It's high time that the Indian pharmaceutical players copied the modus operandi of their foreign counterparts to succeed in all segments of pharma business. When most of the Indian players are solely concentrating on generic business, even the largest R&D based pharma majors in USA, Western Europe and Japan follow a policy of concurrently and successfully engaging themselves in marketing both generic as well as patented drugs as part of their business strategy. Surely they have a good reason to stick to their policy.
While the generic drugs are all about lower prices, non-exclusivity in the market place, lower risks and lower returns, the innovative drugs evolve out of very high cost and high risk R&D, compensated by exclusivity in the market for a limited period and high returns when successful. The compulsions for companies to market both generics and patented drugs are due to the emerging environment in the U.S.A and other countries. There is an increase in the overall generics business in view of the large number of drugs going off patent, with much fewer replacements from the R&D pipeline. Other factors that enhance the value of the generics business are:
■ Pressure on prices due to spiraling costs of healthcare
■ New policies of reimbursements for sections of the population such as seniors and the disabled
■ Increased control on costs by the health maintenance organisations
■ Internet marketing even across country borders
■ High incidence of generic substitution for branded prescription products
Indian generics presence
Ageing population, squeezing healthcare budgets and high costs of patented drugs are forcing healthcare planners, insurance companies and patients to look at cost benefit ratios even in the drugs sector for the first time in the history of the industry.
In 2007, drugs worth $40 billion are going off patent in USA alone and another $25 million in Europe. Even if the value of the corresponding generic products could be on an average as low as 40 per cent or less of the prices commanded by the original drugs during the patent protection period, generic drugs still offer substantial business opportunities. The first bio-generics representing high value therapeutic and prophylactic recombinant proteins and monoclonal antibodies such as human insulin and human growth hormone have entered the generic phase. However, since validation of bioequivalence of bio-generics is still an unsolved issue, the gestation period for the entry of bio-generics may be delayed in the regulated markets. It has been stated that no bio-generic is likely to be approved by US FDA before 2009. India, therefore, has not only to generate the technological strengths for making bio-generics, but also needs to wait until they are approved for marketing in regulated markets.
Reports indicate that Indian industry today accounts for around 20 per cent of the generic market and is estimated to grow to 30 per cent by 2009. The fact that India has over 70 FDA approved manufacturing facilities and filed around 21 per cent and over 25 per cent of total ANDAs and DMFs, respectively with US FDA, speaks volumes for emerging opportunities for Indian companies in the generics drugs space. The domestic market for pharmaceuticals is estimated to touch around US $7.3 billion in 2007, while export is expected to reach at US $4 billion during the same period. While the size of the Indian industry is still only equivalent to the annual R&D spend of the largest pharmaceutical company Pfizer, by 2010 the total industry turnover could reach as high as US $22.4 billion, with exports constituting over 60 per cent of the industry's production.
Need for innovation
While the global generic market will see a substantial or even a leading presence of Indian products, on the domestic front, the Indian industry faces a major challenge. During the last twenty-five years, India was free to manufacture and market any patented product in the country or even export them to other countries, which had no product patent regime. As such the Indian population had access to the latest innovations in the pharmaceutical field at prices, which were perhaps the lowest in the world. With the product patent regime operative since 2005, under the TRIPS agreement and WTO mandate, it is no longer possible to make, sell, import or deal in any way with any product protected by patents without a license from the patent holder. Since most of the innovative companies are operative in India, it is unlikely that innovative companies grant licenses to make and/or market their products to any of the Indian companies.
In fact many companies, which had left India or were not present in India in the 70s, such as Merck, Bristol Myers Squibb, Eli Lilly and many others are back in India on their own or as strategic partners. Therefore, the pipeline of larger Indian companies, which have introduced patented products in the past, are already bereft of new products.
