Gauri Kamath on Drug "Differential Pricing" in India

See here for one of our posts which reviews Merck’s scheme relating to the anti-diabetic, Januvia. In fact, Gauri has referred to our SpicyIP post in her article as well.

She ends by noting that “If Merck is able to win over doctors, regulators and public opinion, in addition to making money, more may follow… For diabetics, this is sweet news indeed.” I’m reproducing her article below:

PHARMACEUTICALS Game Changer
Merck’s low-priced diabetes drug might change a few rules

GAURI KAMATH
13 June 2008

India’s pharmaceutical multinationals have watched Naveen Rao flag off his company’s newest offering with interest. Rao, managing director of Gurgaon-based MSD Pharmaceuticals, the Indian subsidiary of the US’s fifth-largest drug maker Merck, is talking price.

Local MNC arms seldom discuss pricing. Until India began awarding drug patents in 2005, cut-price generics were freely available. MNC originals, priced at a premium to recover research costs, looked embarassingly expensive in contrast. More recently, their drugs are being imported; Indian arms have little say in pricing.

Rao is promising to change all that. In April, he launched Januvia, a diabetes drug, on the plank of ‘differential pricing’ — charging different prices to different customers, or countries in this case, for the same product depending on their ability to pay. Januvia retails in India at Rs 43 a pill, roughly a fifth of its price in the US.

It has got everyone’s attention. “This is probably the first case of differential pricing implemented by Big Pharma (top western drug makers) in India,” says Utkarsh Palnitkar, national sector leader for health sciences at Ernst & Young, in Hyderabad. Though no MNC manager would come on record, a senior manager at the Gurgaon-based subsidiary of a US drug maker says, “This is not what MNCs usually do.”

The move is part corporate social responsibility, and part hard-nosed economics. “Merck’s tagline is ‘Patients Come First’,” says Rao, 54, who spent 12 years with Merck in the US before heading home in 2005. “I didn’t want it to seem as though we put rich patients first.” Equally, he says, this is about business strategy. Merck aims to be among the top five drug companies in India by 2015; it is currently ranked 120. “We have to be India-friendly,” he says. But, will it work?

Sweet Spot

Januvia is the first in a new class of drugs called DPP4 inhibitors. Unlike older diabetes drugs, it causes neither weight gain nor a potentially fatal drop in blood sugar levels. It also helps postpone the use of insulin in patients. “It is a breakthrough class of drugs,” says Anoop Misra, head of the department of diabetes at New Delhi’s Fortis Hospitals, but cautiously. Januvia is a new drug and has mild side effects — sore throat, diarrhoea and upper respiratory tract infections. Serious side effects, if any, could come to light once it is used extensively, he says.

But for now, Januvia is in a sweet spot. “It is almost as effective or better than existing drugs,” says Subhash Wangnoo, senior endocrinologist at Delhi’s Indraprastha Apollo Hospital, who conducted the drug’s trials in India. “And there is more patient compliance.” Januvia is tipped to be a blockbuster barely 15 months after it was launched in the US. But it could fail in India — the diabetes capital of the world with 43 million diabetics — if the pricing isn’t right.

The Difference

Merck’s drug is not the cheapest. Older diabetes drugs retail for less — some as low as a few paise per dose, under government control. Also, many MNC drugs are priced lower than in their home markets. So why is Januvia any different?

MNCs mostly decide on a flat percentage off the home market price, or a floor price below which they will not go. But Merck took another approach, and spoke to 350 Indian doctors and patients to decide on an India-specific price. Doctors voted for under Rs 50 a day, but diabetics, hit by the side-effects of older drugs, were willing to pay twice as much, says Rao. Ultimately, Januvia’s tag was lower than both.

Palnitkar says the pricing suggests that Merck means business. “Their strategy is the acknowledgement of a large volume of prospective business.” Industry estimates peg the oral diabetes drugs market in India at $300 million and its growth at 20 per cent-plus, annually. The Indian pharma market is poised to become the 10th-largest by 2015, according to US consultancy McKinsey. India now awards drug patents, a key reason behind Merck’s return to the country two decades after quitting.

Januvia is Merck’s first patent-protected drug in India and its first drug to be marketed to primary care physicians in the country’s chronic care segment. The other drugs from Merck’s stable (apart from an adult vaccine) are used for life-threatening infections, where prices are high and volumes far more limited. But as Rao says, “Diabetes is mainstream.” So, managing costs is a big issue for doctors and patients.

Take, for instance, Byetta, another diabetes drug launched in India by Merck’s US rival Eli Lilly. At Rs 7,600 a month, Byetta has 2,000 patients, and is seeing 10-15 new patients every day. Devashish Ohri, senior vice-president for marketing at Lilly’s Gurgaon office, says that Byetta, which has to be injected twice a day, is meant for those who are overweight and unable to control sugar on multiple oral diabetes drugs. And that the number of new patients on Byetta could double as it pushes the drug to more doctors. “We have just scratched the surface.”

For Januvia, with price on its side and its once-daily tablet form, prospects may be brighter. One caveat, though. The two drugs act completely differently. Byetta’s unique selling proposition is that it helps patients actually lose weight; Januvia’s plank is “no weight gain”. Says Apollo’s Wangnoo, “There is a role for both.”

Yet, Lilly’s optimism illustrates the market potential. As for doctors like Misra, Januvia is still expensive, to be prescribed when other oral drugs fail. “I would not prescribe it as the first line of treatment.” He would also judge its efficacy depending on how his patients respond.

The Halo Effect

There is relationship-building at work here as well. Merck is trying to cut through the tide of criticism sweeping over MNCs for pricing drugs out of the reach of millions. And further soften Indian regulators who are demanding a role in the pricing of patented drugs. “I could have charged whatever I wanted,” says Rao. “But I behaved responsibly.” Merck is awaiting approval to market Gardasil, a vaccine against a form of cervical cancer that kills thousands of Indian women every year. Rao hints at a ‘public-private’ partnership model for it, but offers no details citing its pending approval.

Shamnad Basheer, a New Delhi-based patent expert, believes that Merck’s shift in its pricing policy has to be viewed in the context of a recent patent-infringement battle involving a cancer drug being fought in an Indian court between generic company Cipla and patent-owning Swiss drug maker F Hoffmann-La Roche. An initial judgement has gone in favour of Cipla’s cut-price generic. On his blog, Basheer asks, “Will Roche learn from Merck’s wisdom?”

Great Expectations

Indeed, Merck is being seen as a trendsetter of sorts. “It is to be hoped that other MNCs follow suit when new drugs are introduced in India,” says V. Mohan, chief diabetologist at Dr Mohan’s Diabetes Specialities Centre in Chennai. Will they? GSK, for one, has already begun by practising differential pricing for its vaccines business, and may do so for drugs, too. If Merck is able to win over doctors, regulators and public opinion, in addition to making money, more may follow.

For now, Januvia could shake up the market for new diabetes drugs such as Byetta and Galvus (to be launched soon by Swiss MNC Novartis). A Novartis spokesperson would only say that Galvus would be priced competitively. For diabetics, this is sweet news indeed.”