1. Fully integrated third party logistics company

Many of the pharma companies that I spoke to so far mentioned that the lack of a fully integrated 3PL player was a challenge. The presence of such a company might not only enable in faster product launches but also create an ecosystem where smaller firms without deep competencies in sales & marketing might be encouraged to launch brands.

Agreed that many companies are actually banking on their distributor/ stockist base as a competitive advantage but this is not sustainable. With GST (Goods & Services Tax) going to be rolled out sometime soon leading to these layers consolidating, there will be a (theoretical) surplus of these distributors. None of the current players (distributors & stockists) are thinking that far ahead to align themselves with the market trends.

The company that I spoke to mentioned that unless there is an import/ export component to the distribution it doesn’t take on customers which is probably the reason why their major customers in the life sciences area are MNCs.

I personally think there is a great opportunity for a 3PL player in this industry. Thoughts anyone?

2. PPP for Public Sector Distribution

Since the large companies, including their last mile connectivity partners, have a widely established network of warehouses, transportation facilities in most of the states, there is an opportunity to have a play in the public sector distribution of medicines/ other medical consumables as well.

The PPP could be either be a full operating arrangement or even be structured as a Build-Operate-Transfer probably for 5 years which will not only lead to process streamlining and capacity building. While the obvious criticism to such an idea might be prohibitive costs for the government to engage with the logistics companies but if you throw in process improvement and capacity building into the pool, there is definitely a case for it. Thoughts anyone?

Industry – Industry linkages are the common norm in the pharma industry across the value chain (in research, development, manufacturing and marketing). Several instances keep popping up daily in the news (Here)

Also in my earlier blog post (here), I have written about interesting models where academia & philanthropic organizations (MEND); Academia & Government (OSDD by CSIR); Industry & crowd-sourced seed capital (Pink Army Cooperative) have come together to address these highly relevant issues.

One other instance of an alliance that I have recently come in connect with is that of Gilead Sciences (Sales ~ US$ 5.3 Billion (2009); Net Income ~ US$  2 Billion (2009)). It was among the first few companies to introduce a OD (Omne in Die – Once a day, every day) pill for HIV instead of multiple medications, often intravenous. With tiered pricing for low, middle and high income countries, innovative partnerships with distributors and generic drug manufacturers, Gilead has been able to reach over a million patients (of which about 70% of the patients were from the developing countries). This being said, it is not a surprise that over 84% of the company’s revenues were generated through its top three HIV treatments. (More info on Gilead’s Access Program here)

Bear with me while I emphasize this, in the late 90s and early 2000s, most of the companies have viewed the development of HIV therapies as necessary public service but unprofitable. This has changed due to increasing innovation in development of novel drug delivery mechanisms, lowering of cost and increased market reach. I would like to think this is the result of the aggressive lobbying by donor agencies & foundations but it ultimately happened because it was profitable.

Running a risk of sounding redundant - How does one address these issues of diseases with massive prevalence (and incidence) by tapping into enormous fund pools? – The answer, I believe, is Alliances.

Consider a similar use-case in the Pharma industry, where the drug development costs are exorbitantly high to the tune of about a US$ 1 billion and above, often taking more than 10 years for a molecule to come from the lab to the patient. With phases of inconsistent investor interest/ confidence and also a pressing need for innovative therapies, it is important to bring out new novel molecules cheaply and quickly.

Additionally, against an extremely challenging backdrop of declining R&D productivity, a looming “patent cliff” in which more than US$ 150 billion worth branded drugs lose patent protection, industry consolidation – focusing even more on R&D has become an imperative. As Andrew Witty, CEO –  Glaxo SmithKline says “The pharmaceutical industry needs to do more with less and still be innovative”. Such challenges could not be more apt for open collaborations between pharma companies, academia and niche specialist firms for rapid innovation. (The importance of alliances in my previous post – here)

Here are a couple of such examples which are successfully functioning and sustainable (?, Let’s see):

Open Source Drug Discovery (OSDD)

In their own words “OSDD is a CSIR Team India Consortium with Global Partnership with a vision to provide affordable healthcare to the developing world by providing a global platform where the best minds can collaborate & collectively endeavor to solve the complex problems associated with discovering novel therapies for neglected tropical diseases like Malaria, Tuberculosis, Leshmaniasis, etc. It is a concept to collaboratively aggregate the biological and genetic information available to scientists in order to use it to hasten the discovery of drugs. This will provide a unique opportunity for scientists, doctors, technocrats, students and others with diverse expertise to work for a common cause”

Since its inception there are over 800 scientists across the world working on discovering novel therapies for Tuberculosis. Based on its business model, all these scientists are engaged in target identification, validation and screening to provide qualified leads. Post this phase, the OSDD involves the  industry through Custom Research Organizations (CROs) to optimize candidate drug and proceed for clinical trials.

