Drug Security & Pharma Business Nigeria by Healthcare Management Review

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DRUG SECURITY & PHARMA BUSINESS NIGERIA The Strategic Anchors For Drug Security

VOLUME 8

WHO Pre-qualiﬁcation Are Prescription Drug Prices High? NAFDAC Activities - key to ensuring drug security in nigeria The Impact Investment MINFLOW- made in Nigeria for the world Gandhian Economics Of Capital Efﬁciency

PROMOTING THE QUALITY OF MEDICINES

Factory Address:

Contents

48 : THE STRATEGIC ANCHORS FOR DRUG SECURITY

The Strategic Anchors For Drug Security

Nafdac Activities Key To Ensuring Drug Security In Nigeria

Playing on the Global Space

BLUE OCEAN philosophy

Healthcare Management Review Vol 8 /Page 9

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R o v a C o l l e g e of Healthcare Executives Executive Education

STRATEGIC IQ Innovation. Marketing. Leadership Master Class

A transformational experience for result-focused Pharmaceutical Products, Sales, and Business Development Managers. Lagos:- 7th - 9th Sept., 2015, Nigeria Pharma Manufacturers Expo 2015. Abuja: 9th - 14th November, 2015, 88th Annual National Conference, of PSN

Contents

Are Prescription Drug Prices High?

Bank of Industry

Gandhian Economics Of Capital EfďŹ ciency

Reverse Pharmacology

66 96

The Health Sector: Challenges & Opportunities

The Capital Market

112

106

120

Hands On The Present Eyes On The Future

129

Healthcare Management Review Vol 8 /Page 11

EDITOR IN CHIEF Emmanuel C. Abolo

www.facebook.com/hmrecopy

SENIOR EDITORS Godwin Odemijie Moji Makanjuola INTERNATIONAL AFFAIRS BUREAU CHIEF Vicky Akai Dare DIRECTOR - EDITORIAL OFFICE Nkechi D. Abolo MARKETING MANAGER Zubby Onwumere STAFF GRAPHIC DESIGNER Kenneth Ameh SCRIPT EDITORS Therie Essien Edidiong Bassey Inyang RCHE FACULTY ADVISORS Prof. Rowland Ndoma-Egba Prof. Femi Adebanjo Prof. Okey Mbonu Dr. Ibrahim Wada Dr. Emmanuel C. Abolo Jnr. Dr. A Dutse Dr. Kabiru Mustapha Barr. Charles Okei Mr. Fidel Anyanna Mr. R. Mannason

CREDITS PMG-MAN Pharmaceutical Society of Nigeria NAFDAC PharmAccess May & Baker Standards Organization of Nigeria Bank of Industries CHI Pharmaceuticals Swipha Ecologistics WHO fact sheet No.278 UNIDO Project: Pharma Sector Profile, Nigeria. M. Mazumba - Performance of Pharma Companies in India Pharm. David Adonri C.K Prahaled & R.A Mashelka

SUPPORT GROUPS

T H IN S U R A AL

SCHEME CE

PMG

TIONAL H NA E

The following organization has demonstrated their commitment to Drug Security & Pharma Business in Nigeria.

MAN

Pharmaceutical Manufactures Group of Manufacturers Ass. of Nig. (PMG-MAN)

CHANCES OF A BETTER FUTURE

t is an undisputable fact that medicines and vaccines are very critical in the provision of healthcare in any nation because they provide credibility to the

health system. Without them, the eďŹ&#x20AC;orts of most of the other interventions in the healthcare delivery system are undermined. Without doubt and from experience of the Ebola virus crisis, self suf iciency in medicines and vaccines is now a national security concern. A critical intervention is urgently required to increase pharmaceutical manufacturing in West Africa with Nigeria as the hub to provide 70% of the requirement for local medicines. The Federal Government of Nigeria has directed that in-country production capacity must increase to 70%. It has amended and added to the essential drug list amongst other policy interventions. Further, NAFDAC have been empowered to lead and drive the process by its ight against fake drugs and support for accreditation of WHO-cGMP of Nigerian Pharmaceutical Industries. In recent years, the Nigerian Pharmaceutical Industry has demonstrated the capacity to produce safe, ef icacious, and quality medicines. The Pharma Industry have taken proactive steps and has invested over N70b towards International certi ications and facilities upgrade in 5 years. With the support of NAFDAC, UNIDO, and WHO, four companies have WHO-cGMP certi icate with seven more in the pipeline. There has been a slight shift in the R&D emphasis from imitative to innovative R&D and an increased competence in advance process engineering. Despite these huge investments, the country still import essential medicines contrary to the National Drug Policy and capacity utilization is below 50%. Healthcare Management Review Vol 8 /Page 16

