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Explore the Emerging Markets with the ‘Wings of Courage’.

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Overall growth rate of the global pharmaceutical industry is currently hovering around 5%. Similar situation has been prevailing since last several years. There is no indication of acceleration of growth rate from any of the top 3 regions of the world namely the USA, EU and Japan, at least in the near future.

According to IMS, the global pharmaceutical market is expected to grow around 5%-7% in 2011 to US$ 880 billion, as compared to around 4%-5% of 2010.

The reasons of the slowdown, I have discussed several times in the past through this column and do not intend to dwell on that, at least, in this Article.

The Emerging Markets of the World:

Unlike developed markets, emerging pharmaceuticals market of the world, like, India, China, Brazil, Russia, Mexico, Turkey and Korea, are showing a robust growth rate, quite commensurate to the ascending GDP growth trend of these countries.

According to IMS, the projected CAGR trend of the developed and Emerging Markets for the period of 2007–11, are as follows:

Mature Markets

CAGR 2007-11

Emerging Markets

 CAGR 2007-11
USA 4-7% China 13-16%
Canada 6-9% Korea 8-11%
Japan 2-5% Brazil 9-12%
Germany 3-6% Russia 17-20%
France 2-5% Mexico 6-9%
Italy 3-6% India 11-14%
UK 4-7% Turkey 9-12%
Spain 5-8%

(Source IMS)

Branded Generics/Generics are now key growth drivers in the Emerging Markets:

It is worth noting, unlike the developed markets of the world, where high priced branded patented drugs drive the value growth of the industry, in the emerging markets, where investment towards R&D is relatively less, branded generic and the generic products are the key growth drivers.

Such an evolving situation has prompted large global majors like Pfizer, GSK, Sanofi-aventis, Daiichi Sankyo and Abbott Laboratories, to name a few, either to acquire large generic or Biosimilar drug companies or ink various interesting and win-win collaborative deals, in these markets, to maintain their respective business growth with the branded generic and generic products in the fast growing emerging markets of the world.

Will Emerging Markets be lucrative enough only with Generic and Branded Generic products, in the long run?

Some experts do feel that, in the long run, the emerging pharmaceutical markets, like India, may not prove to be as lucrative to the global pharmaceutical majors.

The key reason being, around 80% ‘out of pocket’ expenditure for medicines in India, could be the key impediment to expanded access to higher priced innovative medicines, in general. Such a situation could seriously limit the success of branded patented drugs in India following their global strategy, compared to the developed markets of the world. The issue of affordability of such medicines will continue to be a key factor for their improved access in India, if the ground reality remains unchanged. Top line business growth only with Generics and Branded Generics in the emerging markets may not be sustainable enough, in the long run, for the innovator companies to adequately fund their R&D initiatives to meet the unmet needs of the patients.

The other school of thought:

The other school of thought, however, argues that ‘out-of pocket” characteristic of  India is indeed more sustainable in terms of cost containment pressure, than those  markets where the government or health insurance companies cover a large part of the medical expenses for the population.

Every year around 1% of population comes above the poverty line in India together with a growing ‘middle income’ segment with increasing purchasing power. This cycle, in turn, will keep fueling the growth of healthcare space, contributing significantly to the progress of the pharmaceutical industry of the country.

‘One size fits all’ global strategy unlikely to succeed in the ‘Emerging Markets’:

In my view ‘One size fits all’ type of strategy, especially in the area of pricing, is unlikely to succeed in the emerging markets of the world. Pharmaceutical Companies will need to have  different types of ‘tailor made’ strategic approaches for markets like Brazil, Russia, India, China, South Africa, Mexico, Korea and Turkey.

Pricing Strategy will be a key determinant to success:

For better access to medicines, ‘differential pricing strategy’ has been the stated policy of large global companies like, GSK and MSD. If this trend continues, a win-win situation could be created, when unmet needs of a large number of patient groups could be met with innovative medicines, paving the way for the innovator companies to register a healthy, both top and bottom line, business growth in these markets to effectively fund their R&D projects, besides others.

The most successful brand launch in India, so far:

The credit for the most successful new patented product launch (launched in 2008) in the recent times, I reckon, should go to Januvia (Sitagliptin), an oral anti-diabetic molecule from the global major MSD. The reported global sales of Januvia in 2008 was US $1.4 billion and the sales reported in India was around Rs. 77 Crore (around US $17 million) in just over two years with around 2.4% market share in the large and fragmented Oral Ant-Diabetic segment (IMS, MAT March 2010). This could happen, in my view, not only due to a brilliant business strategy executed with military precision but also because of a differential pricing strategy adopted by the company for this particular product in India.

In recent times, it has not been difficult to record a turnover of around US $ 20 – 25 million by a large pharmaceutical brand either in India or China.

Conclusion:

If this does not happen, due to one reason or the other, it would arguably be quite challenging for the global innovators to be able to keep engaged in the high-cost and high-risk R&D initiatives, by driving their business growth mainly with generic and branded generic medicines in the fast growing emerging markets of the world.

Thus the name of the game for the global innovator companies will be to Explore the Emerging Markets with the ‘Wings of Courage’.

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.

