Roche’s Emcure deal – thumbs up for market economics?

21 Feb

My colleague Vikas Dandekar of Pharmasianews reports on a potentially pathbreaking event. Swiss drug maker Roche has struck a manufacturing deal with Pune’s Emcure to produce some portion of its blockbuster biologic Herceptin for breast cancer and Pegasys for hepatitis B and C in India for India.

Of course, it doesn’t look as if Emcure is going to start manufacturing the products from the cell culture stage – the story quotes a senior Roche executive referring to “late-stage” manufacturing. Don’t know exactly what that entails. This executive talks of “substantial” price adjustments that could take place as a result.  Assuming its a deep engagement,  the news is pretty exciting. Here’s why.

For one, given that Indian companies were having such a tough time attracting Big Pharma to outsource manufacturing of their under-patent small molecule drugs to India, Emcure’s alliance with Roche for its prized biologics is rather unusual and could earn Indian manufacturing quite some number of brownie points at a headline level.

But the bigger takeout is that the Indian market has forced Roche to think differently.  Pharmasia quotes the Roche executive – Pascal Soriot, COO of Roche’s pharmaceutical division – talking to investors in a call as follows : “The problem in India is the pricing, and of course the population cannot access medicines very easily. Our business has been very successful, but too small and the problem is, we can’t scale it up.” He adds, “Our prices are probably too high (itals mine) for the Indian market.”

Pharmasia estimates that a single Herceptin injection costs over a lakh of rupees but if patient support groups pool in the cost to the patient might be around Rs 50,000 per injection. She gets several.

Just for perspective  what else can Rs one lakh buy here? An admission for two years to a good private kindergarten school in Mumbai.  Help put down a deposit on rented accomodation in a distant suburb of the city.  Help feed 1480 poor children for a full year under a mid-day meal programme run by the ISKON.

What’s interesting is that Roche clearly sees that to take full advantage of the large market that India is, it needs to price appropriately. Soriot says further, “The plan is really to expand the volume very substantially. And there is a lot of room for that.”

Please note – no government diktat, no recent activism, just plain and simple economics. Indeed, the government is actually making money from some of Roche’s imports via duties right now and this is one thing that Roche seems keen to pare down by producing locally.

It’s also relevant to mention here that Indian courts refused to injunct generic firm Cipla from selling a copy of Roche’s cancer drug Tarceva citing  “public interest” because its price was too high.  So even though India has amended its patent laws, the threat of generic competition has not been completely warded off.

We still don’t know how deep the price cuts will be.  Since companies define their customers more narrowly than governments their constituencies, the  state has to step in to make these medicines affordable using various means for those who cannot pay even the lowered prices. Right now apart from AIIMS and Tata Memorial one is not aware of any other government centre which provide large-scale subsidies on modern cancer medicines to  Indian patients.

Would love to hear your views on this recent development.  Thanks Vikas for sending me your story.

Since this post seems to be attracting lot of interest, just thought of doing a quick update. Fierce Pharma on March 5 quoted Roche spokeswoman Claudia Schmitt as confirming that Roche is partnering with Emcure in India for manufacturing cancer drugs Herceptin and MabThera (she did not mention Pegasys though Soriot had) for the Indian market. “We may expand this arrangement for other Roche products in the future,” she said. On March 2, the Economic Times had quoted an Emcure director Mukund Ranade as saying that manufacturing Herceptin and Mabthera would be their first project with Roche and this could be extended to other products, if successful. “This deal will equip Emcure to manufacture products which are sophisticated Monoclonal Antibodies,”  he said. “Emcure will manufacture these drugs for the Indian market and depending on the success of this drug it will be taken to other developing countries,” the article said. It is relevant to mention here that while Herceptin has no biosimilar competition in India, Mabthera competes with Dr Reddy’s Reditux which launched at a 50 per cent discount to Mabthera in 2007.

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7 Responses to “Roche’s Emcure deal – thumbs up for market economics?”

  1. KNC February 21, 2012 at 2:41 pm #

    Is the deal covers other Asian Countries? If so then it is more to use India as a sourcing base.Unless one see the fine print of the deal it is difficult to understand the impact .

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  2. Vikas Dandekar February 23, 2012 at 3:53 am #

    Hi Gauri, You have summarized the implications of the deal so beautifully. I am glad you took a look at my report. Thank you.
    A related point that we discussed a few days ago is about Roche re-calibrating its strategy around local markets. Its so hard for a die hard innovator to bring down the price in some markets, more so when spiraling healthcare costs in rich nations is attracting all around interest, read ire ! Also, it is interesting to note that the a relatively lower priced brand may just work well for Roche resulting in much higher volumes. In a way, Roche earns equal or more and instead of being labelled as an adamant MNC not willing to make drugs affordable, it plays like a champion in helping poor patients with the same medicines. Its learning the markets the hard way.

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  3. Vikas Dandekar March 7, 2012 at 4:49 pm #

    Gauri, One more point that comes to mind…If I remember right, since DRL’s Reditux was getting a reasonable amount of acceptance from doctors after its launch, Roche slowly started pulling down its own brand price. Going one step ahead with an alliance with Emcure goes to show that Roche is facing a build up of a rival and would not like to give away much ground…Thanks.

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  4. Nimish Mehta March 14, 2012 at 12:03 pm #

    Hi, its really a nicely written story on a very important subject, i.e. outsourcing of biotech products to Indian companies! I have always believed that India’s biotech capabilities are not quite as robust as their capability to manufacture a synthetic product. But this deal offers a pause and thus very important for the whole of industry. Secondly, it will also be important to know what happens to the deal now, in light of the recently awarded compulsory license to an Indian generic manufacturer. In other words, Roche may now feel threatened that Emcure may apply for a compulsory license for the same product that they are manufacturing for Roche, but is not made available in India!

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    • Gauri Kamath March 14, 2012 at 12:44 pm #

      Thanks Nimish for your frank views! Alternatively, if any other generic firm were to seek a CL on Herceptin then at least Roche won’t fall foul of the “local working of patent” provision in our patents law and can demonstrate that it has tried to improve access by using local production to bring down prices. Either way, this is a development worth following. Wish Roche would provide more clarity on exactly what part of manufacturing will take place in Emcure and from when.

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  5. ashish July 11, 2012 at 12:23 pm #

    it is not a manufacturing deal , only labelling will be done in INDIA , our laws are so weak relabelling will be considered manufacturing .It is ploy to get away from compulsory licensing to other Indian companies . The indian company is just a pawn

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    • Gauri Kamath July 11, 2012 at 1:24 pm #

      Ashish, if prices come down substantially, that detail (of mfg vs labelling) won’t matter so much to patients. I think the key question is by how much the Emcure-branded drug will be discounted. Everything else is secondary.
      That said, if it is only labelling then Emcure won’t gain from tech transfer and that would be a shame. But they will still get the business and the tag of being a “Roche partner.” Believe it or not, such tags do have some currency in this sector.

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