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Pharma FDI: Damning Report of Parliamentary Panel, PM Vetoes…and Avoids Ruffling Feathers?

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An interesting situation emerged last week. The Parliamentary Standing Committee (PSC) on Commerce proposed a blanket ban on all FDI in brownfield pharma sector. Just two days after that, the Prime Minister of India vetoed the joint opposition of the Department of Industrial Policy and Promotion (DIPP) and the Ministry of Health to clear the way for all pending pharma FDIs under the current policy.

On August 13, 2013, Department related Parliamentary Standing Committee on Commerce laid on the Table of both the Houses of the Indian Parliament its 154 pages Report on ‘FDI in Pharmaceutical Sector.’

The damning report of the Parliamentary Standing Committee flags several serious concerns over FDI in brownfield pharma sector, which include, among others, the following:

1. Out of 67 FDI investments till September 2011, only one has been in green field, while all the remaining FDI has come in the brown field projects. Moreover, FDI in brown field investments have of late been predominantly used to acquire the domestic pharma companies.

2. Shift of ownership of Indian generic companies to the MNCs also results in significant change of the business model, including the marketing strategy of the acquired entity, which are quite in sync with the same of the acquirer company. In this situation, the acquired entity will not be allowed to use flexibilities such as patent challenges or compulsory license to introduce new affordable generic medicines.

The withdrawal of all patent challenges by Ranbaxy on Pfizer’s blockbuster medicine Lipitor filed in more than eight countries immediately after its acquisition by Daiichi-Sankyo is a case in point.

3. Serial acquisitions of the Indian generic companies by the MNCs will have significant impact on competition, price level and availability. The price difference between Indian ‘generics’ and MNCs’ ‘branded generic’ drugs could  sometimes be as high as 80 to 85 times. A few more larger scale brownfield takeovers may even destroy all the benefits of India’s generics revolution.

4. FDI inflow into Research & Development of the Pharma Industry has been totally unsatisfactory. 

5. FDI flow into brown field projects has not added any significant fresh capacity in manufacturing, distribution network or asset creation. Over last 15 years, MNCs have contributed only 5 per cent of the gross fixed assets creation, that is Rs 3,022 crore against Rs 54,010 crore by the domestic companies. Further, through brownfield acquisitions significant strides have not been made by the MNCs, as yet, for new job creation and technology transfer in the country.

6. Once a foreign company takes over an Indian company, it gets the marketing network of the major Indian companies and, through that network, it changes the product mix and pushes the products, which are more profitable and expensive. There is no legal provision in India to stop any MNC from changing the product mix.

7. Though the drug prices may not have increased significantly after such acquisitions yet, there is still a lurking threat that once India’s highly cost efficient domestic capacity is crushed under the weight of the dominant force of MNCs, the supply of low priced medicines to the people will get circumvented.

8. The ‘decimation’ of the strength of local pharma companies runs contrary to achieving the drug security of the country under any situation, since there would be few or no Indian companies left having necessary wherewithal to manufacture affordable generics once a drug goes off patent or comply with a Compulsory License (CL).

9. Current FIPB approval mechanism for brownfield pharma acquisitions is inadequate and would not be able to measure up to the challenges as mentioned above.

The Committee is also of the opinion that foreign investments per se are not bad. The purpose of liberalizing FDI in pharma was not intended to be just about takeovers or acquisitions of domestic pharma units, but to promote more investments into the pharma industry for greater focus on R&D and high tech manufacturing, ensuring improved availability of affordable essential drugs and greater access to newer medicines, in tandem with creating more competition. 

Based on all these, The Committee felt that FDI in brown field pharma sector has encroached upon the generics base of India and adversely affected Indian pharma industry. Therefore, the considered opinion of the Parliamentary Committee is that the Government must impose a blanket ban on all FDI in brownfield pharma projects.

PM clears pending pharma FDI proposals:

Unmoved by the above report of the Parliamentary Committee, just two days later, on August 16, 2013, the Prime Minister of India, in a meeting of an inter-ministerial group chaired by him, reportedly ruled that the existing FDI policy will apply for approval of all pharmaceutical FDI proposals pending before the Foreign Investments Promotion Board (FIPB). Media reported this decision as, “PM vetoes to clear the way for pharma FDI.”

