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

May Day May Day: Can Someone Help and Lower Drug Prices?

Answer to the distress call is YES! However, it needs effort. I am presenting my perspective about the effort.

A recent article ⁽¹⁾ tells us a story, some call it bogus ⁽²⁾, but everyone is clamoring about high drug prices. Not much is being done by the movers and shakers to address the price issue. They also are not doing much to address the shortage and quality lapses.

With respect to brand drug pricing, not much can be done as the world’s patients are at the mercy of very select band of people whose focus is, by charging the highest drug price possible, delivering the ROI to the investors even if the drug is for less than 100,000 people worldwide. We cannot fault them as they are meeting their objectives and keeping the financial analysts happy. We are in way judging their motives and goals. It is our hope that in their efforts they might do some good by stumbling on new drugs/therapies that might benefit millions. Global need and want for lower drug prices remains.

What is needed to lower drug prices?

Generic drugs constitute more than 50% of the global market. They present the highest opportunity to lower pharma costs through manufacturing technology and the total business process innovation. Everyone and that includes regulators, legislatures, patients, PBMs (Pharma Benefits Managers), various health organizations and foundations (WHO, CHAI, Gates Foundation, Médecins Sans Frontières etc.) would like to see lower prices. There are many things standing in the way to get to the goals. They are:

1. Current business model
   
   
2. Fragmented and multitude suppliers
   
   
3. Lack of economies of scale
   
   
4. Inefficiencies of the manufacturing processes
   
   
5. Inefficient use of corporate (equipment, infrastructure) assets
   
   
6. Quality control practices
   
   
7. Regulations

Generic pharma companies have not done much to lower drug prices as they do not see any need. Why? They capitalize on the need to extend life. PBMs and national healthcare agencies worldwide have not made any moves to convince the generic pharmaceutical companies to step up and use the best manufacturing technologies, business practices and systems to alleviate shortage, quality lapses and lower drug prices.

In the current business model generic pharma companies have an argument against doing anything for better technologies and practices. Regulatory re-approval would be needed for the incorporation of innovations. Intent of drug efficacy and quality will have to be re-assured. Under the current regulatory environment, re-approval cost is unknown, could be expensive and time consuming. Any effort is going to take away from the focus of generic pharma to supply the needed drugs as it could lower their profits. Since there are many suppliers of the same drug, there are no economies of scale. Re-approval will also burden the regulatory bodies.

Thus we have a “chicken and egg” quandary. However, there is a potential solution. It has been practiced worldwide but not much in pharma. Most of us know them as “TENDER ⁽³⁾”bidding.

If every organization mentioned above asks for the supply bids from the companies worldwide, for drugs they dispense, we would have competitive bidding. It would allow them to compare and negotiate drug prices based on their manufacturing technologies, business practices, quality methods and any other measure they think will assist them. We will have an interesting business environment and as we know competition would be best for all involved.

PBM companies, foundations, global healthcare organizations can use “reverse calculation method ⁽⁴⁾” to determine what would be the costs if the companies were using the best possible technologies and methods at different supply levels (economies of scale). Information thus generated could be used for their pricing negotiations. It is very possible that such an effort “could be called foul” by many in the pharma industry, their lobbyists and even legislatures but this is one way to rationalize economies of scale, technologies and best business practices which will lower drug prices, improve profits and include many patients who cannot afford drugs. Change has never hurt anyone but made all involved strong. It is pharma’s time.

Such an effort will take time on part of PBM companies, foundations and global healthcare organizations. If they move forward, the process could give the best of the suppliers time to showcase their chemistries, manufacturing practices, asset utilization capabilities and how they can produce quality products from the onset using better batch or even continuous processes for API manufacture and their formulations. Tender bidding could also alleviate drug shortages.  

Pharma is a unique business where the industry improves the health of its patient base besides making profits. Yes it is tight rope, between profits, greed and compassion, to walk but someone has to walk it.

Please suggest if anyone has better ideas. We need to address the May Day call.

