Pharma Marketing Firms soon to be responsible for any lapses in Quality of Drugs
The Indian Pharmaceutical Market is valued at ~ USD 28 Bn (2016) and is expected to grow to ~ USD 55 Bn by 2020 at a CAGR of 15.92%, according to a report by the Indian Brand Equity Foundation (IBEF). India is well on its path towards becoming a top three pharmaceutical market in terms of growth rate and the sixth largest market globally in absolute size.
Pharma Marketing companies evolution & working model
The emergence of a business model popularly known as shared services was an ideal launch pad for Indian Pharmaceutical Industry to take off into the arena of mass production in the late nineties. The model spread included the sharing of premises, facilities, licenses and knowledge capital and led to the introduction of a new concept called contract manufacturing. Pharmaceutical Contract manufacturing which is the practice of outsourcing of production activities Pharma company to the third-party manufacturer. This could include outsourcing of the production of parts, components, and systems or the finished product itself. For instance, pharmaceutical companies share the chemical composition or formula of a drug with pharmaceutical contract manufacturing organizations (CMO) which in turn mass manufacture them at their facilities. The high degree talent pool and affordable labor in terms of comparative costs have made India one of the most preferred destinations for contract manufacturing and firms from world over.
Notably, several MNC’s have moved towards India in a big way mostly through collaborative arrangements and facilities sharing to not only outsource the production of products initially being manufactured in-house by these companies but also to enter the Indian Pharma market. This golden period of the Indian pharma market witnessed the burgeoning of several small and mid size companies that focused on manufacturing.
Contract manufacturing can be further classified out into the following:
Contract Manufacturing – Type 1: In this type of arrangement, the big pharma companies, MNC’s or those companies, which only have development capability but lack scalability, transfers its manufacturing technology, know-how of its products to its partner, who in turn manufactures the product. The deal terms could either be supply price model or one involving a profit split and the liabilities are shared between both parties.
Contract Manufacturing – Type 2: In this type of arrangement, the big pharma companies, MNC’s or those companies, which lack development capability and scalability but possess marketing capabilities turn to companies that not only function as contract manufacturing companies but also posses the capability of product development. This gave rise to contract development and manufacturing companies (CDMO) that offered end to end services. The deal terms generally involve success based milestone payment coupled with supply price/profit split arrangement.
Typically in both Type 1 and Type 2 Contract Manufacturing, the company manufacturing the product takes complete accountability of manufacturing and conformity of the product to the required specifications outlined by the regulatory authority. On the other hand, the company marketing the product under its brand takes complete responsibility of any liability arising from any activity related to the marketing of the product.
Loan Licensing: This type of arrangement is similar to Type 1 or Type 2 Contract manufacturing in most ways except in the sharing of liabilities. As the name suggests, the big pharma companies, MNC’s or those companies, which only have development capability but lack scalability rent the premises/facility of the another company that is cleared by the regulatory authority to engage in the manufacture of the product in question, for manufacturing the product. In other words, the contract giver would always have its own people overseeing the entire operations pertaining to the product in question at the contract receiver’s facility. In such deals, typically the entire product liability ranging from manufacturing defects, non-conformity of specifications to any third party claims arising from activities related to the marketing of the product rests on the contract giver in the eyes of the regulatory authorities and court of law. Any penalties or sanctions to be imposed would be on the contract giver.
All the above categories of contract manufacturing together contribute a significant portion of the total Indian Pharma market. These alternatives have also allowed several big pharma companies to reallocate resources and personnel from the standard run of the mill products to focus on developing breakthrough medications. These alternatives also provide an option for several big pharma companies both Indian and MNC to reduce its cost by trying to improve the development or manufacture of a particular product range or formulation/dosage type by completely outsourcing them to another company that specializes in the same. All this in turn is a win –win situation for all the pharma companies either big or small, Indian or MNC and keeps the attractiveness of the pharma space alive for newer small scale companies to set foot, thereby eventually increasing access to medicines for the Indian population.
What is this all about?
CDSCO’s plan to make the pharma companies marketing medicines manufactured by third parties liable for quality lapses would certainly stir up the Indian Pharma market. The current structure of several contract manufacturing agreements clearly outline the responsibilities and accountabilities of each party (the contract giver and contract receiver) and the fear of 100% liability for their respective responsibility forces each party to always keep its guard up. CDSCO’s plan of making both parties to share the liability of quality lapses would lead to arbitrations between the contract giver and contract receiver; thereby increasing the legal costs of both parties and in turn can result in supply disruptions in the market. Most of the MNC’s both of Indian and non – Indian origin have their own preset global standards for the facility and manufacturing standards, which at times may be more stringent than what is required by the regulatory authorities of a country for a facility manufacturing a product in that country. Since the current contract manufacturing regulations provide for a clear demarcation in responsibilities and accountabilities, these MNC’s are willing to make a few exceptions to get the product manufactured by third parties/contract manufacturers.
What may be the Impact of this new regulation?
The CDSCO’s plan to make both parties liable for quality lapses may severely destabilize the balance of accountability. The contract giver (company responsible for marketing) may view the sharing of liability on quality issues with the contract receiver (company responsible for manufacturing) who is completely responsible for manufacturing the product as unfair and risky and may opt out of such arrangements and focus more on loan licensing arrangements or on in-house manufacturing. Such steps initially may not have a significant impact on the Indian pharma space but long term effects could be catastrophic rendering several small scale contract manufacturing firms out of business and in turn resulting in an increase in the drug prices owing to a supply crisis. While CDSCO’s objective behind implementing this policy of shared accountability is to force firms to keep their facility and manufacturing processes in line with the standards outlined by the regulatory authorities, however, this measure would severely polarize the Indian Pharma market.
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