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The Fate of Pharma Companies:

Price Deflation, Increased R and D Spending,        and Litigation Costs





On 22nd Oct 2005, a leading newspaper reported an interesting, if rather disquieting, story (TNN and Agencies, 2005). Ranbaxy, a pharma multinational from India, reported a Rs. 10.77 crore loss in Q3 (the third quarter of 2005, ended Sept 30), as against a net profit of Rs. 141.3 crore for the same period last year. The reasons: continuing price deflation in the US market, increased R and D spending, and litigation bills.


The main reason cited was increased Rand D spending, which rose by 79% as against the same period last year. But also mark the last item. Litigation bills. The CEO and MD, Mr. Brian Tempest, is reported to have said that they had a budget of US $ 30 million as litigation cost for the year, adding that the budget was going to remain more or less the same next year. So, pharmaceuticals had indeed started budgeting for this eventuality in right earnest. Also worth noting was the fact that for Ranbaxy and its subsidiaries, its PAT (profit after tax) was down by 90.8% in Q3, from Rs. 200.1 crore to a measly Rs. 18.4 crore. Moreover, price deflation in the world’s biggest pharma market, the US, was on in right earnest, and the situation was hardly likely to improve in the rest of the year. Result: a tighter squeeze on profit margins. And if a drug really bombed, the litigation bills could inflate to ominous proportions, wiping out profits. The company expected to make up by new drug launches lined up for next year, and two of them in early 2006. So hopes were kept alive. But worth noting was the fact that the tide had turned towards the red.


And the reasons were not hard to find. Price deflation, increased Rand D spending, and litigation costs.


And what was happening with Ranbaxy was not an isolated phenomenon. The impact of these three factors were being felt all over the industry and were worth a close look before matters reach an irreparable stage. I say this even if the pharma industry seems to be riding a crest at present. For, the crest may quickly lead into a trough if urgent measures are not carried out now.


Why price deflation, increased R and D spending and litigation costs?


Why price deflation?

Because activists and regulating authorities were firmly resisting any further cost escalation. They had had enough. They could see through the ‘pharma-doc’ merry-go-round game, and were busy decelerating the wheel. And charging fees for the deceleration too!


Why increased R and D spending?

Because R and D had become more an eyewash, and drugs with real potential to swing profits the company way were hardly coming through. This was because most industry was busy producing also-rans and second quality make-believe champions for drug launches (the so called ‘me too’ drugs). Which was because industry was busy recruiting and manipulating pliant researchers to skew results. Ultimately, this must result in inflating Rand D bills, with no big profit-making real blockbuster drugs coming out of the assembly line. For, the drug’s innate quality, its rigorous clinical trial and market potential - all were being blissfully tampered with at every stage. Fudged figures, inflated positive results, and suppressed adverse effects might get a drug approved and launched all right. But ultimately it would falter at the litmus test of patient welfare. Improvement was bound to be poor, and, more important, side effect profile was likely to be great. In an already compromised patient population exposed to numerous health hazards from all around, side effects were likely to be experienced all the more so. And this state of affairs was not likely to abate in the foreseeable future. However, this was hardly a serious consideration for industry, wallowing as it was in profits made hitherto. But not for very long, as profit margins were getting squeezed. And the squeeze was being felt all over the industry, which might get converted into a stranglehold if suitable action was delayed further.


Why litigation costs?

Because, side effect profile was either not studied, or conveniently suppressed. However, as side effects made their presence felt, (and this would increase in the days to come), industry ran for cover. And the activist-advocate guns were out shooting wildly. Lawsuits were slapped. Patients and lawyers made a killing. And big pharma, for all its clout, became a lame duck.


Well, you could say, and justifiably so, that they asked for it. But the flip side was that all cost escalation would ultimately be passed on to the consumer. Bad for him, but equally bad for the producer. For it could result in an inevitable backlash from the consumer, resulting in price deflation. And could also result in decreased sponsorship for docs and researchers. Maybe, not a flip side, if you looked at it a little calmly. For we all know what use most from the medical fraternity are busy making of this juicy sponsorship carrot dangling in front of the eyes.


Set rethinking process into motion


Hopefully, it may set a much-needed rethinking process into motion, both from the sponsors and the recipients. For, nothing works better to reorient thinking than a big jhatka. A real jolt that shakes the very foundations of present thinking so that one goes hunting for a better one.


