FROM A ‘PHARMACY’ TO A ‘LABORATORY’:

THE GLOBAL BIOLOGICS REVOLUTION & THE INDIAN

BIO-PHARMACEUTICAL INDUSTRY

CHIRANTAN CHATTERJEE (IIM-BANGALORE)

NOV 15TH, 2013 PENN GLOBAL CONFERENCE INDIA AS A PIONEER OF INNOVATION: CONSTRAINTS AND OPPORTUNITIES

The ‘Molecularization of Medicine’ (Pauling 1949)…

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Advances in basic science are transforming the global bio-

pharmaceutical industry from a chemistry-driven to a biology-driven

one.

Discovery of double-helical structure (Watson & Crick 1953), r-DNA

(Lobban’s work at Stanford) and MAB techniques (Cohen et.al 1973)

has resulted in the biotech-revolution.

Nature of products shifting to Large-molecule Protein based

Biological Compounds from Small-Molecule Chemistry based

compounds.

Ongoing research documenting this change (Kapoor & Klueter 2013,

Branstetter et.al 2013).

As a result we are going to move from The Drugs of Today ..

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…To The Drugs of Tomorrow

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How will then the industry look tomorrow?

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PRICES Low

Low

High

High

DR. REDDY’S MYLAN

TEVA

Pfizer Merck

Lilly

GSK

GENENTECH

AMGEN

Roche

INNOVATION

..the transformation will also affect drug-firms of tomorrow - how?

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Innovator firms are transforming, how about imitator firms?

They play an important role in the global Access-vs-Innovation Debate in

healthcare.

This study explores the case of the Indian Bio-Pharmaceutical Industry.

Methods:

Patenting and Publication Analysis.

Firm-Level Interviews.

Econometric investigation of variation in Firm Capabilities using

local-demand data for large-molecules in India, 2008-2012.

Findings 1/3: Innovation & Science -Weak in Indian firms for large-molecules

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Source : http://gabi-journal.net/similar-biologics-approved-and-marketed-in-india.html

Findings 1/3: Innovation & Science -Weak in Indian firms for large-molecules

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Only a handful of firms have global patents in large-molecules. Approval of US Patents start only in 2000, numbers few and far between. No of claims (not shown here) indicate firms filing broader patents over time.

Findings 2/3: Firm-Interviews Point to 3 Key Themes

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8 firm interviews: Founders and CXO level executives 3 firms each in Mumbai and Bangalore, 1 firm in Pune and 1 in Hyderabad Background of science-to-business. 4 had a PhD, one a returnee scientist.

Theme 1: Human Capital & Supply of (Pasteurian) Scientists

Theme 2: Competition, Capabilities & Business Models.

Theme 3: Regulation, Firm Focus & the Institution Based View of the Firm

Findings 2/3: 3 Key Themes & Some Anecdotes

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Theme 1 Human Capital & Supply of (Pasteurian) Scientists

‘we need not just scientists who can engage in basic research but one who also has an eye on the ball

in terms of the commercial applications of the R&D program.’

Important with the role of ‘architectural’ & ‘component’ competence in bio-pharmaceutical firms.

Firms experimenting with Drug Discovery Schools.

Theme 2 Competition, Capabilities & Business Models.

‘that a recent survey of 352 global bio-manufacturers ranked China as the ultimate destination for

outsourced bio-manufacturing — with 17 per cent of the respondents identifying it as their top

destination. India was the choice for 13.2 per cent of respondents.’

‘specialized sales and distribution representatives (costing in excess of $200000 in annual salary

per person), who can go to doctors with not just one product but a portfolio of large-molecule

products’.

‘Biocon has the largest mammalian cell culture based bio-manufacturing capacity in India followed by

Reliance Life Sciences, Dr. Reddy’s Laboratories, Intas Pharmaceuticals and Kemwell. In microbial bio-

manufacturing of recombinant products, Wockhardt and Intas closely follow Biocon while in vaccine

production Shantha Biotech, Serum Institute, Wockhardt & Panacea Biotech are the largest players’.

Findings 2/3: 3 Key Themes & Some Anecdotes

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Theme 3 Regulation, Firm Focus & the Institution-Based View of the Firm.

‘actually cripple the bio-pharmaceutical sector not just for its local market prospects but also for

exports, especially when one looks at South Korea, where the regulatory system is expeditious in

terms of clinical trials and development even in local markets.’

Competition also from ‘Argentina & Brazil, Israeli & Malaysian firms’.

‘clinical development costs per large molecule biosimilar is around $100 million, setting up a GMP

certified bio-manufacturing facility will require some $150 million, added to which will be the

expenditure on clinical trials and on investments in complementary assets for advertising and

promotions’. - ‘a total investment for a single global program ranging from $350 million

to $900 million with a 6-8 year period of investment’. (Deep Pockets & Patience?)

More Patent 2.0 (Kapczynski 2013) in the offing?

‘India has the potential to lead the way in establishing a novel and abbreviated biosimilars pathway

based on molecular characterization and high end pharmacokinetic or pharmacodynamics studies’.

‘form a regulatory consortium with emerging economies to harmonize this approach’.

Findings 3/3 : Econometric Analysis of Firm Heterogeneity Using Local

Regional-Demand Data in India

Econometric analysis using data from regional-demand data for 20 large-molecules, 70 firms, 19 region-states, 2008-2012, 592 brands/skus.

QUANTITY MODELS

PRICE MODELS PRODUCT VARIETY MODELS

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Findings 3/3 : Analysis of Local Regional-Demand Data in India

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Quantity sold has increased 3 times between 2008 and 2012 across India.

Kerala has seen the highest increase while penetration is also increasing in the N-E states.

The top 3 states AP, Maharashtra, Karnataka have seen a doubling of quantity sold.

Findings 3: Analysis of Local Regional-Demand Data in India

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Anti-diabetic drugs and those related to alimentary tract and metabolism, highest in terms of Q, followed by drugs for genito-urinary system and sex hormones.

Cancer drug & Musculo-skeletal drug sales yet to pick up.

Findings 3/3 : Key Results from Empirical Analysis of Demand Data

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Key Results:

Domestic firms in comparison to MNC firms are associated with higher quantities being produced and can charge lower-prices.

Within Domestic Firms:

Early movers can produce more quantities, offer greater varieties.

Firms from outside traditional clusters in Gujarat & Andhra Pradesh seem to be the new entrants in the large-molecule space in the industry.

What does this all mean?

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BIG PICTURE FINDINGS:

Tomorrow’s Indian Bio-Pharmaceutical Industry Needs More Robust Science & Supply of Bio-Science Human Capital.

Need to resolve local regulatory uncertainty in a fast-track fashion.

Competition from foreign-cohort of firms but none have 50 firms playing in the large-molecule space from one country-cluster. Require capability investments in complementary assets though, more alliances?

Early-Movers will be gainers, also new entrants from non-traditional clusters of bio-pharmaceutical activity in India.

Opportunity to lead and harmonize regulatory consensus among emerging economies in the large molecule space.

Potential Patent Battles in the Large-Molecule Space Waiting to Happen (Refer Roche’s Pegasys related travails in India).

A Conclusion with Suggestion for a Normative Troika

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GOOD + ROBUST SCIENCE

CORPORATE FOCUS

REGULATORY FORESIGHT

o Echoes with history of evolution of the global biotechnology industry (see Moxley 2012’s documentation of the Pentyde & Leukine experience).

o Lead the way for a new regulatory steady state in large molecules?

Thank You

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Joint Work with Shreekanth Mahendiran, CBPS, Bangalore.

Questions: chirantan.chatterjee@iimb.ernet.in