Considering the high risk of import-dependency, there is need to consolidate the gains of the last 10 years by re-examming and re-enforcing all aspects of government policies, inancing interventions, incentives, and sustain support for international certi ication (WHO - c GMP) and facilities up grade. To give the local entrepreneur a competitive edge, we should focus on protection, adherence to procurement policies, delay in payments, packaging of SMEs and the role of capital market in venture capital. There is need to adapt product development to recent operating environment with competencies in resource optimization and encourage Blue Ocean Philosophy for those trying to get a step ahead of the competition through value innovation. One important component of a functioning health system is an appropriate medicine management cycle and good distribution practice which will ensure uninterrupted supply of essential medicines. Group distribution should be encouraged to ensure optimization of resources. Critical to the success of Drug Security is the recognition that the pharmaceutical manufacturing system involves a broad array of players and that strengthening the diďŹ&#x20AC;erent component requires a broad range of expertise. Consequently, the need for collaboration between parties is of paramount importance. In view of this, building a consortium of partners is recommended. Together, we have to midwife the birth of a new Pharmaceutical Industry.

Emmanuel C. Abolo Editor-in-Chief Healthcare Management Review Vol 8 /Page 17

70% D

espite government eďŹ&#x20AC;orts to promote domestic manufacturing, Nigeria remains heavily reliant on imported pharmaceuticals. The revised National Drug Policy (NDP), set a target for 70% (in volume) of the country's' demand for medicines to be met by local drug manufacturers by 2008. Consequently, government policies were designed to support local production of essential medicines in accordance with the NDP. The pharmaceutical manufacturing sector has experienced a steady annual growth of 10 â&#x20AC;&#x201C; 15 per cent since 2001 (IFC). Furthermore, ive local drug manufacturers have WHOcGMP and many more are upgrading their f a c i l i t i e s t o c o m p ly w i t h W H O p r e quali ication and WHO-cGMP requirements.

This will enable the companies promote the medicines manufactured locally in Nigeria to ECOWAS countries and beyond. In addition, once pre-quali ied, local manufacturers will be able to participate in International procurement tenders called by International development partners. Consequently, the 70 per cent target set by the National Drug Policy should be achieved by 2020. According to a survey by UNIDO, capacity utilization within the sector in Nigeria is about 40 per cent, meaning that there is a large volume of underutilized manufacturing capacity which could be applied to produce new products upon demand.

Healthcare Management Review Vol 8 /Page 19

The NDP aims at reaching 70 percent local production in drug along with other goals including the establishment of an effective drug procurement system, developing an efﬁcient drug distribution system, the harmonization of drug legislation with ECOWAS sub region and the commitment to the national use of medicines at all levels of health care.

OPPORTUNITIES FOR LOCAL PHARMACEUTICAL

Government ban on imports of some essential

PRODUCTION TO ACHIEVE 70% (VOLUME) OF

medicines for which there is adequate domestic

NIGERIAN MARKET.

capacity and technical skills. -

The strong demand and the need for improved

Scheme (NHIS) to provide universal health care

management of infectious disease especially,

coverage, by 2015 will provide funds for the

HIV/AIDs, Malaria, TB, and Neglected childhood

required essential medicines.

disease. -

Establishment of the National Health Insurance

The local pharmaceutical industry has a

Increased research and development eﬀorts at

comparative advantage in providing remedies

the National Institute for Pharmaceutical

for neglected tropical diseases (NTD).

