Don’t kill this goose: Government policy should facilitate India to become pharmacy of the world

Price control

India is essentially a branded generics market. The latest Drug Price Control Order (DPCO 2013) has brought all the 652 generic drugs and formulations/strengths mentioned in the National List of Essential Medicines (NLEM 2012) under price control covering 27 therapeutic classes. The price ceiling is calculated by taking the simple average of all the existing drug brands of the particular molecule in the NLEM having a market share of 1% or more. With DPCO 2013, the Government of India (GOI) has moved away from intrusive cost-based price control to a method which relies on market prices. Patented drugs are out of the ambit so far.

The result is interesting to note. In the last one year that the DPCO 2013 has been in force, the Indian pharma market initially dipped by 30% because of price cuts which manufacturers had to introduce in order to meet the requirements of the new law on price ceiling. Subsequently, the market has bounced back. Volumes have evidently gone up. Another reason is that manufacturers have been promoting high-priced non-DPCO formulations while continuing to market price controlled formulations. The situation seemed to be win win for both manufacturers and patients. Alas, a new development has made the pitch rough and bumpy.

The game spoiler for the manufacturers in India is the recent action taken by the administrator of the DPCO 2013, the National Pharmaceutical Pricing Authority (NPPA). In July 2014, the NPPA has in ‘public interest’ issued price ceiling notifications on NLEM drugs in certain therapeutic categories such as cancer, HIV vaccines, diabetes cardiovascular, tuberculosis, malaria and asthma. There is a catch-all clause covering ‘public interest’ in the extant DPCO 2013. It is under this provision that the NPPA has taken action. Some 50 drugs (non-NLEM) have been brought under price ceiling, and another 50 drugs (non-NLEM) will soon be notified. It has been stated by NPPA that the criteria followed by them is that for existing brands, if the maximum retail price of any non-NLEM molecule/formulation is 25% higher than the simple average price of the brands of that molecule/formulation, then NPPA will initiate the case for capping it no higher than 25%. In addition, in case of introduction of non-NLEM new molecules/formulations in the market, if the launch price is more than the highest price brand in that therapeutic category, then NPPA will take action to cap the price at the existing highest price brand.

Obviously, both the Indian Pharmaceutical Alliance (IPA – consisting mainly of the large Indian Pharma manufacturers) and the Organisation of Pharmaceutical Producers of India (OPPI – consisting mainly Innovator companies) took NPPA to the High Court in Mumbai and Delhi, respectively, to seek an injunction and thereafter with a prayer that the NPPA’s notifications to cap price of non-NLEM drugs should be quashed. The case is sub-judice. Presently the NPPA under the advice of the Law Ministry has withdrawn the “public interest” notification under which it put a cap on the 50 non-NLEM drugs. However it has still not rescinded the extant price ceiling on the 50 non-NLEM drugs. The Court is expected to take a view. But, at least for now the future is secure.

How do I see the future? Over the longer term, dual pricing will continue viz. NLEM drugs with a ceiling price and non-NLEM drugs without a price ceiling (this is sub-judice as mentioned above). But keep one factor in mind – GOI and the federation of states are all declaring their intention of making available commonly required drugs, free of cost to the poor people in particular. Medical insurance is becoming popular and insurance penetration is improving – this is another pressure point which will keep the prices of drugs in check. Unbranded generics will be procured through tender process by GOI and the states for public health programs. Public procurement of unbranded generics has begun in earnest in the state of Tamil Nadu, Rajasthan, Madhya Pradesh, etc. Many states are collaborating with each other to make available generic medicines, unbranded or branded, through a grid of warehouses inter-connected by computer network. In Delhi, the GOI runs the All India Institute of Medical Sciences (AIIMS). Here, an outlet has recently been opened with 27 counters to dispense-free, predominantly unbranded generics. India is moving slowly in the direction of unbranded generic medicines like in the USA, UK and Germany. There are constant reminders to doctors by the Medical Council of India to prescribe by name of molecule instead of the brand. This is happening already in the public health sector. The Drugs and Cosmetics Act of India may get amended to allow substitution of brands in all categories. Druggists and pharmacies may be mandated to transparently give the buyers the prices of all the brands of the molecule/formulation prescribed by the doctor, thereby giving the patient the choice to buy the most affordable brand or the brand of his/her choice.

Patented medicines

There will be a mechanism introduced to fix the price of patented medicines also. This is Work In Progress (WIP). Most likely, a reference pricing method will be followed. The basket of countries used for reference pricing will be crucial. Alternately, dual pricing may be allowed, one for the public health system and the other for the open market. The Department of Pharmaceuticals is in charge of this subject. The NPPA, which enjoys some autonomy, also falls within the Department of Pharmaceuticals. Being proactive, NPPA is expected to take action in this matter also.

Intellectual property

The bone of contention is Section 3(d) of the Indian Patent Act, which restricts patenting of incremental innovations. India’s patent law is being adopted by many developing countries and some developed countries as well. This section on incremental innovations is here to stay. On the other hand, innovator companies are now increasingly successful in obtaining court injunctions against generic launches of their patented products. In many cases, the courts are advising the two warring parties to try arbitration under the alternate dispute resolution mechanism, facilitated by the court.

