In a free-wheeling conversation with Viveka Roychowdhury, Patrick Figgis, Global Health Leader, PwC and Sujay Shetty, Leader, Pharma and Life Sciences, PwC India, predict some of the changes that will unfold in the pharma sector in 2015
Intellectual property rights (IPR) have become a bone of contention in the pharma industry in India. The US closed its Fall 2014 Out-of-Cycle Review reminding India that the Annual Special 301 Review of 2015 will follow, thereby putting the Indian government under pressure to modify its laws. How do you see the situation evolving in 2015?
Sujay Shetty: Compulsory licensing (CL) and patent litigation have been major irritants for the pharma industry in India and last year, the country has received ‘bad press’ on these issues. So this is not surprising. The global pharma industry’s stance is that India currently has CL in place, and that stricter pricing law and different competitive yardsticks are being used for them. For instance, compare the reaction in India when global pharma companies take over Indian ones and when an Indian pharma company undertakes the same.
MNC pharma companies have reasonably good market access in India, compared to other geographies such as China. The Abbott-Piramal deal is indicative of the fact that global pharma companies have the competence to take over companies in India. If one concedes that India has the sovereign right to price medicines, given that the country is an out-of-pocket market, where the cost of medicines will always be an issue, then the point is to figure out the other issues bothering global pharma in India.
Pharma MNCs are divided on these issues. The common bone of contention (among pharma MNCs) seems to be certain facets of India’s IP laws. For instance, incremental innovation involving section 3(d) of the patent law. Most innovation is now incremental in nature. However, India does not award patents on this type of innovation. In the earlier scenario, western companies were the only beneficiaries of IP laws but today, Indian companies are also innovating and want to benefit from these laws. In fact, some Indian companies are actually cutting down on their research activities (in the country) to actually strengthen the argument [against section 3(d)].
There seems to be a growing understanding (in the Indian government) that we need a common IP law that helps Indian companies and recognises such innovations. Also, keep in mind that the IP laws framed will impact sectors beyond pharma, for instance, India’s IT sector.
At some point, maybe there will be a discussion on what comprises CL and pricing levels. If section 3(d) is not up for negotiation then what’s left is maybe easier pricing environment, licensing, faster health insurance, greater access to government tenders, procurement, a softening of patent laws as well as better enforcement of laws by putting in place more patent inspectors. Enforcement of laws in the country is weak and India will have to show intent of purpose that the government respects IP laws and will therefore protect data.Again, the area of data protection is grey. MNC pharma companies feel that stricter protection of data can help.
India wants more investment but pharma companies are always going to say that more investment comes with more IP protection. It is clear that the country will have to resolve the IP issue because only then will investments come to India. For instance, R&D expenditure for global pharma companies has so far gone to China.
Pharma MNCs also want better regulations in India. Take for instance the clinical research and trials sector in the country which have also suffered because of issues related to the informed consent process, compensation guidelines, the Supreme Court restricting the number of trials per investigator or doctor, etc. The National Institute of Health, US, has said that it will not take any more data from trials based out of India.
Due to such regulations, pharma MNCs claim that they are unable to conduct more trials in India. The laws are complex and there are delays in the approval process, etc. These are the issues both sides need to discuss.
In September 2014, Gilead Sciences signed non-exclusive licensing agreements with seven Indian generic pharma manufacturers, for ledipasvir/ sofosbuvir to expand access to its chronic hepatitis C medicines in developing countries. Many are seeing this as a new trend of innovator companies working around CL by opting for voluntary licensing (VL). Going forward, do you see this trend continuing?
Shetty: I think this case is meant to do good things to the discussion around CL. The company’s price for the same product in the US ($84,000 for a 12-week course) sparked outrage in the country. In India, the price is one-tenth of the US price. It is an innovative deal and dilutes the argument around CL, and shows working of the patent. This could be an extraordinary way forward but this is a public policy decision.
Do you see this deal influencing the approach of other innovator pharma companies and can they adopt this or variations of this model?
Patrick Figgis: We are in an era where we are seeing extraordinary change in the pharma environment. We will have to evolve in order to deal with some of the healthcare challenges we are facing.