This veto of the PM includes US $1.6-billion buyout of the injectable facility of Agila Specialties, by US pharma major Mylan, which has already been cleared by the Competition Commission of India (CCI).

This decision was deferred earlier, as the DIPP supported by the Ministry of Health had expressed concerns stating, if MNCs are allowed to acquire existing Indian units, especially those engaged in specialized affordable life-saving drugs, it could possibly lead to lower production of those essential drugs, vaccines and injectibles with consequent price increases. They also expressed the need to protect oncology facilities, manufacturing essential cancer drugs, with assured supply at an affordable price, to protect patients’ interest of the country.

Interestingly, according to Reserve Bank of India, over 96 per cent of FDI in the pharma sector in the last fiscal year came into brownfield projects. FDI in the brownfield projects was US$ 2.02 billion against just US$ 87 million in the green field ventures.

Fresh curb mooted in the PM’s meeting:

In the same August 16, 2013 inter-ministerial group meeting chaired by the Prime Minister, it was also reportedly decided that DIPP  will soon float a discussion paper regarding curbs that could be imposed on foreign takeovers or stake purchases in existing Indian drug companies, after consultations with the ministries concerned.

Arguments allaying apprehensions:

The arguments allaying fears underlying some of the key apprehensions, as raised by the Parliamentary Standing Committee on Commerce, are as follows:

1. FDI in pharma brownfield will reduce competition creating an oligopolistic market:

Indian Pharmaceutical Market (IPM) has over 23,000 players and around 60,000 brands. Even after, all the recent acquisitions, the top ranked pharmaceutical company of India – Abbott enjoys a market share of just 6.6%. The Top 10 groups of companies (each belonging to the same promoter groups and not the individual companies) contribute just over 40% of the IPM (Source: AIOCD/AWACS – Apr. 2013). Thus, IPM is highly fragmented. No company or group of companies enjoys any clear market domination.

In a scenario like this, the apprehension of oligopolistic market being created through brownfield acquisitions by the MNCs, which could compromise with country’s drug security, needs more informed deliberation.

2. Will limit the power of government to grant Compulsory Licensing (CL):

With more than 20,000 registered pharmaceutical producers in India, there is expected to be enough skilled manufacturers available to make needed medicines during any emergency e.g. during H1N1 influenza pandemic, several local companies stepped forward to supply the required medicine for the patients.

Thus, some argue, the idea of creating a legal barrier by fixing a cap on the FDIs to prevent domestic pharma players from selling their respective companies at a price, which they would consider lucrative otherwise, just from the CL point of view may sound unreasonable, if not protectionist in a globalized economy.

3.  Lesser competition will push up drug prices:

Equity holding of a company is believed by some to have no bearing on pricing or access, especially when medicine prices are controlled by the NPPA guidelines and ‘competitive pressure’.

In an environment like this, any threat to ‘public health interest’ due to irresponsible pricing, is unlikely, especially when the medicine prices in India are cheapest in the world, cheaper than even Bangladesh, Pakistan and Sri Lanka (comment: whatever it means).

India still draws lowest FDI within the BRIC countries: 

A study of the United Nations has indicated that large global companies still consider India as their third most favored destination for FDI, after China and the United States.

However, with the attraction of FDI of just US$ 32 billion in 2011, against US$ 124 billion of China, US$ 67 billion of Brazil and US$ 53 billion of Russia during the same period, India still draws the lowest FDI among the BRIC countries.

Commerce Minister concerned on value addition with pharma FDI:

Even after paying heed to all the above arguments, the Commerce Minister of India has been expressing his concerns since quite some time, as follows:

“Foreign Direct Investment (FDI) in the pharma sector has neither proved to be an additionality in terms of creation of production facilities nor has it strengthened the R&D in the country. These facts make a compelling case for revisiting the FDI policy on brownfield pharma.”

As a consequence of which, the Department of Industrial Policy and Promotion (DIPP) has reportedly been opposing FDI in pharma brownfield projects on the grounds that it is likely to make generic life-saving drugs expensive, given the surge in acquisitions of domestic pharma firms by the MNCs.

