After months of deliberation, the Indian government has decided not to cap foreign direct investment (FDI) in the pharmaceutical sector and to continue with the 100% FDI regime. A decision in this regard was taken by an inter ministerial group presided over by India’s Prime Minister Manmohan Singh, which sought to allay fears about clearing investments automatically.

Currently, India allows 100% FDI under the automatic route, both in greenfield investments (wherein a company starts a new venture from the ground up), and in existing Indian drug firms. While there is to be no scrutiny of greenfield investments, acquiring a brownfield investment (which involves purchase of an existing production facility), is set to face stringent scrutiny by the country’s competition authority to ensure there is no collusion or predatory pricing.

Given the seven big-ticket acquisitions of Indian drug majors by multinationals, most recently the Abbott-Piramal deal for $3.72 billion, India’s health ministry had raised concerns about marginalization of homegrown firms and subsequent rising medicine costs.

Calling for a FDI cap of 49% to check takeovers, the ministry noted that such buyouts would also undermine the Indian government’s efforts at making generic version of drugs available at affordable prices.
The health ministry was responding to allegations of Big Pharma buying out the competition and creating an oligopolistic market with large companies working as a cartel. Allaying fears, the Indian government has decided to exercise a certain degree of supervision with all future takeovers.

The changed circumstances will ensure that in the initial stages, investments will have to be cleared by the Foreign Investment Promotion Board, while six months down the line, investments will need the stamp of approval of the Competition Commission of India (CCI), which is to double up as a gatekeeper for any anti competitive outcomes.

In the interim, the government is to put in place the essential enabling mechanism for any oversight by the CCI. All M&A deals are to be scrutinized in accordance with the competitive laws of the country with the CCI holding the authority to order a demerger, if the merged entity has been found to be abusing its dominant position or is found to be engaging in any exclusionary practice.

Both multinational and domestic drug makers in India have hailed the move, since the overriding emotion is that any regulatory restrictions on FDI could adversely impact competition which is not in the public interest.
India is the third largest pharmaceutical industry in the world in terms of volume, with total turnover crossing $21.04 billion. During April to July 2011, India received FDI worth $2.99 billion in the pharma sector. With the industry set to become a $20 billion industry by 2015, from its present turnover of $12 billion, FDI will no longer translate to Funds Deserting India.

View this author’s Report from India columns

First, Eli Lilly Chairman, President, and CEO John C. Lechleiter urged that biopharmaceuticals be included in transatlantic trade and economic discussions under the Transatlantic Economic Council (TEC). The TEC was initially proposed by German Chancellor Angela Merkel in 2007 to strengthen transatlantic economic cooperation between the United States and European Union.

“The TEC is an additional important forum which we should use to foster the growth of biotechnologies and promote biopharmaceutical innovation,” said Lechleiter, in a Eli Lilly statement. “An increased focus on biotech and innovative pharmaceuticals would complement the TEC’s existing efforts to advance the transatlantic harmonization of regulatory regimes affecting key future growth industries.” Lechleiter made his comments at the American Council on Germany’s conference on “The Transatlantic Partnership in the 21st Century.”

In his comments, Lechleiter noted that biopharmaceutical innovation is very susceptible to the political environment, both nationally and internationally. He cited that responses to short-term cost pressures by government payers are hampering the sector, noting recent reforms in Germany as an example. “We must ensure that healthcare reform in our countries will help promote biopharmaceutical innovation and not undermine it,” he said  “Healthcare reform should focus on creating value through the system—and that means promoting innovation and efficiency. Even the absolute requirements of our sector in global markets—intellectual property protection, supply-chain security and anticounterfeiting measures—are far from secure.”

To spur transatlantic trade in pharmaceuticals and maintain medical innovation, Lechleiter called for consistent regulatory policies, intellectual property protection, and harmonized systems to deal with common issues such as counterfeiting. In addition to the TEC, he noted certain positive developments, including the recent Falsified Medicines Directive of the EU, which seeks to create a comprehensive anticounterfeiting system across the supply chain in Europe.

Meanwhile, The Society of Chemical Manufacturers and Affiliates (SOCMA) offered its support of three pending free-trade agreements (FTAs) with South Korea, Panama and Colombia following actions by two Congressional committees that supported the FTAs, a key step in the process  to gain full Congressional approval. SOCMA is the US-based trade association representing custom and batch manufacturers, including contract manufacturers of fine chemicals, pharmaceutical intermediates, and active pharmaceutical ingredients.