Indian Pharmaceutical Industry could well be a contender for global supremacy by the next decade, competing effectively with China

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By the next decade of this millennium both India and China are expected to be the top two emerging markets of the world in the pharmaceutical sector, registering a scorching pace of growth all around. The quality of consistency and sustainability of growth, will determine who will be the main contender of supremacy and the ultimate winner in this game of wealth creation for the respective countries and be the ‘Eldorado’ of the global pharmaceutical companies.

The financial reform measures in the run up to the process of globalization started earlier in China, in 1980 as against 1990 in India. In that sense China took a plunge to be an active member of the ‘global village of commerce’ at least a decade earlier than India.

Reform process started earlier in China:

The Product Patent regime in India was reintroduced in January 1, 2005. Well before that 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 centres, creating wealth for the country.

At the same time, focusing on global ‘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 other, will vindicate this point. On the other hand in the formulations business, India is miles ahead of China, catering to over 20% of the global requirements for the generic pharmaceuticals. Moreover, in ANDA and DMF filings, as well, India is currently much ahead of China.

FDI in India and China:

The Pharmaceutical Industry in India has now started attracting increasing Foreign Direct Investments (FDI). As per the reply to question No. 615 tabled in the Parliament of India (Rajya Sabha) on November 25, 2009 by Mr. Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, from the year 2006-07 up to September 2009, India attracted FDI of US $ 817.30 million for Drugs and Pharmaceuticals with a compounded growth rate of around 60%. USA, Canada, Singapore, UAE and Mauritius contributed 82% to this FDI, which in turn helped significantly to fuel further development and growth of the Industry.

According to ‘The Survey of Foreign Investments in China’s Medicine Industry’ of the Government of China, the FDI in the pharmaceutical industry of the country for the three year period commencing from 2006 to 2008 was around US $ 1772 million, over one third of which coming from Hong Kong and around 11% from the USA.

It is worth noting that the financial and policy reform measures were initiated in China much earlier, as compared to India, which in turn have enabled China to attract more FDIs in the pharmaceutical sector, thus far. In the new paradigm of the post product patent regime both the countries are expected to grow at a scorching pace attracting more and more FDIs for their respective countries.

In this article, I would like to focus on some of these comparisons to assess the progress made so far by both the countries, in a comparative yardstick and the key factors, which will decide the pace-setter.

Country ranking both in value and growth terms:

In global ranking, China is currently the seventh (India: 14) largest pharmaceutical market and is expected to be the fifth (India: 10) largest market by 2015 and the third largest by 2020. Chinese pharmaceutical market is expected to grow by over 15% per annum in the next five years, which is higher than India.

Healthcare coverage of population:

China is racing ahead and gradually but surely distancing itself from India, widening the performance gap with rapid increase of domestic consumption of modern medicines. It is worth mentioning that as per WHO, the access to modern medicines in China is around 85% as against just 35% in India. Of a population of 1.3 billion, 250 million of Chinese are covered by health insurance, another 250 million partially covered by insurance and balance 800 million are not covered by any insurance. In India total number of people who are having some sort of healthcare financing coverage will be around 200 million and penetration of health insurance will be just around 3.5% of the population.

Currently India is losing grounds to China mainly in healthcare infrastructure development, with inadequate healthcare delivery systems and delay in rolling out a long overdue comprehensive healthcare reform process in the country.

Strong commitment of the Chinese Government to the globalization process:

Strong commitment of the Chinese Government to make China a regional hub of R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is paying rich dividends.
Department of Pharmaceuticals recently expressed its intention to make India a R&D hub in not too distant future. This cannot be achieved just through investments of couple of million US $ through Public Private Partnership (PPP). A strong commitment of the Government to hasten regulatory reform processes will be the key factor. The new product patent regime for the pharmaceutical industry has ushered in a new paradigm, with the Government planning to strike a right balance between TRIPs compliant IPR regime and the ‘Public Interest’ and NOT one at the cost of the other.

India and China competing well in Pharma outsourcing business:

Since last 5 years both India and China have made rapid strides in the space of pharma outsourcing. Today the evolving business model of ‘Contract Research and Manufacturing Services (CRAMS)’, is shaping up quite well. To make India a global hub for Pharmaceutical outsourcing of all types, the pharmaceutical industry of the country has all the ingredients. India has the potential to emerge as a serious contender for global supremacy, in this fast growing sector, especially in ‘contract manufacturing’ area, having largest number of US-FDA approved manufacturing plants, outside the USA.

According to ‘Global Services”, in 2009 Pharmaceutical outsourcing market in China and India was of US $ 1.77 billion and US $ 1.42 billion, respectively with China growing at a faster pace. The future growth potential for both the countries is huge, as each enjoyed just 2% share of this outsourcing market in 2009.

It has been forecasted that China will have more environmental growth accelerators than India due to greater continuing fiscal stimulus and policy support by their Government, which could catapult the country ahead of India, just beyond 2010.

‘Country Attractiveness Index’ for clinical trials:

‘A.T. Kearney’ developed a ‘Country Attractiveness Index (CAI)’ for clinical trials, for the use of, especially, the pharmaceutical industry executives to make more informed decision on offshore clinical trials. As per this study, the CAI of China is 6.10 against 5.58 of India.

Pharmaceutical patent filing:

In patent filing too China seem to be ahead of India. 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. This will give an Indication how China is making rapid strides in R&D areas, as well.