What does all this mean? If nothing else, it means industry will have to sit down and do some soul searching. Enough of cost escalation to pamper docs and their appendages. Bring it down to manageable proportions. Enough of spending over questionable researches from high spending R and D departments. Or over pliant researchers in academia who produce stillborns.  Enough of fudging with figures. Enough of portraying also-rans as champions. Enough of suppressing adverse effects. Enough of games playing. For the game was almost up.


Well, what should they do?


They should try and go for the real champions. And work their R and D smart alecks to clean up their act. And the marketing departments would have to work over and project the real winners. And patients would have to really get well. And side effects come down to a minimum. And mainstream medicine would have to once again assume its rightful place as a beneficiary of patients. Which position it appeared in danger of relinquishing to alternative and so-called complementary medicine at present.


Will the guys who matter remove the blind-fold? Or, are they ready to get handcuffed? And tried in the court of the present, and condemned in the court of posterity?


The choice is better made now.



Ajai R. Singh






1. TNN and Agencies (2005), Ranbaxy records Rs 11 crore loss in Q3, Business Times, The Times if India, Mumbai, Saturday, Oct 22, 2005, p 17.













What the Profession of Music Involves



The incident I am about to describe happened three decades ago. But it is as fresh in my memory as yesterday.


The year was 1975. The happy, exhausting but carefree days of youth in a medical college. We were to organize a two-day cultural fest at Shanmukhananda Hall. And mind you, the hall was as big as it is today. As we were busy short-listing the names of musical luminaries, excited committee members were suggesting some big names. Someone suggested Hemant Kumar, and he was enthusiastically accepted. Another suggested Manna Dey, and again yes said the group. I remember I suggested Talat Mehmood, and again there was a roar of approval. Someone knew the star Rajesh Khanna, and he too was enthusiastically approved. And all these greats graced the occasion.


While all these deliberations were on, the Asst Prof of Orthopaedics I think it was, who wanted to suggest something. He said he knew a couple that sang very well. They were making waves on the ghazal scene, and were very well appreciated in five star hotels where they regularly performed. He wanted us to give them just 15-20 mins. He promised they would come gratis. He also promised we would never regret calling them. While we were allotting so much time to all these greats, why could we not allot a small 15 min slot to him?

I distinctly remember we, in a bored manner, asking him who they were. And after hearing their names, we politely refused. How could we vitiate a programme of the greats by calling some hotel singers, howsoever talented they may be according to someone? And so what if they came gratis? We would collect the funds and pay. But no adulteration of the programme would be tolerated.


The singers the kind professor had in mind were Jagjit and Chitra Singh.



Silly, But True


You can say how silly of us to do so. And in retrospect, I would strongly agree. I do sometimes laugh at the stupid and funny way we booted the kind professor’s suggestion out. He was almost pleading for the names to be included! And while I myself sometimes feel surprised as to how we took such a decision, what I wish to draw your attention to is something different. And that is neither silly nor funny.


Do not, even for a moment, think we were the only silly people who took such a decision. So many such silly organizers were busy taking such decisions. So many rejections the great singers must have faced before they made their mark.


It does not help to blame organizers either. They want established names. They want tickets to sell. They want celebrities. Why should they go by sheer talent when the ticket buyer does not?


The bottom line is that for a singer to survive, and make it to the top, it is not enough to be good. So many are. It is most important to persist. Which most are not. And remain absolutely committed to the field. To believe in one’s talent, which should be there of course. To create a niche for oneself, by not being a follower or a copier. And to keep at it. On and on and on. Not to think of alternatives at all. To live, or die, being a singer. And give it ones best shot, not crying or ranting over one’s fate. And if one does not succeed, well so be it. It was not for want of effort.


It is rarely that one becomes a celebrity singer otherwise. Dame luck may smile, true. But she chooses the most persistent suitor.


The Lesson: Keep Pegging at It


The lesson for anyone who wants to make a mark in the field is clearly to keep pegging at it, while chiseling and honing his talent.


And no giving up, and no letting go.


Else the profession of music will not open its doors to you.


It’s better to be a connoisseur or part time music enthusiast otherwise, as we all are. However, music as a full time profession is a totally different ball game.


In the stupidity we did lies a lesson for all potential singers. And also for those who only wish, but do not have the mental aptitude, or reserves, to persist.


In case you know of someone who wants to pursue music as a career, and make it to the top, do tell him what it involves. And if you are one of those who is struggling to become one, do know.


Know what?


If the great Jagjit Singh could have been refused, why do you think you won’t? You got to succeed not because of, but in spite of, such roadblocks.


If this lesson is well learnt, our stupidity committed then has indeed served a good purpose now.



Dr Ajai  Singh



October 26, 2005


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