Can An Alliance Between US Pharmaceutical Benefit Managers (1) and Make in India (2) Lead to Lower Global Drug Prices?

Question asked is very legitimate and the ANSWER is unequivocally YES. However, in order for it to happen there has to be a unique alliance that would bring bureaucrats, technocrats and business minds on the same table and work together “hand and glove” to change the global landscape.

Background:

Indian pharma companies with 2005 WTO/TRIPS agreement took advantage of the need for low cost generics in the developed countries. They succeeded. However, regulatory bodies (FDA, EMA and others) were not fully prepared to oversee their manufacturing practices. With time quality and therefore supply issues have resulted. My conjecture is that in order to stay profitable not every “t” has been crossed and not every “i” has been dotted with respect to manufacturing technology and meeting regulatory requirements.

Unless attention is paid in the improving manufacturing technologies and complying with regulations Indian companies might not be able to meet all of the regulatory and quality requirements. This could have long-term impact on the reputation of Indian companies as the “global pharmacy”.

Many of the Indian pharmaceutical companies have imported their Active Pharmaceutical Ingredients (API) from China. Chinese API overdependence has caught the attention of Modi government in India. Government of India is taking steps to alleviate API dependence from China (Centre mulls bulk drug policy, Government working on policy to promote APIs production). This recognition and remediation steps are of significant value.

My concern is that unless the right players are involved and timing is impeccable, Government of India might not be able to meet its “Make in India” plan for pharmaceuticals and might loose India’s status as the “global pharmacy”.

Indian companies for the foreseeable future will remain supplier of generic drugs. They have a significant opportunity to be the supplier of generics to 30+% of the global pharma market if all the pieces of puzzle fit.

Brand Company market revenue will be higher due to high drug prices but compared to generics they will have significantly lower patient base. I do not believe Brand companies will have much roll in this venture as their focus is catering drugs that are under patent. 

What all is needed:

With respect to formulations Indian pharma landscape is fragmented. There are too many players catering to the same customer base as a result they do not have economies of scale i.e. not the best manufacturing technologies. Economies of scale can improve profitability. Same holds for the needed API.

US PBMs, as the time progresses, will be consolidating. CVS Health and Target merger is the most recent. PBMs need to leverage their supply costs. Consolidation of PBMs is one way. The other way is to work with pharmaceutical manufacturers. Second way will have higher and sustained financial benefits for each participant.

PBMs along with a quasi-Indian government body can create pharmaceutical API manufacturing and formulation companies who can through economies of scale incorporate best of the technologies to produce quality drugs at the lowest price to supply the world’s pharma market.

If a “can-do” team that consists of savvy technocrats, bureaucrats and business folks from India and the United States can be created and it succeeds; it will change the global pharma supply landscape. Timing is of the essence and the team will have to operate on a fast track.

An International team can be assembled and it can very quickly select pharmaceuticals based on their revenue, patient need and manufacturing technologies. Reverse calculation method ⁽³⁾ using total global revenue can be a staring point. I would not venture out to say what cost reduction is possible but improved asset utilization, improved product yield, reduced waste and reduced quality approval time would definitely lower costs. Regulatory bodies will have to play their part for the success. It would be a global win.  

Girish Malhotra

President

EPCOT International

1. http://www.wsj.com/articles/SB10001424053111903554904576460322664055328
2.  http://www.makeinindia.com/sector/pharmaceuticals/
3. Malhotra, Girish: A Blueprint for Improved Pharma Competitiveness http://www.contractpharma.com/issues/2014-09-01/view_features/a-blueprint-for-improved-pharma-competitiveness/, Contract Pharma, September 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

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