SOCMA supports the free-trade pacts as a means of boosting the chemical industry. It also said that pacts are important for showing support for other FTAs, such as the Trans-Pacific Partnership (TPP). The TPP Agreement is an Asia-Pacific regional trade agreement currently being negotiated among the United States and eight other partners: Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. In May 2011, The Pharmaceutical Research and Manufacturers of America issued its support for Senate consideration of intellectual property protection measures in the TPP.

Macroeconomic factors, whether in the form of fiscal policy that affects drug-reimbursement levels from national governments or tax and trade policies, have an effect on the current and long-term health of the pharmaceutical industry and its suppliers. As national governments seek to balance the need for revenue-generation and their domestic agendas with business and economic growth, free-trade issues will continue to be an area of continued focus for the pharmaceutical industry

The topic this year was creating meaningful research and development (R&D) partnerships between US and Indian companies. The model for US–Indian partnerships has been straight fee-for-service, where an Indian company provides a service, such as late-stage chemistry or clinical trial support, but the design of the project is dictated by the western partner.  Indian industry representatives would like to see the nature of the relationship between US and Indian companies progress toward something that looks more like a true partnership, where the Indian company is more involved in planning and designing studies, and can contribute innovation as well as execution. Endo Pharmaceuticals stepped forward as a model for such a relationship.  Endo is a relatively new pharmaceutical company, in business for 13 years, that did not originally have an R&D program.  Three years ago, they began one, and went to a completely outsourced arrangement.  All of their R&D is done by an Indian partner, and they have been extremely satisfied with the arrangement.  Dr. Martin Fitchet, of J&J was more reserved, indicating that of the number of collaborations he has participated in with groups in India, some have been successful and some less so, and that the key to success, in his experience, has been to carefully define the terms and expectations of the collaboration.

The news has been full of stories about large pharmaceutical companies scaling back R&D, because the return on investment has been so poor.  Indian R&D, like manufacturing, offers the potential for savings, but it requires confidence on the part of US companies that Indian companies have the capacity for innovation and critical thinking that are required for a successful R&D program.  Partnerships like Endo’s are the exception rather than the rule right now but it’s a step in the direction for Indian R&D.

Indeed, many of this week’s price cuts have been made in response to a tender off for the rotavirus vaccine (the world’s second largest killer of children after pneumonia) from the United Nations Children’s Fund (UNICEF), which supplies medicines to children in developing countries. The reductions were detailed in a statement from the GAVI Alliance, a global health partnership that aims to increase access to immunisation programmes in poor countries.

GlaxoSmithKline (GSK) has come forward with an offer of just $2.50 per dose or $5 to fully immunise a child, which is a 67% reduction on the current, lowest available public price. However, GSK isn’t the only company  taking an axe to its prices. Merck has said it will offer its own rotavirus vaccine to UNICEF at a discounted price, and new market entrants in India, including Bharat Biotech, the Serum Institute and Shantha Biotechnics (a subsidiary of Sanofi Pasteur), are also developing rotavirus vaccines for GAVI-eligible countries, although these are not expected to be ready for purchase until 2015. However, these vaccines could encourage further price reductions. On its website, Bharat Biotech has said that it will offer $1 per dose.

According to Helen Evans, GAVI’s interim CEO, if the rotavirus vaccine could be purchased this year at a $2.50 price, the impact on public health could be significant. It would also enable GAVI to save approximately $500 million through to 2020, or about $140 million through to 2015, as measured against GAVI’s current financial estimates.

Cuts have also been made to the prices of other important vaccinations. For instance, the Serum Institute and Panacea Biotec (India) have both lowered the prices of their pentavalent vaccines. GAVI’s statement added, “The price reductions illustrate the key role of emerging market suppliers as new global players, contributing to both innovation and increasing competitiveness in the market place.”

Merck has also offered its human papillomavirus (HPV) vaccine at a reduced price of $5 per dose, while Crucell and Sanofi Pasteur have announced that they will extend GAVI prices on their pentavalent vaccines to the 16 countries expected to graduate from GAVI support. In its statement, GAVI added that these announcements build on similar commitments made to graduating countries by Pfizer and GSK.

