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This white paper was written by Dr. Satish Acharya, for the Life Sciences and Health Care Practice at Deloitte Consulting, Zurich.
Pharmaceutical R&D management is braving unprecedented challenges. Drug Research and Development (R&D) costs have rocketed 23 fold in 28 years, touching an all time high of $1.25 billion per new molecular entity (NME). Drug development time has gone up from 11.6 years in the 1970s to 14.9 years in 2001 reducing patent protected market life and shaving billions off potential revenues. And the output does not justify the increasing time and cost. The pharmaceutical R&D pipeline is thinning, with more blockbusters set to go off patent than to emerge from the R&D pipeline. Blockbusters are now not only desirable for success, but essential for survival. However future blockbusters are more likely to emerge from outside traditional chemistry based pharmaceutical industries (pharma) or from innovative small biotech startups scattered around the world. As a result, Big Pharma’s historic high valuation is being questioned – it was based on steady and measurable income from patent protected drugs and rich R&D pipelines with potential blockbusters.
“India meets Doha” , a white paper from Deloitte, focused on the recent strengthening of the patent laws in India (Indian Patent (Amendment) Act 2005) and mentioned several new opportunities for one of the most Intellectual Property (IP) sensitive industries of our time - the pharmaceutical industry – emphasising increased R&D productivity by outsourcing drug research and development to India. This paper, as a sequel, presents an overview of the Indian pharmaceutical landscape, and studies the opportunities for outsourcing clinical trials - the most cost and time intensive phase of the R&D process today.
Indian patents and TRIPS
India could not have stepped into the limelight at a more opportune time. From January 2005, the country became TRIPS compliant and formally recognized product patents . Patent protection in India is now on levels comparable to developed nations (caveat). For any Intellectual Property (IP) sensitive industry India is now a destination to be considered – both as a market and for manufacturing and research & development (R&D).
The Indian Patents & Designs Act (1911) recognized product patents but the goals of patent protection – to promote and protect innovation – did not materialize. To encourage investments and promote development The Indian Patent Act, 1970 (with amendments) removed product patents in pharmaceutical, agro-chemical and food processing sectors, where only process patents were admissible. This legalized copycat drug-making. Indian entrepreneurs could reverse engineer patent protected drugs, tweak the manufacturing process to bypass patent infringement suits, and market the drugs at a fraction of the price of the original drug, having no R&D costs to recover.
The effects of this law were predictable. Between 1970 and 2004, Pharmaceutical Transnational companies (TNCs) saw their market-share fall from 85 % to 15%. TNCs could not compete against local manufacturers on price, and local ingenuity and process chemistry skills saw many patented products launched in the local markets even before the patent owners (TNCs) could launch them. As a result TNCs lost interest in India and either stopped supporting their local subsidiaries or withdrew altogether. The local pharmaceutical (Pharma) manufacturing industry, on the other hand, grew to over 20,000 manufacturing units, including around 300 in the organized sector and a few large publicly traded companies.
As one of the founding members of the World Trade Organization, India committed to bring its patent protection laws to internationally acceptable minimum TRIPS levels in 10 years. Accordingly, from January 01, 2005, product patent was recognized in the pharmaceutical sector and the patent period increased from the earlier seven years to 20 years.
Indian pharmaceutical landscape – post TRIPS
The Indian pharmaceutical industry is the worlds 13th largest in terms of value and the 4th largest in terms of volume. With over 60,000 brands in over 60 therapeutic categories, the total market size is approximately USD 5bn. India has world class facilities and expertise in manufacturing with the largest number of US FDA approved manufacturing units in the world outside the US. Ancillary industries are well developed with support available locally. Quality bulk drugs at competitive prices are assured. In R&D, basic research and biology skills are weak, a legacy of the lax patent regime where basic research was neglected. But process chemistry skills – honed over decades of reverse-engineering – are strong. The Indian pharmaceutical industry accounts for at least 35% of bulk drug filings in the US.
Post-TRIPS, the Indian pharmaceutical landscape is set to change permanently. Local pharmaceutical majors are moving up the international value chain, focusing on generics marketing in Europe and the US to complement their already-strong presence in bulk active pharmaceutical ingredient (API) supply, and to capitalize on the record number of drugs set to go off-patent over the next five years.
To leverage their experience in manufacturing, local companies are scouting for contract manufacturing opportunities. And to leverage their country-wide network of skilled marketing personnel they are actively seeking in-licensing and marketing opportunities.
Local pharmaceutical majors do not have the finances to take a product to market. With annual sales of a billion - less than the R&D budgets of Big Pharma – they are outlicensing their NME innovation , and focusing on cheaper Abbreviated New Drug Applications (ANDAs). And to ‘learn and earn’, they are positioning themselves as willing partners in global pharmaceutical knowledge networks. With cost and process skills working to their advantage, local companies are also scouting to grab a share of the international R&D outsourcing market.
