may get caught in a much fiercer debate, possibly with a force multiplier effect, inviting more desperate measures by the Government.

Responsible pricing, for the patients’ sake, of each element of the cancer treatment process will ultimately assume a critical importance, not just for survival and progress of any business, but also to fetch pots of gold, as business return, from the ‘El Dorado’ of ‘Oncology Segment’ of India.

By: Tapan J. Ray

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

In the Pharmaceutical Space: The Dragon breathes fire

Posted on April 9, 2012 by Tapan Ray

Currently both China and India, the two most populous nations of the world are also the front runners of the global economy in terms of the pace of GDP growth. The economies of the two countries are greatly influenced by their respective sociopolitical environment. However, the economy of China is more robust ranking second in the world, against eleven of India. The dragon is indeed breathing fire.

A comparison of the economy of the two countries, as reported by ‘MapsofIndia.com’ updated in July 2011, is as follows:

Facts	India	China
GDP	US$1.31 trillion	US$ 4.90 trillion
GDP growth	8.90%	9.60%
Per capital GDP	US$1124	US$7,518
Inflation	7.48 %	5.1%
Labor Force	467 million	813.5 million
Unemployment	9.4 %	4.20 %
Fiscal Deficit	5.5%	21.5%
Foreign Direct Investment	US$12.40 billion	US$9.7 billion
Gold Reserves	15%	11%
Foreign Exchange Reserves	US$2.41 billion	US$2.65 trillion
World Prosperity Index	88th Position	58th Position
Mobile Users	842 million	687.71 million
Internet Users	123.16 million	81 million.

Global pharmaceutical ranking:

As reported by IMS, in global ranking, China was ninth largest pharmaceutical market against thirteenth of India in 2004, became fifth largest in 2009 against thirteenth of India and is expected to be the third largest by 2014 against tenth of India, growing at a much faster pace.

	2004 Rank		2009 Rank		2014 Rank
1	United States	1	United States	1	United States
2	Japan	2	Japan	2	Japan
3	France	3	Germany	3	China
4	Germany	4	France	4	Germany
5	Italy	5	China	5	France
6	United Kingdom	6	Italy	6	Brazil
7	Canada	7	Canada	7	Italy
8	Spain	8	Spain	8	Canada
9	China	9	United Kingdom	9	Spain
10	Brazil	10	Brazil	10	India
11	Mexico	11	Russia	11	Russia
12	Australia	12	Mexico	12	United Kingdom
13	South Korea	13	India	13	Venezuela
14	India	14	Australia	14	Turkey
15	Netherlands	15	Turkey	15	South Korea

Source: IMS Health MIDAS, Market Prognosis September 2010; Market size ranking in constant US$

Healthcare coverage:

In China, out of a population of 1.3 billion, 250 million are covered by health insurance, another 250 million are partially covered by insurance and balance 800 million are not covered by any insurance.

Against these statistics of China, in India total number of population who have some sort of healthcare financing coverage will be around 200 million and penetration of health insurance will be just around 3.1% of the population. India is fast losing grounds to China in this respect mainly due to better response to healthcare infrastructure and regulatory challenges by China.

Commitment to globalization:

A very high level of commitment of the Chinese Government to make China a regional global hub for pharmaceutical R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is now paying rich dividends.

Department of Pharmaceuticals (DoP) of the Government of India (GoI) also expressed its intention to make India a R&D hub in not too distant future. Unfortunately, this cannot be achieved with just good intent of investments of couple of million US$ through Public Private Partnership (PPP) initiatives, as announced by the DoP earlier.

A strong commitment of the GoI to hasten regulatory reform processes with visible action will be the deciding success factor. IPR regime in the pharmaceutical industry has been put in place, but an appropriate to foster innovation in the country is yet to be created.

Healthcare Infrastructure:

Korn/Ferry International has reported that China’s infrastructure in the pharmaceutical space is better than India, primarily due to firm commitment of the Chinese government to accelerate reform measures to fetch maximum benefits of globalization process in the country.

It has been reported that China has not only better healthcare infrastructure as compared to India, but they are also more open to of foreign trade and investments to improve these further in their country.