Research and Development (NIPRD) and

National Universities can lead to the emergence

The following milestones when reached, will have a very

of new therapeutic agents, nutraceuticals and

positive impact on the pharmaceutical business in Nigeria,

phytomedicines from Nigeria's abundant

over the next 10 years.

indigenous biodiversity and traditional

Improved distribution of medicines.

medicines.

Advances in Biotechnology.

Positive Economic growth in recent years and

The Harmonization of medicine registration within ECOWAS.

macroeconomic stability are helping to reduce poverty and increase purchasing power. -

Nigerian pharmaceutical manufacturers.

The increasing visible and active National Agency for Food and Drug Administration and

Development of pharmaceutical raw materials using indigenous basic raw materials.

Control (NAFDAC) and, in particular, its campaign against substandard health products

WHO certiﬁcation and prequaliﬁcation of more

New phytomedicines developed by NIPRD and

have shown a positive impact on reducing

Universities registered by NAFDAC and licensed to

counterfeit drugs trade.

local pharmaceutical companies for commercial

Government Policy aiming to achieve local

production and global marketing.

production of 70 percent of essential medicines. Healthcare Management Review Vol 8 /Page 21

Credit: PMG-MAN

The Pharmaceutical Industry be designated a Strategic Sector and Essential Medicines designated Security Items in Nigeria which should be backed by preferential policies.

In view of this Special Status, Pharmaceutical Products and inputs be permitted to access foreign exchange from the Retail Dutch Auction System (RDAS) window to prevent prices of medicines spiralling out of the reach of our people.

Ministries, Departments and Agencies to patronize local manufacturers in compliance with Presidential Directives, while the Domestic Preference Policy of the Public Procurement Act 2007 be fully implemented and prompt payments eďŹ&#x20AC;ected.

Healthcare Management Review Vol 8 /Page 22

THE STRATEGIC ANCHORS FOR DRUG SECURITY 4.

There is need to encourage investment in the pharmaceutical sector through the implementation of extant incentives such as Grants, Pioneer Status, Tax Holidays and aﬀordable funding from Developmental Banks.

There is need for Special Incentives for Research and Development in the Pharmaceutical Sector as well as Special Tariﬀ Waivers & Concessions for specialized machinery and equipment for quality improvements and upgrades such as Air Handling Units, Clean Room Items and speciality chemicals for ﬂooring.

There is an urgent need to protect the Nigerian Pharmaceutical Industry within the implementation of the ECOWAS Common External Tariﬀ (CET) through appropriate levies on products that local Industry produce in suﬃcient quantities and are therefore placed on Import Prohibition List in Nigeria.

Healthcare Management Review Vol 8 /Page 23

GOVERNMENT SHOULD PROVIDE THE ENVIRONMENT

roviding adequate healthcare to their p o p u l a t i o n r e m a i n s a m a j o r challenge for governments in Africa and Nigeria in particular. Unsatisfactory and inadequate access to essential drugs and other healthcare commodities is a key limitation that impacts on people's health in most developing and least developed countries (LDCs). The increased funds now available for the procurement of medicines to treat the three pandemics (HIV/AIDS, Malaria, and Tuberculosis) are very valuable development and have reduced the suﬀering and extended the lives of millions of people in developing regions. However, reliance on donor funds is clearly not sustainable in the long term and there are many more diseases for w h i c h p h a r m a c e u t i c a l s a r e k e y treatments and which access to quality medicines is much less advanced. In response to these considerations, local production of essential drugs is an important component of a long term solution to provision of adequate healthcare in developing countries like Nigeria.

Adequate access to drugs is dependent on both the affordability and quality of the products. Unaffordable low quality products are not the answer either. Therefore, an industry that produces high quality drugs at competitive prices must be the target when developing local manufacturer of pharmaceuticals in Nigeria. The pharmaceutical sector is a complex one, involving many different stake h o l d e r s s u c h a s m a n u f a c t u r e r s t h e m s e lve s , N a t i o n a l re g u l a t o r s , government ministries, wholesalers and others. Developing the industry require concerted actions across these stake holders to create the environment in which that industry can lourish and realize its full potential as an asset to economic and social development. An example of the role of stakeholders can be seen with regards to the scourge of counterfeit drugs, which cause huge health problems and also represent a threat to legitimate manufacturers who effectively have to compete with these substandard products.

