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Knowledge At MET

Is Pricing The Most Important Driver in Ensuring Critical Market Access for Pharmaceutical Products in India?

The pharmaceutical market globally is witnessing a drastic change with competitive pressures getting more and more intense. Companies are finding it increasingly tough to navigate through the myriad of new hurdles which pose considerable threat to the very existence of these global giants.

About two decades ago, the scenario was pretty simple for these companies. It was an era of blockbusters and there were quite a handful of them. A reasonably effective new molecule with a relatively acceptable safety profile was a good recipe for a potential blockbuster. However things are no longer so rosy for the industry. A whole new set of stakeholders have emerged whom the industry cannot neglect. This in turn has led to significantly higher financial risks and consequently the probability of failures has gone up considerably.

The need of the hour is a robust market access strategy which understands the local markets and addresses the access factors critical for the success of new product launches. The problem is how many companies in India truly understand the concept of market access and how many are making an earnest attempt to embed market access as an integral part of their marketing programmes.

This paper is an attempt to evaluate the various market access factors that come into play for an emerging pharmaceutical market like India and critically examine if pricing is the most impactful access factor as it is very commonly believed. What about affordability and how is the concept of value different from price is another related variable the paper will attempt to evaluate.

Key Words:
Emerging markets, Market Access, Stakeholders, Patient Access, Value based pricing

Indian Pharmaceutical Market: Current Scenario
The Indian pharmaceutical industry is a silver lining in the global pharmaceutical industry arena. Historically, the Indian pharmaceutical industry has witnessed strong growth, growing from US$ 6 billion in 2005 to about US$30 billion in 2015, clocking a CAGR of 17.5% during 2005-15 period. This phenomenal growth can be attributed primarily to cost efficient operations, changing health demographics in India, diversified portfolio of drugs and government policy support. The industry is likely to grow at a CAGR of 13% (in terms of revenues) during the 2015-20 period to reach US$ 55 billion in 2020, surpassing the expected 5% growth of the global pharmaceutical industry during the same period. By 2020, India is expected to be the sixth largest market globally and the third largest API market by 2016. What is going to drive this phenomenal growth trajectory of the Indian Pharmaceutical Market? The answer lies in Market Access – which goes beyond addressing the simple business model of a doctor and the chemists.

So What Exactly is Market Access?
Effectively market access may be defined as a set of processes which when implemented will ensure that all eligible patients are benefitted by the easy and sustained availability of any pharmaceutical product at the right price. However ensuring market access in totality is a challenge faced not only by emerging markets but also in the developed economies like USA and European countries. So what exactly are the components of market access and how do we evaluate their relative importance in a particular geography?

A simple way of enumerating the market access factors is by identifying the various stakeholders who significantly influence the success of new launches in the pharmaceutical arena. In the nineties, the two main stakeholders were the doctors and the trade (retail chemists and wholesalers). The scenario is much more complex today – the stakeholders now include doctors, trade, patients, insurance companies, regulatory agencies and the purchase committees. A major contributor to value based market access is the inclusion of payers, patients and advisory groups into the make-up of stakeholders. The doctor is no longer the sole decision maker in the treatment of the patient. This has led to the evolution of market access, as pharmaceutical companies now need to convey the value of their product to the new members added under the umbrella of 'stakeholders' due to their increasing role in treatment decision making. The access factors therefore can be listed down as pricing, regulatory, geographical reach, patient access, reimbursement and doctor's awareness.

A simple way of enumerating the market access factors is by identifying the various stakeholders who significantly influence the success of new launches in the pharmaceutical arena. In the nineties, the two main stakeholders were the doctors and the trade (retail chemists and wholesalers). The scenario is much more complex today – the stakeholders now include doctors, trade, patients, insurance companies, regulatory agencies and the purchase committees. A major contributor to value based market access is the inclusion of payers, patients and advisory groups into the make-up of stakeholders. The doctor is no longer the sole decision maker in the treatment of the patient. This has led to the evolution of market access, as pharmaceutical companies now need to convey the value of their product to the new members added under the umbrella of 'stakeholders' due to their increasing role in treatment decision making. The access factors therefore can be listed down as pricing, regulatory, geographical reach, patient access, reimbursement and doctor's awareness.

Background:
The Global Pharmaceutical Industry has witnessed a change in the market share of contributing countries in the past 5 years. By 2015, emerging markets had already managed to leave 5 of EU's largest economies (Germany, France, UK, Spain and Italy) behind in terms of market size in the pharma sector. These emerging economies had an overall market size of US $ 281 billion in comparison to the EUR’s US $ 196 billion. Within the emerging markets, major drivers of growth are the BRIC countries (Brazil, Russia, India, and China).

