Monday, September 24, 2018
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Time to Transform!

Synopsis
The pharmaceutical industry is facing crisis, and a lot of time, energy and resources are being spent to tackle it. Should the industry spend so much of time and effort concentrating on these issues? Is it time to change the tune and look at opportunities?

Pharma Industry

 

Global Pharma is at its inflection point in its evolution. The need of good new compounds in its pipeline was and is central to all its problems, including rising sales and marketing expenditure, regulatory disruptions, poor financial performance, and questionable reputation!

Internationally, demand for medicines is growing. Demographic, economic and epidemiological trends are reshaping the marketplace; healthcare costs are increasing, forcing the Pharma companies to engage themselves to understand funding platform and work much harder to increase its revenue.

 

Are there ways to customize for each company? …… obviously Yes!

Diminishing returns

All earlier models are missing heart beats and getting outdated

  1. Value-migration model- Previously acquiring patents would prove beneficial for the growth of the company, but today with generic products on the rise making new blockbusters will no longer be beneficial.
  2. Existing R&D model involves high cost. Through reinvention and usage of newer technologies to understand pathophysiology of diseases, the R&D costs can be significantly reduced with increase in productivity. The new R&D model will have to work more closely with customers, marketing, governments, regulators funding agencies and the healthcare community to create evidence quickly and effectively creating more holistic healthcare concepts, products and services, suiting requirements of the patient.
  3. As the focus today is largely on Millennium Gen Y, they serve as our target audience as patients and medical consumers. Their understanding, knowledge level and affordability will differ, industry will have to look at all customer segments and identify ways to fulfill their needs.
  4. New emerging markets and their needs will differ depending on demographics, epidemiological and ecological factors, for which industry will have to take cognizance of it and change the strategic direction for each market, for customization.
  5. The industry followed an age old sales and marketing model which was relied upon to generate revenue, which today is becoming increasingly obsolete. Technology and IOT (Internet of Things) has changed the dimensions of promotion.

Social media marketing is dominant and hence the question, if whether a new creative sales & marketing model for medicines is required? Is there is a need to establish to send out a large sales force to influence primary-care practitioners who may or may not have influence on prescriptions? The current scenario seems that the prescribing decisions will be controlled by the Regulatory, healthcare policy makers, governments and payers.

  1. Besides, all these factors, Pharma itself is shifting its Health axis and is moving from treatment to prevention. Major developments are through path breaking new therapies, consumers not only dependent on modern medicines, advancement in technology and cosumization of health through increased access about health and disease information and data to patients and medical consumers.
  2. All over the world, the movement towards integrated healthcare, thrust on downward pricing pressure and attitude to remain healthy will tilt the growth balance of pharma industry. Everywhere in the world solutions are coming up where traditional medicines (Ayurveda or Chinese herbs), Homeopathy would weave a better fabric for pharma and health.

 

Time to work hard in crisis:

Global Economic forecasts Q3 2017, describes that the Indian Industrial production and consumer durables spending growth were weaker than expected in the first half of 2017, countered in part of improving business conditions in the service sector. The demonetization drive from the end of 2016 is continuing to drag down economic activity. The transition to a new goods and service tax system should also reduce short term growth due to the cost adjustments to new tax regime. As a result we have lowered the GDP growth for 2017 for a second time this year to 6.9% in 2017. A rebound of GDP growth to 7.5 % is expected in 2018.

Aggregate revenue of leading pharma firms grew 9% annually for the third quarter (October-December) of FY 2017, while the nine-month growth was 8.9% and as against 10.1% growth in FY 2016.

“The aggregate growth of the Indian pharma industry is expected to be in single digit in 2017 due to slowing growth in the US, intense competition and regulatory overhang”.

According to the study, revenue growth from the US slumped to 12 % in the first nine months (April-December) of this fiscal (2016-17) from 15 % in the last fiscal (2015-16) and 33 % Cumulative Average Growth Rate (CAGR) during 2011-15 despite consolidation and currency benefits.

“The growth momentum is likely to face further pressure. Increased regulatory scrutiny, consolidation of supply chain in the US market resulting in pricing pressures and higher research and development expenses will have an impact on profitability of the companies.

Similarly, the domestic formulations business registered 9.3 % growth in the third quarter (October-December) as against 14.1 % in Q2 (July-September), with demonetization resulting in channel de-stocking though the growth should come back in the next few months.

Many pharma firms have, however, increased their research and development spend, targeting specialty drugs, niche molecules and complex therapies despite facing the challenges on multiple fronts.

Regulatory interventions in the domestic market are expected to put pressure in near term though long-term growth prospects for domestic pharmaceutical market remain healthy given penetration, accessibility and new launches.

Fixing of ceiling price for the essential drugs by NPPA, under the Drug Price Control Order (DPCO) 2013, is cost based policy and it take into account simple average of all the drugs with a market share of 1% or more. The industry expects, it is more appropriate to adopt market based policy rather than cost based policy.

As a result the industry’s profitability remained stable despite growth pressures, increased R&D spend and compliance-related investments, with 24.8 % aggregate operating margins for the third quarter of this fiscal.

“In our view, productivity of R&D spend, competition from the US generics space and operational risk due diligence by regulatory agencies,” would put pressure on the domestic and the international markets.