Critical Indian pharma assets going to MNCs:

Further, the DIPP and the Ministry of Health reportedly fear that besides large generic companies like Ranbaxy and Piramal, highly specialized state-of-the-art facilities for oncology drugs and injectibles in India are becoming the targets of MNCs and cite some examples as follows:

  • Through the big-ticket Mylan-Agila deal, the country would lose yet another critical cancer drug and vaccine plant.
  • In 2009 Shantha Biotechnics, which was bought over by Sanofi, was the only facility to manufacture the Hepatitis B vaccine in India, which used to supply this vaccine at a fraction of the price as compared to MNCs.
  • Mylan, just before announcing the Agila deal, bought over Hyderabad based SMS Pharma’s manufacturing plants, including some of its advanced oncology units in late 2012.
  • In 2008, German pharma company Fresenius Kabi acquired 73 percent stake in India’s largest anti-cancer drug maker Dabur Pharma.
  • Other major injectable firms acquired by MNCs include taking over of India’s Orchid Chemicals & Pharma by Hospira of the United States.
  • With the US market facing acute shortage of many injectibles, especially cancer therapies in the past few years, companies manufacturing these drugs in India have become lucrative targets for MNCs.

An alternative FDI policy is being mooted:

DIPP reportedly is also working on an alternate policy suggesting:

“It should be made mandatory to invest average profits of last three years in the R&D for the next five years. Further, the foreign entity should continue investing average profit of the last three years in the listed essential drugs for the next five years and report the development to the government.”

Another report indicated, a special group set up by the Department of Economic Affairs suggested the government to consider allowing up to 49 per cent FDI for pharma brownfield investments under the automatic route.However, investments of more than 49 per cent would be referred to the Foreign Investment Promotion Board (FIPB).

It now appears, a final decision on the subject would be taken by the Prime Minister after a larger inter-mimisterial consultation, as was decided by him on August 14, 2013.

The cut-off date to ascertain price increases after M&A:

Usually, the cut off point to ascertain any price increases post M&A is taken as the date of acquisition. This process could show false positive results, as no MNC will take the risk of increasing drug prices significantly or changing the product-mix, immediately after acquisition.

Significant price increases could well be initiated even a year before conclusion of M&As and progressed in consultation by both the entities, in tandem with the progress of the deal. Thus, it will be virtually impossible to make out any significant price changes or alteration in the product-mix immediately after M&As.

Some positive fallouts of the current policy:

It is argued that M&As, both in ‘Greenfield’ and ‘Brownfield’ areas, and joint ventures contribute not only to the creation of high-value jobs for Indians but also access to high-tech equipment and capital goods. It cannot be refuted that technology transfer by the MNCs not only stimulates growth in manufacturing and R&D spaces of the domestic industry, but also positively impacts patients’ health with increased access to breakthrough medicines and vaccines. However, examples of technology transfer by the MNCs in India are indeed few and far between.

This school of thought cautions, any restriction to FDI in the pharmaceutical industry could make overseas investments even in the R&D sector of India less inviting.

As listed in the United Nation’s World Investment Report, the pharmaceutical industry offers greater prospects for future FDI relative to other industries.  Thus, restrictive policies on pharmaceutical FDI, some believe, could promote disinvestments and encourage foreign investors to look elsewhere.

Finally, they highlight, while the Government of India is contemplating modification of pharma FDI policy, other countries have stepped forward to attract FDI in pharmaceuticals. Between October 2010 and January 2011, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Need to attract FDI in pharma:

At a time when the Global Companies are sitting on a huge cash pile and waiting for the Euro Zone crisis to melt away before investing overseas, any hasty step by India related to FDI in its pharmaceutical sector may not augur well for the nation.

While India is publicly debating policies to restructure FDI in the ‘Brownfield’ pharma sector, other countries have stepped forward to attract FDI in their respective countries.  Between October 2010 and January 2011, as mentioned earlier, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Thus the moot question is, what type of FDI in the pharma brownfield sector would be good for the country in the longer term and how would the government incentivize such FDIs without jeopardizing the drug security of India in its endeavor to squarely deal with any conceivable  eventualities in future?

