Can Falsified Medicine and Other Directives Backfire?

All of us who are concerned with pharmaceuticals have to follow and comply with different regulations and directives. In the last ten years number of do’s and don’ts and “how to” have increased. Competition for drugs and APIs from developing countries has increased. It has been most painful for members of SOCMA (Society of Chemical Manufacturers and Associate) and ECFG (European Fine Chemical Group). They have had significant loss of business.  

In their effort to stop the business loss Falsified Medicine Directive (FMD) will be promulgated in 2013. GDFUA (Generic Drug User Fee Amendments) has been enacted and will come in play. cGMP practices have been coordinated and updated. Overall expectation is that whatever is sold in the developed countries, where the profit margins are the highest, drugs will be safest and meet the established quality standards.

From drug safety perspective all these make perfect sense. It is expected that by having regulations and directives customers will have safe and quality drugs. However, if some of the new directives and barriers are fully enforced, customers could face the following.

1. Possible shortages
2. Higher drug prices from current levels

We are sure that governments will intervene in either case and do their best to prevent each from happening.

On other side of the coin, suppliers from developing countries who supply majority of the APIs for the generics and brand/ethical drugs are not going to roll over and let go of their business. I believe many will be hurt and could go out of business but they have options. Constraints applied under FMD and others could finally lead to implementation of best of technologies and practices that are overdue in pharmaceuticals. Constraints could force consolidation and it might be the best option for many.

Consolidation would lead to increased production volume per site. This would also be an opportunity to create and commercialize best of the manufacturing processes for the products. Best practices of chemical engineering, chemistry and economics would be applied. With economies of scale and best safe and sustainable technologies, my expectation would be that their costs would be lower and quality equal or better than the companies asking for constraints. Overall business process will also be better. Best of technologies and business practices should improve profits for the consolidated companies from current levels. Drug prices should be lower. Consolidation might take some time, as it would be marriage of existing competitors a challenge in itself.

If consolidated companies are successful, I would believe that many other would follow suit to create formidable competitors that are much stronger than what we currently have anywhere in pharma. Pharmaceuticals will finally be able to compete. I wonder if this happens would it be the last laugh of the companies from the developing countries. Let us watch what brews out of these directives and regulations.

Girish Malhotra, PE

EPCOT International

Government of India’s Brand vs. Generic Drugs Tell of Today’s Conflicts and Reality

On October 12, 2012 Government of India issued directions that the drugs will be sold under their generic name rather than their brand names. This definitely caused an uproar in the drug manufacturing communities in India as evident by opinions and suggestion of legal action by different lobbying groups (Economic Times 1, 2, 3, 4). I am sure eventually there will be a clarification, settlement and path forward.

Reading news accounts, few things become obvious. Brand and generics drugs sold in India can have different purity. This means that the customer is not getting the correct dosage with every tablet. Statements also hint that many companies are not using the best manufacturing technology and appropriate analytical equipment to produce consistent and high quality products. Since low potency drugs sell, companies will use threat of lawsuit to avoid any changes in their practices. Batch-to-batch variability is acceptable to these companies. It is clear that these companies are putting general population including their own families at risk. In addition, brand companies do not want to lower their prices to generic levels thus loose their margins.

India’s pharma industry:

Most of the time in western press we get to read the glorious status of India’s pharma business. This is basically due to exceptional growth due to exports. However, not many know about the domestic market and its status. It would be worth having an overview of the India’s domestic pharma industry.

About 7,000 drug companies are registered with Central Drugs Standard Control Organization, a Government of India organization. This number is different from the number cited in a report of upper house of India’s Parliament. About 550, 814 and 150 are registered with US FDA, World Health Organization and European Directorate of Quality Medicine (EQDM) respectively. Some of these are common. How many have been inspected by the respective regulatory body is not in public domain. Companies serving USFDA, EQDM and WHO markets have high profit margins. They will do whatever is necessary to meet their standard. APIs produced for the developed countries, India and other markets can be of different quality. Different pharmacopeia standards add to the complexity.  

Companies serving the Indian market are supposed to meet schedule M (Indian cGPM standard). Compared to WHO or USFDA cGMP standards (private communication V. Hattangadi) Indian standard is very lax. How many of the facilities meet the Indian regulatory standard is not known. Companies meeting “schedule M” will not be able to meet brand drug standard unless investment is made in technology and equipment.

A report of the upper house of the Parliament of India states that there are not enough personnel to carry out inspection and approval of the drugs produced by the Indian companies. Besides inspection of drug formulation units, API producers have to be inspected also. This is added regulatory burden. Based on general business practices, which at times are less than honorable, it would be a challenge to access and authenticate quality of drugs from such plants. This is a sad state of affairs.  