Where India is regarded clearly as a preferred destination:

However, India is globally considered as a more mature arena for chemistry and drug-discovery activities than China. Most probably because of this reason, companies like, DRL, Aurigene, Advinus, Glenmark, Nicholas Piramal and Jubilant Organosys could enter into long-term deals with Multinational Companies (MNCs) to discover and develop New Chemical Entities (NCEs).

Pharmaceutical exports, by end 2010:

India is currently an attractive pharmaceutical outsourcing destination across the globe. Pharmaceutical exports of India is currently far ahead of China. However, PriceWaterhouseCoopers (PWC) reports that China may reverse this trend by the end of 2010, establishing itself as the largest country for Pharmaceutical exports. In API exports China has already overtaken India, way back in 2007. The report titled, “The Changing dynamics of pharmaceutical outsourcing in Asia” indicates that in 2007 against API exports of U.S$ 1.7 billion of India, China clocked a figure of US$ 5.6 billion. By the end of 2010, China is expected to widen the gap further with API export of U.S$ 9.9 billion against India’s U.S$ 2.8 billion.

Korn/Ferry International reports 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.

Conclusion:

As I said earlier and as has been reported by Korn/Ferry, China’s current overall infrastructure in the pharmaceutical space is better than India primarily due to firm commitment of the Chinese government to initiate reform measures to fetch maximum benefits of globalization process in the country. Government of India seems to be lacking in its commitment to play its role both as a provider and also as an effective enabler in this important space of ‘knowledge economy’ of the world.

India has all the potential to surge ahead with more rapid strides in this ball game. To achieve this cherished goal, the government, other stakeholders and the domestic pharmaceutical Industry should play the ball well, effectively, and in tandem.

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.

Exploring a new ‘Business Model’ to improve access to healthcare in rural India with the industry participation

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Rural India – the home of around 72% of 1.12 billion population of India is undergoing a metamorphosis, as it were. Disposable income of this population is slowly but steadily rising, as evidenced by rapid market penetration of the ‘Fast Moving Consume Goods (FMCG)’ industry in general and companies like Hindustan Unilever Limited (HUL) and Dabur in particular.

Size of the Healthcare Sector in India:

It has been reported that the current size of the healthcare industry in India ia around US $ 23 billion or around 5.2% of the GDP. Though the sector is showing an overall healthy growth of around 13%, public expenditure towards healthcare is just around 0.9% of the GDP of the country. As per WHO (2005) per capita government expenditure on health in India was just around US $7, against US $31 of China, US $24 of Sri Lanka, US $11 of Kenya and US $12 of Indonesia.

Currently the number of Government Hospitals/Healthcare centers in India are grossly inadequate and are as follows:

  • Medical Colleges: 242
  • Community Health centers: 3346
  • District Hospitals: 4400
  • Other Public Hospitals: 1200
  • Primary Health Centers: 23236
  • Subcenters: 146026
  • Number of Hospitals in rural areas: 53400
  • Population to rely on Public Hospitals: 43%

Even with the above network of public healthcare centers in India, overall effectiveness of public healthcare delivery system is very poor in the country. Increasing penetration of Information Technology could perhaps partially address this problem.

Growth drivers of rural India?

I reckon, mainly the following reasons attribute to the growth of the rural economy:

- Gradual increase in procurement prices of food grains by the government and waiver of agricultural loans to the tune of US$13.9 billion

- Growing non-farm income: Currently more than 50% of rural income is through non-farm sources, fuelled by various non-farm activities like food-processing, manufacturing, trading, in addition to the income flow from the rural migrants.

– Increased spending by the Government, which is expected to be around US$ 20 billion by March 2010, in the rural areas through various projects and schemes, like National Rural Employment Guarantee Scheme (NREGS), Bharat Nirman Program etc. coupled with easier access to requisite loans and credits, have improved the spending power of rural households significantly.

Though the government is making heavy budgetary allocations in rural India to improve the basic infrastructural facilities, healthcare and education, the implementation of most of these schemes still remains far from satisfactory, as of now.

A gaping hole in the rural healthcare space:
In the healthcare space of rural India there is still a gaping hole in various efforts of both the government and the private players to create a robust primary healthcare infrastructure for the common man. Thus poor access to healthcare services, coupled with lack of ability to pay for such services and medicines round the year, are the key challenges that the country will need to overcome. Lack of disease awareness and poor affordability towards healthcare services, still account for 60% of rural ailments not getting treated at all.

Key shortcomings of the current rural healthcare infrastructure:

Despite the numbers quoted above, following shortcomings continue to exist in the healthcare infrastructure of the country:
- Number of Primary Health Centers (PHC) are far less than the budgetary estimate/allocation
- Inadequate treatment facilities even where the PHCs exist
- Shortage of doctors, nurses and paramedics
- Very high rate of absenteeism

Pharmaceutical companies in India should now explore fortune at the ‘Bottom of the Pyramid’ to reap a rich harvest, creating a win-win situation:

If the pharmaceutical companies operating within the country, partner with the government and other key stakeholders, as a part of their corporate business strategy, to make a fortune from the ‘bottom of the pyramid’, this critical issue can be effectively resolved, sooner. Novartis India has already ventured into this area and has tasted reasonable success with their ‘Arogya Parivar’ program.