R&D Comparison:

Talent Pool and no. of Patents granted:

According to WIPO, China has better R&D talent pool and grants more patent per year than India as follows:

	India	China
R&D Talent Pool	45,000	56,000
Patents Granted (2008-09)*	16,061	48,814

*Patent Granrted in India during 2009-10:6168

Source: FE Bureau / WIPO / IPO

Scientific Publications:

India also lags behind China in the number of scientific publications as follows:

	Pre 2000 (A)	Post 2000 (B)	B/A*
India	3,04,737	4,98,394	1.64
China	2,30,154	19,94,706	8.67

*Multiple of Post-2000 over Pre 2000

Between pre-2000 and post-2000 era, China’s count of scientific publications rose more than eight times compared to India’s 1.6 times. (Source: Search on Scopus Sciverse (Database from Elsevier)

Based on ‘WIPO PCT’ applications, it has been reported that 5.5% of all global pharmaceutical patent applications named one inventor or more located in India as against 8.4% located in China.

Biology Research:

China is taking faster strides in the Biology Research area as follows:

INDIA	CHINA
1. Only about five companies with proven skills in basic molecular biology and protein expression

2. Innovative research focused on bioinformatics and bio-chips

3. Limited biology talent pool owing to historic focus on generics1. Established skills in basic molecular biology and protein expression

2. Innovative research in stem cells, bio-chips, and gene sequencing

3. Expanding biology talent pool

(Source: BCG report, Looking Eastward)

Clinical trials:

In the area of clinical trial, though by amending the Schedule Y of the Drugs and Cosmetics Act in line with ICH GCP, India has already put in place the Good Clinical Practices (GCP), China has, on the other hand, brought its GCP, GLP, and GMP standards in line with ICH guidelines.

May be because of all these reasons ‘A.T. Kearney’ in its ‘Country Attractiveness Index’ (CAI) for clinical trials has given 6.10 to China against 5.58 to India.

BCG compared India with China in the Clinical Trial space as follows:

INDIA	CHINA
1. Experienced CROs with full service range and output of similar quality to that of developed markets.

3. Limited FDA approved hospitals

4. Shorter trial approval times than in China

5.Uneven infrastructure and shortage of clinical research assistants

Experienced CROs and growing vendor pool providing full spectrum of services
High quality FDA-approved hospitals
Low-cost and efficient enrollment compared to the US and Europe
Trial approvals lengthy and complex

(Source: BCG report, Looking Eastward)

Despite all these, both India and China pose challenges to both global and the local pharmaceutical players in dealing with subjects of wide cultural diversity within the country besides illiteracy and poverty. Many cases of conflict between ethics and natural justice have been reported from both countries during recruiting process of the subjects for clinical trial.

Pharmaceutical outsourcing:

In terms of attractiveness for outsourcing among the emerging pharmaceutical markets of the world, India and China are outpacing others with their cutting edge offering of high quality services at lower cost together with large pool of skilled manpower.

India has the potential to be a contender of supremacy for Pharmaceutical outsourcing of all types with all the required success ingredients. However, putting these ingredients together for effective use to make it happen has indeed become a real challenge.

On the other hand China is racing ahead to effectively avail the global opportunities and in that process fast distancing itself from India, widening the competitive performance gap between the two countries. Brain drain:

Korn/Ferry International has reported that more and more Indian talent is being pulled to China to fill key roles, especially in the API sector, signaling ‘brain drain’ from India to China.

Where India is a high flier:

Chemistry Research:

India is globally considered as a more mature place for chemistry related drug-discovery activities than China. Probably, because of this reason, companies like, Aurigene, Advinus, Divis Lab and Jubilant Organosys could enter into long-term collaborative arrangements with Multinational Companies (MNC) to discover and develop New Chemical Entities (NCEs).