Innovator companies in India have, of late, set up excellent intelligence gathering mechanisms. They keep a watch on vendors, suppliers and distributors for tell–tale signs. As a result, they are able to file injunction applications well in advance, and in one stroke, against all the generic companies which they feel are copying their patented drugs. The courts are also beginning to acquire expertise in the area of pharma Intellectual Property (IP), as case laws are beginning to build up.

Whereas companies such as Pfizer and Novartis state their dissatisfaction with India’s IP laws, other companies like Abbot and GSK have openly declared that they are comfortable operating in India. They are not alone, in that Honeywell, GE and Lockheed Martin have, in fact, deposed to the US authorities that all is fine.

Compulsory licencing

The Health Ministry is constantly pressing innovator companies to introduce adequate patient access programs in right earnest. Otherwise, the threat of compulsory licensing is ever present. Probably, the way out is to be proactive. Extremely high prices, putting it beyond even the reach of the middle class is frowned upon. Therefore, patented drugs should be more reasonably priced along with patient access programmes over a wider swathe of the country. This will avoid patient versus patent battles. At present, the discussion is centered around Dasatinib (Sprycell of BMS), which is the follow-on treatment for chronic myelogenous leukaemia, after the cancer develops resistance to Imatinib mesylate (Glevec of Novartis). The Ministry of Health, GOI, under Section 92 of the Indian Patent Act 1970, has recommended that a case should be made out for compulsory licensing of Dasatinib under this section for public non-commercial use, stating national emergency/extreme urgency for lifesaving purposes.

Regulatory challenges

The major regulatory challenge for generic pharmaceutical companies manufacturing in India is to meet the requirements of the US Food and Drug Administration (USFDA). With operations of the local office of the USFDA (based in Delhi and other centers) being ramped up, there is no longer the convenience of getting advance notice before inspection. A reading of the 483 s issued by the USFDA after inspections usually shows violations of Current Good Manufacturing Practices (cGMP) in that the methods used in, or the facilities or controls used for the manufacture of pharmaceutical products including Active Pharmaceutical Ingredient (API), their processing, packing or holding do not conform to, or are not operated or administered in conformity with cGMP. There are issues of data integrity, preservation of data, stability data, etc. A recent phenomenon is that the chronology of 483, warning letter and import alert is not followed. In some cases, when the USFDA feels it is warranted, the import alert is issued even before the warning letter. Selling in the US market and other regulated markets is important for any pharma manufacturer who wants to reach real size and scale. The Indian generic industry is meeting regulatory challenges head-on, and I have no doubt that this will make the pharma industry in India rise to the highest standards in the world.

There is also a feeling in the minds of many people in India that USFDA is taking a over-strict view of pharma manufacturing standards in India. If the competitive edge which India has on low-cost manufacture is lost – and this can happen because of increasingly high wages, cost of power and transportation, and in general inefficient economy – there can be a possibility of migration of pharma manufacturing away from this country. Added to this will be cGXP requirements.

The action of whistle blowers is also beginning to be felt in India. Corporate governance requirements have made it mandatory for companies to have a formal policy for whistle blowers. This will help the regulator to come down quick and fast on defaulters.

Ethical Practices

This is not peculiar to India. All over the world, governments, regulators, civil society, media and patient groups are looking at practices being followed by the health care industry, including hospitals, doctors, diagnostic centers, medical and pharma companies.

In India, please expect in due course a uniform code of ethical practices to be introduced for pharma companies. If this not adopted voluntarily, it will be made mandatory by the government.

Competition Commission of India

India’s anti-trust body is now very active, with oversight on all industry sectors. Inter-alia, in the mergers and acquisitions space the Competition Commission of India (CCI) is also taking early action. This is one law, which all pharma companies must study when operating in India. Let us take the example of Sun Pharma’s plan to merge Ranbaxy with itself. Overall, the two companies together will have less than 10% market share in India post merger, thereby in the broader sense not posing ‘any appreciable adverse impact on competition’. But now the CCI is studying particular therapeutic segments like statins where the two companies put together may have a dominant position of over 15% market share. Conditionalities may therefore be imposed when CCI gives the green signal for the merger.

In general

GOI allows 100% foreign direct investment (FDI) in brown field cases (through the Foreign Investment Promotion Board, Ministry of Finance) and 100% FDI in green field cases (through the automatic route). Every organization will seek to benefit most from the open opportunities available. Recent pricing and clinical trial regulations have left the industry perturbed. Regulations on medical devices will also need clarifications. The pressure on CEOs exerted by the Board and share holders for growth in top line and profits, quarter on quarter, will continue. But this will have to be tempered with social and ethical responsibilities. Compliance and best practices will have to be adopted. In India, another challenge is to understand the jurisdictions of the legislature, the executive and the judiciary – these jurisdictions are getting blurred.

Prime Minister Narendra Modi visited the United States in the last week of September 2014. Economic diplomacy has become integral to geo-politics. Compulsory license, patent law and price control issues were brought up by the USA, while India negotiated World Trade Organisation (WTO)/food subsidy/food security issues.

India’s 1.2b population presents a huge market where permutations and combinations may work best if implemented within the framework and policy guidelines stated by GOI. Using India as a base and springboard, generic pharmaceutical companies can sell their products to the rest of the world including Japan and China. In India, the emphasis would continue to be on high-quality generic medicines supported by the three A’s viz. affordability, accessibility and availability.

A phrase in Latin sums up the situation ad astra per aspra – a rough road leads to the stars. Conducive public policy is a prerequisite. Is GOI listening?