The organization has been able to identify a few qualified leads (hits) in a little over 2 years – something that would have taken a pharma company at least 5 years and a lot of money to accomplish.

More details about the organization here

Medicine in Need (MEND)

This is another good example of industry academia collaboration in order to bring drugs quickly and cheaply to the market. The organization initially started off with a seed funding from Bill & Melinda Gates Foundation is now able to sustain itself through drug sales.

The organization functions through two related but independent divisions MEND Biotech Development (MBD) maintains wet-lab expertise in Boston and Pretoria and performs activities like drug delivery system design, assaying, stability testing, formulation development etc. and MEND Innovation & Translational Alliance Management Division (MITAM) that manages partnerships between pharmaceutical scientists, academia both from developed and developing worlds in order to discover novel therapies and delivery systems.

By their own admission, this is what they say about themselves – “Medicine in Need is a not-for-profit research organization devoted to the successful development and manufacture of affordable and effective vaccines and therapies with characteristics that allow their widespread use despite the daunting economic and logistical constraints of the developing world”

Pink Army Cooperative

(Cooperative is an interesting choice of word – more on this here)

This one is even more unique in the sense that it provides “personalized medicine” for breast cancer patients. It is an open-source biotechnology venture which operates in a not-for-profit basis.

As cost for gene sequencing has been drastically falling and immense computing power is now available at free or affordable cost (Google Exacycle), it would be theoretically possible to create personalize medicine and not declare bankrupcy!

An overview of this initiative is here

What we need right now is new and innovative solutions – innovative in terms of business model, distribution model and payment mechanisms etc. to mitigate the known healthcare challenges. These solutions will not only help in addressal of unmet needs of large patient pools (newer market access) but also improve the global health indicators in general. These solutions need to be pursued not only because of the immense revenue opportunity but also because it is our moral, social and ethical responsibility.

The Need & Scope of Opportunity

I was looking at the incidence (the number of new cases in a year) and prevalence (the total number of people currently afflicted with the condition) of a few diseases globally and it completely flummoxed me! I have just chosen a few communicable diseases below to illustrate my point:

• Tuberculosis - Incidence = 7.8 Million; Prevalence = 13.9 Million
• HIV/ AIDS - Incidence = 2.8 Million; Prevalence = 31.4 Million
• Malaria – Incidence = 241.3 Million; Prevalence = 2.24 Billion at Risk (Diseases like Malaria do not have prevalence because it is not a long-term condition, patient are either cured or die within a year)
• Diarrhea - Incidence – 4.6 Billion; Prevalence = n/a (Same reasoning as for malaria; Typically adults have about 4 episodes of diarrhea each year and it is easily treatable with rehydration salts)

Apart from these there are “Neglected Tropical Diseases” which are called so because they are only present in highly marginalized and neglected countries and currently affect more than 1 Billion people globally!!!

Since healthcare always remains a subsidized public commodity, most of the health interventions in low income and emerging countries are carried out through donor funding. To give you an idea of the magnitude of such funding, I have listed out the disease specific funding from a few funds for the above diseases.

• USAID – Tuberculosis = US$ 249 Million; HIV/ AIDS = US$ 3.7 Billion; Malaria = US$ 346 Million
• Bill & Melinda Gates Foundation – Tuberculosis = US$ 121 Million; HIV/ AIDS =  US$ 221 Million; Malaria = US$ 243 Million; Diarrhea = US$ 61 Million
• The Global Fund – US$ 21.7 Billion for Tuberculosis, Malaria & HIV/ AIDS
• WHO - US$ 488 Million for Tuberculosis, Malaria & HIV/ AIDS
• UNICEF ~ US$ 280 Million for Diarrhea in Children

Why Care?

Apart from the immense revenue opportunity that exists (highlighted above), the very fundamental reason to be concerned about is this – In the one hour time it took me to write this blog, this happened (globally)*:

• 194 people died due to Tuberculosis
• 205 people died of HIV infections
• 114 people died of Malaria
• 171 children under age of 5 and 126 children over 5 and adults died of Diarrhea
• 183 people died due to the neglected tropical diseases

*assuming the deaths were linearly distributed through the year

So, What is the solution? - More on this in my next post….

Without getting into too much detail about the discussion, here are their views on the current state of medicine accessibility (particularly in rural areas):

Pharmacy Retail Chain Owner Perspective:

“I think medicines are pretty much available to any patient even in the remotest of areas, Although in some cases the patient needs to travel 20 – 30 kms to get to a place to buy them, which is okay”

Maybe, but there is a large percentage of people for whom the nearest medicine access point is more than 100 kms away….

