Wednesday, April 23, 2014

Sun Pharma’s Exotic Challenge: How Real?

Since Sun’s acquisition of Ranbaxy Business-Standard, Economic Times and other papers have published many stories related to good and wonderful nature of the deal. I am sure everyone in India wants this to be a success and recoup the lost pride in Ranbaxy’s demise. However, no one wants to address or publish or discuss anything about the challenges Sun will face to get everything running full speed. Some of issues, especially personnel, Sun will have to deal with are generally considered taboo.   

In India businesses started are generally passed on to the coming generations. Before the launch of economic revolution in 1991 handful of companies were interested in India. Not very many companies are bought and sold in Indian culture. A sale to a competitor basically meant the entrepreneurs had failed, a setback in community. With that context acquisition of Ranbaxy by an Indian company has caught everyone by surprise and even pride. Ranbaxy has come home. Ranbaxy was part of the elite; the biggest pharma in India and its sale to Daiichi Sankyo was a loss. 

Sun’s acquisition of Ranbaxy besides financial benefits creates unprecedented opportunities to change the global landscape. It will face significant issues that any other Indian companies have not encountered on its scale. For its success it will have to deal with them. How they will manage and handle assimilation will determine Sun’s success.

Sun’s highest priority is get the sites approved from USFDA and other regulatory bodies ASAP to earn the trust and revenue it needs to implement changes. To achieve success Sun will have to deal with technology and human side of the organization. They will have to be dealt with very gently. I believe such an endeavor on this scale that has global implications has not been dealt in Indian business. 

On human side, personal and personnel issues may become the biggest hurdle. Colleagues of yesterday could challenge boss-subordinate relationships of tomorrow and that may impede assimilation. Sun’s way of managing and cajoling Indian psyche would be put to ultimate test. It might have to invent new and different ways and methods to develop strong and cohesive teams that will deliver on its goals.

On technology side Sun has to figure out how to move from every pharma company’s practice of “regulation centricity” to “process centricity” i.e. have complete command of the processes so that they can exceed regulations. This is a unique opportunity and not very many get it. It could be called once in a lifetime opportunity to change the global pharma playing field by showing how quality can be produced while lowering costs and improving profits. Complete and parallel review of the business model could create a model that could deliver quality and quantity on patient demand.

Benefits of process centricity if adopted can change the playing field in many ways. Stakeholders will have command of the processes and that means they will be able to rationalize global businesses for their products. Economies of scale will lead to commercialization of the best technologies which in turn would mean the producers will know that they have control of every aspect of manufacturing, quality and supply chain. Used technologies will exceed regulations and that would be something new and unheard of especially in pharma. Quality will be built in their processes rather than achieved through “trial and error” process.

Sun could step out of the pharma’s “me-too” model box and show how “process centricity” can change the playing field as it exceeds regulations and produces quality products with minimal in-process analysis. Such an achievement could change the global playing field forever. Ranbaxy had this opportunity in 2008 but did not take advantage of the opportunity. May be Sun will avail the opportunity and put the pride back for Indian management.

For assimilation to happen perfectly each wheel will have to turn at speeds to deliver the combined expected result. I am sure Sun’s team is well aware of the challenges they will face and were part of the acquisition consideration equation. I hope they have the resources and are willing to tap into resources to achieve their objectives. 

Tuesday, February 4, 2014

What Do The Recent Ranbaxy Citations Teach Us?

Recent Ranbaxy citation (UCM382514) is worth the review as it gives us cause and effect relationship between state of pharmaceutical manufacturing and regulations. Information can be used to improve pharmaceutical manufacturing whether it is API manufacturing or their formulations and how to avoid some of the common mistakes. It also gives us perspective of the regulators. Views expressed here are my own and are not any recommendations.

Involvement of Daiichi Sankyo as claimed may be coming but it may be too little too late.

Ranbaxy (Toansa) citation focuses on the following.

1.     Raw materials, intermediates and finished API failing specifications.

2.     Repeated analysis of the samples.

3.     Lack of procedures and adequate record keeping

Not being associated with or visited any of the Ranbaxy facilities, my first observation is that the manufacturing and supply chain management are out of control. These are also manifestation of a business model being practiced and are inadequate to meet the ever-changing needs at a plant site.  

Re-analysis of raw materials suggests that the company’s supply chain process needs significant review and edits. My conjecture is that the focus is on getting the cheapest raw materials that might come close to the desired specifications. Since these raw materials are converted to the desired API, process purification could be used to remove the impurities. If this is the case it is suggestive that there are serious issues and finally they have culminated in the current state.

Repeated sampling and analysis suggests that the manufacturing processes are out of control and yields are a variable. Product quality will be variable and in order to meet the desired specifications batch cycles would be variable. With lower asset utilization the overall plant capacity is lower than planned and costs will be higher than desired. This suggests that plant or the company profitability is a variable.

Lack of procedures also suggests that with changing raw materials, process conditions, methods and results plant personnel do not know how to analyze samples and then it becomes a fly-by-night operation and that is what the regulators found.

Since all such costs are absorbed, it means that the selling price of the salable API and the formulated products, to ensure profits, are much higher than what could be achieved by having optimum processes. All this could have been eliminated if Ranbaxy had complete command of their processes and they are repeatable. From a financial perspective this would mean that the site profits would be much higher from the current levels, a significant opportunity. In addition, asset utilization would improve resulting in higher production capacity with no or minimal investment.

Regulators in their citation/s are confirming that the processes are out of control. It is understandable that the regulators cannot and will not suggest corrective measures to comply. However there is an underlying question “Do the regulators know the cause and effect of what is happening when they are visiting/inspecting API manufacturing and their formulation facilities?”

Ranbaxy citation clearly indicates that there is tremendous opportunity to lower pharmaceutical manufacturing costs i.e. healthcare costs. Lower costs can mean larger customer base that can result in incorporation of better manufacturing technologies. Having command of the processes can be a global win.

Ranbaxy and Daiichi Sankyo have given significant lip service with every citation and consent decree suggesting they are in control of the situation but it seems that neither of them has been able to “walk the talk”.

Actually FDA citation of the API manufacturing facility is a heightened salvo and heads up warning to every API producer and formulator in India not to overlook cGMP practices. cGMP can only happen when companies will have command of the processes. Till that happens, with every inspection every company should be looking out for potential citations.

Girish Malhotra, PE

EPCOT International

Monday, February 3, 2014

Recent Posts That Relate to Pharmaceuticals and Chemicals-II

The following posts have been posted on and might be of interest.

  1. Will Pharma's Global Customers Redefine Maslow’s Hierarchy of Needs?                        January 27, 2014 
  2. Reading the Tea Leaves: Predictions for Pharma's Future                                                   January 15, 2014
  3. Can Emerging Pharma's Leadership Move On to the Next Stage?                                  December 18, 2013

Thursday, January 31, 2013

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

Thursday, November 15, 2012

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