Earlier parts I & II discussed the nature of frauds committed by the pharmaceutical industry in recent years, the extent of the frauds and current approaches to detect and take action on such frauds. At least some of the reasons for the increase in number of frauds committed may be ascribed to newer developments in the area of encouraging use of generic drugs, the commercial opportunities provided by the generic boom and the resultant unhealthy competition among the generic companies.

The Hatch-Waxman Act and impact on generic industry
For the last three decades, the US, the largest market for pharma has been seized of the problem of escalating costs of R&D, a major cost component for the drug industry and its impact on the drug prices as well as on the domestic economy. In 1984, realising the need for making drugs cheaper for the patients, senators Hatch and Waxman helped legislating the ‘Drug Prices Competition and the Patent Term Restoration Act’, commonly referred to as the Hatch-Waxman Act. The purpose was two fold; to encourage early introduction of generics, which will result in reduced drug prices and at the same time ensure that adequate incentives are made available to innovating companies to invest in R&D, supported by a strong patent system. While the intentions were laudable, it has over the years run into problems, at least some of which are responsible for the unhealthy race to be the first company to get generic drugs to the market, at any cost, ahead of competition from the innovator companies with their branded patent protected products or other generic manufacturers with their low priced generic drugs. The salient features of this Act are:

1. Introduction of a system of filing an ANDA for generic drug approval
2. Requirement for ANDA to be based only on establishing bioequivalence (no clinical trials) with the branded drug
3. Exclusivity for the first approved generic in the market place for 180 days
4. Provision for extension of patent life to take care of administrative delays during their NDA approval and
5. In the event of an infringement suit filed by the patent owner against the generic company, a stay on the ANDA approval process for 30 months

Certifications for approval under ANDA format
Of the four certifications under Para I to Para IV stipulated to be submitted by the prospective generic manufacturers and ANDA applicants, the one which has attracted much attention leading to unhealthy practices has been Para IV, which challenges the validity of the patent itself while making the ANDA submission. The positive outcome of the  challenge and the approval of the ANDA provides exclusivity for the generic company for 180 days, which is a major bonanza for any generic company. From India, the first company which got a Para IV certification was Dr Reddy’s Laboratory for fluoxetine, the blockbuster antidepressant  (Prozac of Eli Lilly). For a blockbuster drug, the returns in six months of exclusive marketing rights in US alone could be very substantial. Some of the unhealthy practices in the generic drugs business  emanated as a consequence of this provision which resulted in companies resorting  to shortcuts  to win the race and be the first to obtain an approval for its ANDA. All the successful generic companies including many from India (the largest number) have been part of this race.

Some of the other provisions also lead to undesirable approaches by companies to maintain market share of the branded drugs by beating competition from generics. Instances of the patent holder paying the generic company substantial sums to defer generic launch under what is termed reverse payment agreements, filing sham patent infringement litigation against the generic company to benefit from 30 months stay on ANDA approval, introduction of newer marginally modified patented products replacing the patent-expired drug, themselves or their subsidiaries marketing generic drugs  equivalent to their own branded proprietary products, using data exclusivity provisions to delay submissions by third party generic companies, are some of the strategies adopted by the innovator companies. Such actions resorted by the innovator companies have considerably eroded the basic principles of good and fair practices in the industry over the years. In a market led economy where free market forces are supposed to play an important role for success, not only the loopholes in the law are exploited, but also legitimate and illegitimate approaches are adopted by companies in the interests of assuring higher value for share holders, sometimes at a cost to the consumer.

It is a life and death game
Unlike other industrial sectors, the pharmaceutical industry, like the food industry is dealing with life and death and no excuse  for irregular conduct, however legitimate it may appear under the law,  is acceptable. It is however difficult to imagine that companies with a long track record of providing life saving drugs will ever stoop to any activity which will be detrimental to their customers , the patients, not necessarily only  from legal or altruistic standpoints, but also in the interest of the corporation. Product liability settlements on a sub standard or fraudulent product could ruin  not only the company’s reputation ,but also its economic viability. Time and time again we have seen that in the long run, the only good business model is an ethical model. Many of the acts of omissions and commissions on the part of the industrial units result from ignorance of the basic requirements for ensuring quality of the drugs through appropriate process controls and their documentation. Many of the promotional practices including for off label use of drugs are prompted by the overzealous desire of sales forces to meet targets and increase market share.  In the matter of providing drugs  for the needy, one has to move away from the current  approach to business where performance, productivity and profits are the ultimate goals and the means of achieving them are less important than the results.

Lessons for Indian generic cos
The Ranbaxy episode should teach the leading Indian pharma companies who have achieved dominance in the global generic market, some important lessons. Historically and technically, acceptance of a drug and the documentation related to it by the leading regulatory agency in the World  by the US FDA has been the gold standard not only for the US market, but also the global markets. The Indian industry boasts that India has the largest number of FDA approved plants outside the US, Indian companies have over 30% of all ANDAs approved by the US FDA and one of every five dosage forms consumed world wide are made in India or made from APIs produced in India. The annual growth of the export market for Indian companies are higher than that of the domestic market. Prices for drugs exported from India are some of the lowest in the world making them more affordable even for patients in the developed world. If such a momentum of growth is to be maintained and improved, India should take a careful introspection of the way business in this sector is conducted by Indian companies catering to the global drug markets. Of prime concern is ensuring the highest standards of quality which has to meet highest global standards, regardless of whether such standards are higher than those required by the Indian regulatory agencies or not. Self regulation at all levels should be the key to ensuring quality of drugs manufactured and marketed. Such standards have to be uniformly applied regardless of target markets which may include even least developed countries which may have lax regulations. The Indian companies will do well to understand and appreciate the local regulatory standards of the markets they serve and ensure better transparency in all their activities which should be able to withstand scrutiny by any agency from any country.

With appropriate strategies to ward off the impact of Ranbaxy incident, the    Indian pharma industry is bound to continue its journey to global leadership in the generic drugs segment and its inherent strengths will off-set any real or perceived negative feed backs due to the recent episode.