“Our market-shaping goal is to achieve the lowest price for currently available products while maintaining supply security,” said Evans. “Looking forward, Alliance members will work to broaden competition and ensure the provision of quality vaccines at sustainable prices. Today’s announcements are a step forward to achieving this goal.”

GAVI’s statement was issued in the lead up to its first pledging conference, which will take place next week.

Pharma has been quick off the mark to offer both financial and medical aid. Here are some of the donations that have been made by Japanese pharma companies:

• Daiichi Sankyo has donated 100 million JPY (Japanese yen; approximately $1.2 million) and implemented a “Matching Gifts” program for employee donations.
• Dainippon has donated 100 million JPY, as well as hand disinfectant products, and antiepileptics in response to a request from the Japan Epilepsy Society.
• Eisai has donated 200 million JPY ($2.4 million) and established an independent crisis center in the Tohoku region headed by its deputy president.
• Takeda has donated 300 million JPY ($3.7 million), as well as pharmaceutical products.

International pharma companies have also pledged support and it’s great to see so many foreign entities willing to help the Japanese people at this time. Of course, a number of global pharma companies fully understand the consequences of the earthquake because they have been directly affected. Boehringer Ingelheim, for instance, said in a tweet that they have suffered huge damages at one plant in Fukushima, although all Japanese employees have been reported as being safe. GSK, via a release on the Association of Corporate Contributions Professionals, also explained that it had 174 employees in the Tohoku region, although all of these have been reported as being safe. Reuters also reported that production at a GSK plant in Japan had been suspended for a few days following the earthquake.

Potassium iodide panic

The ongoing nuclear crisis in Japan has also impacted the US pharma sector or, more specifically, pharma companies involved in the production of OTC potassium iodide, which can help protect the thyroid from radioactive iodine. Indeed, the situation in Japan has actually sparked an irrational panic-buy of potassium iodide in the US. Fleming Pharmaceuticals described the situation as “insanity” and it is rapidly running out of potassium iodide. “The scope of the issue goes beyond Japan,” Fleming Pharmaceuticals president Phill Dritsas explained in a release. “Some Americans on the West Coast are fearful that the radiation from Japan could drift to our shores, although that is not a real threat according to authorities.”

Earlier this week, a blog was posted by my colleague, Julian Upton, on Pharm. Exec. about the pharma industry’s reaction to the earthquake. Julian also spoke about the situation regarding potassium iodide and I agree with his view:

“What use potassium iodide does have, however, would be far better employed on the ground in Japan than in the suburbs of California. Hopefully, that misplaced hysteria will soon blow over and all global healthcare efforts can properly focus on joining Big Pharma and helping to manage the crisis.”

Several India-based companies have increased in value significantly. Consider the recent Ranbaxy-Daiichi deal, for example, or the Sanofi-Shantha deal. Also, Abbott paid close to nine times the value of Piramal’s formulation unit sales to propel itself to the leading position in the $8-billion Indian pharmaceutical market.

With IMS Health predicting that leading emerging markets (i.e., India) will have annual pharmaceutical sales growth of 14-17% through 2014, the bargaining has really only just begun. There are several well-positioned Indian firms that have healthy cash flows and strong drug pipelines. Cipla, Glenmark, Torrent, Claris Lifesciences, Zydus, Strides, Aurobindo, and Dr. Reddy’s have already teamed up with Western pharma companies. For most, more than 50% of their revenue comes from overseas markets.

Two years after Ranbaxy, the Indian pharma giant, was acquired by Japan’s Daiichi Sankyo in a $5-billion deal that shook the industry, Abbott entered the stage to snag Piramal Healthcare for $3.72 billion. Abbott clearly spent its money well, according to Miles White, chairman of the 120-year-old Abbott Laboratories when speaking about the deal. With domestic pharma sales in India expected to more than double over the next five years, Abbott managed to vault itself to the number one position. Several other multinationals have been salivating at a similar prospect.

And why not? Sheer market size and strong annual-growth indicators aside, the Indian pharmaceutical sector is coming into its own, says Y.K. Hamied, chairman of Mumbai-headquartered Cipla. “It all depends on what is available. Buyers are willing to pay a handsome premium for available assets,” he says. Cipla grew nearly 15% between May 2009 and April 2010. So, is Cipla for sale? He guffaws. “Cipla is never going to be sold,” he asserts.

