Thursday, April 27, 2017

Generic Medicine Prescription: Treat the cause and not the symptom

Generic Medicine Prescription: Treat the Cause and not the Symptom
Prime Minister Narendra Modi’s recent call for generic medicine prescription mandatorily by the physicians with a view to reducing the cost of healthcare, and the likely law surrounding it, is the culmination of three decades of effort to provide affordable healthcare to the poor. Doctors in government hospitals are mandated to prescribe only generic drugs. Moving from branded generics to generics, with most pharmacies and medical stores manned by unqualified or semi-qualified persons, would be well-nigh impossible, because 50% of drugs are combination drugs.

A number of studies conducted elsewhere in the world point out the factors influencing the generics’ prescribing behavior. While the patient’s financial status, welfare, compliance, and fear of punishment are positive factors, quality concerns, lack of regulation by Food and Drug Administration (FDA), poor recall of generic names, patient’s preference and personal experience are negative factors influencing the generics prescribing behavior.

A qualified physician checks the causes of an illness and treats the patient after a few diagnostic tests, while quacks treat on the basis of symptoms. Insights into the ecosystem of pharma health care in India will help understanding the burden of our arguments:

1. Too Many Brands, Loan licensing and Pharma-Physician Nexus 
There are about 92,000 branded generic formulations today. Loan licensing allows manufacturing of fast moving drugs (largely prescribed molecules or fixed dose combinations) yielding higher margins for the investors. A pharmaceutical representative, manager or a physician or a group of physicians with sizable clinical practice can start a pharma company easily. Such pseudo manufacturers colluding with willing physicians, under mutually agreeable terms of contract, share the gains, leaving the pain to the poor patient. Competitors with deeper pockets can easily persuade them to prescribe their products by increasing the transactional sum. This leads to a continuous escalation of marketing costs at the expense of patients.

2. Regulatory Standards 
India’s current drug regulatory mechanism has inherent inefficiencies and inadequate infrastructure. There is a vast difference in the quality of generics in India and elsewhere in the world. In the US and other well regulated markets, stringent quality control measures ensure effectiveness of generics administered on patients, through bioequivalence tests at the USFDA approved laboratory. Mere comparisons with innovator drug of chemical equivalence does not make it therapeutically equivalent. All this costs a lot and puts an entry barrier on fly-by-night operators. The technical infrastructure in India is grossly inadequate for quality testing and certainly not comparable with the West. 

Most of the generic formulations are not tested by comparing them with the leader of the branded generic formulation or the brand-name drug for bio-equivalence, and yet they are approved.  Many of the reported close to 10,000 drug companies do not have a manufacturing facility that conforms to and approved by the World Health Organization’s Good Manufacturing Practices (WHO GMP).

The loan licensing system enables start-ups having a million rupees to enter the market with their own generic, creating competing spaces at national, regional and local levels. How will the Drug Controller General of India (DCGI) ensure that the patients get the same quality of generic drug as the branded drug? A branded drug manufacturer has his reputation at stake while the generic manufacturer has little to lose.

3. Continuous Cost Escalation of Medical Education 
The pharma-physician nexus is deepening by the day and along with it are the irrational prescriptions of expensive branded drugs. The ever increasing cost of medical education, both at the graduation and specialty level, are driving the new entrants into medical practice to recover their education expenditure through unholy contracts with pharma companies. Neither the government nor the Medical Council of India is able to do anything to curtail the capitation fee system in private medical colleges, the root cause for corruption among dotors.

4. Shortage of Qualified and Trained Pharmacists in Retail Pharmacies
It is pathetic that most of the 7.5 lakh retail pharma outlets do not have qualified pharmacists at the shop floor. Even the compromising solution suggested by the government, to train the sales persons of these shops, is yet to see the light of day. What is more, the curriculum at the graduate level in our pharmacy courses does not include many of the new drugs that are recently developed. Empowering the not-so-qualified pharmacist to dispense generic drugs can do more harm than good to the patient.

5. Breaking the Pharma-Physician Nexus or Creating a New Pharma-Pharmacist Nexus? 
The other root cause of the problem lies in the hierarchy of pharmaceutical products – innovator-branded medicines, value added drugs – those that carry the same molecules with a perceptible premium and branded generics and generics, in that pecking order. Go to any corporate hospital: medicines prescribed there with the highest premium are available only in the attached pharmacy.