Over the next few years, we will see a continuation and even an acceleration of the transformation of the industry. The old way of doing business will no longer be satisfactory and we have seen this in the way deals have been structured in the recent past. It is not just companies merging, but asset and portfolio swaps have also taken place. We are seeing different deal options, business models and practices.
A number of pharma companies themselves have come under significant pressure from their practices on the ground, from the Foreign Corrupt Practices Act of the US, similar regulations in the UK and other countries, in the way their sales forces or practices have been found to be operating. Some companies in China had attracted the headlines, but they are not the only organisations, either in China or elsewhere in other geographies.
The entire industry must look at the way regulatory demands are practised by their workforce right down through the organisation. It is one of the top priorities of CEOs as well as the board members of pharma companies and they are acutely conscious of the reputation of the business.
The challenge for them often is the translation of the policies and discussions at the board level all the way down through the organisation to their workforce around the world. As business models become complicated, third parties have also become a part of the eco-system, and pharma companies have to ensure that they too follow the same processes, policies and systems as their employees.
This is a big challenge and pharma companies are doing a lot to improve practices and processes.
To be ahead in the game, and have a future-proof strategy in place, companies need to always ask, “What are we doing today, that we think is proper and normal, which in five years time, society or the regulator will say it’s not?”
But even that’s not enough. You can have the best policies, practices and systems but if they are not in the DNA of the individual, or not practised instinctively, they are redundant.
Hence, company managements are working on the psychology and the DNA of the organisation, defining what it stands for, its ethics as well as moral values. There will always be things that go wrong or mistakes that are made. However, CEOs want to be confident that in any part of the network, their people are doing the right thing, when nobody is looking, and that defines the culture of the orgnaisation.
Shetty: We advise pharma companies faced with these issues to learn from other industries, particularly those that are also heavily regulated. Things have gone wrong in these industries as well. For instance, the energy industry, where there have been a number of disasters, either because policies or practices fell short or due to behavioural issues. The financial services sector for instance, where many people believe that things started to go wrong because of the cultural DNA of some of the personnel in that industry.
Nothing comes close to the US FDA issues facing the pharma industry in India. Companies who have everything going for them are confronted with this issue and they ask, “What can we do about the culture? How much can you train people?”
Express Pharma completed 20 years last December. If you were to predict the changes in the next two decades, what would your predictions be?
Figgis: From a global perspective, I am an optimist about the pharma industry. I do think that there are challenges but the health industry as a whole has a positive future.
There will be significant change over the next 10 years. The companies that made up the industry 20 years ago are different from those today, thanks to many M&As. And these will no doubt differ 20 years down the line. The family tree of the pharma industry is complex: with a host of births, deaths, marriages, divorces and this complexity will continue.
There will be a new round of different deals, alliances and asset swaps. There will be many new players, some spun-off from existing companies. There will also be a significant transformation of the existing players on the pitch.
The dynamics between players will also see a change. Partnerships and conversations between the private and public sectors, companies, governments, and regulators will increase because there will be a mutuality of interests. It is not perfect now but in order to deal with many of the challenges facing the industry, we will see a more common conversation. People will be collaborating much more than they were 20 years ago.
The demand for quality and knowing that the quality standards are met will increase. This will be driven by the regulator but also by the consumer who will become an ever more active participant in the story. This consumerism and wanting to be part and parcel of the play, is true particularly for those who have grown up as ‘millennials’ using technology and now have some understanding, data and knowledge to become much more active participants in the health eco-system.
What are your predictions for the pharma industry in India?
Shetty: Similar to the global scenario, there will be new entrants. Twenty years from now, the size of the existing companies will change. Global companies are growing by M&As, but Indian companies are organically growing into great sizes. Six years back, there was only one-billion dollar (Indian pharma) company, whereas today there are already eight billion-dollar companies. By 2020, there will be quite easily double that number. Scale breeds more scale after a certain amount of time.
But the interesting part is that there are a lot of new entrants in India. For instance, pharma companies are innovating along with companies who are making apps, different platforms for folding proteins and bioinformatic companies. Some of them will grow to scale as they are being funded by serious private equity players. This whole eco-system will look different.