It's well-accepted that the Indian pharmaceuticals market cannot be ignored. India will be one of the top 10 sales markets by 2020, fueled by the rapid growth in its population and economy. Commensurately, India is experiencing expansion within its middle-class population, who are increasingly able to afford western medicines. Like the rest of the world, the demographics of India's population are ageing, and it is anticipated that demand for drugs within the cardiovascular, central nervous system, and other chronic diseases such as diabetes will escalate. The total market is expected to rise to a value of approximately US$50 billion by 2020.

The Indian Pharmaceutical sector is the 3rd largest in the world in terms of volume and 10th in terms of value and is expected to grow at a compound annual growth rate of a whopping 15% p.a. over shadowing the global growth rate of 5% p.a. between 2015 and 2020. This will mean that the Indian Pharmaceutical industry will be the 3rd largest, globally in terms of incremental growth and expand to generate a revenue of USD 55 billion, emerging as the 6th largest market in terms of absolute size.

Apart from the size of the industry, emerging economies have also witnessed a transition in the pharmaceutical sector. This transition is consequential of the increasing prevalence of lifestyle disorders as opposed to communicable diseases. An epidemic of cardiovascular diseases, diabetes, cancer, psychological disorders like Alzheimer's and Parkinson's is on the rise.

Thus, pharmaceutical companies with therapeutic areas under these portfolios have an opportunity for growth. Hence, Indian pharmaceutical companies have great potential and are projected to achieve success in the global pharmaceutical market if they are capable of addressing potential barriers and challenges.

Significance of Market Access in India:
In developed economies, the major concerns of market access are pricing of the product versus the generic substitutes available in the market and making the drug available to the masses. Generics enjoy 84% of the market share in terms of sales volume whereas a mere 28% in terms of sales value in the USA. However, in certain countries, especially India, a third concept of branded generics apart from 'branded' and 'generics' comes into play. Branded generics are drug products that are bioequivalent to the patent counterpart but are sold under a different brand name by a competitor company. The market for 'generics or trade generics' in India is only 8% of the total 80,000 crore rupees, while branded generics occupy 90% of the market leaving a mere 2% for patented brands. This leads to increased competition amongst products belonging to the same therapeutic category for top of the mind recall from the physicians and a visible place on the shelf.

Other key findings from the India Market Access Tracker advisory service are:

  • India holds enormous appeal to MNCs due to the country's large population and high volume market. In 2010, India's population (1.2 billion people) was equal to the combined populations of North America, Europe and Japan, and it is expected to exceed that of China in 2030
  • Certain MNCs are experimenting with new pricing strategies such as differential pricing; providing lower-cost, high quality branded generics to fill gaps in patient access; partnering with local companies to distribute drugs at lower prices; tiered pricing based on disease prevalence and gross national income - that is, the country's ability to pay; and/or drastically lowering prices for the Indian market.
  • In India, 2012 and 2013 were devastating years for MNCs involved in drug patent battles in India and 2014 promises more of the same. In its 2014 Special 301 submission, Pharmaceutical Research and Manufacturers of America requested that the Office of the United States Trade Representative designate India as a Priority Foreign Country, the harshest designation for those countries that fail to protect and enforce intellectual property.
  • Price control of patented drugs is likely in the near term. In early 2014, the Pricing Committee for Patented Drugs discussed various price control mechanisms based on price negotiations, reference pricing and/or differential pricing. All essential medicines are already under price control.

Decision Resources Group analyst Lulu Pickering commented: "The Indian government is pushing back on MNCs; driven both by the country's desire to improve access to health care and the unfortunate reality that India does not have the resources to accomplish that goal by itself. It is likely that additional price controls, cost containment measures and patent protection trade-offs will prevail in the near term.”

She continued: "Affordability is the new bellwether for market access in India, and strategies must be devised that make drugs more affordable to a wider group of people with differing abilities to pay. MNC strategies that worked in the near past, such as targeting high-priced drugs to the affluent, will diminish in effectiveness in India's evolving commercial landscape.”

Market Access and its implications on Profits:
India's National Pharmaceutical Pricing Authority (NPPA) controls product pricing throughout the country. In 2013, the NPPA expanded the National List of Essential Medicines (NLEM) to include 652 drugs, a substantial increase over the 74 drugs previously listed. These products will now be subject to price controls that are projected to reduce prices by more than 20% for half the drugs. As if this did not challenge manufacturers enough, the Indian government recently decided to revise the NLEM later this year in response to complaints that the list should include all dosages, strengths, delivery mechanisms, and combinations of these previously identified drugs. The NPPA is also allowed to control prices of patented drugs that lie outside this list, and last month the government began exploring the possibility of using a reference pricing system for these products. With intense generic competition already driving down drug prices in India, these additional controls pose a significant threat to international manufacturers' ability to generate revenue. Once again the need to focus on market access in a holistic manner and more so at Pricing.