The contemplated legislation on compulsive generic drug prescription would have the distinct possibility of therapeutic prescription carrying the best price that would make the manufacturer-retailer nexus coexist with the physician-pharmacist nexus, making it a win-win situation for everyone – barring the patients. The solution lies not so much in law as in cleaning up the entire supply chain that includes the drug controllers.

6. Absence of Good Governance 
That there is clearly a lack of good governance is evident from the fact that the government has been unable to ensure compliance from all the stakeholders despite the presence of well-defined rules governing the manufacturing and selling pharmaceutical products in India such as the Drugs & Cosmetics Act, Voluntary UCPMP (Universal Code of Pharmaceutical Marketing Practices), MCI (Medical Council of India) etc. Yet another law makes no big difference.

Evolution or De-evolution?
The modern pharmaceutical industry as we know it today has evolved over many years and contributed significantly to the discovery and development of important drugs. The same industry has to develop future cures too. Therefore, it has to continuously evolve around investments in research and innovation. Let the industry be encouraged to continue in the evolution process. 

The Way Forward: A Prescription

  • To change this negative perception of generic drugs, all we have to do is approve every generic formulation based on a bio-equivalence test, comparing it with the reference drug (either the brand name drug or leader brand of the branded-generic drug). If this is made mandatory the quality of the generic drugs would improve significantly.
  • Ensure that a qualified and trained pharmacist, who has adequate knowledge about drugs and diseases and can improve health awareness among patients, mans all retail pharmacies.
  • In order to bring a sustainable and lasting change in behavior, introduce recognition and reward systems among physicians who prescribe more generic drugs and make the names public to accelerate the rate of generic drug prescription.
  • Strengthen the Drug Administration Department with adequate manpower to ensure compliance and establish good manufacturing practices (GMP) among all manufacturing units.
  • It must be mandatory for a loan licensee currently leveraging on outside manufacturers to manufacture in its own manufacturing unit within a specified time, failing which the unit’s license will be cancelled after the notice time. This will rationalise the number of drug manufacturing units, improve their productivity and the overall quality of generic drugs. It would also help in stopping the pharma - physician nexus.

Currently, there are an estimated 92,000 pharmaceutical products in India, of which about 60 per cent are different versions of branded-generic or generic versions of single ingredient drugs. It is necessary to impose a cap on the number of generic formulations for each single-ingredient drug. This is by no means exhaustive. It is only to start the process of thinking holistically with a singular purpose of treating the cause(s) and not merely the symptom(s).

(Ch SVR Subbarao is former Director for Marketing at Sun Pharmaceuticals Ltd and Dr B Yerram Raju is an economist and risk management specialist.)