Conclusion:

In principle, FDI in the pharma sector, like in any other identified sectors, would indeed benefit India immensely. There is no question about it…but with appropriate checks and balances well in place to protect the national interest, unapologetically.

At the same time, the apprehensions expressed by the Government, other stakeholders and now the honorable members of the Parliament, across the political party lines, in their above report, should not just be wished away by anyone.

This issue calls for an urgent need of a time bound, comprehensive, independent and quantitative assessment of all tangible and intangible gains and losses, along with opportunities and threats to the nation arising out of all the past FDIs in the brownfield pharma sector.

After a well informed debate by experts on these findings, a decision needs to be taken by the law and policy makers, whether or not any change is warranted in the structure of the current pharma FDI policy, especially in the brownfield sector. Loose knots, if any, in its implementation process to achieve the desired national outcome, should be tightened appropriately.

I reckon, it is impractical to expect, come what may, the law and policy makers will keep remaining mere spectators, when Indian Pharma Crown Jewels would be tempted with sacks full of dollars for change in ownerships, jeopardizing presumably long term drug security of the country, created painstakingly over  decades, besides leveraging immense and fast growing drug export potential across the world.

The Competition Commission of India (CCI) can only assess any  possible adverse impact of Mergers & Acquisitions on competition, not all the apprehensions, as expressed by the Parliamentary Standing Committee and so is FIPB.

That said, in absence of a comprehensive impact analysis on pharma FDIs just yet, would the proposal of PSC to ban foreign investments in pharma brownfield sector and the PM’s subsequent one time veto to clear all pending FDI proposals under the current policy, be construed as irreconcilable internal differences…Or a clever attempt to create a win-win situation without ruffling MNC feathers?

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.

Pioglitazone Conundrum: Should The Drug Regulator Step Over The Line?

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Recent order of the Indian drug regulator to withdraw all formulations of the well known, yet controversial, anti-diabetic drug – Pioglitazone from the domestic market has created a flutter in the country, ruffling many feathers at the same time.

Withdrawal of any drug from the market involves well-considered findings based on ongoing robust pharmacovigilance data since the concerned product launch. To ascertain long-term drug safety profile, this process is universally considered as important as the processes followed for high quality drug manufacturing and even for R&D.

A paper titled, “Withdrawing Drugs in the U.S. Versus Other Countries” brings to the fore that one of the leading causes of deaths in the United States is adverse drug reaction. Assessing enormity and impact of this issue, the United Nations General Assembly for the first time in 1979 decided to publish a list of banned pharmaceutical products that different countries may use for appropriate decisions keeping patients’ safety in mind, as they will deem necessary from time to time.

An interesting finding:

Quite interestingly, the paper also highlights:

“There are a number of pharmaceuticals on the market in the USA that have been banned elsewhere and similarly, there are some drug products that have been banned in the United States, but remain on the market in other countries.”

Different policies in different countries:

The reason for the above finding is mainly because, various countries follow different policies to address this important health related issue. For example, though the United States will withdraw drugs based on the decision taken by its own FDA, it will also compare the action taken by countries like, UK, Japan, Australia and Sweden on the same subject.

However, many experts do believe that United Nations must take greater initiative to make all concerned much more aware about the UN list of dangerous drugs, which should be continuously updated to expect the least.

Need transparency in pharmacovigilance:

Pharmacovigilance has been defined as:

“The task of monitoring the safety of medicines and ensuring that the risks of a medicine do not outweigh the benefits, in the interests of public health.”

An article on Pharmacovigilance by A.C. (Kees) van Grootheest and Rachel L. Richesson highlights as follows:

“The majority of post marketing study commitments are never initiated, and the completion of post marketing safety studies (i.e., phase IV studies) declined from 62% between 1970 and 1984 to 24% between 1998 and 2003.”

Thus, in many countries, due to lack of required transparency in the pharmacovigilance process, harmful drugs continue to remain in the market for many years before they are withdrawn, for various reasons.

