Big pharma in uphill battle

April 1, 2013, was a divisive day in the history of healthcare. A seven-year battle waged within the walls of India’s courtrooms concluded, and while many saw it as the moment that assured the future of the millions of patients in developing countries, others saw it as a warning sign for the prospects for big pharma in the market. 

In a landmark ruling, India’s Supreme Court denied Swiss pharmaceutical giant Novartis a patent for an updated version of its cancer drug Glivec. Without a protective patent, domestic manufacturers are free to continue producing their own versions of the treatment: generic medicines that have the same molecular structure as their branded counterparts, but with a greatly reduced price tag. 

With India known as the ‘pharmacy of the developing world’—producing a significant proportion of generic medicines that reach swathes of patients in developing countries—the ruling was widely seen as a classic triumph of right over wrong. 

Humanitarian-aid organisation Médecins Sans Frontières said the ruling would prevent ‘abusive patenting’ by pharmaceutical companies, adding that the decision is a major victory for patients’ access to affordable medicines. “We invite Novartis to be a part of the solution, instead of being part of the problem,” it said in a statement that made the pages of news sites across the world. 

Pharmaceutical companies have long struggled with a negative reputation due to the perception that they prioritise the health of their bottom line over that of patients. Despite the ferocity of that image globally, MNCs have generally made little attempt to challenge it. 

In the recent Novartis case, the fact the pharmaceutical giant had been providing Glivec free of charge to 95 per cent of patients prescribed the drug in India—a donation programme that provided more than US$1.7 billion dollars’ worth of the drug since it began in 2002—was widely eclipsed by the celebrations of public health activists. 

“Pharmaceutical companies do a lousy job of defending themselves,” says James Hammond, chief strategy officer for Sudler & Hennessey in China and Japan. “It’s a very important sector and it does get unfairly bashed regularly. The only way to turn this around is with a long-term campaign to try and change public opinion.” 

With the industry in a state of flux, now is the best time to address the problem, Hammond adds. “Pressures on prices have never been greater, and R&D pharma companies need to argue their case for maintaining prices in markets flooded with cheaper generics. That’s the battleground, and every month is a lost opportunity, from a commercial point of view,” he says.

Asia is poised for huge growth in the pharmaceutical sector, and as woeful economies in Europe and the US cause growth to flatline, increasing revenues in Asia has become a massive priority for international pharmaceutical companies. A report from PwC highlighted that Asia is on track to become the largest pharmaceutical market in the world, with many Asian territories becoming the ‘powerhouses of the industry’. 

“If you were to ask MNCs their top three market priorities, it would be China, China and China,” says Graeme Jacombs, managing director, Asia-Pacific, Middle East & Africa, Kantar Health. “The provincial centres can almost be regarded as new countries in their own right.” 

Healthcare spending in China is expected to hit the $1 trillion mark in 2020, but Singapore and India are also set to become leading players in Asia’s pharmaceutical sector. The growth across the region is fuelled by an increasingly urbanised population, where rising affluence leads to both growing disease burdens and greater awareness and access to treatments. 

MNC pharmaceutical companies have been manoeuvring in recent years to capitalise on this opportunity. McKinsey notes that Merck, GlaxoSmithKline and Eli Lilly have all significantly increased their commitments in China, with 13 of the top 20 pharmaceutical companies establishing R&D centres in the market since 2006. For other leading companies such as Bayer HealthCare and Novo Nordisk, China already ranks among the top three markets in total revenue contribution, it adds.

ANALYSIS Firms must communicate to change perceptions By Rachel Norager, executive director of healthcare, Singapore, Virgo Health Pharma companies have come up against negative perceptions for as long as I can remember. To overcome this, we are seeing a trend for companies to be open about some of the good work they are doing to improve healthcare across the region in partnership with government bodies and professional organisations. This includes integrated campaigns of PR and medical education to increase disease awareness and enable patients and healthcare professionals to make informed decisions about their disease and treatment options. AstraZeneca in China is an excellent example of working in partnership with government bodies to improve community healthcare by strengthening training of general practitioners and sponsoring a three-year programme that will train 30,000 doctors to treat some chronic diseases. The way we communicate in healthcare is also changing. An increasing number of pharmaceutical companies in Asia are embracing the digital revolution and accepting the fundamental shift from broadcasting information in a didactic fashion to sharing and connecting. While this may seem scary to some, it provides a wonderful opportunity for the industry to disseminate its good work to a wider audience, be part of the conversation and shape perceptions.

The opportunities are undeniable, but whether international pharmaceutical companies can continue to realise this growth is not as straightforward. “Will it continue to be the easy or a predictable growth the sector experienced in the 90s and new millennium? The answer is probably ‘no’,” Amar Urhekar, president, Japan and EVP Asia-Pacific, McCann Health, points out. “The dynamics are changing significantly, and while the macroeconomic conditions in Asia-Pacific are all poised for growth, there are other aspects of the business that need to be considered when assessing the opportunities.”

A major concern is how to effectively operate when drug patents expire. This so-called ‘patent cliff’ is not so much a looming threat, but a very real precipice that pharmaceutical companies’ earnings are already tumbling over. And it’s showing no signs of abating. 