However, in my view additional sets of the following value delivery objectives need to be considered to make this the rural healthcare mission with PPP initiatives successful:

- Affordable medicines of high quality standard
- Increase in health awareness by collaborating with the NGOs and rural institutions for various common diseases.
- Continuing Medical Education (CME) for the rural doctors and para-medics
- Arranging microfinance for the healthcare professionals to create small micro- level healthcare infrastructure and also for the patients to undergo treatment
- Help reducing the transaction cost of medicines and healthcare services through fiscal measures by collaborating with the government
- The product portfolio to be tailor made to address the common healthcare needs of rural India

Private healthcare facilities are preferred to public healthcare facilities even in the rural India:

Irrespective of rich or poor, around 80% of the population in India prefer private domiciliary treatment facilities and 50% of the same prefer private hospital treatment services. However, let me hasten to add that even within the private healthcare space in rural India, a lot needs to be done. Many so called ‘doctors’, who are practicing in rural India, have no formal medical qualifications. Moreover, even such doctors are not available in villages with a population of around 300 to 500 households.

The key success factors of the rural marketing ‘Business Model’:

Urban pharmaceutical marketing model, I reckon, should not be replicated for ‘rural pharmaceutical marketing’, as the success factors required for each of them, is quite different. In rural marketing the stakeholders’ needs and wants are quite different. If these are not properly identified and thereafter adequately addressed, mostly through collaborative initiatives, the rural pharmaceutical marketing ‘Business Model’ may not fly at all.

Partnership with Microfinance Institutions will be a key requirement:

Interested pharmaceutical companies will need to collaborate with the rural microfinance institutions for such business initiatives. This will ensure that appropriate loans can be extended to doctors and retailers, wherever needed, to help them create requisite local healthcare infrastructure to make such projects viable and successful. At the same time, such institutions will also require to help the needy rural population with requisite loans to help meeting their cost of medical treatment.

Conclusion:

From a ‘back of the envelope calculation’ it appears that such projects can definitely be made profitable with a modest gross margin of around 40% – 50% and operating profit of around 6% to 8% . The high volume of turnover from over 650 million population of India, will make these ‘rural pharmaceutical marketing projects’ viable. Simultaneously, such corporate business initiatives will help alleviating pain and suffering from diseases of a vast majority of the rural population of India.

By Tapan Ray

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

Create, Deliver and Realize maximum value from a new product launch with an innovative Supply Chain Management system

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Like in many other industries, effective supply-chain management (SCM) in the pharmaceutical industry involves a systematic process, spanning from procurement of raw, packaging and other related materials, converting those materials into finished goods stock keeping units (SKUs), inventory management of both raw and packaging material, as well as finished goods and finally the distribution of these SKUs to wholesalers/ stockists/ distributors, C&F Agents.Now a days, with intense cost containment pressure all around, effective SCM is gaining a critical importance in the overall business process of the pharmaceutical companies. Besides all these, SCM also plays a very important role in maintaining regulatory compliance and help preserving product quality and safety standards.Key deliverables of a good SCM system:

The key deliverables of a good SCM system are to ensure availability to the customers:

Of RIGHT Product
At RIGHT Time
In RIGHT Quantity
At RIGHT Place
At RIGHT Price and
Of RIGHT Quality

However, in this article, I shall not dwell on these well known and basic parameters. Instead I shall deliberate on three other very important aspects of the supply chain management for your consideration:

1. What will a great SCM system mean?
2. What is the emerging role of SCM system in launching a new product
3. Innovation and measuring SCM effectiveness

1. What will a great SCM system mean?

In my opinion this will cover three important points:

- The SCM system should have an excellent feel of demand fluctuations and its robust measurement system.
- The cost of running an efficient SCM system should be kept at its minimum.
- The SCM structure should always be without any organizational flab.

I repeat, to be effective, a good SCM System must always be demand driven. Customer demand must be ascertained and quantified first and only then company specific supply chain requirements to be worked out and not the other way.

Various research studies confirm that there are certain common qualities for the demand-driven companies, namely:

- Reaction time to gauge and respond to the customer needs and demand is very quick
- A robust IT infrastructure is in place to facilitate delivery of the key Supply Chain
deliverables

SCM helps in value creation, value delivery and the value realization process:

As we know that value creation is the first step for a demand driven organization, followed by value delivery and value realization.

Pfizer Inc ranked high towards these efforts with Lipitor. If by any chance Lipitor gets out of stock, doctors usually do not switch over to other statins; the patient may possibly come back to the Pharmacy next day and hope he/she will get Lipitor. Such type of value creation for the product had made Lipitor over US$14 billion brand today despite the presence of other newer statins in the market and a very efficient SCM system of Pfizer Inc.

In an ideal scenario there should be an overlap between product management, demand management and the SCM systems.

Need for interaction between SCM and Product Development/Management Teams:

In my view, some sort of close interaction between the Supply Chain with Product Development and Management teams is very important for any innovative company to succeed in the market place. This I reckon will be unavoidable in not so distant future. Currently there could be some such link, as mentioned above, existing in some organization, but certainly not what it ought to be.

