Delivering promise

Carolyn Buck Luce, Leader, Global Pharmaceutical Practice, Ernst & Young, was recently in India for the launch of Progressions 2006. She talks to Nandini Patwardhan about the the industry and its growth

"The pharma promise remains constant. However, the methods to deliver it have changed." Tell us more about this.

The pharmaceutical industry is a risky business, but in some ways the key promises of safety, integrity, transparency, compliance and corporate sustainability have not changed over time. The way that promise must be delivered, however, is changing fundamentally. Today, pharmaceutical companies are increasingly relying on others to play key roles in this new system, and deliver on their respective promises so that this industry's reputation and footprint continues to grow.

Underlying shifts in the pharma model present danger as well as an untapped potential. Aging demographics, rapid development of emerging markets, increasing chronic disease populations and movement toward managing health through prevention have created an unprecedented demand. At the same time, thanks to breakthroughs in research and technology, the supply to meet that demand is growing, and the number of diseases that are being converted from fatal to chronic is increasing.

What role do risk functions and support functions play in a global pharma enterprise?

Risk can take many forms, and the concept is viewed differently by executives residing in multiple areas of the business. Support functions, for example tax, finance, or IT departments, represent a 'second-line of defence' in any pharma company's risk mitigation frame-work. These functions need to be closely connected to and aligned with operations and business units to provide effective risk management support. Risk functions, for example corporate risk officer and head of internal audit are independent of support functions and business units. They play a key role in reporting on risk activities to the audit committee, board of directors, executive management and others who have oversight responsibilities.

What are the issues plaguing the global industry?

The pharmaceutical business model is evolving which brings about some uncertainty. Executives are seeking growth opportunities which may add to a company's current level of risk. They are under pressure to develop a strategy that grows the business—for instance, by forging new alliances, expanding operations in emerging markets while complying with myriad rules and regulations in a cost-efficient manner. Pharma companies are working hard at increasing their sales presence in China, India and other emerging markets. In doing so, they need to invest significant resources in ethics and compliance training to mitigate the risk of violating the US Foreign Corrupt Practices Act, which prohibits companies registered on a US exchange to bribe government officials (including government-employed physicians) anywhere in the world.

What factors ensure the smooth sailing of a global pharma enterprise in various countries with different business and economic challenges?

Understanding the dynamics of the market place is first and foremost and then comes acting on it. In India's case, this country presents major opportunities for multinational pharmaceutical companies in clinical trials, contract research and manufacturing. Licensing opportunities for big pharmaceutical companies as well as the collaborative business model including services, give access to a low cost base of talent, indigenous technology, and most importantly a large domestic market. Growth opportunities can be seen in the chronic segments such as diabetes, cardiovascular, central nervous system disorders, cancer and other maladies. India presents significant clinical trial opportunities because of the low cost and large diverse pool of naive patients. The Over-The-Counter (OTC) segment of the market is also expected to grow, spurred by increasing collaboration of the pharmaceutical industry and government initiatives along with proper regulatory framework.

What changes have you observed in the Indian pharma industry over the years?

The country has moved to a product-based IP regime. There is also an increased focus on building alliances as a means to grow and sustain the business. Alliance building denotes licensing, contract research and manufacturing, co-development and co-marketing. As Indian companies are going global, they have adopted inorganic avenues of growth and also have already initiated the process of building up a drug discovery programme. Some companies had started this process, in some cases, a decade ago.

Indian pharmaceutical industry is at a very critical juncture right now. What does it need to make one of the top performing industries in India?

New health insurance initiatives in India have increased the affordability of the middle class population. There are about half a million people who can afford good quality healthcare expenditure. However, the problem remains as urban areas are important private sector investment centres and rural areas still do not have access to good healthcare system. Due to India's vast rural population, only one third of the country's inhabitants have access to medical care. The final push needed is more on development on healthcare infrastructure in rural areas for improved accessibility to a wider audience.

India's core competency is low cost manufacturing. Do you think that Indian companies should stick to this or should they now focus on innovation?

The rules of globalisation are simple-leverage your competitive advantages to develop sustainable competitive advantages. Highly competitive nature of the domestic pharmaceutical market imposes strong low-cost manufacturing discipline, which is a key strength in this industry. For early stage chemicals, India has already started losing out its cost competitiveness to China. It is only for complex chemicals, final product (intermediates/APIs) or formulations that India is seen as a destination for outsourcing with its large number of USFDA approved plants and current Good Manufacturing Practices (cGMPs)—compliant manufacturing facilities.

Indian companies have started taking the route to innovation by investing in R&D and putting in place drug discovery programmes. Generics will be there for some time to come but the focus has shifted from patent litigations to co-optition (competition and collaboration).

India has adopted the services model to grow. Do you think that this model of growth will help India to be pharma leader in coming years?

Indian companies have started positioning themselves as a one-stop shop solution services provider from drug development work to large-scale manufacturing. They are doing this by leveraging advantages that accrue from operating in this geography, that is, faster turnaround and lower costs without compromised quality. The service sector has evolved over time, starting from low-value intermediates/APIs to higher-end dosage development work. Outsourcing too, has been incorporated by MNCs in their strategic plans as a way to tap into best practices and to help them remain focused on their core competence. Thus, the following years will see the volume of transactions rise manifold.

The world is looking at India and China as markets to watch out for. What are the key strengths of these countries?

An important characteristic of both India and China is the low-cost operating environment, which includes low development, fixed asset, and clinical trial costs, as well as low cost workers. Other draws include a large population base, a shift in disease profile to lifestyle related therapies, and a large pool of skilled technical personnel. Low cost is a natural advantage built into companies operating in India and China. It is no longer a differentiator, India's USP involves a combination of several factors, specifically the sheer number of drug master files (DMFs), USFDA inspected plants, scientific personnel with English speaking capabilities. China differentiates itself in the area of early intermediates and APIs manufacturing, whereas India is involved in the later stages of intermediates/APIs manufacturing and formulations.

What does the future hold for Indian pharmaceutical industry?

Indian companies are going global while at the same time global companies are putting their India strategy in place to tap opportunities that the market offers. Co-optition denoting collaboration and competition, whereby companies collaborate in identifying best practices and sharing the various steps in drug discovery to competing on generics and in the market has been identified by all the leading MNC players and their Indian counterparts.

Quick Bytes
"Certain Indian companies have already made a head-start in drug discovery process. Drug discovery is no longer an option but has become a strategic imperative for Indian companies"	"Pharma executives must maintain their focus on compliance and risk management as they grow their operations in emerging markets"	"Consistent compliance with local, regional and de facto global regulations and guidelines is paramount in upholding a company's corporate reputation and brand worldwide"

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