BCG report, ‘Looking Eastward’ compared India with China in the Chemistry Research area as follows:

INDIA	CHINA
1. Large pool of vendors with full services and track record of strong capabilities

2. Generally better IP protection than in China

3. Trend toward project based alliances and emerging build-operate-transfer (BOT) contracts

4. Vast pool of skilled and low cost chemists

Capabilities residing mostly with government institutes; only a few small private companies with a track record
Established basic chemistry skills moving to more complex offerings, but no end to end capabilities
Large and growing pool of raw talent, but limited English language skills still an issue

(Source: BCG report, Looking Eastward)

Earlier reform in China: It is important to mention that healthcare reform process started much earlier in China. The Product Patent regime in India was reintroduced in January 1, 2005. Well before that time China started creating and encouraging a large number of independently funded pharmaceutical R&D institutions to create an environment of innovation within the country. Many of these institutions are now viable profit centers, creating wealth for the country.

At the same time, focusing on economies of scale, Chinese pharmaceutical players have now become globally competitive, may be a shade better than India. Clear dominance of China in the business of ‘Active Pharmaceutical Ingredient (API)’ among many others, will vindicate this point.

On other hand in the formulations business, India is miles ahead of China, catering to over 20 percent of global requirements for the generic pharmaceuticals. Even in ANDA and DMF filings, India is currently ahead of China.

Conclusion:

While comparing India with China one should also take into consideration that not only the sociopolitical structure of India and China are quite different, but the difference exists also in their commerce and industry related political decision making process.

Moreover, the average age of Chinese population is much more than Indians and continues to increase rapidly. The factor of aging population may have an adverse impact on the overall productivity of their people in the coming years constraining the economic growth of China. In contrast, the percentage of young working people in India is expected to keep increasing through 2030, offering a very critical demographic advantage to the country in the years ahead.

Though China will continue to have aging population and India the younger ones, both countries will have to deploy greater resources to cater to the growing healthcare needs for altogether different reasons. The net gainer will indeed be the pharmaceutical industry in both the countries.

That said, just a wishful thinking of the Government of India, sans expeditious and prudent regulatory and other related policy reforms, will helplessly make India watching the gap between the pharmaceutical industry of the two countries fast widening, making the dragon keep breathing fire, unabated.

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

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

Should high prices of new drugs, causing low access to majority of patients, be attributed to high R&D cost?

Posted on February 13, 2012 by Tapan Ray

Many thought leaders have been arguing since long that pharmaceutical R&D expenses are being over stated and the real cost is much less. An article titled “Demythologizing the high costs of pharmaceutical research”, published by the London School of Economics and Political Science in 2011 indicates that the total cost from discovery and development stages of a new drug to its market launch was around US$ 802 million in year 2000. This was worked out in 2003 by the ‘Tuft Center for the Study of Drug Development’ in Boston, USA.

However, in 2006 the same figure increased by 64 per cent to US$ 1.32 billion, as reported by a pharmaceutical industry association. Maintaining similar trend, if one assumes that the R&D cost will increase by another 64 per cent by 2012, the cost to bring a new drug to the market through its discovery and development stages will be around US $2.16 billion. This will mean a 2.7 times increase from its year 2000 estimate, the article says.

The authors mentioned that the following factors were not considered while working out the 2006 figure of US$ 1.32 billion:

The tax exemptions that the companies avail for investing in R&D.
Tax write-offs amount to taxpayers’ contributing almost 40% of the R&D cost.
The cost of basic research (should not have been included), as these are mostly done in public funded universities or laboratories.

The article comments that ‘half the R&D costs are inflated estimates of profits that companies could have made if they had invested in the stock market instead of R&D and include exaggerated expenses on clinical trials’.

The authors alleged that “Pharmaceutical companies have a strong vested interest in maximizing figures for R&D as high research and development costs have been the industry’s excuse for charging high prices. It has also helped generating political capital worth billions in tax concessions and price protection in the form of increasing patent terms and extending data exclusivity.”

The study concludes by highlighting that “the real R&D cost for a drug borne by a pharmaceutical company is probably about US$ 60 million.”