“If people can afford to pay 200 rupees per month for a cable television, they can surely afford to pay 500 rupees a month on diabetes medicines”

“I don’t think 500 rupees a month is unaffordable, by law a person earns at least 4,500 a month. Even the most unskilled person can earn 5000 rupees a month as a watchman”

Law aside, there is a very large portion of the population who live under 1000 rupees a month. This money goes into supporting a family, often more than 4 people. Discounting house rent, food, clean drinking water and education, these people are in no position to pay even for the cheapest medicines. As for the cable TV, people often under estimate the importance of television in resolving social issues. I would say the 200 rupees sent on cable TV has probably kept household violence in check and promoted family planning (what else do you think bored people would do? ) – You can catch more context on this point in The Tipping Point by Malcolm Gladwell)

Public Health Perspective: (I stress on government procurement below because for the aforementioned people with low incomes, the public health center is the primary point of contact for health and the primary access point for medicines)

“The state of public drug procurement is quite pathetic in most states. The warehouses are all rented and are in a dilapidated condition with drug strewn on the ground”

“Most states do not even have an Essential Medicine List, they just put up WHO’s list on the site to avoid scrutiny of the public”

Essential Medicine List, which was conceptualized by WHO and it contains the list of those drugs that satisfy the healthcare needs of majority of the population but each country and state is encouraged to tailor this list based on the local disease pattern.

“In the drug procurement budget, about 25% is set aside so the departments can procure the drugs outside of the essential drug lists in case of emergencies. This expenditure is completely unaccounted”

“The essential drug list itself is heavily influenced by pharma companies. I used to see representatives from pharma companies walk in and out of the office of the Managing Directors office when I was working with the health department – they had no business there except to submit tenders”

“In the state of AP, the distribution happens to district warehouses. All districts are given equal amounts, irrespective of health situations. From that warehouse its the responsibility of the PHC (Public Health Center) to collect the required medicines every quarter. The PHCs closer to the warehouse get a large portion of the procured drugs because the person in charge of the PHC far away is too lazy to travel. Even if the person from the distant PHC does get an allotment of  30 kgs of drugs, he throws away 20 kgs because he has to carry the heavy load in a bus”

“Corruption is another major issue, in the state of Andhra Pradesh, in the past three years, 5 secretaries and 7 Managing Directors have been changed. People who are completely corrupt and completely clean can’t survive in the department”

“Several committees, consultants, NGOs offer their evaluation and submit their recommendations but since people who are running the show are changing so frequently, they never see the light of the day”

My Opinion:

I don’t think one can say that the perspective of the pharmacy retail owner is wrong. He is just exhibiting the collective wisdom of his peers and that says a lot about the corporate perception of public health. There is a large gap between their perception and the reality which creates a dangerous dichotomy.

God bless their hearts, the CSR activities are all great but none of them are sustainable. It is very important for a for-profit healthcare company to have a public health perspective. This is what my short stint in the non-profit sector has taught me so far.

One example in which the public procurement system has been extremely effective is the Tamil Nadu State Medical Services Corporation which does pooled procurement for the entire state. I was told this entity also does the procurement for the state of Madhya Pradesh because it is functioning so well. The states needs to understand that model and figure out ways to efficiently adopt it.

Keep watching this space for more….

1. Irony of Karma

Dear Iceberg,

Sorry to hear about global warming. Karma is a bitch.

Sincerely,

Titanic

2. Irony of Theology

Dear Atheist,

Oh man, you guys are screwed.

Sincerely,

God

3. Irony of Fingering Others

Dear Yahoo!,

I’ve never heard anyone say “I don’t know, let’s Yahoo! it…”

Just saying….

Sincerely,

Google

4. Irony of a Nose Job

Dear Voldemort,

So they screwed up your nose too huh??!!

Sincerely,

Michael Jackson

5. Irony of Half Empty Glasses/ Half Full Glasses

Dear Optimist,

That is not a light at the end of the tunnel, that’s the train.

Sincerely,

Pessimist

6. Irony of Time (Probably the best of all… )

Dear 2011,

So I hear the best rapper is white and the president is black?!

WTF happened?!

