Factors Influencing the Global Prospects & Investor Attractiveness of Indian Pharmaceutical Industry

Most ‘Indian Pharma Outlook’ reports from the likes of McKinsey & PwC  almost exclusively focus their policy & regulatory scenario call-outs on aspects that bear an impact on entry & exit strategies of global pharmaceutical companies - which is understandable given they form the healthcare client-base of these consulting organizations. Not much information is however available when it comes to information on the policy & regulatory landscape within India that has a bearing on the commercial prospects of Indian pharmaceutical companies globally & one that can influence the investor sentiment/ emotion driving it.

Inspired by CNN Money’s beautifully minimal ‘Fear & Greed Index’, I set about categorizing and analysing the three most debated India-specific pharmaceutical policy & trade issues in the past few months. Thus categorized as low, elevated & high risk, these three issues broadly mapped out the boundaries of factors influencing ‘Global Prospects & Investor Attractiveness of Indian Pharmaceutical Industry”.

I

COUNTERFEIT MEDICINE

Lack of candor in acknowledging a local & global menace of counterfeit drugs

FDA website says “Counterfeit medicine is fake medicine. It may be contaminated or contain the wrong or no active ingredient. They could have the right active ingredient but at the wrong dose. Counterfeit drugs are illegal and may be harmful to your health” – While US Pharmacopeia broadly uses the same definition, it extends the scope of fake to the drugs that are “deliberately mislabelled” and with “fake-packaging” - Now, while the definitions do not say so, it is an inferred & accepted norm within the regulatory, federal & industry circles within USA, EU most other developed economies that any drug approved for a certain geography/ country if found to be distributed, marketed in another geography where it hasn’t obtained any approval makes that drug a counterfeit too.

In what could be explained within ten lines of text as above & given this is a definite public health issue, it’s confounding how so much energy is spent by so many espousing interpretations of varied hues on what doesn’t amount to a counterfeit. A recent news item in TOI showcases how a whole country’s credibility could take a beating with misinformed defence of an ill-articulated official position. The gentleman in the referred article states "Counterfeit is essentially an intellectual property issue referring to falsely packaged products that violate trademarks, but it is not necessarily about the quality of the medicine" - almost affecting that a counterfeit with a real API a lesser crime" – If this is indeed the official position of Indian on counterfeits, it sure needs work.

Factors at play

From the consumer’s perspective it could be Cost differential of counterfeits vis-à-vis’ branded formulations & No-hassles (online) access of Prescription drugs. From the counterfeiter’s perspective, it’s all about monetizing the existence of a vast ill-informed & gullible market 

& then there is this legacy of distrust & malice……

While there is/ was a definite basis to suspect & investigate role of India connection to the counterfeits, for a larger part of the last decade FDA, PhRMA, SOCMA & EFCG and the various allied task-forces went on an extended witch hunt, not entirely without dishonourable motives (read: SOCMA, EFCG; NA/ EU manufacturers losing out to outsourcing to India), for Indian knockoff offenders & in the bargain tarnishing the image of many ethical Indian organizations that in some instances were completely unaware of their product getting trans-shipped through parallel/ secondary import channels (ref. the PhRMA report on counterfeit drug statistics quoting 2008 data)

*Image courtsey: from a Forbes article about Indian companies adaptng the mobile verification systems in a big way

Pros & Cons

↑ ZILCH: There can absolutely be nothing positive about;

• A fake drug with a spurious drug &/OR
• A counterfeit with a real drug &/OR
• A true generic in an unauthorized territory 

↓ CREDIBILITY: Any knee-jerk reactions such as the above, based impractically on a painful legacy, may end up sounding like a tacit Indian support to counterfeit industry and will severely harm the genuine promise Indian generic industry holds and is pursuing

↓ PUBLIC HEALTH: The above cynical approach to addressing global concerns on counterfeits can easily get rubbed off within the Indian context & the consequent confusion can be used by counterfeiters to take root & rot the whole public health system within India

↓ NET IMPACT ON INDIAN PHARMA:  This is a no-brainer really, with zero positive & two negatives; this is a present & imminent danger to the credibility of Indian pharmaceutical Industry.

What could Indian Pharmaceutical industry & policy makers do to address the above aspects/ issues?