Healthcare Management Review Vol 8 /Page 24

“It is important to manufacture generic medicines in closer proximity to where they are actually needed.”

In the face of the situation, and actions by, for example, regulators to reduce the penetration of these counterfeit products would, as well as being important from a health perspective, also bene it the local pharmaceutical industry. Furthermore, quality requires upgraded skills and equipment, so how can high quality be produced at aﬀordable prices? T h i s c h a l l e n g e r e q u i r e s v a r i o u s government ministries to work together to establish the support to the industry that will enable ef icient local companies to invest in high quality production. However, those companies that do invest in upgrading will need some form of protection from those that wish to produce products at a lower standard. Consequently, the establishment and enforcement of quality standard by regulators is a critical element in solving the conundrum.

UNIDO SUPPORT Since 2006, UNIDO, with funding from the Government of Germany, has been conducting a project on strengthening the local production of essential generic drugs in developed countries including Nigeria. The objective is to help the pharmaceutical sectors in developing countries realize their potential role of acting as a pillar of public health and contributing to the economic and social development.

Adequate access to drugs is dependent on both the affordability and quality of the products. Unaffordable low quality products are not the answer either. Therefore, an industry that produces high quality drugs at competitive prices must be the target when developing local manufacturer of pharmaceuticals in Nigeria.

so how can high quality be produced at aﬀordable prices? Healthcare Management Review Vol 8 /Page 25

Increase the proportion of the population with access to aﬀordable essential drugs on a sustainable basis

uring the last decade, promoting sustainable access to quality and aﬀordable medicines and integrating local production as part of the overall health system strengthening packaging has been of signi icant concern to Nigeria and Africa in general. A viable pharmaceutical industry in Nigeria shall not only impact on the Nigeria health system and its capacity to provide medical products of priority to diseases of HIV/Aids, Malaria, TB, and Neglected tropical disease but will also contribute to the overall socioeconomic development of the sub region. The public sector will bene it from improved security of supply and robust regulatory oversight (feasible due to proximity of production) as well a s p rov i d i n g a b a s i s f ro m w h i c h n ove l formulations and new products can be developed to tackle speci ic diseases and treatment challenges that are peculiar to the nation. As the global inance deepens, the sector will provide the basis for sustainable treatment programs as contributions that donors make plateaus or even begins to diminish. The sector can also make a contribution to economic growth through enhanced exports, and reduced reliance on imports on which we have limited regulatory over sight. For this reason, the Federal Government of Nigeria have to be committed to enhancing one of the set th targets of the 8 millennium development goals, to increase the proportion of the population with access to aﬀordable essential drugs on a sustainable basis. There is need to galvanize the necessary political will and provide “Leadership” to the broad range of processes required for strengthening the ability to produce high quality and essential medicines, to improve health outcomes.

Healthcare Management Review Vol 8 /Page 26

In developing countries such as India and China, where there are lourishing pharmaceutical sectors, the industry is reputed to bene it from a number of policy measures including protection through tariﬀ regimes and procurement preferences as well as direct support such as interest subsidies, export credit, cheap utilities, working credits, and tax holidays. Consequently imports to our country have often been subsidized through signi icant support from their respective governments. While the Federal Government have identified the i m p o r t a n c e o f s t r e n g t h e n i n g t h e l o c a l manufacturing sector, there is often policy incoherence across government ministries. This creates an overall environment that is not c o n d u c i v e t o t h e d e v e l o p m e n t o f o u r pharmaceutical industry. Furthermore, there is the need to improve the quality of products to which our people are exposed across the Essential Medicine List (EML). The impact of substandard production will be mitigated through ensuring that critical products t h a t w o u l d h ave s e r i o u s p u b l i c h e a l t h consequences should they be of unsatisfactory quality are only manufactured by those of our companies that have reached certain requisite standard. To improve the eﬀectiveness of our resource constrained regulators to oversee the supply of products, the government should encourage production of high quality drugs in situ. The quality standards to which pharmaceutical manufacturers adhere, vary signi icantly. We have examples of companies that have reached WHO- cGMP, some are in the processes, while many more will like to have the International standard, they have not been able to access the detailed technical know-how or investment needed to progress towards this mark.

