Market Environment and Competition in the

Pharmaceutical sector

What is to be done?

Dr.Amit Sengupta

Jan Swasthya Abhiyan

The Context of the Health Care System

SourceLocation(percent)

Income Quintile(percent)

Total

Urban Rural Lowest Second Middle Fourth Highest

Public sector

29.6 36.8 39.4 37.1 39.0 33.9 22.6 34.4

NGO or trust hospital

0.5 0.3 0.3 0.3 0.3 0.5 0.5 0.4

Private sector

69.5 62.5 59.9 62.2 60.4 65.3 76.4 64.8

Other source

0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Source of Health Care

State of Public Sector encourages Growth of Private Sector

• State of the public health system forcespeople to access the unregulated private sector

• As a consequence in excess of 80% of medical care costs are borne by people through “out of pocket” expenses

• Survey shows that, in the case of ailments considered serious by respondents, 40 percent cited financial reasons for not taking recourse to treatment

Health Exp. (Rs.)

Exp. on Medicine (Rs.)

Medicine % Health

Quintiles Rural Urban Rural Urban Rural Urban

Lowest 7.72 11.71 6.68 9.91 86.47 84.60

Second 13.79 21.66 11.71 17.49 84.89 80.71

Third 19.61 29.73 16.46 22.72 83.94 76.44

Fourth 29.98 47.00 24.44 34.34 81.53 73.05

Fifth 77.47 105.67 55.46 65.90 71.59 62.36

Total 29.58 43.27 22.85 30.14 77.24 69.66

Pattern of Out of Pocket Expenses on Medicine and Health Care

The Indian Pharma ‘Success’ Story and after…

Self Reliant Production of Medicines

• India is the 4th largest Producer of Medicines in the World

• Indian Medicines are exported to over 200 countries

How did this Happen?

• Indian Patents Act 1970.• Foreign Exchange Regulation Act.• New Drug Policy 1978• Establishment of public sector

manufacturing factories like HAL and IDPL

What has changed?

• Reversal of basic tenets of Drug Policy 1978:

1.Sectoral Reservation

2.Price Control

3.Differential treatment for Domestic companies

4.Ratio parameters (Bulk to Formulations)

• Amendment of Indian Patent Act in 2005

• Relaxed FDI Norms

• Closure of public sector

Consequence of Change in IP Act: Prices of New Drugs

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Recent Trends in Drug Industry

• Manufacturers – especially large manufacturers – compete for up-market consumers who can pay heavily to ‘buy’ health care

• Production of expensive drugs outstrips demand while less expensive drugs (but essential) medicines are often in short supply

• Companies continuously shift productiontowards newer and expensive drugs within the same therapeutic segment

• Intent to circumscribe price controls

Shifting Trajectory of New Drugs being Marketed

• Between 2004 and 2014 domestic market expanded 25,000 to over 80,000 crores

• Does not reflect a growth in therapeutic value, but a shift to more expensive medicines

• Clear slowing down of registration of NCEs and a huge growth in registration of ‘me too’ combinations of dubious value

• Cos. attempt to compensate for their inability, in the post-2005 situation, to register NCEs by concentrating on irrational combinations

Present Business Model of Pharma in India

• Reliance on Retail Sales – profits come from sale of formulations and not from basic manufacturing

• Huge variation in prices of same drug shows there is no real competition --Premised on Sales and Distribution Network with various layers

• Crucially dependant on irrational prescription and aggressive promotion

Present Business Model relates to:

Trade and Industrial Environment

• Increasing reliance on imported bulk drugs

• Increased reliance on export market

Policy Environment

• Liberalised imports (esp. post WTO)• Price and Production Decontrol• Liberalised FDI norms• New IP Act

From ‘manufacturer to trader’?

Present Business Model leads to:

• Retail sales driven by marketing tricks

• No major interest in manufacturing

• While there are a large number of manufacturers, clear evidence of oligopoly

Variation of Drug Prices –Evidence of Profiteering

• Wide variations of prices in retail market, between prices of the same drug sold by different companies

• Very wide variation in the prices of drugs sold in retail and those sold in bulkthrough tenders to institutions -- from around 100% to 5600%

Increasing Import Dependence

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Comparison of Increase in Bulk Drug and Formulation Production

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Dependence on Imports from China

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Increased role of Exports in Pharma Sector

Slide Courtesy Reji Joseph, Presentation in RIS, 2012

Indian Generic companies as ‘Junior’ Partners of Big

Pharma

MNC INDIAN THE DEAL FROM RATIONALE

Daiichi Sankyo

Ranbaxy Acquired June 2008

Access to low cost manufacturing

Pfizer Aurobindo Contract Manufacturing

March 2009

60 products for regulated markets

Fresenius Dabur Acquired April 2009

Access to oncology manufacturing

Pfizer Claris Lifesciences

Contract Manufacturing

May 2009

Access to sterile injectable drugs

GSK Dr Reddy’s Partnership June 2009

Develop & market select products

Mylan Labs Biocon Contract Manufacturing & Developing

June 2009

Develop monoclonal antibody

Acquisitions and Tie Ups

Acquisitions and Tie Ups

MNC INDIAN THE DEAL FROM RATIONALE

Mylan Labs Famy Care 15% stake August 2009

Access to oral contraceptive mfg.

Sanofi pasteur

Shantha Biotechnics

Controlling stake

August 2009

Access to vaccine manufacturing

Hospira Orchid Chemicals

Buyout of injectable antibiotics

Dec 2009 Access to low cost manufacturing

Pfizer Strides Collaboration Jan 2010 & May 2010

Access to 78 oncology products & sterile injectables

Abbott Nicholas Piramal

Takeover of healthcare business

May 2010 Access to generic products

Litha Healthcare

Natco Pharma

Marketing of products

Sept 2011

Access to multitude of dossiers

What do we need to do?

Long Term Strategy

• Public Investment on Health Care• Revival of the Public Sector• Production Controls• Support to Small and Medium

Enterprises• Liberal use of Compulsory Licenses

for Patented Drugs• Rational Prescribing (including

generic prescribing) + effective check on promotion

Thank You!