Of all the opportunities for global pharmaceutical companies in this scenario, outsourcing the clinical development phase of the R&D process appears the most promising. With a large population and world class medical skills, this outsourcing service segment is developing rapidly and with patent protection no longer a hurdle, a fresh look at this segment is warranted. Including India in the clinical development outsourcing network presents a four fold benefit – it is the most immediate opportunity with the greatest potential benefit in the shortest possible time addressing the most pressing issue today.
Clinical studies take up between 30 to 50% of the time spent in R&D, and within this, a third of the time (in clinical trials) is taken in patient recruitment. With patent protection being limited to 20 years including the R&D stage, every year saved here can bring in additional revenues of a billion dollars for a blockbuster. As drugs targeting smaller segments of therapeutics are discovered, the clinical development stage can present a serious bottleneck. It is conceivably difficult to find the adequate study population in time, particularly in smaller geographies with small population densities, particularly in the west, with highly treatment experienced patients causing a delay in 80% of clinical trials.
The duration of clinical trials can be greatly reduced in India. India is the second most populous country in the world with a large pool of naïve patients and the fourth largest pool of medical professionals in the world. Rapidly improving support industries such as labs and hospitals, and a world respected IT industry capable of picking up domain expertise to support R&D and clinical trials are further advantages. Pharma giants are also attracted by the heterogeneity of the billion plus population, the fact that the country offers nearly 700,000 speciality hospital bedsa at about a tenth of the price in developed nations, 221 medical colleges and skilled English-speaking medical personnel. In India, the contract research and clinical business in India during FY 2003 - 04 was USD 59.4 million (INR 275 crores) as against USD 29.16 million (INR 135 crore) in the previous year, a growth of 104 percent, and is projected to grow 8-10 times by 2010 to $ 250-300 million. Optimistic estimates put the figure between $500 million and $1 billion by 2010.University and other diploma courses in biotechnology, bioinformatics, and clinical trials are beginning to become fashionable just as IT was in the 1990s and a reverse brain drain from the west is beginning and can help greatly in scientific and accurate clinical trials. It is easier to do multi-centric large-scale trials in India for many diseases, since the patients' enrollment rate for phase III studies can be up to six times higher in India than US or Europe. Because of the god-like status traditionally accorded to doctors, patient compliance and commitment is extremely high.
But the size of the industry is very small by global standards. In the US, for example, the number of GCP trials is 60, 000 and the number of GCP trained investigators is over 40, 000. According to CenterWatch 2.8 million US subjects completed initial screening in 1999, of which 5 per cent (140, 000) completed the trial and 2005 projections for screening are19.8 million subjects. In comparison, the estimated number of ICH-GCP clinical studies was 40-50 and the number of GCP trained investigators was 200-250. Most studies are carried out in 20-25 major public hospitals in capital cities. However, because of global pressures on industry to recruit patients faster and make the trials economic, large numbers of clinical trials are likely to be placed in countries like India. This is expected to explode the Indian clinical trials market over next 5 years.
However, India faces quite a few challenges, before it can claim to be the world class status like the IT industry. Unlike IT, healthcare requires more specialised, less transferable competencies. Furthermore, the IT industry in India flourished, it can be argued, because it was under-regulated and did not hamper entrepreneurship, in contrast to the overregulated pharmaceutical industry. Pharmaceutical products and services from India may also be stonewalled in other overregulated markets, all these are probable barriers to entry and growth.
Though the doctors have excellent skills and patient coverage, their lack of experience in GCP trials is undeniable. Furthermore, it is unclear whether an international company cannot carry out concurrent phase I trial. After submission of phase I data generated outside India, sponsors may be permitted to repeat phase I trials. Phase II, III, and IV trials can be concurrently done with other global trials for that drug.
Imports of body fluids/ test samples from India has been another bottleneck hampering the industry. Companies that have global testing labs for sample testing have had failures in the entire outsourcing strategy due to this and a lack of world class GLP labs further incapacitated these companies from successfully completing their trials.
Ethical trials is another issue that is hard to ignore. There are instances of litigation for unethical trials without requisite permissions, or on ill-informed patients. A recent survey of 200 health researchers globally that was commissioned by the former US National Bioethics Advisory Commission and published in February's edition of the Journal of Medical Ethics revealed that a quarter of clinical trials conducted in developing countries did not undergo ethical review.
Local disinformation campaigns can also mar clinical studies and damage company reputation. A TNC runs the risk of being labeled an exploiter of local poverty or ignorance for carrying out cheap clinical trials.
There has been an overall positive effect of India complying with TRIPS norms on product patents. Even before January 2005, a number of MNCs have set up R&D centers in India. Around 25 contract research organizations (CROs) and almost all multinational pharmaceuticals companies have started full-fledged clinical trials there in the last three years. This move accelerated from up to January 2005 and afterwards. (Appendix 1)To prepare for the opportunity, reputed institutions for training such as the Academy for Clinical Excellence and Institute of Clinical Research have been established over the last decade to train physicians in ICH-GCP guidelines and ethical trial requirements. The Clinical Data Interchange Standards Consortium (CDISC), USA, an NPO committed to the development of clinical research organizations’ standards the world over, is looking at setting up a chapter in India. The Indian Society for Clinical Research launched in August 2005, aims to bring world-class clinical research organizations in India together, advise the government on clinical trials issues and foster the highest levels of ethics in the industry.
