Generics vs Brands
Article contributed by subscriber: Shri Rajiv Gulati
Advisor and Mentor to current and upcoming Pharmaceutical Companies, Previously – President, Global Pharmaceuticals Business, Ranbaxy; Global Head of Emerging Market Strategy for Eli Lilly & Co.
Branding enables marketer to charge Premium. Brands create loyalty, there is an imagery in mind … and provide tangible and intangible advantages over unbranded products. Everything, including food grains, automobiles, phones, computers, clothes – are branded. However, the key element to remember is that paying a premium for a Brand, is voluntary and a pleasurable exercise. The other key element is that the Payer is the Decider.
What about Medicines? Globally Brands survive as long as Patents last. It’s a monopoly provided as a reward for spending more than USD 1B required to bring a new molecule to market. In the developed countries such as USA, Canada, Australia, and Western Europe – there are no Brands after patent expiration, and retailers are free to dispense products of any Pharmaceutical company that they desire. The key element here is that all the generics are of acceptable quality and fully Bio-available to the patented product. FDA of the US and other regulatory authorities ensure that. Hence, Brands and generics are fully substitutable, legally and emotionally.
Reason – It’s not a pleasurable spend, it’s a forced spend. The Payer is not the Decider. Equivalence between Brands and Un-Brands (generics) is fully established.
Given the Indian environment, which has been vastly different – especially the fact that it’s an ‘out of pocket’ country unlike any other country where insurance (USA) or Government (Europe, Canada, and Australia) pays for the medicines. Also, the spend on healthcare in India is miniscule (approx. 5% - of which Govt. spend is 1%; against 15-16% in most developed countries) – Does genericization of Pharmaceuticals make sense?
· Does it make sense ethically and morally?
· Will it benefit consumers, eventually?
· Does is make political sense?
Answer to all these is an overwhelming YES!
Thus, given the performance of the current Govt (Mr Modi clearly mentioned that he is not afraid of annoying powerful lobbies) one can safely conclude that GENERIC PRESCRIPTIONS, ESPECIALLY OF SINGLE INGREDIENT PHARMACEUTICALS, ARE HERE TO STAY
Let’s assume, having read the tea leaves that it’s happening.
Then let’s look at the implications:
Quality:
1. Key challenge to generics always has been that quality differs. Given the movement towards implementing Good Manufacturing Practices across all plants, and the latest decision of GOI to ensure that bio-equivalence is established not for new molecules(first 4 years) but all licenses in states are granted after bio-equivalence is conducted even molecules older than 4 years – Govt can allay the fears of citizens over variable quality.
2. Recently conducted large scale survey has demonstrated that quality of medicines on the shelves has improved in general
3. Once consumers find out that most of Branded and Generic Pharmaceuticals are manufactured in the same plants, the public perception will begin to tilt towards generic. Fact remains, that large Indian companies manufacture products in expensive plants primarily for exports. They source Brands for marketing in India from third parties, that also supply to marketers of generics
Thus, an awareness campaign has the potential of swaying the consumers towards Generics.
Distribution:
1. One big concern about generics is that Power (of decision) will shift from Physician to Retailers. Then retailers will make oversized profits, while consumers will continue to pay high price. Unfortunately, this scenario has played out in countries such as France and Australia also, where retailers have the power to influence. It is significant to note here that central as well as several State Governments are expanding Jan Aushadhi stores in very large numbers to ensure that consumers can buy reasonably priced medicines from Jan Aushadhi. Also, competition is a great leveler. I won’t be surprised if retailer begin offering prices less than Jan Aushadhi. Further, advent of online pharmacies is bringing significant amount of transparency to the advantage of consumers.
2. Further, retailers will benefit immensely with streamlining of their inventory. Today, there are more than 1000 BRANDS of single molecule Atorvatstain. A good retailer easily carries 10-12 brands of any fast selling molecule. Imagine, if it were reduced to ONE SKU per molecule, this will reduce working capital, storage, labor cost and man-power to a very large extent. Theoretically, this can make retailers financially more viable enabling them to offer better prices to consumers to remain competitive.
3. The negative impact of emptying this pipeline can be extremely severe on Indian Pharmaceutical Industry. Among, CFA-Wholesaler-Retailer, there is easily 6 months stock in the distribution chain at any given point of time. Switching to ‘one brand one retailer’ situation will lead to severe reduction in primary sales, even as tertiary sales increase.
4. The biggest deterrent to implementation remains shortage of Pharmacists in the country. It is acknowledged fact that state of UP has 20,000 Pharmacists for 72,000 retail Pharmacies. Proper implementation of the new process requires qualified and skilled Pharmacists to ensure that correct medicine is dispensed.
5. Other challenge is that Generic names are quite difficult. Companies create brand names that can remind doctor of the disease for which it is meant, or a memory hook which makes it easy for the Physician. It will be a huge challenge of doctors to remember and write the correct spelling, legibly. However, with time, it can be overcome.
Strategies:
1. Several companies will try to focus on multi ingredient or innovative dosage forms which are not substitutable. Today this part of market is a little over half, it will get further boost.
2. Companies will also focus more on patient welfare and patient support programs to create and maintain loyalty with the company.
3. It is not out of realm of possibility that companies expand generic range and have a separate field force calling on retailers to offer quality, reliability and availability.
4. It will give a big boost to e-commerce in Pharmaceutical distribution in both retail – as well as wholesale, as GST kicks in. It would make sense for any retailer to browse the catalog and order entre requirement online – saving time and effort while improving profits with better price and lower inventory.
Checks and Balances:
1. Worldwide governments have brought out laws to break the nexus between Pharmaceutical Industry and Physicians. Creation of ‘sunshine act’ in the US has its genesis in the same concern. All developed countries have examined it and created laws and rules to curb it. It’s no surprise that GOI is also determined to break this nexus.
2. In past, the code of conduct for Pharmaceutical promotion was self-imposed by Industry. As we speak, GOI has increased the ambit of the Code to bring distribution chain into it and is bringing it out as a rule. At the moment the draft is with Law Ministry for vetting. That will further reduce the ability of companies to “influence” Physicians.
3. At the same time, dispensing by Physicians themselves, or creation of Pharmacies within the clinics, or nearby, is on the increase. It would be interesting to watch how this trend proceeds or Govt brings it under control as well.
In general, entire Industry is at a tipping point. Demonetization provided a big boost to generics, and now there will be another boost. As proportion of generics increase, there is immense possibility of consolidation. India has 15,000 pharmaceutical companies – Largest in any country by a margin. This is simply not sustainable. Mergers, acquisitions and closures – are bound to happen.
As government moves towards implementation of a portal to ‘track and trace’ entire Pharmaceutical sales from manufacturer to patient, across entire distribution chain, only fully compliant pharmacies will survive. A consolidation among retailers also can’t be ruled out.
One thing is for sure – future is no longer a continuation of the past.
We live in interesting times.
Rajiv Gulati