The quality of pharmaceutical is a function of many dimensions. Following production, the regulation plays a key role in ensuring that the product reaches the patient in appropriate condition through oversight of good distributions and whole selling practice. A further post production function of the regulator is overseeing the market through pharmacovigillance activities and the establishment of adverse event reporting mechanisms.

However, there are entities that are happy with NAFDAC certi ication and will continue with the current status. The industry does face serious challenges if it is to achieve and maintain the quality that is required. These challenges include limited access to inance, limited availability of skilled human resources, inability to access detailed know-how necessary to implement an up grading program or design new plant, signi icant costs involved in the proper development of new p r o d u c t s , t h e a f o r e m e n t i o n e d p o l i c y incoherence, and under developed supporting industry. The quality of pharmaceutical is a function of many dimensions. Following production, the regulation plays a key role in ensuring that the product reaches the patient in appropriate c o n d i t i o n t h r o u g h o v e r s i g h t o f g o o d distributions and whole selling practice. A further post production function of the regulator is overseeing the market through pharmacovigillance activities and the establishment of adverse event reporting mechanisms.

assist and promote the development of pharmaceutical manufacturers in Nigeria and for it to contribute to improved public health outcomes. For example, the Trade Related Aspects of Intellectual Property Rights (TRIPS) lexibilities have been under utilized. Key to the sustainability of manufacturing in Nigeria is the degree to which our manufacturers can compete with imports. As pointed out, remedying the policy incoherence will go some way to improving competitiveness and achieving ef icient production by using modern production management techniques that has the capacity to increase capacity utilization of plants. Critical to the success of drug security is the r e c o g n i t i o n t h a t t h e p h a r m a c e u t i c a l manufacturing system involves a broad array of players and that strengthening the diďŹ&#x20AC;erent components requires a broad range of expertise. Consequently, the need for collaboration between diďŹ&#x20AC;erent parties is of paramount importance. In this view, building a consortium of parties is recommended.

This is required to identify instances of sub standard products reaching the market so that product recalls can be rapidly enacted and counterfeit products identi ied and removed from the market. In addition to the challenges faced by the industry, there is underutilized opportunities to

Healthcare Management Review Vol 8 /Page 27

Interview Okey Akpa, Managing Director/Chief Execu ve Oﬃcer, SKG Pharma Ltd, who is also the Chairman, Pharmaceu cal Manufacturers Group of the Manufacturers Associa on of Nigeria (PMG-MAN), in this interview with SADE OGUNTOLA, said “it is unhealthy for Nigeria to con nue to import drugs, saying it either produces its drugs locally or die.”

Okey Akpa Nigeria is an emerging hub for pharmaceutical market expansion in Africa, how does PGMMAN intend to tap into this?

manufacture are s ll being imported into the country. Importa on is allowed because Nigeria is a signatory to the world's free trade treaty.

Nigeria has the poten al to be the hub for pharmaceu cal manufacture in Africa. PMGMAN's objec ve is to translate this poten al to reality. Given Nigeria's human resources, the level of development of the industry and the size of our market, there is no other market that qualiﬁes to be a hub in Africa aside Nigeria. Nonetheless, this is very much a poten al that Nigerian pharmaceu cal industries are yet to fully realise despite its capability.

Is it not cheaper to make drugs than to import them?

Why the opinion that Nigeria is yet to fully realise that potential? It is a poten al because more can s ll be done by the pharmaceu cal industries from what we are looking at right now. For instance, a lot of products that we have the poten al to

It should not be narrowed down to whether it is cheaper to import drugs than to manufacture them locally. If we take it from the angle of what the country should be doing vis-a-vis the supply of drugs, it is the desire of PMG-MAN and every Nigerian that drugs must be seen as not any other commodity. Drugs are very cri cal and strategic elements because of their importance in health care provision. Even if the doctor diagnoses the problem using available tests and equipment and the required drugs are not available, everything comes to a stop. A healthy country is a wealthy country in the sense that individuals' produc vity is assured. Government must see drugs as a cri cal item; Healthcare Management Review Vol 8 /Page 29

pharmaceu cal manufacturing must be accorded a priority posi on. In according it a priority posi on, it should not be allowed to go into what can be called a free commercial environment. That is PMG-MAN's desire.PMGMAN is saying that drugs are qualified to be what you can call security items. In a situa on of war or crisis, if you are dependent on importa on, when there is a faceoff with the country that is supplying you, all it needs to do is to cut off the medicine supply. No popula on will survive without an adequate supply of drug requirements.