The same, however, might not be true for Hyderabad-based Dr. Reddy’s, which has been battling several challenges following its 2006 acquisition of Betapharm in Germany. Immediately after, the German government’s reforms brought about a slide in drug prices, which have yet to be stemmed. Dr. Reddy’s Chairman K. Anji Reddy has said that chatter about Dr. Reddy’s being for sale is merely rumor-based.  The company’s revenues reached $1.56 billion at the end of 2010, and Dr. Reddy’s aims to earn revenues of $1 billion per year from branded generic drugs alone over the next three years. In its arsenal are 141 ANDAs filed with the FDA, of which 13 are first-to-file products. (Recently, the US District Court of New Jersey allowed the firm to launch the generic version of Allegra-D 24 in the US. Approved by FDA on Mar. 16, 2010, the market size of the drug is around $200 million.)

With a new drug offering just around the corner, Reddy maintains there is no time like now for an Indian drug company to show off its true colors as a multinational firm. One must keep in mind that Ajay Piramal of Piramal Healthcare had a similar position before bailing out his generic-drug business to Abbott. The Piramal group is using part of Abbott’s $3.7-billion in proceeds to bring to market the country’s first domestically developed drug by 2012. With 14 new chemical entities in its product pipeline, Piramal Life Sciences could carve a niche for itself. As for the other Indian-based firms, only time will tell how long they hold out before jumping to a multinational partnership or merger.

Members of SINO-PhIRDA, which is registered by the Ministry of Civil Affairs of China, includes China’s leading research institutes, pharmaceutical universities and colleges, and domestic pharmaceutical companies. The agreement was signed following a two-day conference between SINO-PhIRDA and PhRMA in November 2010. The conference highlighted topics such as intellectual property rights and other incentives for innovation, ensuring safety and efficacy, and the challenges and opportunities of simultaneous global development of pharmaceuticals. The conference included speakers from the US Department of State, the US Patent and Trademark Office, the International Trade Administration, and US Food and Drug Administration. Chinese and US industry leaders also addressed the conference, according to a Nov. 19, 2010, PhRMA press release.

“Everyone is impressed by the dedication and commitment of Chinese biopharmaceutical research companies to create new and better medicines for the global market,” said John J. Castellani, president and CEO of PhRMA, in the PhRMA release. “At PhRMA we all look forward to the time when we, hopefully, will count many of the companies here today as PhRMA member companies.”

PhRMA’s need to broaden its reach to include China in its policy considerations is a byproduct of the new global economic order overall and within the pharmaceutical market specifically. According to an October 2010 analysis by IMS Health, China’s pharmaceutical market is expected to increase 25–27% to more than $50 billion in 2011, making it the third largest national pharmaceutical market behind only the United States and Japan. China is among the leaders of the 17 so-called “pharmemerging countries,” which are expected to see aggregate growth of 15–17% in 2011. In contrast, the US pharmaceutical market is expected to grow at 3-5% in 2011 and reach $320 billion to $330 billion. Growth in the five major European pharmaceutical markets (Germany, France, Italy, Spain, and the United Kingdom) collectively is projected to increase only 1–3% in 2011. Japan’s pharmaceutical market is expected to increase 5–7% in 2011.

But aggregate market numbers alone do not explain the calculus of the Chinese pharmaceutical market. A recent article in Fortune magazine analyzed the forces at play. On one hand, the pharmaceutical industry is encouraged by a recent policy decision by the Chinese government to boost healthcare spending in China by earmarking $125 billion with a goal of providing universal healthcare coverage by 2020. Greater healthcare expenditures and broader access would seem to translate into growth for pharmaceuticals and for multinational companies, but will it?

A crucial and still-to-determined consideration relates to reimbursement and pricing policies for innovator drugs. Traditional Chinese medicines currently account for approximately one-third of pharmaceutical spending in China, according to some estimates. The question for the large Western pharmaceutical companies is, to what extent will their drugs find a place in China’s market. No doubt, the medical needs of a large population will create demand for their products, but the larger question is how China’s pharmaceutical product mix will evolve. The factors influencing that evolution will be the Chinese government’s pricing and reimbursement policy for pharmaceuticals, changing socioeconomic conditions and the affordability of these medicines in China, the role of traditional medicines and generic drugs in the market, and the positioning of China’s domestic pharmaceutical players in a highly fragmented Chinese market.