A robust IT system is a major requirement:

A robust IT system is a major requirement for such interaction process between Product Management, Demand Management and the SCM. Those companies, which will be unwilling to invest in a robust and rapidly scalable IT infrastructure that provides process integrity, transaction reliability, data visibility and intelligence for decision making may find it difficult to implement such an important business process.

2. The role of SCM System in launching a New Product:

In the twenty first century, as we all are aware that quality of innovation determines the sharpness of the competitive edge of any company in the marketplace. This aspect of competitiveness will be increasingly more and more important. Unfortunately, despite having this cutting edge many highly innovative companies have been experiencing great problems while launching their innovative new products in the market.

As we have seen from the recent media reports, two examples indeed stand out:

- Delays in the launch of Airbus 380 wiped off five billion euros of the value of its parent
company.
- Another important example was the enormous problem that Sony faced to make adequate
number of Play Station 3 consoles for the holiday season.

These illustrations indicate that conceptualizing, developing and finally launching new products is becoming increasingly more and more difficult. It is now widely believed that the key issue is inadequate understanding of the critical role that the supply chain plays in the innovative process of an organization.

SCM – a key success factor for a new product launch:

In most of the companies, the world over, the marketing team decides on the product launch decisions. Fortunately now we have started understanding though gradually but surely that the success of a new product launch very heavily dependent on effective co-ordination on all aspects of the supply chain from design to sourcing to manufacturing to distribution.

Therefore, in order to succeed with a new product launch, concerned company will need to ensure that Product development, Sales and Marketing, operations planning and supply chain work very closely together as a coherent team. Such co-ordination between these functions is now an absolute imperative. Close co-ordination even within the various activities of SCM systems play a critical role on the quality and nature of an innovative product or services and thereafter for an effective logistic support to the finished new products.

3. Innovation and measuring SCM effectiveness:

Quality of innovative ideas implemented in various levels of the SCM process along with the operational excellence will determine the ultimate effectiveness of a SCM system of a company.

Operational excellence is usually measured through the effectiveness of various parameters set for the same like. These parameters may include order fill rate, cost of the SCM process followed and the speed that it adds right from the material procurement process to the delivery of required SKU’s right up to the retail chemists.

Similarly effectiveness of innovative steps taken in the SCM process is measured by many on parameters like, the return on new product development and the speed of launch.

Conclusion:

To make a new product launch successful, companies will increasingly require to work out not only an effective process for launch, but will also need to ensure that marketing, finance, operations and SCM with innovative steps built into it, work very closely together to help create, deliver and realize both tangible and intangible value of a new product, most effectively, to contribute significantly to the stakeholders’ value.

By Tapan Ray

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

India urgently needs a total overhaul and reform of its public healthcare system with a holistic approach – NRHM and RSBY are laudable initiatives.

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Over a period of time India had made significant improvement in various critical health indicators despite frugal public health spending by the government, which is just around 1 percent of GDP of the country. Such a low government spend towards public health takes India to the bottom 20 percent of countries of the world, in this respect.Overall progress of the country’s public healthcare system is, consequently, commensurate to the nation’s spending towards this vital sector. Only 35 percent of country’s population has now access to affordable modern medicines. Even many ASEAN countries are far ahead of India in their achievements towards public healthcare services. Such a grim scenario prompts us to understand the infrastructural and financial dimensions of the public healthcare system of the country to enable us to suggest appropriate reform measures for this sector to the policy makers.Very recently, the Prime Minister of the country Dr. Manmohan Singh indicated the intent of his government to raise the government spending towards public health to around 3 percent of the GDP. Health being a state subject in India, both the State and Central Governments will need to take their best foot forward towards this direction.

Fund Allocation towards public healthcare:

In the Eleventh Five Year Plan, the fund allocated by the government towards public healthcare shows a significant increase. The launch of ‘National Rural Health Mission (NRHM)’, which emphasizes community based monitoring along with decentralized planning and implementation augers well for the nation and vindicate, at least, the resolve of the government towards this direction.

Impediments to make NRHM a great success:

There are some serious infrastructural requirements to scale-up NRHM and make it successful. These are as follows:

1. More number of specialists, doctors, nurses and paramedics

2. More medical colleges and nursing schools

3. Less developed states should be financially and technologically helped to create public healthcare infrastructure

4. The student teacher ratio to be enhanced in specialties and super specialties from the current level of 1:1 to 2:1

5. Capacity building at the Medical colleges of the State Governments needs to be considered without further delay

6. The number of post-graduate medical seats needs to be increased, all over the country.

It is envisaged that all these critical steps, if taken with missionary zeal, will help increasing the number of post-graduate specialists from the existing level of 13000 to 18000, in the next five years.

Healthcare delivery:

Even if all these are achieved public healthcare delivery will still remain a key issue to achieve the country’s objective to provide affordable healthcare to all. The poor and marginalized people of our society must be covered adequately by the public healthcare system to the best extent possible.

Improving access:

To improve access to public healthcare services for the common man, India very badly needs structural reform of its public healthcare system, with a clear focus on preventive healthcare. This will in turn help the country reduce the burden of disease.