Declining Pharmaceutical R&D productivity:

That pharmaceutical R&D productivity is fast declining has been vindicated by ‘2011 Pharmaceutical R&D Factbook’ complied by Thomson Reuters, the key highlights of which are as follows:

21 new molecular entities (NMEs) were launched in the global market in 2010, which is a decrease from 26 NMEs of the previous year.
2010 saw the lowest number of NMEs launched by major Pharma players in the last 10 years
The number of drugs entering Phase I and Phase II clinical trials fell 47% and 53% respectively during the year.

Does pharmaceutical R&D always create novel drugs?

According to a recent report, US-FDA approved 667 new drugs from 2000 to 2007. Out of which only 75 (11%) were innovative molecules having much superior therapeutic profile than the existing ones. However, more than 80% of 667 approved molecules were not found to be better than those, which are already available in the market. Thus, the question very often being raised by many is, why so much money is spent on discovery and development of ‘me-too’ drugs and thereafter for their prescription generation through aggressive marketing, when the patients pay for the entire cost of such drugs including the profit after being prescribed by the doctors?

A global CEO challenged the status quo:

By challenging the status quo, Andrew Witty, the global CEO of GlaxoSmithKline (GSK) in his speech in Mumbai on September 27, 2011 to the members of the Indian pharmaceutical industry commented that the cost of over a billion dollar to bring a new molecule to the market through its discovery and development stages is “unacceptable.” He attributed such high R&D expenses to the ‘cost of failure’ by the industry.

Witty said, “High in-house failure rates are slowing progress on pricing affordability… We need to fail less and deliver more”.

He commented during his deliberation that success in reducing the R&D cost to make innovative drugs more affordable to the patients of all income levels, across the globe, will be the way forward in the years ahead.

Ways to reduce the R&D cost:

Some other experts articulated that sharp focus in the following areas may help containing the R&D expenditure to a great extent and the savings thus made, in turn, can fund a larger number of R&D projects:

Early stage identification of unviable new molecules and jettisoning them quickly
Newer cost efficient R&D models, like one implemented by GSK
Significant reduction in drug development time.

An opposite view:

The book titled “Pharmaceutical R&D: Costs, Risks, and Rewards”, published by the government of USA states that the three most important components of R&D investment are:

Money
Time
Risk

Money is just one component of investment together with a long duration of time to reap the benefits of success intertwined with a very high risk of failure. The investors in the pharmaceutical R&D projects not only take into account of how much investment is required for the project against expected financial returns, but also the timing of inflow and outflow of fund with associated risks. It is thus quite understandable that longer is the wait for the investors to get their return, greater will be their expectations for the same.

The publication also highlights that the cost of bringing a new drug from the ‘mind to market’ depends on quality and sophistication of science and technology involved in a particular R&D process together with associated investment requirements for the same. In addition, regulatory requirements to get marketing approval of a complex molecule for various serious disease types are also getting more and more stringent, increasing their cost of clinical development simultaneously. All these factors when taken together make the cost of R&D very high and unpredictable.

Thus to summarize, high pharmaceutical R&D costs involve:

Sophisticated science and technology dependent high up-front financial investments
A long and indefinite period of negative cash flow
High tangible and intangible costs for acquiring technology with rapid trend of obsolescence
High risk of failure at any stage of product development

Conclusion:

While getting engaged in to this debate, one should possibly keep in mind that effective patent exclusivity period in the pharmaceutical industry is much limited as compared to any other industry across the globe. This is mainly because a long period of 8-10 years goes between drug discovery/grant of patent, drug development and market launch of the new molecule, when it starts recovering the cost and making a profit. Thus the period of effective commercial exclusivity that a new drug enjoys through patent protection usually lasts not more than 10 to 12 year period.

For all these reasons and despite such a huge controversy, I wonder, even if the R&D expenditures are brought down to the year 2000 level of US$ 802 million through various productivity improvement measures, whether it will really be possible to develop a commercial R&D model by any pharmaceutical company to deliver low price innovative drugs ensuring high access to majority of the patients. For that one should possibly look at other R&D models like, ‘Patent Pool’ and ‘Open Source Drug Discovery (OSDD)’ systems along with various funding options.

Thus in my view, high prices of new drugs, causing low access to majority of patients, should by and large be attributed to high R&D cost. However, there is not even an iota of doubt about commercial unsustainability of such ballooning research and development expenditures even in the medium term.