Market access and pricing: Right price
The right price according to whom? Medicines are priced on what the market will stand in terms of perceived value. Medicines have always been priced on value, not cost, because the major cost for any medicine is the $1bn+ in R&D costs to bring it to market, plus the need to amortise the cost of all those medicines that fell by the wayside during development.

From the patients perspective, there is a need to consider 'willingness to pay' and also the propensity or ability to pay', which can vary by disease area and perceived unmet medical need as also the economic and social strata of the patients most of whom are based in Tier 3 and Tier 4 towns in India.

Increasingly, due to economic pressures, there is greater focus on ability to pay. There is an increasing need to justify that the benefit really is worth paying for, such as one month extra life in late-stage cancer treatment. Price needs to reflect value. The paradigm of commercial success in the pharmaceutical industry has shifted from a mere price-profit based system to a more value based one. One step further, it also includes the concepts of value identification, value creation and value communication to the stakeholders who influence product uptake.

The high prevalence of self-pay generic drugs throughout the country has created little incentive for the development of certain market access disciplines such as health economics and outcome research (HEOR) and reimbursement. Government affairs and pricing functions, on the other hand, play an important role and have been broadly cited as the most crucial challenges global manufacturers face in the Indian marketplace.

New research suggest that certain multinational pharmaceutical companies (MNCs) are experimenting with new market access and pricing strategies to ensure continued access to India's large patient populations and expanding market.

The Indian government wants drugs to be reasonably affordable for all, not just those wealthy patients who can afford them. This bar is going to be very difficult to meet because of the severe poverty in much of the country and India's low gross national income per capita, according to market research firm Decision Resources .

Since Indian companies have a low success rate of developing innovator molecules, most of their profits are a result of the market share obtained by the various branded generics that they offer. Thus effective market access strategies are of prime importance to Indian Pharma Companies.

The Industry needs to understand that price controls need to be in place to manage healthcare spending when market access is granted and the Companies need to understand the implications of compulsory licensing and intellectual property rights while launching newer technologies like bio-pharmaceuticals and bio-similars.

The 3 major challenges faced by MNCs in India are:

  1. Regulatory – quicker and faster approvals are required.
  2. Pricing and reimbursement.
  3. Infrastructure – logistics, supply chain, KOL education and patient awareness and advocacy.

These are not the only hurdles in India, but the lack of reliable and accurate epidemiological and incidence data is a major concern. Moreover, treatment protocols are not regularized and adhered to. There happens to be a shortcoming of data on live treatment protocols followed and efficacy of ongoing new therapies.

India is largely a private pay market and likely to remain so for years to come. The patient usually funds for his own treatment with very limited reimbursement/coverage available to only a small section of the Indian population. This makes medicines one of the largest component of household expenditure after food and groceries. One unfortunate costly healthcare event is likely to tip the entire household to face catastrophic financial crisis.

Furthermore, the physician to patient ratio in India is quite low. Shortage of educated para medical staff like nurses and care takers also nowhere nearly meets the criteria. Thus, the Industry faces a challenge in terms of number of educated physicians that can be approached as per the formulated market access strategies. Indian companies have not invested in resources for access. They find it rather easier to justify incremental investment in Medical representatives than in access. The strategy should be to shift from brand-by-brand access planning to an integrated cross brand planning for portfolio access.

Conclusions:
Pricing is Key but not the only one to Successful Access Market access is an important, yet unrecognized aspect of the pharmaceutical industry. To ensure sustained success in launching new products, pharmaceutical companies need to become access driven organizations and more importantly in pharm-emerging markets like India. The market access function needs to be included in the senior management of the organization and a dedicated and appropriately skilled team must be dedicated for the same.

The most critical factor of market access is pricing and will remain so irrespective of whether we talk of a developed economy like US and Europe or an emerging one like India. Thus, companies must gear up to invest in innovating and implementing pricing models which maximize reach and still deliver the bottom line numbers that these commercial organizations hope for. The patient is the final frontier products created by pharmaceutical companies and therefore, companies must take efforts to make sure that the product reaches the consumer at the right price. In other words it is all about patient access.

In markets like India the treatment costs are usually incurred out of the pocket by the patients and with a majority of population falling in the lower economic strata pricing should be given significant importance while formulating the business model. The government, on its part, is committed to make healthcare available to the masses at affordable prices and therefore has to rely on stringent price control measures to achieve this goal. To a certain extent this is at conflict with the commercial objectives of the industry which not only has to generate profits to remain viable but also needs to generate funds for research which is quite expensive.

The need of the hour therefore, for pharmaceutical companies is to revisit their business models taking into account all factors which impact market access and more so at the pricing aspect. An amalgamation of right pricing and other market access factors can prove to be an effective way to obtain patient access and, ultimately, refining the healthcare system of the country whilst gaining profits.

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Authored by:
Mr. Manish Adhia
Research Scholar
Dr. Nirmala Joshi
MET, Mumbai

Tags: MET Institute of Management