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In June this year, Swiss drug-major Novartis opened its seven-building research base in Shanghai, China.
The facility involves a $1 billion commitment from the multinational, making it Novartis’ third major research centre after Basel (Switzerland) and Cambridge (Massachusetts).
With the first phase now operational, John Ketchum, Novartis Senior Vice President and Head (Emerging Markets) explains what China seems to get right when it comes to attracting large investments. Especially so, since India had apparently stood a chance to house the Asian research centre, as indicated about 10 years ago by Novartis’ then global chief.
Ongoing regulatory reform and progress on intellectual property (IP) work in China’s favour, says Ketchum, even as he clarifies that India did see an investment in the recently opened Hyderabad centre.
“I think the Chinese government in general has shown a great interest in inviting in foreign companies to participate in the development of healthcare here – in direct partnering,” he points out. China is also working on its reimbursement programme and about half the population is already under some scheme. Besides, an ambitious plan is underway to cover people whose reimbursements may be low, he explains.
“So that creates a solid economic foundation for a pharmaceutical business,” says Ketchum, adding that the desire for direct engagement and reimbursement coverage changes the game in terms of being able to build an effective business in a country. There is also visible progress on increasing the capabilities of the CFDA (China Food and Drug Administration), he adds.
Unpredictability
Echoing fellow-multinationals’ concerns on an unpredictable regulatory environment in India, he says, “In a research based pharmaceutical industry, the ability to recapture the investment is fundamental to the business model.”
It takes about 10 years to develop a new molecule, costs about $2.6 billion on average and the risk is very high. “So huge time, lot of cost, lot of risk,” and in return, the company gets on average about 10 years of exclusivity for the molecule, depending on the market. After this inexpensive generic versions of the drug enter the market.
It is a short period of time to recoup the investment, he says. “So if IP is uncertain, you’ve already got a very risky, expensive process and you layer a different additional risk of maybe you can’t recoup the investment, its starts to get to be a pretty risky proposition, “ says Ketchum.
Talking partnerships
Novartis has among the largest basket of cancer products and is willing to explore innovative economic models with governments at the Centre and State levels in India.
But the discussions should revolve around “value”, where patients get the right clinical outcomes for the price they have paid, says Ketchum, adding that they have different economic models and have been flexible across the region.
Preferring a “shared contribution” over a co-pay scheme, he explains, the former involves a partnership between the Government and company, as compared to a co-pay scheme that involves payment by the patient. “We do a lot of those (collaborative) types of models in India. We don’t do much of it with the Government. ..its much more difficult to find somebody to talk to, frankly,” he says.
Existing models in India include the free programme on cancer drug Glivec and an ongoing co-pay scheme where a patient may pay for a month of the therapy and the company pays for the rest of the year. The other approach is to have emerging market brands, he says, that are priced differently.
“So we try to come up with different models to make medicines more accessible,” he says, but it makes for a relatively small business. “In China we can have a much bigger business and do have a much bigger business. Even though the economies are in some ways similar and the populations are virtually identical,” he says, stressing on the need for Indian policy makers to dialogue and partner with industry to drive the healthcare agenda forward.
(The writer was in Shanghai on an invitation from the company.)
jyothi.datta@thehindu.co.in
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