That said, the arithmetic of pricing for a new marketable molecule could change dramatically, if “the real R&D cost for a drug borne by a pharmaceutical company be just about US$ 60 million”, as argued by the authors of a publication quoted above, though the figure, I reckon, is quite unrealistic.

By: Tapan J Ray

Pharmaceutical innovation and Public Health Interest: Ways to achieving the dual objectives

Posted on February 6, 2012 by Tapan Ray

Healthcare industry in general and the pharmaceutical sector in particular have been experiencing a plethora of innovations not only to cure and effectively manage ailments to improve the quality of life, but also to help increasing overall disease-free life expectancy of the population with various types of treatment and disease management options. Unfortunately despite all these, over half the global population is still denied of basic healthcare needs and support.

A 2011 official estimate of the current world population reads as 6.93 billion. Out of which over three billion live with a subsistence of less than US$ 2 per day. Another billion population is surviving on even less than US$ 1 per day. According to published reports around 18 million people die from poverty-related causes across the world, every year.

The World Health Organization (WHO) has estimated that over a billion population of the world still suffer from neglected tropical diseases.

On February 3, 2012, quoting a ‘World Bank and PwC report’, ‘The Economic Times’ reported that “70% of Indians spend all their income on healthcare and buying drugs.”

In a situation like this, challenges that the governments and the civil society are facing in many developing and to some extent even in some developed countries (although for different reasons), are multi-factoral. It has been well established that the humongous global healthcare challenges are mostly of economic origin.

In such a scenario, ongoing heated debate on innovation, Intellectual Property Rights (IPR) and public health interest keeps gaining momentum all over the globe and has still remained unabated.

Argumentative Indians have also got caught in this raging debate. I reckon rightly so, as India is not only the largest democracy of the world contributing 16.7% of the global population, it is also afflicted with 21% of the global burden of disease. Thus, the reason for similar heated debate in our country is indeed no brainer to any one.

Thorny issues:

One of the thorny issues in this debate is the belief that huge R&D budgets of the global pharmaceutical companies are worked out without any consideration of relative value of such investments to the vast majority of population in our society, across the world. These thought leaders argue, as the poor cannot pay for the expensive innovative drugs, they are mostly denied of the fruits of pharmaceutical innovation in their battle against diseases.

These experts also say that safeguards built into the patent system in form of compulsory licenses are not usually broad enough to improve access to innovative medicines to a larger section of the society, whenever required.

In addition, they point out that wide scope of patent grants in areas of early fundamental research, quite often is strategically leveraged by the patentee to block further R&D in related areas without significant commercial considerations to them. Such a situation comes in the way of affordable innovative drug development for public health interest, when need arises.

Inadequate access to medicines in India:

The key issue in the country is even more complicated. Inadequate or lack of access to modern medicines reportedly impacts around 50% of our population. It is intriguing to fathom, why has the nation not been able to effectively address the challenge of access to relatively affordable high quality generic medicines to the deprived population of the society over a period of so many decades?

Thus IPR in no way be considered as the reason for poor access, at least, to generic medicines, especially in India. Neither, it is the reason for inadequate availability of affordable essential medicines for the diseases of the poor.

The key reason, as is widely believed, is inadequate focus on the deprived population to address their public health concerns by the government.

Pharmaceutical innovation and the burden of disease:

A healthy debate:

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

However, another school of experts think very differently. In their opinion, 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.

Creation of IGWG by WHO:

‘Reward Fund’ for innovation and access – an idea:

A paper titled, “Optional reward for new drug for developing countries” published by the Department of Economics, University of Calgary, Institute of Health Economics, proposed an optional reward fund for pharmaceutical innovation aimed at the developing world to the pharmaceutical companies, which would develop new drugs while ensuring their adequate access to the poor. The paper suggests that innovations with very high market value will use the existing patent system, as usual. However, the medicines with high therapeutic value but low market potential would be encouraged to opt for the optional reward system.