Ironically a lot of Indian response to any dialog on counterfeits still seems to be based on the sole concept that some of the "real-API counterfeits' are traceable to India & many a time, without the manufacturing company realizing so  - while this may still be a relevant grouse, it still cannot be the sole discussion point whenever someone mentions counterfeits.

From a global perspective, Counterfeits, even if they use “real API” should still be eliminated from supply chain owing to the following consequences* (adapted from a USP DQI presentation) of their existence;

• Diminished trust in health care system
• Waste of financial resources
• People go untreated—leads to prolonged illness or, possibly, death
• Sub-potent treatment can lead to resistance and treatment failure

India Pharma Industry, policy makers should shed the baggage of the hurtful past & acknowledge explicitly to the world community that the above concerns are applicable for control of counterfeits on the Indian soil too & hence both internally & externally India will deal with all dialog on counterfeit medicine FIRST as a public safety debate & THEN as a trade debate.

Looking ahead

The regulators & industry in developed countries such as USA & EU, UK should also look beyond the greed-driven commerce as the trigger for the existence of counterfeits & acknowledge that the  reasons can be equally economical, triggered by the need for affordable medicine for the outlier population that is neither covered by the state nor by the insurance companies. This aspect is bound to be helped by the current winds of genericization blowing through USA & Europe and this trend will hopefully and naturally topple the cheap counterfeit applecart – Having said that tackling counterfeits should be the primary corporate social responsibility of the pharmaceutical industry worldwide.

II

COMPULSORY LICENSING

The not so surprising enthusiasm for the compulsory Licensing route to introduction of 'copy cats'

Back in March 2012, Natco Pharma opened the gates (or Pandora's box depending upon which side of fence one is..) with their successful bid for the Compulsory License of Sorafenib Tosylate (Nexavar) using the provisions set out in the TRIPS agreement. The recent endorsement of this decision by IPAB seems to have ushered-in the growth-phase of CLs with BDR Pharmaceuticals of Mumbai filing an application for Dasatinib and the grapevine says quite a few as this are lined up in the immediate future, in India & overseas.

While CLs are being looked into seriously by other developed countries too, what complicates it in the Indian context is the sheer price difference that makes the royalty on sales to the innovator a trifling formality and the sheer size of the lost opportunity for the innovator huge (size of Indian population).  The case-in-study being Nexavar again wherein Bayer’s price is 35 times the Natco’s price & the 7% royalty Bayer was granted, wouldn’t even pay for their lawyers fee at the initial sales volume.

Factors at play

Cost effective access to newer therapeutics in India, Compliance with global IPR norms (both prescribed & inferred) and last but not the least, A really big (read: 1.2 billion population) market opportunity, the surface of which has been hardly scratched.

Pros & Cons

↑ SOCIA IMPACT:  The Indian population will have economical access to technologically superior later-date drugs

↑ FINANCIAL IMPACT: Opening up of a new market in India for these newer therapies hitherto not adopted owing to a steep price barrier

↓ CREDIBILITY: The Indian pharmaceutical industry's credibility will take a hit if the trend catches up in a big & uncontrolled fashion - The obvious impact will be a gradual deceleration of outsourcing to India & more specifically withdrawal of contract manufacturing of proprietary drugs in India by innovators affected by the CL (which could be all within a very short-span)

↓ NET IMPACT ON INDIAN PHARMA: At the current stage, I’d believe Indian industry as a whole has more to lose w.r.t. loss of outsourcing pie than the money generated out of the CL drugs.

Also, despite a large price differential & given the drug use in India is still physician controlled & not state-sponsored or paid for by the insurers, the innovator companies are likely to resort to a sustained campaign through physicians to color the local copy-cat as a 'compromised medicine' & thus can significantly and negatively impact the Indian company's anticipated fortunes – Improbable as this may sound, this indeed happened a few years ago in the vaccine domain with the MNCs spoiling the retail-dreams of the local contenders using their sheer financial-muscle & reach to influence the physician** against the local vaccine.

**My daughter’s pediatrician forcefully opposed my suggestion to go-in for a Hep-B vaccine from a good Indian company & insisted that he wouldn't suggest we compromising on the quality of the vaccine and that we should instead opt for the pricier but reliable MNC  - Ironically, a decade later this Indian company was acquired by the very same MNC :-))

What could Indian Pharmaceutical industry & policy makers do to address the above aspects/ issues?

