The Recent Ranbaxy Showing

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 R and 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 R and D spending, and litigation costs.

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*Ranbaxy litigation budget is mainly for legal costs in fights with another pharmaceutical. But the day is not far when it, and others, will mainly budget for suits brought up by patients / activists/ governments. Ed.

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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. We say so even if the pharma industry seems to be riding a crest at present. For, the crest may quickly transform into a trough if urgent measures were not carried out now.

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

Let us briefly look at the three factors: price deflation, increased R and D spending and litigation costs.

Why price deflation?

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

Why increased R and D spending?

Because R and D has become more an eyewash, and drugs with real potential to swing profits the company way on merit are hardly coming through. Most industry is busy producing also-rans and second quality make-believe champions for drug launches (the so called ‘me too’ drugs). Which is because industry is busy recruiting and manipulating pliant researchers to skew results. Ultimately, this must result in inflated R and 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 will

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falter at the litmus test of patient welfare. Improvement is bound to be poor, and, more important, side effect profile is likely to be great. In an already compromised patient population exposed to numerous health hazards from all around, side effects are likely to be experienced all the more so. And this state of affairs is not likely to abate in the foreseeable future.

However, this is hardly a serious consideration for industry, wallowing as it is in profits made hitherto. But not for very long, as profit margins are getting squeezed. And the squeeze was being felt all over the industry, which might get converted into a stranglehold if suitable action is delayed further.

Why litigation costs?

Apart for the usual infighting with fellow pharmaceuticals and others over patents and other rights, because side effect profile was either not studied, or conveniently suppressed. However, as side effects make their presence felt, (and this will increase in the days to come), industry runs for cover. And the activist-advocate guns are out shooting wildly. Lawsuits are slapped. Patients and lawyers make a killing. And big pharma, for all its clout, becomes a lame duck in the bargain.

Well, you could say, and justifiably so, that they asked for it. But the flip side is 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 their 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

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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. The present spate of litigations would have served their purpose very well if this happened.

What did all this mean? If nothing else, it meant industry would have to sit down and do some soul searching. Enough of cost escalation to pamper docs and their appendages. They would have to 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 socalled complementary medicine at present.

Would 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.

Is The Spate of Lawsuits Going to Increase?

The recent spate of lawsuits, no doubt, has had a significant impact on

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*Jhatka means a big jolt. Eds.

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the reduced profitability of pharma majors. And if the present is any indicator of the future, this is only going to increase. Surely, a disturbing enough development to take a short break in the merry making, and conduct a small appraisal of events before further spokes in the wheel ground it altogether.

There is a silver lining to this whole phenomenon. The number of recent lawsuits successfully brought up against industry reflects attempts by patient welfare bodies and others to remedy the tilt in academia-industry relationship, which was decisively swinging towards the latter. It will result in a newfound confidence in academia that augurs well for academia-industry relationship in the long run. For academia had, in a way, given up the fight, deciding to play second fiddle to industry. And join the merry bandwagon of industry orchestrated biomedical advance. Although one must be careful not to overbalance the other way too. For it is naïve to believe that all academia-governmental-activist victory is necessarily beneficial for patient welfare. Amongst other things, the cost of litigation is bound to be passed on to patients (Singh and Singh, 2005), someway or the other. And it is necessary to chastise industry, true, but disastrous to uproot major pharma players from business itself, as some lawsuits have the potential of doing.

This is where temperance is called for, which activists may lack for obvious reasons, but government and academia must exercise, and judiciary ensure.

What Do These Lawsuits Indicate?

What do these successfully fought lawsuits against industry portend?

They mean patients, and their activists, are no longer ready to buy the patient welfare bait. They have seen through the game, and want their rights protected. They will increase their surveillance in

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the days to come. And the legal profession will have its hands, and pockets, full. A pretty messy future, if ever there was one.

As more suits are successfully brought up against industry, it would affect company bottom lines. And the merry funding of academia and professionals would come under pressure. The messy lawsuits situation would no longer be restricted to industry. It would involve academia and practising doctors as well. The press and media were having a great time anyway, portraying in gleeful detail the malpractices of erring docs. To this would be added the details of financial sponsorships of doctors and researchers. And how that influenced publication of research findings in prestigious journals, and translated into prescriptions and profits for sponsors. Already books by concerned academics that exposed the messy goings on were on their way to making it to bestsellers’ lists. Public awareness would increase, and so would lawsuits against the man in white coat as much as the man who made the white pill. Of course reputations would take a real beating all around. The docs would rant and run to protect themselves. Consumer courts would be as active as professional bodies of docs: one exposing, the other protecting them. And the activist would cozy with the man in black coat to go hunting for the one in white.

Already professional indemnity insurance premium was high in developed countries. They would soar, and those in India and other developing countries would sprint to catch up. The medical professional’s reputation was already undergoing a downgrading. It would slide to match that of other professionals. (Good, according to them, probably. They were waiting for the doc to be pulled down from his high pedestal, anyway)

This is what these lawsuits indicate.

Indian Pharma Industry

Indian pharma industry captains, who were busy raking in the profits (for the pharma industry never had it so good), would also come under the scanner. One might expect Indian

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trends to follow western trends, as it does in everything else. Lawsuits against Indian pharmaceuticals were also bound to go up, as they blindly imported western technology and drugs, often without even the fig leaf of a multi-centered clinical drug trial. Drugs that come under the legal scanner abroad are hardly likely to escape a similar fate here, especially because western technologies, and latest drugs, were making a swift entry into Indian markets. Gone were the days when obsolete technology, or obsolete drugs, entered India. Now, because of the opening up of world economies and liberalization, drug launches abroad find very quick echoes in Indian markets. Which was good to rake in the profits, but would be disastrous when drugs like Voixx and Lipitor bombed. Because so would their Indian counterparts. And Indian pharmaceuticals would soon start running up huge compensation bills, which would seriously start eroding company bottom-lines. So there was every reason for them to sit up and take notice of the impending storm too.

One hates to be a doomsday prophesier. Or a spoilsport. But the writing is clear on the wall if the blinkers could be removed for a while.

 (Contd.)