SMEs' Access to Equity Markets

SMEs Access to Capital Markets in India
It took almost a decade since the SME Exchange has been formalised to see 60 floats in a month. Still the total number of listings on the SME bourses is not something that the growing Indian economy can be proud of.
In India, most SMEs operate in debt markets. Cost of raising debt for SMEs is increasingly becoming problematic both from the points of adequacy and timeliness and most often banks remove the umbrella in times of either too hot Sun or heavy downpour. But in a digital world simplifying businesses in the small sector also demands investments where the returns come gradually and not at the pace at which a financial institution extending credit demands. It is therefore necessary for the firms in the sector to look for enhancing equity.
Debt is cumbersome and equity is costly. Later is better choice if the SME has a modicum of discipline as creditors armed with amended SARFAESI Act 2016 and Insolvency and Bankruptcy Code are likely to be draconian. But such access demands of SMEs, better financial discipline, healthy balance sheets, and good governance.  Scale of operation also matters for access to equity markets. Most often, The enterprise should have the habit of monitoring its debtors and creditors on a continuing basis and make finance a slave and not master of its operations.
“Need for Equity financing”
While SMEs face challenges in accessing credit, they may also lack awareness of equity as an alternate source of financing. The nascent financing requirements for a start-up are met by informal financing from friends and family. Such seed money invested in a small business is in the nature of equity but is not formally recognised as such in SMEs without a formal legal structure.
Even for start-ups that are more aware, the creation of a formalised venture often requires the aid of incubators and angel investors that provide financing and other services. Further scale-up then requires higher amount of capital, which is typically provided by venture capital funds. Apart from equity capital, the venture also needs debt for working capital.
Access to equity financing has been examined in detail in the Report of the Committee on Angel Investment and Early Stage Venture Capital (Mitra Committee), June 2012. The key issues are related to differential taxation of investments, and the need for certain enablers to expand the availability of equity capital for early stage companies. Small and Medium Enterprises (SME) The SME platform of the Exchange is intended for small and medium sized companies with high growth potential. The SME platform of the Exchange shall be open for SMEs whose post issue paid up capital shall be less than or equal to Rs.25 crores.
Across countries, the SME sector has thrived primarily on the back of access to financing through various facilities such as government-backed guarantees, credit insurance for export oriented units and schemes for equity financing. These facilities are supplemented by institutional infrastructure for advocacy, technical research, refinancing platforms and easy access to services. Both BSE and NSE of India have launched their versions of SME exchange in 2012.
BCB Finance Ltd (BSE) and EMERGE (NSE) are the two equity platforms. SMEs being small companies are at the beginning of their growth cycle and are also at the extreme end of the risk curve – very high levels of return are accompanied by very high levels of risk.
SMEs on the growth curve invariably look for easy access to capital. FDIs are also allowed for investing in SMEs up to 25% of equity without any prior approvals. In the emerging market scenario, where mergers and acquisitions have been increasingly surfacing, firms both in India and abroad have been looking for such options for expansion. But for this to happen, SMEs should have strong equity base and the SME exchange route is a safe option to access capital markets.
Facilitation for SMEs:
The two distinct advantages of using dedicated SME platforms are: easy listing norms; and IPO listing norms are simple. For an investor, it becomes easier to search from segregated stocks as there will be limited number of firms.
However, trading pick up has been slow. This has to improve only with the Market makers using some proprietary funds only for the purpose of supporting stocks through two way quotes on daily basis and hold a minimum specified amount of capital or stock in the SME. Confidence building in the exchange for small firms is extremely important at the moment. Minimum lot size is Rs. 1lakh.
Investors need to understand SME business risks and corporate governance principles and there is need for capacity building on this count.
A minimum preparation of six months is imperative for firms to access capital through this route and handholding has to be done by the EMERGE-like firms. Till November 25th 2016, BSE data reveals that while 161 firms with a Market Cap of Rs,16,155cr, raising Rs.1257 cr., 18 (12%) have migrated to the Main Board. No SME has been suspended till date.
Prabhat Kumar Committee on MSMEs while examining this issue categorically recommended that the SMEs on growth path proposing to access equity markets should be provided incentives. A few of them appear to be akin to some international practices in USA, UK, Israel, European nations, Turkey and China.
The Committee recommends that (i) the Government should meet a part of expenditure of SMEs incurred by them in the initial listing of their equity on the SME exchanges. This part reimbursement of listing expenditure could either be limited up to 50% of the total listing expenditure or Rs.I0 Lakhs whichever is lower; (ii) the Government should provide tax exemption for the investments in IPOs of SME companies under section 80C of the Income Tax Act 1961 within the overall prevailing ceiling limit of Rs. 1,50,000/-; (iii) establishing a separate 'SME Equity Investment Fund' by the Ministry of MSME to be managed by a professionally run entity of fund managers.
The government may also introduce a provision for Special Purpose Vehicle (SPV) to allow a group of angel investors to come together as an SPV and then invest in manufacturing start-ups. Even though angel investments are generally in a group, there is no provision to create an SPV for the same, so all individuals have to invest separately, leading to a large number of shareholders, which becomes an impediment for raising further funding from institutional investors.
Telangana Industrial Health Clinic Ltd., in the offing with 10% of corpus fund of Rs.100cr coming from the state government has in prospect a window to encourage manufacturing SME start ups to go to equity markets under a tie-up with the NSE-EMERGE with initial contribution of up to Rs.50lakhs or 10% of the float whichever is lower. The firm has a risk balancing model.
*The author is an economist and risk management specialist, presently serving as Adviser, MSME sector, Government of Telangana. The views are personal.

How to redefine and rebuild the banks in India

How to redefine and rebuild Banks?

‘Banks are basically meant to allocate capital to businesses and consumers efficiently.’ Post demonetization, customers feel the pain more than gain in banks. Farmers getting inadequate and untimely credit from banks take to huge private debt only to commit suicides later.

Manufacturing micro and small enterprises, the seed beds of employment and entrepreneurship, are being shown the door by the banks notwithstanding the CGTMSE guarantee up to Rs.2crore. Banks never went beyond the mandated Rs.10lakh guarantee cover for the MSEs.

Large number of customers is slapped with irrational minimum balances in their accounts and levy of penalties at will. RBI is averse to regulate such overtures in the name of micro management of banks being not their role.

With over 38% of the population still illiterate, Jan Dhan and Mudra Yojana as instruments of financial inclusion have only become compulsive agenda for the banking sector. Banks- Public sector or private sector, have their eyes set only on profit. Such profits are dwindling with net interest margins declining following the growing NPAs.