With the loss of patent protection comes the inexorable rise of generic drug manufacturers that are free to produce unbranded versions of the treatments at a fraction of the cost. India is the poster boy for domestic generic drug manufacturers, but they are also thriving across the whole region. In China, they especially dominate the lower-tier cities—the areas that many MNC companies are now setting their sights on. “Big pharma want their piece of the lower-tier pie, but to claim a share of this market is actually quite a challenge,” says Hammond. 

“All the pharmaceutical companies are grappling with how to build a substantial presence in these large regional areas,” he adds. “In the West there are a myriad of options to solve the problem, such as alternative channels of communication. But in China it is more complicated because doctors rely heavily on rep interactions for news and support, and often the technology infrastructure isn’t in place to support other lines of communication.”

The rise of domestic drug manufacturers is a risk in itself, but the promotion of generics over branded equivalents by governments exaggerates the challenge. In markets like Japan, where the state largely picks up the tab for healthcare provision, there is an ever-increasing push towards generics as a way to control spending. “Governments across Southeast Asia have also been pushing generic education,” adds VJ Yamat, healthcare director, Havas Life Southeast Asia. “They are telling people that they need not buy branded and sacrifice compliance because you can buy a generic brand that has the same level of efficacy, but at a much cheaper price.”  

The recent Novartis ruling in India has intensified the generics debate further, highlighting the additional challenges surrounding intellectual property protection. While many healthcare activists and patient groups celebrated the legislation, Novartis India’s shares tumbled, and analysts warned that the move would dampen MNCs’ investment interest in India.

For now, India’s position on intellectual property protection appears to be unique—Glivec was granted a patent in nearly 40 other countries—but there is a risk that other markets could follow. 

“It would be a concern for MNCs if reduced patent protection started to spread; that other countries like Vietnam and Indonesia could see it and feel that it’s a path they would like to go down as well,” says Jacombs. “For example, Thailand has threatened compulsory licensing in the past and if that became more widespread it would be a concern.”

Despite the challenges, industry experts maintain that Asia should continue to be a key focus for pharmaceutical companies; the opportunity is just too big to afford to miss. But it is clear that this is no longer business as usual. The solution will require a change in business model—already there have been a flurry of acquisitions of generic drug companies by international pharmaceutical companies in a kind of ‘if you can’t beat them, buy them’ approach—as well as a new marketing strategy. 

“We are now in an environment where very few pharma companies have a point of differentiation and competitive advantage based solely on their products,” says Sharn Bedi, managing director of DDB Remedy APAC. “The traditional marketing methods of sales rep interaction alone can no longer justify commercial success. What they need to do now is to redefine their approach to sales and marketing and communications, to start looking at strategic creativity for competitive advantage.”

This will require pharmaceutical companies to move away from the tactical, sales-orientated approach they have traditionally used for marketing, and seek to build greater brand equity, as well as greater engagement with consumers. It’s a big shift away from traditional thinking. Multinationals seem to be aware of the challenge of this new approach, recently snapping up ex-FMCG marketers to bring about fresh thinking in order to be able to compete in a new landscape that focuses on the power of branding. 

“The sector is now entering the hardcore marketing era,” says Urhekar, adding that more brand-building initiatives will emerge at product and company level. “It’s going to change, and it’s going to change significantly. It’ll become more patient/consumer centric and far more marketing-orientated, where memorable campaigns, visuals and emotional connections will become regular things to do.” 

To thrive in this increasingly complex and competitive sector, pharmaceutical companies are also beginning to shift away from a central focus on treatments to a more comprehensive package of care that includes prevention services, medical education, and patient-led campaigns to drive better uptake of medicines. Focusing on these added-value services will create a point of differentiation for the MNC pharma sector, going over and above the more functional sell from generic manufactures. 

“Brand-minded pharma will not just sell the drug anymore,” says Yamat. “It has to be a holistic healthcare experience, seeing the benefits not just from the pill, but also from the fact that the brand supports the doctors through medical education, the patient through access and compliance programmes, and the caregivers through patient care support.”

This mindset shift has seen a rapid rise in health-related apps, with companies looking to develop services that help patients in the day-to-day management of their specific disease. Branded diabetes monitoring apps are an obvious option, says Jacombs, but he adds that companies are also producing programmes for less common conditions. He points to a recently launched app from Novartis Oncology that helps patients manage and learn about a rare cancer called neuroendocrine tumours, allowing users to track their symptoms, set reminders for treatments, doctor visits and medication refills, and review and track test results. “[This trend] is about building stronger relationships between the product and the patient, as well as providing a valuable service and ensuring patients stay on the drug for longer,” he says. 

By driving better engagement with healthcare professionals and consumers, pharmaceutical companies are ultimately working toward a utopia where they foster loyalty so robust that it is able to survive even after a brand’s patent protection expires. “The ideal scenario would be where the pharmacist or the doctor says, ‘I can give you the generic alternative’, but the patient says, ‘No, I still want the branded drug’,” says Bedi. “Obviously the patient will have to be in the position to pay for it, and in Asia there’s a huge population that is not able to, but there is still a huge population that can.”