kathi

RATIONAL EXPECTATIONS

Physician, heal thyself

Sunil Jain Published : January 5, 2004

While most stock market ****ysts, and all proponents of “India Shining”,
continue to pin their faith on pharma firms like Ranbaxy and Dr Reddy’s
achieving great glory by cracking the US generics market (patents on
drugs with revenues of over $40 billion are set to expire by 2007), the
irony is that a much less-iffy market than this one is being neglected,
thanks to the government’s reluctance to pass necessary legislation.

That the strategy to develop drugs similar to those going off-patent in
the US is a risky one, of course, is best exemplified by Morepen
Laboratories that pinned its hopes on developing a Loratadine
formulation once Schering-Plough’s Claritin went off-patent. The plan
bombed last year, however, when Schering-Plough applied to the US FDA to
make its anti-histamine drug available over-the-counter (OTC).

Essentially, proven drugs, that have no side effects and treat
non-serious ailments can be sold without prescriptions, or OTC. This
strategy, of converting drugs just about to go off-patent into OTC ones
is set to accelerate.

As a result, pharma firms in India are now changing their strategy.
Nicholas Piramal, for instance, is focusing more on the $50-60 billion
contract-manufacturing market — the firm has just executed a 5-year
$25million-a-year contract for manufacturing a range of eye-care
products, that are still in their patent period, for AMO in its unit
near Indore — AMO is the second-largest eye-care firm in the US.

Ranbaxy is looking at branded generics, with its own medical
representatives to visit doctors in the US to explain the benefits of
their products.

So what is this less iffy market for Indian pharma that I’m talking of?
It’s called “clinical research”, and India is one of the world’s most
ideal locations for this. According to Kotak Securities, the global
market for this is $9 billion right now, and likely to reach $17 billion
by 2007. India’s biggest advantage, ironically, is its large diseased
population.

According to a recent article in the Financial Times, India has 30
million people with heart diseases, 25 million with type-II diabetes and
10 million with psychiatric disorders. And thanks to their poverty, most
of these patients are what’s called “treatment-naive” — that is, they
hardly use medicines, much less any that rival those they are being
tested for.

According to Kotak, thanks to this huge advantage, the costs of doing
clinical research in India are 40-60 per cent lower than in developed
markets. Since clinical trials comprise around 70 per cent of total
costs of a new drug, using India could bring down the average cost of
$800 million for a new drug by around $200-250 million.

Not surprisingly, around a dozen global contract research organisations,
or CROs, have set up shop in India over the last few years, and even
Indian firms like Nicholas have set up CRO subsidiaries.

So, why’s the clinical trial outsourcing business so small in India? One
reason is the government does not allow Phase I trials, or the very
first phase of drug trials on a batch of 20-100 healthy volunteers, to
see how a drug is absorbed in the body, metabolised and then excreted.

Phase II trials involves several hundred patients, and Phase III
involves thousands of patients, and typically lasts 5-6 years. One would
presume this refusal to allow Phase I testing is due to the laudable
objective of not wanting Indians to be the first guinea pigs.

That this is not the reason, however, becomes clear from the fact that
Phase I trials are allowed for drugs discovered in India! Presumably,
then, the reason for not allowing Phase I trials on MNC drugs is that,
either the government feels their drugs are far inferior to the ones
developed here, or that we don’t want their business — the other BPO
business is doing well, and India doesn’t need any more forex since it
already has $100 billion in reserves!

But, despite the fact that Phase II and III trials for MNC drugs are
allowed, this business hasn’t grown to significant amounts either. The
reason is due to something called “data exclusivity” which India does
not practice right now. When companies do clinical trials, they have to
submit all their test results to the regulator.

Now, if this data leaks out to rivals, they would clearly benefit from
it — India’s record in “data protection” is still weak. Second, related
to this, is the issue of data exclusivity — if there is no law on data
exclusivity, based on the original company’s clinical trials data, a
regulator can grant approvals for rivals’ drugs, even if they have not
conducted the full gamut of clinical trials.

Naturally, then, few companies want to do clinical trials in a country
where their data can be misused to benefit rivals. This blocks off a
huge business potential of at least $17 billion for the country, and a
lot more if MNCs are to get basic research done in India — US firms
spent $30 billion on R&D last year — and then clinical trials of drugs
they discover.

Even so, the government’s position on data exclusivity still makes some
kind of sense in a situation where only foreign firms are developing new
drugs, and are using India merely as a testing centre to lower their
costs.

But today, with Indian pharma firms like Ranbaxy and Dr Reddy’s also
looking at new drug discovery as a growth model, the policy even
dissuades them from testing in India. It’s worse than cutting off one’s
nose to spite the face.

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