Institutional innovations like the Small Payment Banks, India Post and the likes as also the MFIs have also proved inadequate to meet the needs of the present leave alone the future banking needs of the population.

Cashless banking leading to poor inflow of deposits during the last four months and cashless ATMs demonstrate the erosion of faith in banking in India. Bad banking and good economy cannot co-exist and therefore, it is imperative that innovative institutional solutions should be thought of.

Indian economy targeting double digit growth ere long has competing clientele bases in the current milieu of banking. Domain banking has moved to high tech banking. Men at counters have now become slaves of the machine instead of being masters. Public sector banks have long back forgotten their purpose and their owner proving no better.

Emerging context requires that banking is redefined to meet the specificities of farming, employment, entrepreneurship, infrastructure, and international finance as distinct entities. In fact, Narasimham Committee (1991) suggested consolidation and convergence of the PSBs into six to serve the needs of the service sector, holding government securities, and retail lending; Local Area Banks to cater to the farmers and small entrepreneurs; International Bank to cater to the needs of exports and imports. Development Finance institutions, left untouched, would fund the infrastructure sector. FSLRC also echoed the same in its Report. This is the time to look at the spirit of such recommendations and rebuild the banks to regain the fast eroding trust in banking by the larger customer base of this country.

Breaking the nexus between the farmer and politician can happen only when there is mutual trust between the bank and the farmer. Farm sector, consisting of crop farming (organic, precision, green technologies etc.), dairy farming, shrimp farming, poultry farming, sheep farming and agricultural marketing by itself is inherently capable of cross holding risks, save exceptions like the tsunamis, severe drought for long spells, huge typhoons. It is only in the event of such natural calamities that a Disaster Mitigation Fund should come to the rescue.

The existing commercial banks should shed this portfolio in favour of RRBs and merge all the rural branches with the RRBs. RRBs should be redesigned to take to farm lending in a big way – from farm machinery to crop farming and allied sectors on a project basis. Insurance plays a vital role in mitigating credit risk and therefore, the insurance products should be redesigned and modified on the lines of South Korean model.

All the Rural Cooperative Banks could continue their lending to the farm sector parallel to the RRBs as the lending requirements are huge and farmers require multiple but dedicated lending institutions.

RBI has not been comprehensive in regulating the sector. It is better that NABARD is restructured to play an exclusive refinance and regulatory role over the entire farm and rural lending consistent with its purpose of formation. Its other functions like the RIDF can be relegated to a new institution hived off from the NABARD.


Nurturing entrepreneurship and promoting employment in manufacturing are moving at snail space in the Start Up, Stand Up and Make-in-India initiatives. Prabhat Kumar Committee (2017) called for setting up a National MSME Authority directly under the PMO to correct the milieu.

All the MSEs should be financed by dedicated MSE Bank Branches. All the existing SME branches should be brought under a new regulatory institution. SIDBI has disappointed the sector. It has to first consolidate all its FUNDS into just five: Incubation Fund; Venture Capital; Equity Fund to meet the margin requirements of MSEs when and where required; Marketing Fund to meet the market promotional requirements; Technology Fund; and Revival and Rehabilitation fund.

SIDBI should reshape into refinance and regulatory institution for the MSME sector with focus on manufacturing and manufacturing alone. It should divest its direct lending portfolio to avoid any conflict of interest. Its present lending to real estate and non-manufacturing MSME lending should be transferred to the commercial banks. RBI which is not currently able to cope with the regulatory burden of this sector can transfer it to SIDBI,

Vaanijya Banks (Commercial Bank):
All the existing commercial banks – both in the public and private sector – would do well confining to the project finance, lending to real estate, services sector, housing, exports and imports etc. All the Banks should constitute at the Board level a sub-committee on Development Banking to work on the transition arrangements to the above functionality.

Maulika Vitta Vitharana Samstha (Infrastructure Bank)
Huge NPAs have come from the practice of lending long with short term resource base coupled with lack of experience in assessing the risks in lending for infrastructure projects. ‘All the perfumes of Arabia’ (RBI’s structural debt restructuring solutions) did not sweeten the bloody hands of banks. It is time to revisit the universal banking model and reestablish Infrastructure Bank to fund the infrastructure projects and logistic parks.

These measures would help achieving the growth like never before.
RBI and GoI could constitute a High Level Committee to work on the modalities for transiting to the new structural transformation of the financial sector.