The above paper strongly recommends, “While there might be monetary benefits for each country in keeping these drugs on the market, the U.N. must step up the visibility of the withdrawal of dangerous drugs list.”

Recent Pioglitazone withdrawal in India:

Recently in India, the Ministry of Health under Section 26A of the Drugs and Cosmetics Act, 1940 has suspended the manufacture and sale of Pioglitazone, along with two other drugs, with immediate effect, through a notification issued on June 18, 2013.

As per the Drugs and Cosmetic Rule 30-B, import and marketing of all those drugs, which are prohibited in the country of origin, is banned in India. Just as in the United States, the Ministry of health, while taking such decisions in India, compares long-term safety profile of the concerned drugs in countries like, USA, UK, EU and Australia.

A Parliamentary Standing Committee of India has already indicted the drug regulator for not taking prompt action on such issues to protect patients’ treatment safety.

Pioglitazone: the risk profile:

In India:

A leading medical journal (JAPI) cautions:

“Given the possible risk of bladder cancer, physicians have to be extremely careful about using pioglitazone indiscriminately in the future.”

The JAPI article continues to state:

“We require more robust data on the risk of bladder cancer with pioglitazone and Indian studies are clearly needed. Till that time, we may continue the use of this drug as a second or third line glucose-lowering agent. In all such cases, the patient should be adequately informed about this adverse effect and drug should be used in as small a dose as possible, with careful monitoring and follow up.”

In the USA:

In 2011 The US FDA as a part of its ongoing safety review of pioglitazone informed physicians and the public that use of this drug for more than 12 months is linked to an increased risk of bladder cancer.

The USFDA review is reportedly based on “an ongoing 10-year observational cohort study as well as a nested, case-control study of the long-term risk of bladder cancer in over 193,000 patients with diabetes who are members of the Kaiser Permanente Northern California (KPNC) health plan.”

Based on this finding US FDA directed that physicians should:

  • Not use pioglitazone in patients with active bladder cancer.
  • Use pioglitazone with caution in patients who have a prior history of bladder cancer, adding, “The benefits of blood sugar control with pioglitazone should be weighed against the unknown risks for cancer recurrence.”
  • Tell patients to report any signs or symptoms of “blood in the urine, urinary urgency, pain on urination, or back or abdominal pain, as these may be due to bladder cancer.”
  • Urge patients to read the pioglitazone medication guide.
  • Report adverse events involving pioglitazone medicines to the FDA MedWatch program.

The moot point:

Considering the above US FDA directives in the Indian context, the moot point therefore is, whether it will be possible for the drug regulator to ensure that physicians and the patients in India follow such steps for drug safety with pioglitazone?

In Canada:

Another new Canadian study has again reportedly linked Pioglitazone with risks of bladder cancer and cautioned, “physicians, patients and regulatory agencies should be aware of this association when assessing the overall risks and benefits of this therapy.”

Pioglitazone and its combinations banned in France and Germany:

After a government-funded study, tracking diabetics from 2006 to 2009, concluded that Pioglitazone increases bladder cancer risk, the French Medicines Agency (FMA) announced withdrawal of Pioglitazone along with its fixed-dose combination with Metformin, as well.

FMA also advised doctors to stop prescribing Pioglitazone, plain or in combination, and asked patients, who are on this drug to consult their doctors immediately.

Simultaneously, German health authorities also acted on similar lines.

An intriguing comment by the Indian drug regulator:

Keeping all these in view, it is indeed intriguing to note that the Indian drug regulator is reportedly open to re-examine the case of pioglitazone and revoking its ban in India, if strong scientific evidences emerge in support of safety and efficacy of the drug.

However, the question then comes up is what more new scientific evidences that the Indian drug regulator is now expecting, especially when the pharmacovigilance studies are almost non-existent in India?

Moreover, such comments of the drug regulator not only prompt raising doubts about the fragility and hastiness of his own decision of banning Pioglitazone in India, but also amply demonstrate lack of seriousness in his part on this extremely important decision on drug safety?

‘Drug Product Liability Claims’ in India virtually non-existant:

In most of the developed countries, appropriate regulations are in place for product liability claims.