A transparent, public evaluation of the application & a greater scrutiny of the "need"/ "essentiality" of a certain new drug vis-a-vis further price rationalization drugs that have already fallen off the patent cliff.

Possession of validated process for the said drug by the applicant at the time of application to be deemed as an automatic disqualification - to mean, since this indicates that the applicant reaching out to the innovator for a licence has been done without an intent to get one & hence that refusal of a license by the innovator is not sufficient basis of the Indian generic company to go in for a CL route

In effect create a higher barrier to incoming applications & thus walling-out contestable awards that bring no incremental benefit neither to the industry nor to the consumer

Looking ahead

While at the face of it this may look like essentially an opportunity for Indian generic players, I tend to believe that pretty soon the global generic giants will join the game through strategic alliances, acquisitions et al & eventually even innovators would themselves monetize the trend by introducing authorized "cheap" generics - “Cheap” being the keyword, as it is eminently evident from the Nexavar price differential, a mere 20-30% reduction wouldn’t really sway the regulatory sentiment in favour of innovator.

III 

ENHANCED VISIBILITY

Gearing up for better transparency, eventually

Even as articulation of a position is still a challenge for India in some key policy areas as above, Visibility, mostly aided by cyberization of governance is getting bigger & better in India each day. While digital governance may be an emerging global phenomenon, what makes it unique in the Indian context is that this amounts to a tentative first step towards transparency, a beast that India is struggling to tame for many years now.

Specific to healthcare, within the past four months the Indian patent authority (CGPDTM) has issued draft guidelines for processing patent applications pertaining to Biotechnology; Biological Material & Traditional Knowledge. What makes this interesting is the public review & dialog to aid the process of finalizing the guidelines.

Factors at play

The acknowledgement of a consensus approach to policy making; The concept an of enforcement designed & driven by the stakeholder universe; An attempt to encourage innovation within India by providing clarity on patentability aspects & finally, a rather brave attempt to forestall patent walling-in attempts by companies & to prevent encroachments on traditional knowledge

The pros & cons

↑ ENABLING BUSINESS CLIMATE – As a country that conducts business transactions in English, India already has an inherent advantage with respect to visibility & transparency. The increased digital visibility will go a long way in helping India consolidate this advantage & give a much needed differentiator vis-à-vis the omnipresent Chinese competition

↑ IMPROVED BUSINESS ETHIC – Each step in this direction will help India better its ranking on the transparency international’s corruption index – in part the visibility through digital governance itself is an outcome of higher awareness, wariness of the Indian citizen towards corruption in public & corporate life

↓ DELAYED POLICY MAKING – Though my initial thought was to say nothing negative here, I realize that the Indian problem with ‘clear articulation of a policy’ can be further compounded by the diversity of information received through feedback, debates et al & thus potentially delay the legislation of the guidelines

↑ NET IMPACT ON INDIAN PHARMA – Overall any favourable changes in governance will always translate as a better business/ investor sentiment, eventually

What could Indian Pharmaceutical industry & policy makers do to address the above aspects/ issues?

Indian pharma would do good to dive head-long into this process of deliberation on policies; guidelines etc. and partake in creating an enabling framework. On their part, the policy makers, government should proactively solicit participation of Industry and fine-tune the guidelines in light of practical business considerations.

Looking ahead

As stated earlier, enhanced visibility is the tentative first step towards transparency – it’d be ideal for all stakeholders to do whatever they could to sustain this forward momentum & help India shed the stereotypical image of a difficult third world country.

While I stopped at three, there are some other important factors that can impact the prospects of Indian pharma in some measure - a quick visual representation of these factors is as follows;

One recurring theme in the above discussions is a need for emergence of clearly articulated and transparently evaluated policies which then could be implemented in spirit.

Where no other motivation works the lure of commerce does, well in most cases. While this may sound dogmatic, it is a valid reason for an economy increasingly dependent on globalization & externalization. I wish & hope the Indian Pharmaceutical Industry will play a major role in setting the house in order & thus achieve and sustain their much deserved success world-over.