At this point of time, India's biotech/pharma industries constitute a modest proportion of their respective global markets, in value terms. Nevertheless, they have the potential to become strong players in the coming 5-10 years. Dr Reddy's and Ranbaxy's achievements are well-known. Biocon has captured 10% of the cholesterol-lowering drug market in US with Lovastatin in less than 6 months of its launch. Donn Szaro, Global Director, Health Services Industry Srevices, Ernst & Young, Florida, who was in Hyderabad recently, talked to P N V Nair of Pharmabiz.com on the state of the industry, the challenges and successes.
Post-2005 India stands to gain from more direct investment by MNCs, new focuses for the Indian biotech/pharma companies in brand development and an expansion of India's role in the global marketplace, especially in research, clinical trials and production. Excerpts:
Ernst & Young has brought out two global reports on biotechnology and the pharmaceutical industry. What are your conclusions? And what is the growth perspective for the industry in India and across the world?
There were several conclusions in both reports about the status of the whole health sciences industry, including the biotech and pharmaceutical sectors. The main themes in both reports were the needs for companies to increasingly look at the global marketplace for partners that can help them succeed. The industry has become increasingly global and the need to identify strategic partners across the globe has never been more prominent.
During your India visit you had discussions with some key players in the biotech, pharma and the health services sector. What is your assessment and also your suggestion to strengthen these sectors?
Several thoughts on our India visit and on the state of the industry. First, it was an extraordinary visit that our Health Sciences leader in India, Utkarsh Palnitkar put together. We met with over 100 key executives and government leaders. We were able to get a feel for the essence of the industry, the challenges and successes, the vision of India's future state, and its current position in the global health sciences arena.
It's clear that India has had success in the industry with its expertise in reverse technology, its support at the state government level with the emergence of biotech parks and incentives to develop business, and the natural competitive advantages of language, low costs, and an ever-expanding educated workforce. The IT boom of the last decade also will help in attracting foreign direct investment in the future.
In international rating where do the Indian pharma / biotech companies stand?
At this point in time, India's biotech and pharma industries constitute a modest proportion of their respective global markets (in value terms). Nevertheless, they have the potential to become strong players in the coming 5-10 years.
Indian pharma and biotech companies have already started making their global presence felt. Dr Reddy's and Ranbaxy's achievements are well known. Biocon has captured a 10% of the US cholesterol lowering drug market with Lovastatin, in less than 6 months of its launch. WHO certification for Shantha Biotechnics' indigenously developed hepatitis-B vaccine last year is also a significant achievement.
Post-2005, will Indian patent law be sufficient enough to attract MNCs for their R&D set up and introduction of their patented products?
This is the main issue facing the Health Sciences industry in India now. Will the 2005 patent protection laws and subsequent policies offer the proper level of enforcement to nurture the industries' development in India? It is the main premise behind the question; will the future of India be Imitation or
Innovation?
The government needs to ensure that India will be a place safe for foreign direct investment and for the development of the entire drug discovery process (i.e., new drugs, R&D, and clinical trials, etc).
If all elements are there in the laws, policies, and enforcement, then yes I believe this will undoubtedly be a major milestone in the development of India's role in the Industry.
What are the areas where Indians stand to gain in the future?
(If all things are in place…) by 2005 then India stands to gain from more direct investment by MNCs, new focuses for the Indian biotech/pharma companies in brand development, and an expansion of India's role in the global marketplace; especially in research, clinical trials, and production.
What are the key challenges to the pharma industry? Do you think strategic alliances and mergers will help the industry? Also what are the criteria for successful mergers?
As mentioned, the title of our biotech report is "Beyond Borders" and the title of our latest report on the pharmaceutical industry is "Partners with Vision." Partnering on global level is more pertinent now in meeting the challenges of the industry than ever before. With the cost of bringing a new drug from discovery to market at over $700m (US) and rising, alliances are crucial.
Companies are cross-leveraging their core competencies across the globe and India stands a lot to gain in this respect because it is such an appealing market because of the stability, culture, cost, and educated workforce.
Ten years from now, what will be the scenario in the pharma industry? The future belongs to Biopharmaceuticals. What will happen to the present pharma companies?
Biopharmaceutical companies will increasingly face the challenge of having to continuously produce new drugs, keeping their pipelines flowing, monitoring the regulatory environment, while keeping focus on their bottom line.
The innovation that created successful pharmaceutical companies seems to be waning. Present-day pharma companies will continue to experience consolidation in the market by acquiring new companies, forming alliances with other companies that can lead to mergers (like Pfizer/Warner Lambert for example), and potentially get acquired themselves, all in an effort to meet the challenges of today's industry. Nevertheless, the marketing and distribution infrastructures, developed and refined over decades, will continue to be a key strength.