Indian scenario
The Indian pharmaceutical industry is a highly fragmented industry with over 10,000 companies operating in the country. The 250 companies in the organized sector, however, control over 75 per cent of the market. Of these, the top dozen companies account for one third of the total market. These companies, which have formed the Indian Pharmaceutical Alliance (IPA), have distinguished themselves as the R&D based companies much like the PhRMA in the USA. With annual sales turnover ranging between 250 million and 1.3 billion, they are increasingly becoming the Indian MNCS. These companies also have acquired a number of smaller companies in Western Europe and USA. The acquisition of Beta Pharm of Germany has helped Dr. Reddy's Laboratory to become the largest pharma company in India in 2007. The Indian companies have established their dominance in the domestic arena over the MNCs during the last two decades. In late 80s to early 90s, only four out of ten were Indian companies. On the contrary, today one can find only one MNC out of ten companies. In 1970 only 20 per cent of the market share was commanded by Indian companies. However, the figure has gone up to around 70 per cent by 2006.
The question of the hour is whether in the absence of access to new products, can the Indian companies continue their dominance even in the domestic market? On one hand, there are those who optimistic about it. For example, for Cipla, even under the new scenario, there is enough space to be on the top by being a leader in the global generic business. However, majority of the experts feel otherwise and are convinced that the only answer for India is to move into the innovation space for new drug discovery and development, apart from competing with the global leaders even in a limited way, in new drug discovery R&D.
Indian capability in R&D
Estimated cost of discovery and development of a new molecular entity (NME) varies from $880 million to $ 1.5 billion. The divergence is due to the elements included in the cost exercise, since most companies include early launch and promotional expenses as part of drug development costs. The cost estimates for drug discovery and development if carried out in India also vary a great deal. In India it is only one fifth to one half of what it costs in USA, Europe or Japan. Apart, cost of infrastructure building as per global GMP standards is placed at one fourth to one third of what it costs in the West. The same is the case with the cost of clinical trials. However, cost arbitrage should never be the sole criterion for carrying out these activities in India. It should be more about availability and utilization of high skills, adequate infrastructure and faster reaction and time taken to complete the required activities. As for clinical research, the nature, variety, diversity and numbers of patient population available for trials are major factors.
Global drug discovery efforts up to the clinical phase are estimated to cost around $10 billion, while clinical research expenses are projected to be around $30 billion. At present, Indian efforts in these areas, whether for captive purposes or for third parties including CRAMS, CROS etc, are not more than $1.5 billion. Out of this $1.5 billion, the major companies together are spending around $ 500 million on drug discovery research. In spite of its best efforts, the Indian companies will find it difficult to take a basic new drug molecule from concept to the market place after meeting all pre-clinical and clinical standards of GLP, GCP, GMP and other requirements of international regulatory agencies such as the US FDA.
The strategy therefore is to carry out the discovery phase, have a strong IP protection for the new candidate and license the product to third parties for development with marketing rights retained for India and/or other selected countries or regions. During the last decade this strategy has been followed by all the R&D based Indian companies. Yet another strategy, which will be worthwhile for following, will be to develop alternate models of drug discovery, like resorting to traditional knowledge and products as possible leads and developing new indications and new delivery systems of existing drugs. Such approaches will be much more cost-effective, since they already have molecules with proven efficacy and safety, as starting points.
Apart from over a dozen NDAs filed with the Indian drug regulatory agency, over a dozen candidates have been licensed out by Indian companies to Novo Nordisk, Novartis, Forest Labs, Bayer and others in the field of diabetes, infections, cancer, respiratory ailments, skin disorders etc and several more are in the pipeline for development. While it is not easy to predict numbers and success rates in view of the high risk and high drop out rates in drug discovery and development R&D, it is fair to assume that a few products of international import will come out of Indian efforts during the next five years. For this to happen, it is important that the Indian pharma majors should have sustained faith in innovation as the source of new drugs, rather than resorting to launching drugs discovered and developed by third parties. A change in mindset is perceptible at least among the leaders and hopefully it will pay dividends in the coming years.
(The author is a senior research scientist and industry experts based in Chennai)