Government’s objective and issues:

I believe by having a single generic form of a drug, Government of India wants to eliminate differences (price and quality) that exist between the same molecule whether be brand or generic. However the published discussion tells us that the following would need to be addressed before price and quality equalization can happen.  

1.     Brand drugs are priced higher than the generic drugs. Therefore the sales commission is much higher for everyone in the supply chain. Since the generics are priced considerably lower, the revenue earned by everyone in the supply chain is lower. Thus to generate the same commission revenue, the overall sales of brand sellers will have to be considerably higher. This would be perturbation in the existing business and lifestyle of the companies in the supply chain, not an acceptable scenario. Thus the brand sellers will resist sale of generics. 

Brand sellers in India are a very powerful lobby and have significant influence. They could prevent government’s move to generics. Supply chain lobby could also raise the selling price of generics, knowing well of their inferior quality, to account for loss of their profit margins. This could negate government’s intentions of lower drug prices unless government enforces price controls.

2.     For the existing generic producers to meet the quality standard of brand drugs and have their products approved, they will have to invest in equipment and necessary approval process, a challenge that could be met by few. Generic companies who will invest in upgrades will have to raise their selling prices to recoup their investment. Prices could inch to brand levels. This will be quite contrary to government’s intention of price and quality equality. Companies who will not invest will either go out of business raising unemployment in this sector or will go underground i.e. producing counterfeits.

3.     If government forces price equalization through price controls, drug shortages could result, as the brand producers are not going to lower brand selling prices to generic levels. Generic producers will take short cuts to fill the supply gap and at times quality could be questionable unless government can police such situations with appropriate penalties. India’s policing ethics may be a hindrance.

4.     Even if the companies are able to invest and do what would be necessary to meet the drug quality standards, government regulatory infrastructure is not set up to implement its own guidelines. This is due to not having properly trained staff and not having the necessary standards. If the brand producers are able to meet the shortage created by lack of availability of generics, question could be: Would the average consumer be able to afford the brand drugs?

I believe Government of India has good intentions of making quality drugs affordable to all at reasonable prices but its policies and methods are not in place to achieve the goal. Without having the necessary inspection and approval systems in place it seems that the cart has been put in front of the horse. Political patronage and unethical practices will have to be replaced by transparency and honesty to produce quality drugs, as companies are dealing with human life. Once all the methods to produce quality drugs are in place only competition will determine the lowest price. 

Drive to lower the cost of quality drug can be an opportunity for entrepreneurs who can produce drugs using best of the technology and methods that are cost effective and sustainable. This is very feasible and if implemented it could change the landscape in and outside India.

With the Affordable Care Act in place in USA, USFDA has to make sure that the Indian companies exporting their generic APIs and formulated drugs comply with its regulations. Regulatory compliance has to be checked not only through paper trail of manufacturing practices but also through actual audit of the physical manufacturing areas. Checking of the actual operations is very important.

Girish Malhotra, PE

EPCOT International

Improving Global Affordability of HIV/AIDS Drugs Through Technology Innovation

Affordability of HIV/AIDS drugs is critical for the well-being and survival of patients especially in the underdeveloped countries. Companies have done an excellent job of inventing the necessary drugs. Initially the patients who were not covered under healthcare programs could not afford them. Even who were covered, food for the family and drug for an individual ⁽¹⁾ became an excruciating choice. Companies in the developing countries took upon themselves to commercialize processes that had lower their manufacturing costs i.e. the lower selling price. Thus, the availability and affordability became possible to many in the countries.

Various governments and non-profit organizations (notably US Government, Médecins Sans Frontières’, WHO, Clinton and Bill & Melinda Gates Foundations) have done an excellent job of making the necessary drugs available for the needy. However, in the slow economic environment, governments and foundations are facing funding challenges that could make availability of the necessary drugs an uphill task ^(2,3). The need for the drugs has not gone away and is not going away.

How do we make the drugs more affordable? Is there a solution?

Answer to the query posed above is “YES” and it comes from lowering the manufacturing cost. Using the best manufacturing technologies along with the best business practices e.g. supply chain rationalization, economies of scale, better chemistry and improved execution can lower the manufacturing cost of the needed drugs by 20-40% from the lowest selling prices listed at http://utw.msfaccess.org/drugs ⁽⁴⁾.

The cost reduction claim may seem to be large but are not out of the realm of possibilities. Any cost reduction i.e. lower selling price is worth the effort. Anyone who is familiar with chemical processes and cost accounting can reverse ⁽⁵⁾ calculate factory costs within +/- range of the actual costs. A thorough review of the chemistry, process equipment, current practices, economies of scale and supply chain ^(6,7) would be needed to develop better costs. Such review along with creativity and innovation can lead to the development and execution of the best and lowest cost process. Quality will be built in the process. Profits could also increase.