Pharma industry is one of the highly regulated industries. Have you got
any proposal to make it less cumbersome?
In the US the appointment of a Food & Drug Administration head has been key to getting the organization back on track of more efficient approval processes. I believe there needs to be harmonization of the various regulatory authorities standards and protocols.
Is there any way to reduce the cost and time frame from discovery to
marketing the drugs?
The most critical challenge for the global pharma industry is the increasing cost of drug discovery and development and the increasing time to market. This can be attributed largely to the declining R&D productivity (high attrition rates and cost of failures) and increasing regulatory demands of the USFDA (in terms of higher number of patients in clinical trials) for drug approval.
The application of new age technologies like high throughput screening, genomics, combinatorial chemistry and bioinformatics are capable of significantly bringing down the attrition rates and addressing the productivity problem. However, competitive advantage would go to firms that best control clinical trial costs, which alone account for a third of the total cost of drug development and almost half the time taken. Many pharma majors are meeting this challenge by conducting clinical trials for their drugs in developing countries like India, where costs are one seventh of that in the US or EU. The need to reduce the time and cost also explains the increasing trend towards outsourcing research to specialized CROs (Contract Research Organizations) and partnering and alliances between pharma-pharma and pharma-biotech for joint research and development.
What are Ernst & Young's major areas of operation in India? How do you propose to serve the industry under the new IPR regime?
We provide a wide range of services, grouped into our anchor relationships of Risk, Transactions, Human Capital, Tax Operations, and Tax Minimization, to leading players in the Indian Health Sciences industry.
In India, Ernst & Young's Health Sciences team has been a major driver accelerating the pace of growth in the biotechnology sector. We have engagements with State Governments of Andhra Pradesh, Maharashtra and Kerala and have been a key thought influencer on issues related to policy and strategic direction.
Apart from these, our team has assisted several entrepreneurs to assess growth opportunities and design entry strategies to foray into the fast growing biotech sector. We have also been instrumental in creating thought leadership and driving growth in the Health Sciences industry through our participation in discussions at various industry fora and through publication of cutting edge state-of-the-industry reports.
We expect the complexion of the Health Sciences industry to alter significantly post 2005. Global competitiveness will be the key to growth and survival under the new IPR regime. The greater incentive for original drug discovery will create opportunities for Indian companies to develop new competencies through collaborative research and global alliances and will at the same time make India a more attractive destination for global pharma majors for establishing their R&D base. The new product process, which is getting unbundled, as is contract research, contract manufacturing and clinical trials is expected to create exciting opportunities for focused service providers. The industry is also expected to witness a lot of consolidation through M&As for economies of size and scope.
This new paradigm will be the premise for our future approach. On the one hand, we would be working closely with big pharma and biotech companies in India to help them chart their transformation into successful transnationals and on the other hand we would focus on attracting multinational, Big pharma and biotech companies to choose India as the preferred hub for their global R&D and manufacturing operations.
What are your suggestions to make the healthcare delivery system more effective and affordable to the common man?
The rising cost of healthcare delivery and limited access to life saving drugs have become issues of global concern. Though member nations of the WTO have clearly approached the issues on Intellectual Property from different perspectives, there is broad recognition that differential pricing could play a key role in ensuring access to existing drugs at affordable prices, particularly in the poorest countries.
In India, roughly 60% of the total health expenditure is met from the self-paid category while the Government's contribution covers 25-30%. A majority of private hospitals are expensive for a normal middle class family. The opening up of the insurance sector to private players is expected to bring down the costs of healthcare delivery. Currently, in India only about 2 million people (0.2 % of total population of 1 billion) are covered under medical insurance schemes whereas in developed nations like USA, about 75% of the total population are covered under such schemes.
The Government has an onerous responsibility to improve the primary healthcare infrastructure in the country. Higher investments in the health sector, well-directed policy initiatives to improve the quality and safety standards and fiscal incentives to encourage higher private sector participation seem to be the right prescription. The private sector should come up with business models that can render an acceptable level of quality and wholesome healthcare to the masses at affordable costs. The success story with recombinant hepatitis B vaccine, where a couple of indigenous companies have been able to bring down the price by almost ten fold is a pointer towards this trend.
You say that India has everything it needs. What is required to be done to seize the opportunity?
Yes, I reiterate that the Indian pharma and biotech industries have everything they need to be globally competitive - low cost of innovation, established prowess in manufacturing, adequate government support and highly skilled scientific personnel. Here is my prescription for seizing this opportunity:
· Embrace the role of IPRs in kickstarting innovation
· Develop and strengthen the base of scientists through training them in world-class drug discovery skills
· Increase interaction between industry and academia
· Pay attention to quality and leverage the global recognition you have earned for your IT skills
· Lastly, take the path of collaborative growth through global partnerships and alliances.