2014 – The year gone by ; 2015 – What can Pharma expect?

As we wind down the year gone by and look forward to welcoming a brand new one, I’d like to keep with the trend of summarizing some of the events that occurred while attempting to gaze into a crystal ball to see what it tells me of the future. The list is broad and directional and by no means an exhaustive one.

1) The effect of price control tapered off – the industry over all seems to have recovered well from the impact of the mandated price reductions that shook its performance in 2013. Over the last few months, it registered growth and the way forward looks optimistic again as companies impacted by mandatory price cuts have begun to see strong volume sales.

While price capping may appear to be a morally strong ground to hold, it seems anachronistic and makes little pragmatic sense when health delivery in the public sector is in such shambles. There are no hospitals to treat or no doctors to diagnose and PSUs which could have made these medicines at inexpensive prices for consumption through public health services, are all but shut down.

That said, there are a few more waves expected as the government expands the NLEM and brings more medicines under the price cap. Lowering prices of medicines has worked well for the new government and it seems to have sensed a soft target here. By forcibly lowering medicine prices, it excuses itself of having to invest in the sector to create more medical colleges, hospitals, and boost the public sector that delivers both affordable medicines and other health services.

This is much like the ex-gratia payments that are made after rail accidents. The silence of the families of the victims is assured when doles are paid out and it excuses the government of having to invest in improving railroad safety. The result is that terrible tragedies do not stop and innocent people continue to lose lives, much like those who will get no greater access to medicines and health care than they would have otherwise.

2) Importance of the US for the IPM – As companies declare their quarterly results, the importance of sales in the US as a percentage of total revenue is emerging as perhaps the most important factor of overall profitability. This is often derived from the ability of companies to price their products differently for the first-world which is often at a significant premium over prices in India. This has resulted in companies building lucrative businesses there, so much so that 40% of the generics consumed in the US are supplied by Indian companies. 

Of course, this dependence has brought the Indian way of doing business under much higher scrutiny than ever before. The US-FDA announced an increase in its staff at the Indian office in a bid to do justice to the vast number of companies that seek to serve the US market. Their audits led to much-hyped issuances of warning letters at times causing the domestic industry to play the victim card.

There have been attempts to highlight the poor quality of medicines produced in India by scholars from libertarian institutions such as the American Enterprise Institute (AEI) and the National Bureau of Economic Research (NBER). Sadly, the Indian government reacted with bluster, threatening to shoot the messenger by suing the institution rather than ordering an enquiry back home to fix the problem.

3) Pipeline fertility has moved to biotechs – Pharma’s bet on biologics has paid off. The most fertile pipelines today exist in biotech startups that do not feature on the “Big Pharma” list, but produce medicines that can significantly improve patient outcomes even as R&D pipelines in large pharma companies continue to remain dry. These medicines will undoubtedly contribute significantly to pharmaceutical sales that crossed $ 1 trillion.

Paradigms of pricing and product sales are getting redefined. While payers are negotiating hitherto unforeseen price ranges, the industry is witness to the “blockbuster” paradigm being busted. So on one side if  biologics push you to compare Lipitor and Seretide with Humira and Sovaldi, paradoxically on the ‘traditional’ medicines (NCEs) side, as Sir Andrew Witty indicated, there is a move to bring in efficiencies into research, reduce chances of error and therefore deliver a new drug more economically to patients than ever before.

Gilead Lifesciences’ drug for Hepatitis – C, Sovaldi (Sofosbuvir) busted the popular blockbuster paradigm by registering $8.5 billion in the first three quarters of sales. It was approved for launch in Dec 2013 and is expected to clock a whopping $11 billion by the end of 2014 – its first year on the market. Pfizer’s Lipitor was the only other product to achieve that quantum of sales after almost 6 years on the market! Gilead also got its act right by voluntarily licensing Sovaldi to a consortium of 6 generic companies for manufacture, supply and sales in emerging markets where it has priced the products at almost 1% of its US price ($900 in EMs vs. $84,000 in the US).