Sincerely,

1985

YYMB75K68P8T

To those people who have not had any experience in the healthcare field, I think these quick numbers sum it up:

1. 2% of the land area

2. 16% of world population

3. 21% of global disease burden

4. Per Capita Health Expenditure is about US$ 40 (To put it into perspective, the same for Morocco is about US$ 120, Israel is US$ 1900, Sudan is about the same as India)

5. Extremely high private sector contribution (circa 75%) to total health expenditure & majority of the private expenditure is out-of-pocket expenses (circa 90%)

The reason for the high out-of-pocket expenses is that the state of health insurance coverage in India is very low and in many cases a single episode of illness can push a families below the poverty line (Interesting analysis done by folks from the Erasmus University Rotterdam)

To account for this, keeping in mind that many in India cannot afford large premium payments, our friends in the health financing industry have designed a fabulous product called Rashtriya Swasthya Bima Yojana (RSBY) which provides hospitalization cover of upto Rs. 30,000 and includes pre-existing conditions as well at an extremely low cost of Rs. 30. The coverage also extends to five members of the family.  One would obviously imagine that at such low cost, the scheme would gain immediate traction with people queuing up for getting insured. Sadly this is not the case.

The scheme currently provides insurance coverage to a little less than 2% of our population since it was introduced 3 years ago. The reason for this fascinating behavior is funny at best. Consider the case of person X who is covered by the insurance and by a stroke of luck doesn’t fall sick that year – In his opinion the money (Rs. 30) spent towards insurance is quite useless. In essence he is paying money upfront so that he doesn’t need to pay when/ if he is hospitalized.

Now, along comes Baba Ramdev who says – “Give me Rs. 30 and I will ensure that god doesn’t put you in the hospital through my yoga”. This money is well spent in X’s opinion because he is paying money to stay out of hospital as opposed to insurance. You decide which idea will sit more comfortably with X?

As a management consultant, I am expected to have an overall picture about the company while being knowledgeable about intricacies of a business. In order to do so I inevitably end up ask a 15+ years experienced person about averages, and the battle that ensues is quite comical.

In one of my recent engagements, I was talking to the India center head of a global Electronic Design Automation (EDA) tool vendor about the average cost of the tool. For those of my friends who don’t know what an EDA tool is, it is a software tool used to design and model circuit & chip designs. An EDA solution is a set of a large number of point functionality tools each of which are also individually sold.

I learnt from a lot of semiconductor companies that EDA tools typically cost a lot and that poses a significant entry barrier for newer product companies and service providers to enter the market. In all my innocence, I have committed a gravest mistake of all and asked the question “Discounting the fact that there are a lot of factors, on an overall level, How much does an EDA tool cost on an average?”

The discussion that followed up my question was nothing short of a colonoscopy. “What the hell do you mean average – there are things to consider like size of the deal, number of licenses, past relationship with the customer, the functionality itself and on and on”.

I cannot help but laugh at this when a question like that can question the very basic foundations of the other person’s experience & intellect. I consider this one of the special perks of my job

Every offshore design/ development center in India talk about the same basic things on India’s value proposition – Availability of top notch talent, cost arbitrage and blah blah blah…. .A recent trend in the past 3 – 5 years is that you can notice companies talking about how they own products or product lines in India which is being included in the value proposition that India can offer. I personally don’t know how they define product ownership but to me it is about completely owning a product right from its conceptualization, specifications, architecture, design & development, testing and also most importantly after-sales support.

Please dont get me wrong, India has good capabilities in terms of each of the individual activities which is illustrated by the virtue of the extended India presence of these companies in question but the real question that puzzled me is whether these companies truly owned product(s) from India?

What I learnt is that, this is impossible by the definition of conceptualization of new products. To understand this statement, one needs to understand where the customers of these companies are – Mostly the US, parts of Europe, probably Japan, Korea, maybe even Singapore. Products are made by closely understanding customer requirements/ pain points to in-turn help them to better serve their customers and not by surprising the hell out of them by having your global development centers remotely come out with a product(s) and hope for a fairy tale ending.

You probably know where I am going with this by now – You just can’t have remote teams who can understand customer specifications & conceptualize a product. What companies in India currently have is complete engineering ownership, where once the overall specifications & conceptualization is done all that is left to do is figure out how different pieces can fit together to make a product.

We might get there one day, sooner than later, but for that to happen the local (Indian) demand has to be met by local products.

“Certain pairs of physical properties, such as position and momentum, cannot be simultaneously known to arbitrarily high precision“

This sort of holds true in dating terms too if you look at the pair of parameters of hotness & availability – They are either hot and unavailable or really ugly and available. Anyway, without digressing, I have seen a lot of executives in companies refer to documents on predicting future industry trends by a lot of firms like IDC, Gartner, McKinsey, BCG, Ernst & Young, KPMG et al. Which is fine from a company’s perspective considering one needs to base one’s current decisions on understanding what the future is going to look like.

You see where it turns paradoxical is that companies act in accordance with those predictions and inevitably make them come true.

Moral of the story: Never trust predictions made by any company