Healthcare financing:

In 2001 The Journal of Health Management in a study using National Health Accounts (NHA) as a tool of analysis reported:

“76 per cent of health sector revenues come from private sources, of which almost 50 per cent go to private providers and 21 per cent are spent on drugs. Further, 7 per cent of household out-of-pocket expenditure is used as non-drug expenditure for using government facilities for out-patient and in-patient treatment. This has important policy implications for the government.”

Along with increasing healthcare needs across all sections of the society, especially in the low income and the backward states, a very high percentage of out-of-pocket household expenditure towards healthcare, low public budgetary allocations and sluggish health outcomes, are calling for a robust healthcare financing model for the country.

Why is healthcare financing so important in a developing country like, India?

The largest number of poor population of the world resides in India. It has been reported that around three-fourth of over one billion population of the country earns less than two dollars a day. Coupled with poor hygienic condition this section of population is more prone to various illnesses, especially tropical diseases. India is one of those very few emerging economic super powers where around 90 percent of its population is not covered by any form of health care financing.

Under such circumstances, it has been widely reported that the poor very often will need to borrow money at a very high rate of interest or sell whatever small assets they own, further eroding their capability to come above the poverty line, in the longer term.

Thus to provide adequate health insurance cover to the marginalized section of the society including a large number of the rural population, the country is in a dire need to develop a workable and tailor-made healthcare financing model instead of pushing hard the existing ones. This tailor-made model should also include the domiciliary treatment, besides costs of hospitalization.

New healthcare reform process in India should include the healthcare system in its entirety with a holistic approach, starting from access to healthcare to its management and delivery, strengthened by a robust micro-healthcare financing system.

Rashtriya Swasthya Bima Yojna (RSBY): A good initiative by the government:

To partly address the above issue, on October 1, 2007 the Government of India announced a health insurance scheme for the Below Poverty Line (BPL) families in the unorganized sector called Rashtriya Swasthaya Bima Yojna (RSBY).

In RSBY, BPL families are entitled to more than 700 in-patient medical procedures with a cost of up to 30,000 rupees per annum for a nominal registration fee of 30 rupees. Pre-existing medical conditions are covered and there is no age limit. Coverage extends to the head of household, spouse and up to three dependents.

RSBY appears to benefit those people who need it the most. However, how effective will be the implementation of this scheme, still remains a key question. If implemented exactly the way the scheme was conceived, it has the potential to address the healthcare financing issue of around 28 percent of the population currently living below poverty line.

The initial response of RSBY has been reported to be good, with more than 46 lakh BPL families in eighteen States and Union Territories having been issued biometric smart cards, so far.

Conclusion:

To provide affordable healthcare services to all, India urgently needs a total overhaul and reform of its public healthcare system with a holistic approach. The steps so far taken by the government with the launch of NRHM and RSBY are laudable, but are these enough?

By Tapan Ray

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

‘Medical Outsourcing’ – a fast evolving area in the healthcare space with high business potential.

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Medical outsourcing is an evolving area in the global healthcare space. It can offer immense opportunity to India, if explored appropriatly with a carefully worked out strategic game plan from the very nascent stage of its evolution process. This sector could indeed be a high potential one in terms of its significant financial attractiveness by 2015.
Key components of medical outsourcing:

The following four basic components constitute the medical outsourcing industry:

• Healthcare providers: Hospitals, mainly corporate hospitals and doctors

• Payer: Medical/ Health insurance companies

• Pharmaceutical Companies

• IT companies operating in the healthcare space

So far as payers are concerned, currently they are primarily involved in the data entry work, the present market of which in India is estimated to be around U.S$ 100 million.

Key drivers and barriers for growth:

The world class cost-effective private sector healthcare services are expected to drive the growth of the medical outsourcing sector in India. However, shortages in the talent pool and inadequate infrastructure like roads, airports and power could pose to be the major barriers to growth.

At present, majority of medical outsourcing is done by the US followed by the UK and the Gulf countries.

How is this market growing?

Medical Tourism, by itself, is not a very recent phenomenon all over the world. Not so long ago for various types of non-essential interventions like, cosmetic surgeries, people from the developed world used to look for cheaper destinations with relatively decent healthcare facilities like, India, Thailand etc.

Now with the spiraling increase in the cost of healthcare, many people from the developed world, besides those who are underinsured or uninsured have started looking for similar destinations for even very essential medical treatments like cardiac bypass surgery, knee replacement, heap bone replacements, liver and kidney transplants, to name just a few.

Significant cost advantage in India with world class care:

It has been reported that for a cardiac bypass surgery, a patient from abroad will require to pay just around U.S$ 10,000 in India, when the same will cost not less than around U.S$ 130,000 in the US. These patients not only get world class healthcare services, but also are offered to stay in high-end ‘luxury’ hospitals fully equipped with the latest television set, refrigerator and even in some cases a personal computer. All these are specially designed to cater to the needs of such groups of patients.

Recently ‘The Washington Post’ reported that the mortality rate after a cardiac bypass surgery is better in Indian private hospitals than their equivalents in the USA.

An irony:

It is indeed an irony that while such private hospitals in India are equipped to provide world class healthcare facilities for their medical outsourcing business and also to the rich and super rich Indians, around 65 percent of Indian population still does not have access to affordable modern medicines in the country.

Is the government indirectly funding the private medical outsourcing services in India?