Under this law, if any patient suffers injury in any form while administering  a pharmaceutical drug, the patient concerned is eligible to make pharmaceutical-drug-based product liability claims, which usually involve a huge amount of money by any imaginable standard.

These claims are based on:

  • Improperly marketed pharmaceutical drugs. This category includes:

- Failure to provide adequate or accurate warnings regarding a dangerous side effect.

- Failure to provide adequate instructions on safe and appropriate use of the drug.

- The “bad advice”, which may have been given by the manufacturer or by a doctor, pharmacist, sales rep, or some other medical provider.

In the United States drug safety and effectiveness related litigations reportedly also include:

-        Criminal and civil complaints brought by the U.S. Department of Justice.

-        Lawsuits brought by state Attorney Generals and private plaintiffs under state consumer protection acts and other causes of action.

In India, closer to the above system there is a law in paper, named as “Products Liability”. This law deals with the liability of manufacturers, wholesalers, distributors, and vendors for injury to a person or property caused by dangerous or defective products. The aim of this law is to help protecting consumers from dangerous or defective products, while holding manufacturers, distributors, and retailers responsible for putting into the market place products that they knew or should have known were dangerous or defective. However, in reality, there are hardly any damages slapped by consumers on to the manufacturers in India under this ‘Product Liability’ law.

It may sound however bizarre, but is a hard fact that many drugs in Fixed Dose Combinations (FDCs) had never even gone through any form clinical trials on human volunteers before they were for the first time allowed to be marketed in India by the drug regulators.

In absence of any active steps taken by the government to educate and encourage patients to make use of this law, patients, by and large, would continue to pay a heavy price for their ignorance, keeping their mouth shut all the way, while using:

- Defectively manufactured pharmaceutical drugs.

- Pharmaceutical drugs with dangerous side effects.

- And even improperly marketed pharmaceutical drugs.

As stated before, it is worth repeating, neither is their any functional pharmacovigilance system in place in India.

Drug product liability suit for Pioglitazone in the United States:

Just to cite an example, one report indicates:

“According to court filings, all of the Actos (Pioglitazone) lawsuits pending in the Western District of Louisiana allege Takeda Pharmaceuticals failed to provide adequate warnings to doctors and patients regarding the drug’s association with an increased risk of bladder cancer. Last month (April, 2013), the nation’s first trial involving Actos bladder cancer allegations ended with a Los Angeles Superior Court jury awarding $6.5 million to a plaintiff who was diagnosed with the disease after taking the drug for four years”. However, the judge overseeing the case granted Takeda Pharmaceuticals’ request to set aside the verdict.

The report also indicates, ‘more than 1,200 Actos bladder cancer claims are pending in the Louisiana litigation. Additional Actos lawsuits have been filed in state litigations in California and Illinois.’

Indian doctors and manufacturers protest together against Pioglitazone ban:

It is equally intriguing to note, despite serious life threatening side-effect and restricted usage profile of Pioglitazone, as established internationally through robust and large clinical studies, both the doctors and the Pioglitazone manufacturers in India are urging the government to lift ban on this drug immediately, keeping the silent patient community in the front line, as usually happens all over.

A news report highlighted that ‘doctors flayed the ban on anti-diabetes drug Pioglitazone and requested the Centre to reverse its decision in interest of patients.’

Another media report highlighted, major drug makers are strongly opposing the move of the government to ban Pioglitazone, in India.

Conclusion:

Without generating another set of robust evidence proving contrary to what has been already concluded in the United States and EU based on strong supporting pharmacovigilance data, if the Indian drug regulator revokes the ban of Pioglitazone, it will be construed as a huge compromise with patients’ safety interest with this drug.

This issue assumes even greater importance, when the ‘drug product liability’ system is almost dysfunctional in India.

The other alternative of the drug regulator is to revoke the ban, wilting under combined pressure of the manufacturers and doctors and ask for safety warnings trying to emulate, as it were, what has been done by the US FDA.  

In which case, with full knowledge that it is virtually impossible for any one to comply with the above US FDA requirements in India, will the drug regulator not step over the line, yet again?

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.