Above mentioned reviews and practices are a common practice in the chemical, petrochemical and other chemicals related industries but have not been practiced in the pharmaceutical manufacturing which includes the manufacture of the active ingredients and their formulation to a dose. If done right, the saving could be higher. Best technology will also facilitate and simplify regulatory compliance.

If we are able to lower the cost of the needed drugs, pressures on the funding governments and the foundations will be reduced. It is possible that lower prices will extend coverage. It will be a win-win and lessons learnt could be used to lower costs of other drugs also.

Girish Malhotra, PE

President

EPCOT International

1. Malhotra, Girish: Drug Prices: Food vs. Medicine - A Difficult Choice for Some June 16, 2011
2. MSF Report: Funding shortages threaten advances against HIV/AIDS, political promises will fall short accessed October 18, 2012
3. Malhotra, Girish: Drugs for Infectious Diseases, Funding and Opportunity December 11, 2011
4. Médecins Sans Frontières’ Untangling the Web of Antiretroviral Price Reductions: 15th Edition accessed October 18, 2012
5. Malhotra, Girish: Neglected Tropical Disease (Infectious Diseases) Drugs: What are they telling us about Innovations! March 7, 2012
6. Malhotra, Girish:  Chemical Process Simplification: Improving Productivity and Sustainability February 2011
7. Malhotra, Girish: Chapter 4 “Simplified Process Development and Commercialization” in "Quality by Design-Putting Theory into Practice" co-published by Parenteral Drug Association and DHI Publishing© February 2011

Patents: Should We Change Our Intellectual Property Model/Strategies?

In the last thirty-five years about 351,000 US patents ⁽¹⁾ were classified in 424 and 514 class category i.e. they are drugs related. This translates to about 10,000 patents per year. I am told that an average US patent ⁽²⁾ (up to 20 pages. Costs go up as the number of pages increase) over its life cost the assignee about $15,000 to $18,000. I am also told that the patents filed in Europe cost about four to five times the US patent costs. European patents are not part of the discussion. However, the readers can use the information of this discussion to draw their own conclusions.

Based on number of patents granted per year, companies spend about $150.00 to $180.00 million per year. These costs are less than 0.5% of the annual pharmaceutical revenue of about $800 billion per year, a very insignificant cost. Just for enlightenment purposes 351,000 patents over thirty-five years cost companies about $ 5 to 7 billion dollars for the US patents only.

Good side of this expense is that they give companies a hold on their invention for the life of the patent and are every bit worth the expenditure. However, the question is how much information is being shared with competitors, how they are using the information and what is the total damage caused to the companies by this sharing. In addition, another question is what is the percentage of revenue generating patents. I wonder if such an analysis has been ever done.

We all understand that before the Internet Age, information had to be manually retrieved. Now we can search information in seconds just by using certain carefully chosen words. Before Internet we used the best methods available for the time and still missed relevant documents. Missed information could invalidate the patent.  

Patents are an open book. They facilitate learning, an excellent teaching tool, show us how to circumvent, improve our processes, develop better process and product and even show us how to infringe. They give us a head start. This is especially true for process patents. This is my learning from patents. Compositions of matter patents also do the same. Unless someone is aware of infringement, companies do not have the manpower to police.

Few questions come across. They are:

1. If a patent cannot be policed, what is the value of the patent?
   
   
2. Do the patents have defensive or offensive value and what are they worth if they cannot be policed?
   
   
3. What kind and how much financial damage the information disclosed in the patent causes and has been caused to the companies especially when the patents are invalidated due to lack of proper prior art search?
   
   
4. With the advent of Internet should the patent strategies be reconfigured/rebooted?
   
   
5. Should the intellectual property model be reevaluated?

I do not have the answers to the above but I am sure there are many pundits and gurus who are and will address the questions and have the answers. I wonder if there would be a pro and con debate. We all know there is value in patents but the question would be value for whom, what kind and at what cost.

The above questions and comments are based on my recent analysis of an API molecule synthesis. Of the three patents first was the original innovation filing. The second two patents are a variation of how to synthesize the same chemical differently. Same molecule is being synthesized using same and similar chemicals. There is no innovation when it comes to chemistry or process simplification. Yield was significantly compared to the original patent. Money was spent but I am not sure of the value. New patents basically taught how chemistry could be altered and possibly simplified.

I am not challenging wisdom of having patents but asking a question “Is it time to re-visit IP strategies to make sure we are not giving away the store?” A re-evaluation might be of value as it could have some impact on how the IP business is conducted.

Girish Malhotra, PE

EPCOT International

1. Patent Counts By Class By Year 
JANUARY 1977 -- DECEMBER 2011, accessed September 19, 2012 http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cbcby.htm
2. Private Communication with Mr. Stephen Grant, Attorney Standley Law Group LLP September 19, 2012