In India, from around 1990, the government, to a great extent, changed its role from ‘healthcare provider’ to ‘healthcare facilitator’. As a result private healthcare facilities started receiving various types of government support and incentives (Sengupta, Amit and Samiran Nundy, “The Private Health Sector in India,” The British Journal of Medical Ethics 331 (2005): 1157-58).

While availing medical outsourcing services in India, the overseas patients although are paying for the services that they are availing from the private hospitals, such payments, it has been reported, only partially fund the private hospitals. If such is the case, then the question that we need to answer: Are these medical tourists also sharing the resources and benefits earmarked for the Indian nationals?

Conclusion:

Due to global economic meltdown many business houses in the developed world are under a serious cost containment pressure, which includes the medical expenses for their employees. Such cost pressure prompts them to send their employees to low cost destinations for treatment, without compromising on the quality of their healthcare needs.

Other countries in quite close proximity to ours like, Thailand, Singapore and Malaysia are offering tough competition to India in the medical outsourcing space. However, superior healthcare services with a significant cost advantage at world class and internationally accredited facilities, treated by foreign qualified doctors, supported by English speaking support staff and equipped with better healthcare related IT services, will only accelerate this trend in favor of India. In this ball game it surely is, ‘Advantage India’.

By Tapan Ray

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

With significant competitive edge should Global Biotech Companies consider entry into high potential ‘Biosimilar drugs’ business?

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‘Biosimilar drugs’ – rapid future growth potential:
In most of the developed countries of the world, besides regulatory issues, ‘Biosimilar drugs’are considered a threat to the fast growing global biotech industry. However, many believe that innovative biotech companies can have a head start with all wherewithals at their disposal, compared to generic pharmaceutical companies, to convert this seemingly significant threat into a bright emerging opportunity and derive the best possible mileage out of such changing environment.

Sandoz (Novartis) – first to launch a ‘Biosimilar drug’ in the USA:

In mid 2006, US FDA approved its first ‘Biosimilar drug’; Omnitrope of Sandoz (Novartis) following a court directive in the U.S. Omnitrope is a copycat version of Pfizer’s human growth hormone, Genotropin. Interestingly, Sandoz (Novartis) had taken the U.S FDA to court as the regulatory approval of Omnitrope was kept pending by them, in absence of a defined regulatory pathway for ‘Biosimilar drugs’ in USA.

The CEO of Sandoz had then commented, “The FDA’s approval is a breakthrough in our goal of making high-quality and cost-effective follow-on biotechnology medicines like Omnitrope available for healthcare providers and patients worldwide.” Despite this event, no one at that time expected the U.S FDA to start commencing approval of other ‘Biosimilar drugs’ within the country.

‘Biosimilar drugs’ – emerging global interest:

Thereafter, many developments are fast taking place in the space of ‘Biosimilar drugs’, the world over. To fetch maximum benefits out of this emerging opportunity, India is also taking steps to tighten its regulatory reform process for ‘Biosimilar drugs’ to allay general fear and apprehensions regarding safety of such drugs, in absence of adequate clinical data for the specific protein substance.

Merck’s entry in ‘Biosimilar drugs’ business is through an acquisition:

In the west Merck announced its entry into the ‘Biosimilar drugs’ business on February 12, 2009, while announcing its acquisition of Insmed’s portfolio of ‘Biosimilar drugs’ for U.S$130 million in cash. Rich pipeline of follow-on biologics of Insmed is expected to help Merck to hasten its entry into global ‘Biosimilar drugs’ markets.

Current status of ‘Biosimilar drugs’ in the USA:

The new administration of President Barak Obama has expressed its strong intent to pave the way for regulatory guidelines for ‘Biosimilar drugs’ in the USA. To facilitate this process, the new draft legislation titled, “Promoting Innovation and Access to Life Saving Medicine Act” has already been introduced by the legislators of the country. This legislation, when will come into force would help define guidelines for approval of ‘Biosimilar drugs’ in the USA with just a five year exclusivity period to the innovative products, against a demand of 14 years by the global biotechnology industry.

Lucrative Global market potential for ‘Biosimilar drugs’:

It is estimated that only in the top two largest pharmaceutical markets of the world, USA and EU, sales of ‘Biosimilar drugs’ will record a turnover of U.S$ 16 billion in next two years and around U.S$ 60 billion by year 2010, when about 60 biotech products will go off-patent.

Opportunity for the Indian biotech companies:

Such a lucrative business opportunity in the west will obviously attract many Indian players, like, Biocon, Dr. Reddy’s Labs, Ranbaxy, Wockhardt etc, who have already acquired expertise in the development of ‘Biosimilar drugs’ in India like, erythropoietin, insulin, monoclonal antibodies, interferon-alfa. Domestic Indian biotech players are not only marketing these products in India but also exporting them to other non/less-regulated markets of the world.

Indian Companies are fast preparing to take a sizable share of the global pie of ‘Biosimilar drugs’ market:

Ranbaxy in collaboration with Zenotech Laboratories is engaged in global development of Granulocyte Colony-Stimulating Factor (GCSF) formulations. Wockhards is expected to enter into the Global ‘Biosimilar drugs’ market by 2010. Dr. Reddy’s Laboratories and Biocon are also preparing themselves for global development and marketing of insulin products, GCSF and streptokinase formulations.