It was proposed that the optional reward fund should be created by the governments of the developed countries and charitable institutions to ensure a novel way for access to innovative medicines by the poor.

The positive effects of the debate:

One positive effect of this global debate is that some global pharmaceutical companies like Novartis, GSK and AstraZeneca have initiated their R&D activities for the neglected tropical diseases of the world like, Malaria and Tuberculosis.

Many charitable organizations like Bill & Melinda Gates Foundation and Clinton Foundation are allocating huge amount of funds for this purpose.

On January 30, 2012, on behalf of the research-based pharmaceutical industry, Geneva based International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) by a Press Release announced donations of 14 billion treatments in this decade to support elimination or control of nine key Neglected Tropical Diseases (NTDs).

Without creating much adverse impact on pharmaceutical innovation ecosystem of the country, the Government of India is also gradually increasing its resource allocation to address the issue of public health, which is still less than adequate as of now.

All these newer developments and initiatives are definitely ushering in an era of positive change for a grand co-existence of pharmaceutical innovation and public health interest of the country, slow and gradual though, but surely a change for the better.

Innovation helps to improve public health:

In India, various stakeholders of the pharmaceutical industry feel that there is a need to communicate more on how innovation and IPR help rather than hinder public health. Some initiatives have already been taken in this direction with the pioneering ‘patent pool’ initiative of GlaxoSmithKline (GSK) in Europe and ‘Open Source Drug Discovery (OSDD)’ by the Council of Scientific and Industrial Research (CSIR) of the Government of India.

The pace needs to be accelerated:

The pace of achieving the dual objectives of fostering pharmaceutical innovation without losing focus on public health has to be accelerated, though progress is being slowly made in these areas through various initiatives. Additional efforts are warranted for sustainability of these initiatives, which have not yet gained the status of robust and sustainable work models.

However in India, the government in power should shoulder the key responsibility garnering all resources to develop and implement ‘Universal Health Coverage’ through appropriate innovative healthcare reform measures. Such steps will help achieving the country its national goal of providing affordable healthcare to all.

At the same time, creation of a variant of ‘reward fund’ to encourage smaller pharmaceutical players of India to pursue pharmaceutical innovation needs to be considered expeditiously. This will help encouraging pharmaceutical innovation in a big way within the country.

Address the basic issue of poverty:

It is a well-accepted fact that the price is one of the key determinants to improve access to modern medicines to a vast majority of the population. However, the moot question remains how does one make medicines more affordable by not addressing effectively the basic issue of general poverty in the country? Without appropriately resolving this issue, affordability of medicines will continue remain a vexing problem and a critical issue to address public health in India.

Conclusion:

Innovation, as is widely acknowledged, is the wheel of progress of any nation. This wheel should move on… on and on with the fuel of IPR, which is an economic necessity of the innovator to make the innovation sustainable.

In the book titled, ‘Pharmaceutical Innovation: Revolutionizing Human Health‘ the authors have illustrated how science has provided an astonishing array of medicines to effectively cope with human ailments over the last 150 years.

Moreover, pharmaceutical innovation is a very expensive process and grant of patents to the innovators is an incentive of the government to them for making necessary investments towards R&D projects to meet unmet needs of the patients. The system of patent grants also contributes to society significantly by making freely available patented information to other scientists to improve upon the existing innovation through non-infringing means.

Altruism, especially in the arena of public health, may be demanded by many for various considerations. Unfortunately, that is not how the economic model of pharmaceutical innovation and IPR works globally. Accepting this global reality, the civil society should deliberate on how innovation and IPR can best be used, in a sustainable manner for public health interest, especially for the marginalized section of the society.

By: Tapan J Ray

PILMAN

A Tapan Ray Website

Tag Archives: R&D

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

Takes ‘Two to Tango’: Encashing Opportunities with Biologic drugs in India

An El Dorado…But Not Without Responsible Pricing:The Cancer Segment in India

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

In the Pharmaceutical Space: The Dragon breathes fire

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

Should high prices of new drugs, causing low access to majority of patients, be attributed to high R&D cost?

Pharmaceutical innovation and Public Health Interest: Ways to achieving the dual objectives