4) Indian government promotes alternative medicine – India’s Prime Minister has, in his recent cabinet expansion, created a separate AAYUSH portfolio, whose minister will be charged with promoting traditional medicines and practices of Ayurveda, yoga, naturopathy, Unani, Siddha and homeopathy. While this is not likely to go down well with allopathy practitioners, it can be certainly expected to impact the pharmaceutical industry that focuses almost exclusively on “western medicine”, as allopathy is popularly known in India.

5) Little progress on UHC or UHAM – Despite some announcements by the erstwhile Health Minister on the party’s key electoral promise of National Health Assurance — setting up an AIIMS-like institution in every state, affordable preventive checkups, free drugs and insurance for all — diagnostic checkups, there is little progress seen on this front. Even mandates asking doctors to prescribe only generic names are limited to a few states and institutions. Primary Health Centres and Government hospitals continue to be in bad shape and there is no perceptible difference felt by patients. Free generic medicines through the Jan Aushadi scheme has also not taken off.

Of course, all this takes time, but indicators of progress such as policy papers put out for public discussion etc have still not been seen. Today the government announced a 20% cut to its health budget in the 12th Five Year Plan and all but dashed hopes of focusing on a social sector of such high importance.

What is likely to happen in 2015?

The healthcare industry is in the middle of disruption with an emphasis on health and health delivery becoming participative. People around the world have begun to “own” their health and this has dovetailed quite well into the amalgamation of technological advancement which allows people to quantify health and predict outcomes better. So overall, what we see is a ‘consumerization’ of healthcare, where patients and caregivers are better informed and prefer to participate in decisions about their health. It is no longer the domain of the doctor only and the industry seems to be moving from a predominantly B2B (hospital-doctor-pharma) model to a B2C (hospital-doctor-pharma-consumer) model.

So, from an industry point-of-view, I’d expect the three major trends to be increased patient awareness and empowerment leading to health consumerization, targeted medicines providing superior outcomes and a subsequent paradigm shift in drug pricing and blockbuster definition.

We will of course continue to see more countries moving towards universal health care and try to balance health assurance with budgetary constraints, industry consolidation due to continued pressure on margins and inefficient pipelines and further commoditization of ‘traditional’ pharmaceuticals as the next wave of patent expiries begin to impact the industry.

Role of the government in India

The not-so-new government has been voted to power on a mandate to improve the economic situation for India and bring it back on a path of prosperity and growth where it was perceived to have diverted from under the left-leaning incumbent government. Some of the policy decisions of the past that did not curry favor with the industry were:

  1. Ambiguity around FDI allowed into pharma brownfield projects – Here the new govt allayed fears by not capping the FDI limit to 49% as was suggested by some parliamentarians. While it did not approve of an automatic route of investment to 100% – a decision more protectionist than pragmatic – it did rule to allow 100% FDI after review by the DIPP and the DoP.
  1. Mandatory price capping for medicines – After the fiasco of the DIPP first attempting to control non-essential medicines and then backing out, the logical step would be to adopt the legal way and expand the NLEM to include many of the non-essential drugs.
  1. Propensity to invoke compulsory licensing – There has been a feeling that PM Modi “sold out” to the US govt and its companies during his recent visit to the US. While that does not appear to be the case, setting up an IPR think tank to review or recreate India’s IPR policy seems a strange thing to do considering that the country’s stand is well embroiled into many treaties via the WIPO and the WTO. The bone in the side of the US is Section 3(d) which does not allow patent protection to incremental innovation. That is a section which should not be compromised upon at all.

So here the case seems to be of what the government should not do. While what the government chooses to do or not to do is its business, it will be crucial for the industry to negotiate through these rough waters as a brand new year appears on the horizon. It certainly looks like a happy one. Happy 2015 everyone!

2 thoughts on “2014 – The year gone by ; 2015 – What can Pharma expect?

  1. Hi Salil… A comprehensive overview of pharma industry, what passed by and what’s in store ahead.. Well thought out and articulated.
    I feel some of the developments in the recent past with respect to regulatory bodies even though squirmed by the industry, is going to help the industry in the long run.
    And the govt., as if almost responding to your blog, took the first step in announcing the 100% FDI in medical devices via the automatic route. Certainly 2015 looks promising.. Reason enough to say… Happy New Year…

    Like

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