Government of India funding for development of ‘Biosimilar drugs’ in India:

It has been reported that the Department of Biotechnology (DBT) of the Government of India has a proposal for funding of U.S$ 68 million through public private partnership (PPP) initiatives, where soft loans at the rate of interest of just 2% will be made available to the Indian biotech companies for development of ‘Biosimilar drugs’. Currently DBT spends around U.S$200 million annually towards biotechnology related initiatives.

Advantage India:

Experience in conforming to stringent U.S FDA manufacturing standards, having largest number of U.S FDA approved plant outside USA; India has acquired a great advantage in manufacturing similar high technology products in India. Significant improvement in conformance to Good Clinical Practices (GCP) standards in India offers additional advantages.

Two available choices for the innovator companies:

With increasing global cost-containment pressures within the healthcare space, emergence of a lucrative global ‘Biosimilar drugs’ market with appropriate defined regulatory pathway in place is inevitable now.

Major global research based companies will now have two clear choices in the fast evolving situation. The first choice is the conventional one of competing with the ‘Biosimilar drugs’ in all important markets of the world. However, the second choice of jumping into the fray of ‘Biosimilar drugs’ business keeping focus on R&D undiluted, appears to be more prudent to me and perhaps will also make a better business sense. Only future will tell us, which of these two business senses will prevail, in the long run for the global biotech companies.

By Tapan Ray

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

Growing menace of counterfeit drugs in India: why is the domestic pharmaceutical industry still so apprehensive with the new Amendments of the ACT?

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The growing menace of Counterfeit drugs has remained a serious threat to the healthcare space of India.
Do we have any credible data to assess the magnitude of this menace in India?

No we do not have, as yet. At this stage, the magnitude of the problem is anybody’s guess. Earlier a study sponsored by the World Health Organization (WHO) and conducted by SEARPharm reported that only 0.3% drugs were spurious and 3% of drugs were counterfeits.

Government of India has initiated the largest study in the world to quantify the problem:

To scientifically assess the magnitude of the problem in terms of real size of counterfeit drugs market in India , the Drugs Controller General of India (DCGI) India’s, for the first time ever, has initiated one of the largest studies in the world, as reported by the Times of India May 14, 2008.

The study has already identified 61 popular drug brands from nine therapeutic categories for testing 24000 samples. These include drugs prescribed for tuberculosis, malaria, allergic disorders, diabetes cardiovascular conditions, vitamins etc. This study is expected to cost 50 million rupees or about U.S$1.0 million and is expected to be published, soon.

Making provisions for stricter penalties through amendment of the Drugs and Cosmetics Act, 1940:

To bring into effect stricter penalties for those involved in counterfeit drugs, the process of amendment of the Drugs and Cosmetics Act, 1940 was proposed by the Ministry of Health in October, 2007. These amendments are expected to make the drug-related offences, cognisable and non-bailable.

The latest amendment to the Drugs and Cosmetics Act, 1940 became a law in 2008. The punishment for selling or distributing spurious drugs, which are likely to cause death and grievous hurt to the patients, is now imprisonment for a term not less than 10 years and fine not less than Rs 10 lakh or three times the value of drugs confiscated, whichever is more.

The Minister of Health of India announced in November 2008, that with this amendment the Government of India will “go all out to do away with spurious drugs.”

India working closely with WHO Anti-counterfeiting Taskforce:

India being a part of ‘International Medical Products Anti-Counterfeiting Taskforce’ (IMPACT), established under WHO in 2006, decided to work together to combat the growing menace of counterfeit medicines.

The Drugs Controller General of India (DCGI) was reported to have several discussions with the convenor of the IMPACT to effectively address the issue of such serious threats to the patients at large. Many people believe that China and India are the main source of counterfeit drugs in the world.

Apprehensions of the Indian Pharmaceutical Industry with new Amendments in the Law:

Indian Pharmaceutical Industry although welcomed the stricter punitive provisions in the law, expressed its apprehensions due to lack of clear demarcation between the definitions of spurious drugs and those which can lose their original potency because of improper transportation and storage.

If the law-enforcing authorities pick up such medicines from retail outlets, those can easily get categorised as spurious medicines under Section 17A and 17B of the Drugs and Cosmetics Act, 1940. Consequently the concerned manufacturers could be put behind bars with, presumably, no fault at their end.

While stringent punishment is essential for those involved in such heinous crime, the Government should take enough measures to ensure that genuine drug manufacturers are not harassed by the law enforcing authorities, as the courts will have no judicial discretion to award less than minimum punishment, as prescribed under this Act.

Need for clear guidelines for implementation of the amended ACT:

To allay the major apprehension of the industry regarding possible misuse of some provisions of the Act, the Ministry of Health is expected to work out and quickly announce clear guidelines for implementation of the act by the law enforcement agencies in different parts of India.

Will this amendment help to win the fight against counterfeit drugs?

Only time will be able to give that answer. However, by amending the Act, the Government of India has demonstrated its resolve to address the threat of counterfeit drugs with iron hand. Through enunciation of above guidelines, all concerned are expected to be taken on board to effectively curb, if not totally eliminate this growing menace, for the sake of humanity.

By Tapan Ray

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