The bottom line
Outsourcing clinical development to India generates benefits in terms of time and cost savings that are too significant to be ignored. Some estimates we made to analyze the dollar benefits of outsourcing showed that the average saving per commercialized drug can be up to an optimal $ 363 million to a desirable first target of $40 million. (Appendix1)
Of the several new opportunities created by India’s compliance with WTO levels of patent protection, clinical research outsourcing has the most significant impact. Moreover clinical trials outsourcing fits the classic requirements of outsourcing a process – it is standardisable, increases efficiencies of time and costs, and improves organizational flexibility. Finally, India has country specific factors that favor outsourcing of this part of the R&D process. From this year, patent protection is no longer a barrier to outsourcing and the way is clear for global pharmaceutical companies to include Indian clinical research organizations in the global R&D network.
While there seems to be an exciting time ahead, a few challenges still remain. As in all cases of successful outsourcing, three things are necessary – commitment, compliance and quality. The right partner selection can eliminate the hazards of outsourcing and the potential pitfalls of a well intentioned venture.
From the host country perspective, the government initiatives need to be clear cut and quick and more educational institutions need to offer specialised courses to tackle the impending shortage of ICH-GCP trained doctors. On the other hand Indian CROs need to be more aggressive in their marketing of their skills externally, and combat potential disinformation campaigns internally. If high ethical standards are adhered to, clinical research studies help the poor in the country by giving them free access to the newest drugs and the highest levels of health care that even the middle class cannot afford to have access to. This should always be remembered and portrayed.
We took two approaches to estimate the savings by time and cost by outsourcing clinical trials to India.
In the first approach we took widely accepted estimates that a clinical trial costs an average $ 30,000 a day and lasts an average 6.6 years, and that outsourcing to India could save half the time and cost.
In the second approach we took a more generic view that bringing a molecule to market has crossed a billion dollars in recent times, and that overall half the costs of clinical trials can be saved by outsourcing to India.
The calculation table is presented below.
|PHASE - CLINICAL TRIALS|
|Row||calculation||Method – I||US$||Source|
|Present Clinical trials costs|
|a||Cost per day||30,000|
|Clinical trials costs in India|
|d||(a/2)||Cost per day||15,000|
|f||(d*e)||< Add offshoring costs /td>||1,806,750|
|g||(f*10%)||Add offshoring costs||1,806,750|
|h||(f+g)||Total costs of outsourced trials||19,874,250|
|If only 25% of the work outsourced||92,294,813|
|Row||calculation||Method – II||US$mn||Source|
|a||Cost of Drug R&D||1,000||PhRMA|
|b||(a*32%)||Clinical Trials phase||320||Business Insights|
|c||(b*50%)||Overview of 50% savings||160||Interviews, Reports|
|d||(c*50%)||If only 25% of the work outsourced||40||Conservative outsourced|
1. From USD 54m in 1976 (Quintiles) to an estimated $1.25 billion per new molecular entity (NME) approved by the FDA in 2004 (Novis). R&D spending per global new active substance (NAS) launch reached a record $2.3 billion in 2004, up 43 per cent from 2003.
3. Pharmaceutical R&D Outsourcing Strategies: An analysis of market drivers and resistors to 2010 By Steve Birch, Business Insights Healthcare 2002
4. Drugs bringing over a billion dollar a year in revenues.
5. R. Go and R. Given, „India Meets Doha“, A white paper from Deloitte Research and the Deloitte Life Sciences and Health Care global industry practice, January 2005.
7. Clinical Trials, Clinical research, Clinical Studies and Clinical Development are used interchangeably to denote the clinical phase of the drug research and development process
8. World Trade Organisation –Trade Related aspects of Intellectual Property rightS www.wto.org
9. In April 2005, the Indian government introduced product patents for all industrial sectors under the Patents (Amendment) Act, 2005 – in line with the commitment India made when it signed up to the Trade-Related Aspects of Intellectual Property Rights (TRIPS)/Accord in 1995.
10. Caveats note: new molecules patented after 1 Jan 2005 in any regulated market will come under product patent protection in India, and pre-1995 molecules will not. Molecules patented in regulated markets between 1995 and 2005 will be patented on ‘case to case’ basis. This is a grey area in the Patent Act.
11. Organisation of Pharmaceutical Producers of India (OPPI) factsheet 2003
12. OPPI factsheet 2003
13. The Outlook for eR&D Strategies: Online solutions to declining productivity in pharmaceutical research and development, Business Insights Healthcare, 2003
14. Naive patients: Patients not on previous medication for the particular disease being studied.
15. Second largest pool, if non-allopathic doctors are included; NIC: Dept of education
17 India's clinical trials and tribulations By Indrajit Basu Copyright 2004 Asia Times Online Ltd.
18 RAJESH UNNIKRISHNAN Such Good Work And So many People
19. International Conference on Harmonisation – Good Clinical Practice
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