Utkarsh Palnitkar, Partner, KPMG in India, National Head – Infrastructure, Government & Healthcare; and National Head – Life Sciences and Christopher Stirling, Global Chair, KPMG Life Sciences, KPMG International speak on trends driving the pharma sector in India and globally, emerging revenue and business models in volatile market conditions, growing role of R&D in Indian pharma and more, in an interaction with Viveka Roychowdhury. Excerpts
How will President Trump impact India’s pharma sector?
Palnitkar: The US is the single largest export destination for India; out of the total $15.2 billion pharma exports from India, the US share was $4.2 billion (27.9 per cent). From FY13 to FY15, exports to the US has increased by 15 per cent.
The Indian pharma industry is aligned with President Trump’s vision of containing drug costs and making healthcare affordable. India is expected to remain a preferred source of safe, effective and affordable medicines to millions in the US, notwithstanding the recent comments of Trump’s administration on high drug prices and a new proposed process for bidding which could indicate a challenging environment for all generic players exporting to the US, including India.
These are however early days to comment on how the new US administration will impact the sector.
Comment on PM Modi’s approach to healthcare initiatives like UHC.
Palnitkar: Evident challenges around high out-of-pocket spending, inequality of services and fragmented social and regulatory standards are forcing stakeholders back to the policy drawing board. Further, with the voice for UHC gaining traction, it is becoming imperative for the government and other stakeholders to reassess and redesign the current healthcare system.
While the government has always had positive intentions for healthcare in India, the missing pieces around implementation; effective oversight; competent policy framework and pertinent regulations to meet our national health goals and build UHC, need to be tackled without further delay.
Stirling: The Netherlands model of mandatory health insurance has demonstrated that providing guaranteed quality and affordable healthcare is possible – an effort which has been praised around the globe. This model can stimulate Indian policymakers to embrace a health security model that aspires to deliver healthcare without having to suffer any fiscal hardship.
How is the patient impacting the life sciences business model, globally and in India?
Stirling: Considering that the new patient pool is well-informed about treatments and medicines, in developed countries such as the US and the EU – payers (insurance companies) are looking forward to ink different healthcare plans with an outcome/value-based pricing model, especially for high-priced and specialty drugs — oncology drugs, Hepatitis C treatment, etc. Enhancing the patient experience via better efficacy of drugs drives value-based pricing instead of volume-based pricing.
These market dynamics have led global life sciences companies to think of transformative ways that could replace traditional blockbuster drugs, incremental innovation and physician-preferred models to patient-centric models. In India, life sciences companies have slowly begun to deploy technology to engage more with patients. Sooner than later, a ‘patient-centric healthcare’ approach is expected to shape up as the driver of the life sciences industry where quality and affordability of care remain fundamental.
How do quality and pricing issues impact the revenue and business models of life sciences companies? What should be the top five focus areas of growth for life sciences CEOs?
Stirling: The pharma sector is at crossroads. In a heavily disrupted marketplace, characterised by shifting payer attitudes and patient empowerment, neither incremental adjustments nor steady evolution are likely to halt the decline of the traditional pharma business model. With rising demand for healthcare and falling budgets, governments and payers are exerting pressure to drive down prices. One bold example involves the Netherlands; not content with striking volume deals with the major pharma players, it is looking to utilise the power of the EU to create even greater economies of scale. At the moment, several member states are pooling together into a single procurement machine with much greater bargaining power. This initiative, in its early stages, is also being looked at by other EU states seeking to cut their drug expenditure. Going forward, life sciences companies need to focus on new drugs to shore up growth, embrace technology to increase efficiency and compliance, emphasise on collaboration and partnerships, and focus on patient-centric business models. Life sciences companies that manage to embrace the evolving regulatory environment, and master disruption, will likely have the greatest chance to deliver real value.
Many of the bigger Indian life sciences companies have invested in R&D. Are these viable bets?
Palnitkar: The top 25 Indian companies increased their R&D expenditure from 7.1 per cent in 2014-2015 to almost 7.8 per cent of their consolidated net sales in 2015-16, however this is still low compared to global life sciences companies who spend over 17 per cent of their net sales on R&D.
With enablers such as access to skilled manpower, presence of quality technical institutes, and exposure to global multinationals, the journey from generic to innovator has only just begun in India. This journey is expected to help Indian companies in an environment where there is high competition in generics, tighter scrutiny by drug regulators, higher usage of biologics drugs, and budget cuts by government.
How do Indian life sciences firms in the biologics arena fare? Are Indian laws on biologics good enough to create a promising ecosystem?
Palnitkar: Indian life sciences companies have developed significant expertise in biologics; with almost 10 blockbuster biologics due for patent expiry by 2020. The global biosimilars market is forecasted to grow to approximately $24 billion in 2019 as compared with $5 billion in 2015. Simultaneously, Indian firms are increasing their investment in biosimilars to secure the early mover advantage. India has been a blooming biosimilars market with maximum approved biosimilar products (50) market as compared to 16 in Europe and only two in the US.
The Indian government has been proactive and has modified biosimilar guidelines from time to time, to reflect the latest regulatory thinking. The guidelines are expected to further evolve as new data and analysis technologies come into play to provide a promising ecosystem for biosimilar development in India.
Have bigger Indian life sciences firms succeeded in evolving beyond the generics tag on a brand perception level? What should be their strategy?
Stirling: Indian life sciences companies are still largely focused on a low-pricing approach. However, in the changing pharma landscape where margins are low and competitive pressure is high, companies need to diversify their product range, adopt differential strategies and focus on evolving as innovators.
An incremental shift in the business model, and a refocus on new fields of play, can help pharma firms adapt to disruption. Three type of ‘archetype’ are expected to prevail in the future life sciences industry.
The active portfolio company: A company that is primarily active in several therapeutic areas within its portfolio. For e.g., those operating in pharma tech, genetics and immunotherapy are constantly looking for new forms of therapy, while simultaneously reappraising their product mix to match unmet needs. Such manifestation helps these modular organisations become flexible to take advantage of opportunities.
The virtual value chain orchestrator: Companies that offer ‘virtual value’ through various types of virtual solutions without owning anything physical. Similar to virtual platforms in healthcare where multiple advices are offered by the platform owner to patients virtually, from advice on diet and lifestyle, monitoring of conditions via wearables, and access to physicians, drugs, devices and possibly even replacement organs.
The niche specialist: A smaller, organised player focused on a single therapeutic area or disease, who looks at the entire patient pathway from prevention to real cure like a Denmark Headquartered company, which focuses on diabetes. In the long run these players can become part of a portfolio company, to gain greater access to funding, to enable the provision of combined therapies, and/ or to collaborate with a virtual value chain orchestrator to connect with a broader client population.
It is clearly up to the Indian companies to decide their way forward by adopting one of the above business models and differentiate themselves. The companies need to become more integrated with the health system/ customer by offering services (training, supply chain management, operations outsourcing) and potentially, a more performance-based contract scenario. Differentiation through quality and moving beyond the product needs to be the success mantra. Domestic companies need to look into the Indian market for innovation instead focusing outside of India, where geo-political and pricing pressures will likely only continue to make things challenging.
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