Driving Factors

 

Irrespective of the “emerging crisis” and day to day disruption, being a non-recession industry there are a few silver linings and driving factors:

  • Huge opportunities are in store for the pharma industry with increase in the ageing population, and lifestyle diseases, leading to scope of emergence of new therapy areas, also the demographic, epidemiological and economic shifts are favoring the transforming the pharmaceuticals market.
  • The disease occurrences in the past few decades have already converted some previously terminal illnesses into chronic conditions, thus increasing long-term demand for therapies to manage such diseases.
  • According to recent research by IKON Marketing Consultants, in the current decade, lifestyle diseases will drive the growth of new therapies in India’s pharmaceutical market. Presently 50 million Indians suffer from Diabetes Mellitus. Treatment for chronic diseases such as asthma, cancer, diabetes, heart ailments, and osteoporosis and kidney problems will likely constitute more than half of India’s pharma market by 2020. Cardiovascular disease and Diabetes will surge the most, rising to six times by 2020.
  • India is still going to remain victim of acute disease due to issues related to public hygiene and sanitation along with chronic diseases segment.

Acute therapy segment dominates the market with a share of over 75% of the total market value during 2009-10. The chronic segment has registered a growth of 21% versus 16% in the acute segment.

The share of chronic segment is expected to grow much faster than the acute segment mainly due to increase in the stress level, unhealthy eating habits. It ensures regular consumption of medicines for the longer period.

  • New anti- infectives therapy segment demand is also growing due to the development of drug-resistant diseases.

In a nutshell, the key growth drivers of Indian Pharmaceutical market are: increase in per capita income, better health awareness, increase in health insurance penetration, higher government expenditure on the health care, shift in disease profile and adherence to Indian Pharmaceutical Association (IPA) norms.

 

One major commercial driver:

 

Spend on Medicines

 

The IKON Marketing Consultants research has shown that currently Indian consumer is spending nearly 1% of his total income on drugs and pharmaceuticals. However, value wise, with the rise in the per capita income, the spending is going to be triple (approx. US $33) of the current spending by 2020. Also by 2020 nearly 650 million people will enjoy health insurance coverage. Private insurance coverage will grow by nearly 15% annually till 2020. However the largest impact will be seen through government sponsored programs that are largely focused on the ‘below poverty line’ (BPL) segment and are expected to provide coverage to nearly 380 million people by 2020.

Metros and Tier-1 markets, which have been growing at 14-15% in the last five years, will drive growth in the industry. They account for 60% of the Indian pharmaceuticals market today and look set to continue growing to a market size of $33 billion by 2020.

This will be the result of rapid urbanization and the expansion of medical infrastructure. Rural markets, on the other hand, will constitute 25 % by 2020, up from 20 % currently, while Tier-2 markets will decline from the present share of 20 % to 15 %.

 

Five Impacts of Recent Happenings:

Government Initiatives to boost the Pharmaceutical sector

  1. The FDI investments in Brownfield projects may be hindered which will affect the new entrants, as FDI investment in Greenfield projects is easier.
  2. The clinical trial policies in India require a simple structure and matured regulations. Currently more expectations are from pharmaceutical companies for compensation, for the person injured during clinical trials. Presently, the regulations are uncertain, which may hamper clinical research and may have an effect on availability of new treatments and vaccines to Indian patients.
  3. Indian ethical standards do not meet the standards of the international agencies and hence an improvement is required in the field of clinical trials and marketing practices.
  4. For the period between FY 2018 to FY 2020, the industry is projected to grow at 7-10 % after mid to high double digit growth over the last five years.
  5. Pricing pressure along with increased R&D expenditure, and regulatory inspection on the other hands for exporting drugs to US has created an impact on the profitability of the Indian Pharma companies

 

 

Emerging Six New Opportunities:

 

As a result of crisis, and differently placed domestic pharma industry, we can maximize potential of following six new opportunities:

 

 

  1. Patented Products:

The regulatory policies need be improved, especially in the area of patent and price control, to boost the growth and create an impression as the destination for new generation pharmaceutical market.

 

  1. Consumer Healthcare

Change in lifestyle patterns leading to an increase in lifestyle disease has supported the growth of consumer healthcare products and services.

 

  1. Biopharma, Biogenerics, Biosimilar

This market is at a nascent stage with a very few MNC players currently in it. If focused correctly it can prove to be an emerging opportunity to maximize growth in the industry. Biogenerics, Biosimilar are emerging areas in the future.

  1. Vaccines

Increase in time and cost spent on R&D, is one of the major factor contributing to evolving opportunities in this area.

 

  1. Technology

Technological advancements has been a boon to the medical fraternity through the role it plays in genetic engineering, Nano-Bionics, Predictive Analysis involves – data mining, statistics, modeling, machine learning, and artificial intelligence to analyze current data to make predictions about future which may help to diagnose potential diseases that the person may suffer in future.

 

  1. Public Health

As part of the government initiatives towards public health, the industry can identify ways and means to contribute which will help in building the company’s image.

e.g.:  GSK is working with WHO to fight against Lymphatic Filariasis. Albendazole helps to prevent the occurrence of the disease. In 2016 alone, GSK donated 5 crore albendazole tablets to the WHO for distribution in affected areas.

Also the project team of Novartis Comprehensive Leprosy Care Association aims in preventing disabilities resulting due to lack of detection of leprosy. The usage of disability care tool includes surgery, grip aids and physiotherapy.

Future of Indian Pharma: 

Let us not waste time in crisis. Let us spend time and energy on the areas to strengthen Indian Pharma 

  1. By building image of the industry through
  2. Focus on demand generation
  3. Innovation
  4. Exports
  5. New Products
  6. Ethics
  7. Generics, Branded Generics
  8. Value v/s volume
  9. Core strengths building
  10. Process, Practices, SOPs – Audits 

 

References