What is known is that the large pharmaceutical companies have their work cut out for them. According to the Fortune article, although half of the top 10 pharmaceutical companies in China are multinationals, no company has more than a 2.5% share of the total market In 2010, the 15 largest global drug companies derived only 0.9% of their combined sales from China.

Given these dynamics, what is fair to say that the traditional innovator drug model that has served the pharmaceutical industry well in Western markets will not likely be the model for success in China’s market. Further diversification in generic drugs, consumer healthcare products, and vaccines as well as more tactical product positioning and creative partnerships with domestic players would seem to be some elements for success. Ultimately, it is these business choices that will largely shape US–China pharma relations.

In India, Delhi Chief Minister Sheila Dikshit promised earlier this week to fight the public health threat of counterfeit drugs. Speaking at a seminar on combating counterfeit drugs, she urged a policy of zero tolerance toward them, according to an article from The Times of India.

Dikshit’s action plan calls for improved testing of suspected counterfeit drugs and increased vigilance against fakes among pharmacists and regulatory agencies. It also recommended that the State Drug Control Department be strengthened and should focus on halting the spread of counterfeit medicines.

“It is also the need of the hour to have an adequate testing laboratory to ensure that the suspected samples are tested expeditiously,” she said. Dikshit urged pharmacists to ensure that their sources of pharmaceuticals are safe. Establishing a toll-free helpline to receive complaints of suspected counterfeit drugs was also proposed.

These measures launched by China and India will be good steps toward eliminating the spread of illegal fake goods and pharmaceuticals. Because of the growing problem of counterfeits, more efforts will be needed to make strides in eliminating them to protect the health of consumers and the business interests of pharmaceutical companies.

From a US policy perspective, Obama is emphasizing the opportunity while recognizing the challenges. “…We are two free-market economies where people have the freedom to pursue ideas and innovation that can change the world,” said Obama in remarks to a joint session of the Indian Parliament this week. “And that’s why I believe that India and America are indispensable partners in meeting the challenges of our time….In short, with India assuming its rightful place in the world, we have an historic opportunity to make the relationship between the two countries a defining partnership of the century ahead.”

The President outlined three major areas for economic cooperation: developing partnerships for creating high-technology and high-wage jobs in areas such as defense and civil space, pursuing joint research and development for a green economy, and reducing barriers to trade and innovation. He also emphasized the need for working collaboratively on regional and global security issues and strengthening the foundation of democratic governance in India.

But while speaking of the opportunity between the two countries, he also acknowledged the difficulties inherent in forging US–Indian relations. “The United States sees Asia–especially India—as a market of the future…And I am here because I believe that in our interconnected world, increased commerce between the United States and India can and will be a win–win proposition for both countries,” said the President in remarks before the US–India Business Council and Entrepreneurship Summit. “I realize that for some, this truth may not be apparent. I want to be honest. There are many Americans whose only experience with trade and globalization has been a shuttered factory or job that was shipped overseas … In 2010, trade between our countries is not just a one-way street of American jobs and companies moving to India. It is a dynamic two-way relationship that is creating jobs, growth, and higher living standards in both our countries.”

The President’s challenge and also the task facing businesses is and will continue to be how to truly create and maintain a two-way economic relationship between the two countries. The bio/pharmaceutical industry’s experience to date is a microcosm of this larger challenge. So far, the industry has seen both the opportunity in India as a pharmaceutical market, but also has experienced the growing pains, particularly from a suppliers’ perspective, of a new global economic order. Partnerships, collaboration, and mutual economic gains are all positive, but how such ideals translate into specific policy and business decisions is ultimately what matters. Without doubt, it is a delicate balance, but it is one in which it is and will be crucial to keep in sync.

In fact, the peroxide level found by FDA in the lot was more than four times the maximum level of peroxide (400 ppm) that is recommended in compendial monographs. This particular ingredient, crospovidone, is very common in drugs and dietary supplements.

Specifically, “FDA is concerned that drug manufacturers using excipients containing high levels of peroxides will observe a loss of drug potency and the formation of excessive impurities during the product shelf life.”

Although details are still being determined as to the cause of the peroxide level, the situation likely does not bode well for Chinese pharmaceutical manufacturers and suppliers. Heparin and melamine contaminations have been traced back to China over the past couple of years and another major problem may just be the third strike.

More information about the advisory are on are on the FDA website.