Girish Malhotra, PE

EPCOT International

1. Small Number of Drugs Drives Big Medicare Bill, Spending Data Show http://www.wsj.com/articles/medicare-releases-detailed-look-at-prescription-drug-spending-1430426438 Accessed May 1, 2015
2. Herper, Matthew, Why Medicare's List Of Costly Drugs Is Kind Of Bogus http://www.forbes.com/sites/matthewherper/2015/05/01/why-medicares-list-of-costly-drugs-is-kind-of-bogus/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20150501 Accessed May 1, 2015
3. Tender http://www.investopedia.com/terms/t/tender.asp Accessed May 1, 2015
4. Malhotra, Girish A Blueprint for Improved Pharma Competitiveness http://www.contractpharma.com/issues/2014-09-01/view_features/a-blueprint-for-improved-pharma-competitiveness/ Accessed May 1, 2015

Could Pharma’s New Movers and Shakers Make a Difference?

Mergers and acquisitions in Pharma like any other M&A have consequences. They are:

·       Higher Revenue

·       Increased Profits

·       Loss of jobs

·       Lot of money for some in “C and S” suites

Generally the first three happen due to economies of scale and elimination of redundancies. The last happens due to contractual obligations.

Generally economies of scale and better manufacturing technologies can be easily incorporated to improve the overall business. In pharma M&As incorporation of better manufacturing and related practices is not easy. In brand mergers it is impossible due to short patent life. For the generics after the low hanging fruits have been collected companies have to sort out their product portfolio. Companies that cater singular products [single active formulated in different doses] have to decide the future course. If they want to increase the market share, they have two options.

1.     Stay with the existing practices irrespective of their efficiencies or inefficiencies. This will depend on their market position.

2.     Capitalize on economies of scale and use better and efficient technologies to expand their market share. Upside would be higher revenue due to larger market and higher profits. Downside would be the investment (unknown) necessary to ensure the product meets accepted efficacy and performance. Process economics can justify their course.  

I do not believe that patients in either case will see much or any reduction in their drug costs. Most likely the drug costs after the mergers go up and that is especially true for the brand drugs. We have seen that in the recent case of HCV.

Focus of the pharma companies is to maximize their revenue and profits while suggesting that their more expensive drugs are better for the disease. A recent opinion by Dr. Jeremy A. Greene (1) is in an interesting and excellent overview about drug strategies and pricing. Reformulation of existing drugs through patent extensions and charging higher prices (2) is another strategy. I just wonder why in the name of better drug, which may be no better or marginally better than the existing drugs, companies are charging higher prices. It is obvious revenues and profits are the focus rather than the patient. Mutually subsidized healthcare systems really camouflage the real sales prices. Higher drug price are justified for longevity and convenience but generally patients are the losers as they cannot afford their higher priced drugs.

Recent merger frenzy involving Teva, Mylan and Perrigo has an interesting cast of CEOs (3). They are not pharma bred. Their demeanor during their consulting careers has been to maximize profits and shareholder values. They could be the “creative destructionists” pharma has needed to move from “regulation centricity” to “process centricity” which would bring significant change in the generic pharma model.

Generics have the best opportunity to increase their revenues by including almost 1.4 billion people, due to lower drug prices, in their patient base through the use of better manufacturing technologies and business practices. Economies of scale and “process centricity” could release pharma from the regulatory guideline and directive shackles that have impeded “operational excellence” in pharma. If they venture out to include “manufacturing excellence” they could save as much as $200 billion dollars. Using the current estimated monies needed to develop and commercialize a new drug could result in the development of one hundred new drugs. With this money developers for the new drugs could be busy for the next forty years and may save many jobs.

May be Pharma’s movers and shakers will change the generic landscape forever.

(1) http://www.forbes.com/sites/matthewherper/2015/04/23/when-old-drugs-are-made-new-again/
(2) http://www.bloomberg.com/news/articles/2014-09-16/actavis-sued-by-new-york-attorney-general-over-namenda-switch
(3) http://www.wsj.com/articles/meet-pharmas-newest-movers-and-shakers-1429750065

Girish Malhotra, PE

EPCOT International