Earlier this month, Mumbai-based brokerage Ambit Capital published an Expert White Paper on pharmaceuticals in which it observed that the US Food & Drug Administration’s decision to conduct surprise inspections at Indian manufacturing sites (as opposed to inspections with prior notice) has “raised regulatory risks” at Indian companies.
The US FDA has been under pressure at home to increase its inspections and audits of overseas facilities which are nowhere near as frequent as audits of factories located in the US, even as US imports of pharmaceuticals have grown rapidly.
But do more inspections mean more Indian companies will go the Ranbaxy and Wockhardt way?
The paper attempts to tackle such tricky questions by asking a panel of three former CEOs and drug industry veterans, each armed with over three decades of experience in the Indian drug industry, to try and answer them.
The trio weigh in on a range of questions including one that investors would no doubt give an arm and a leg to get answered. How do you spot a company that’s headed for (regulatory) trouble? (Answer : there is no ready formula but there are some pointers that are by no means foolproof). The experts also make some interesting suggestions on how to mitigate risk. I have tried to summarise here some of the more interesting observations made by each which will be of value to readers of this blog. This is, of course, not exhaustive.
PAST : Former managing director, Sandoz India and former CEO, Matrix Laboratories (now Mylan Labs)
PRESENT : Leads pharma consultancy Sidvim Life Sciences
THE BIG PICTURE
Dore believes that the regulatory issues that have arisen among Indian companies should be seen in the right context. In the recent past, several global players such as Novartis, Johnson & Johnson and Hospira have been seriously impacted by FDA audits, he points out. In other words, this does not seem to be an uniquely Indian problem.
Dore points to the extreme difficulty of assessing whether a company is more than ordinarily exposed to regulatory issues. Mostly, this stems from a lack of audited information in the public domain. For instance, independent agencies that provide “technical” ratings such as those seen in the financial sector (Moody’s, Standard & Poor’s etc) do not exist in the drug sector. And while Indian companies’ quality issues have surfaced after US FDA audits, there is little information about those not audited by the FDA.
Dore calls for greater ‘technical due diligence’ of companies. This occurs either when a regulator or a third party such as a customer or potential acquirer inspects a plant. He observes that few Indian companies have undergone audits other than those conducted by regulators such as the FDA. In the past, a US FDA approval was seen as a sufficient stamp of quality. But quality issues have emerged in spite of FDA approval suggesting a greater need for third-party technical due diligence, he says.
IDENTIFYING RISKY BETS
Dore points to some “surrogate methods” to identify companies with high regulatory risk – such as the number of product recalls, consecutive warning letters and the time taken to resolve them, import alerts, and consent decrees – but warns that these are not always foolproof and may even be misleading. For instance, recalls might be required because of genuine, one-off errors and it would be tough to reach any conclusion unless these are studied over a 5 to 10 year time frame. Here again, the availability of data is a major challenge.
CEO speak : “The past is no reflection of what a company would do in the future”
PAST : Former president, Johnson & Johnson India
PRESENT : President and CEO, pharma and healthcare consultancy Danssen Consulting
Among other things, Dangi suggests that corporates have a strong Whistleblower Policy, and regularly train all levels of the workforce in ethics and compliance with evolving regulations. He advocates a QualitybyDesign structure where “quality is built into the product at every stage” with a thorough understanding of both the product and manufacturing process, the risks involved and ways to address those risks.
IDENTIFYING RISKY BETS
Dangi also suggests looking at product recalls, FDA notices and warnings, and the frequency of FDA inspections as pointers. Importantly, he observes that the organisation should be structured to prevent quality compromises. For instance, he says, the head of quality assurance and quality control cannot report to the head of manufacturing/technical operations but must report directly to the managing director of the company. Similarly, the team approving a new drug should not be the same as the one doing post-marketing surveillance.
CEO speak : “While testing a finished product for quality is important, it cannot guarantee good product quality”
PAST : Former MD, Pfizer Limited
PRESENT : Promoter director of healthcare advisory firm Salus Lifecare
Handa observes that Indian factories exporting to western markets that have been approved by those countries’ regulators are “mostly compliant”. However, this cannot be said for facilities of companies that manufacture only for the Indian market and are therefore governed solely by the Indian regulatory framework.
HARMONISING REGULATORY OVERSIGHT
Handa highlights the importance of the Indian drugs regulator stepping up its own vigilance of Indian factories. For instance, like the FDA, Indian drug inspectors should have an audit plan for all facilities, he says. Every facility should get audited once every three years. Quality control should be strengthened by intensifying random testing of drug samples picked up from the market to ensure safety, efficacy as also bioequivalence, he adds.
Handa points out that the Drugs & Cosmetics Act that is used to govern pharmaceuticals in India does not make any provision for follow-through action by an Indian regulator if a factory fails an audit (or is issued a warning) by a foreign regulator like the FDA. He believes it would be appropriate for Indian regulators to issue show-cause notices and independently audit the plant in such cases.
CEO speak : “Management attitude towards quality standards appears complacent”
7 thoughts on “Mitigating regulatory risk at Indian Pharma”
Another timely blog. The points put forth by Ajit Dangi make a lot of sense and is of practical value for companies who want be alert and respond proactively to the challenge posed by more rigorous FDA monitoring.
No mention of the ‘ Third Party ‘ manufacturers who manufacture products that are marketed by US based MNC’s in India!
Raise such an issue inside, and you censured up for not sharing ‘ positive feedback’
Whole lot needs to be thought through. Unless companies are “Process Centric”, one will always be chasing “how to comply and/or beat inspections.
1. Imagine…. a Process Centered Pharma
2. Letter to Indian Pharma CEOs: Have You Lost Your Chance to Innovate?
The concerns noted by these pharma elders have a consistent theme of spotty or negligent regulatory follow-up, both by the companies and by the Indian regulators. The responsible authority that calls these companies to account is from outside India’s borders. There needs to be a stronger internal culture of quality control and assurance.
There are some interesting parallels between the looming crisis in Indian pharma and the slowly-unfolding, but devastating drama going on in China. For years, China had been the golden boy with the fantastic growth rates and investors rushing in. The quest for quarterly growth led to shortcuts being taken, primarily by the sales and marketing staff. Eventually, the government realized that these shortcuts were harming the public, raising prices unnecessarily, and they determined to shine light on these practices, despite the harm that would be done. This is not just about pharma companies operating in China (it is already spreading to other sectors), but about China wanting to rid itself of the culture of corruption and bribery that causes inefficiencies in the market.
Similarly, we can see that poor attention to quality and slipshod paperwork borne of a need to save money (or make money) is gradually eating away at Indian industry’s reputation and market share. It can’t only be about the bottom line. Industry — and the government — needs to take a hard look at itself and ask if this is in its best long-term interests. Again, this is beyond the pharma industry, but it needs to start somewhere.
Very well said Amar Bhat.
Thanks everyone for your pertinent comments and likes. Clearly this is an issue that evokes strong reactions and rightly so. Hoping for a groundswell of pressure on Indian authorities to take corrective action