Ultimately India needs to produce novel therapeutics, in terms of biologics and new drugs. Some Indian companies such as Glenmark already are doing some serious science in this area.
Figgis: The scientific needs are shifting as the health needs of the population in the last century were different. If you were to track the health needs of the last century and compare them to those of this century, they are fundamentally different. The challenges due to obesity and diabetes that we face today are enormous ticking bombs for major territories around the world. This requires a different response from not just pharma companies but from healthcare providers as well.
There is an increasing emphasis to take greater responsibility for our own personal health and well being. It is no accident that across the world we are seeing many devices, greater emphasis on consumer goods as well as technology companies investing billions of dollars into this market. From wearable devices, to exercising in different ways to eating different foods, you have got dramatically more invigorated consumer populations that want to take more responsibility for their personal health and well being as a preventive measure rather than relying on somebody to fix them when they fall ill.
What about the role of governments 20 years down the line? In India, the government is a provider as well as a regulator. There is an argument that they should not be providers but just regulators and implementors of regulation. For instance, in India we have the Jan Aushadi stores initiative by the government which was supposed to provide affordable medicines from post offices, but this scheme has not taken off. How will the role of governments evolve?
Figgis: We are seeing a trend of similar questions being asked at a global level as well. Health ministries in many countries did and are undertaking several initiatives. They have been regulators, providers, employers, as well as insurers who are now asking,’what are the essential elements, the core ingredients that only we can do? And what are the things that somebody else can do just as well, if not better?’ This can be about regulation, setting quality standards, but might not include being a vast employer of doctors and nurses providing care in hospitals.
Shetty: As far as India is concerned, (on this front), I do not see any trends that will be different 10 years down the line, but where one would hope it goes is that the government tries to get the pricing (of medicines) right. 20 years from now, we will have double the population that we have now. In fact, we might have three billion people by then, with chronic and acute diseases, plus sanitation issues. This will be in addition to rich world diseases co-existing in phenomenally large numbers. So how do you provide for this population, especially when you do not have a UK-style National Health Services system nor do we have the US-style insurance service?
I hope the government then starts thinking along the lines of UK’s National Institute of Health and Care Excellence (NICE) or the US’ National Institute of Health (NIH) which set how to determine value from a drug and how to price it. The price cannot be brought down to the lowest common denominator or given for free. Hence, there will be a role for the government in India in terms of pricing because at all times, market access and affordability will be key since no matter how wealthy India gets, it will still have large portions of populations under-served. It is unlikely that health insurance will grow fast enough, though it will grow to a certain extent.
Therefore, the role of the government in India as a far more effective regulator, as the body that controls prices will continue. It has got out of providing services (healthcare) because it realises that it does not have the wherewithal to fund the provision of services so it has now moved to the payer side. To continue as an effective payer, its deficits must be in order, which at the moment is rather stretched. This depends a lot on the economic growth and it’s predicated on the assumption that we will grow at the rate of eight to nine per cent over the next decade.In order to make sure the government can pay, it will control the prices.
We can see the first two situations (effective payer and controlling prices) unfolding, but we do not see the last part happening, which is about regulation, because the pharma regulatory system in India is under-staffed. It tries but it is not harmonising with the US and the UK, in terms of quicker regulation of products to the market.
These three roles will continue to play an instrumental role in the industry over the next decade, but the question is how effective will they be? Can they do it more efficiently? Will they use health technology assessment tools? Will they look at epidemiological data? Will they procure more and increase the size of the market? Will they distribute them more efficiently?
In this aspect, the present government is different from the previous one because it concentrates on implementation as opposed to big bang reforms. So they can get all of these things implemented a lot more smartly.
Figgis: Another trend that will impact the pharma industry is that over the last few years, a large portion of the world’s population has moved out of poverty into the middle-income group and I predict this too will increase.
And the consequence of this trend on healthcare is quite stark. The number one priority for people living in poverty is getting a job. But as income levels rise, other factors pertaining to the quality of life become more important. They demand better quality of education, housing, clean water, infrastructure and of course better healthcare.
Health has become a political issue. A number of elections are due to be held in 2015. In emerging markets, particularly, I predict that health will be much higher up the political agenda as voters go to the polls.