The incen ves could come by way of necessary tax rebates for those who are qualiﬁed and patronage of locally made pharmaceu cal p ro d u c t s by gove r n m e nt a ge n c i e s a n d programmes. All these need to be backed by having the necessary poli cal will to discourage the inﬂux of what you can adequately produce locally. A common complaint is funding for industrial growth. Is the pharmaceutical industry tapping into government's provision of loans for industrial growth?

A typical example is the last Ebola fever incidence. When Nigeria asked America for Zmapp, the drug that showed a poten al to be eﬀec ve against Ebola virus, it did not get any. Imagine what would have happened if Nigeria did not tackle the Ebola virus the way it did? That is a clear test that if you are depending on another country for drugs, you are taking a risk especially when you have a popula on of over 160million people.

Currently, we have no issues with the Bank of Industry's modus operandi, but we are asking government that more needs to be done to support the industry.

The way PMG-MAN looks at it is that local pharmaceu cal manufacturing must be accorded a priority status by government and, following that, it must be protected. There must be the right incen ves to make its opera on a rac ve and sustainable to fulﬁl the role of providing medicines for Nigerians.

For instance, if you are in manufacturing, you cannot successfully run on short term loans which presently are the dominant packages of loans that are available. Commercial banks should be encouraged by government to make money available to local drug manufacturers under terms and condi ons that are conducive.

The Bank of Industry is doing a lot, but more can s ll be done. For example, the Bank of the industry does not give working capital. It only supports the development of infrastructure, but some mes that is not enough.

Pharmaceutical manufacturing must be accorded a priority position. In according it a priority position, it should not be allowed to go into what can be called a free commercial environment. That is PMG-MAN's desire.PMG-MAN is saying that drugs are qualified to be what you can call security items. In a situation of war or crisis, if you are dependent on importation, when there is a faceoff with the country that is supplying you, all it needs to do is to cut off the medicine supply. No population will survive without an adequate supply of drug requirements. Healthcare Management Review Vol 8 /Page 30

DRUGS ARE SECURITY ITEMS How close is Nigeria to the quest of medicine suﬃciency from the perspective of PMG-MAN?

What is the way forward for PGM-MAN? What are its resolutions for the year?

We have the poten al to be self-suﬃcient in essen al medicines in Nigeria. The core objec ve of the Na onal Drug Policy of Nigeria is that 70 per cent of essen al medicines consumed in Nigeria should be manufactured in Nigeria. However, what I call poten al reality gap, I would not say that we have realised that.

We are op mis c that despite the signs of an economically diﬃcult year and the usual disrup on or distrac ons that follows any elec on year, we are op mis c that we are going to have a good year.

The pharmaceu cal manufacturing is a cri cal segment of our na onal life; it is much more beyond business. One of the cardinal points for me is provision of health care. So, if we fail in ensuring adequate health for our popula on, it is a major failure for me. What does the falling price of crude oil in the world market portend for Nigerians considering the cost of drugs? It portends danger to the health system since we con nue to depend on imported drugs. An economy that is heavily dependent on crude oil faces jeopardy of not being able to earn enough to support importa on. That is why a country of the size of Nigeria has no op on but to produce locally. I will actually say produce or die. There is no alterna ve to local manufacturing of drugs if we want to be a healthy, viable and prosperous country.

PMG-MAN is con nuously focusing on the cardinal pillar of manufacturing, which is making sure that we deliver quality medicines to Nigerians at affordable prices. In focusing on con nual improvements, members are inves ng a lot on upgrading produc on facili es and manpower. Already four companies under the PMG-MAN are WHO-prequalified and more are to join. PMG-MAN is ready to play its role as a partner in Nigeria's healthcare provision and industrial development. We are only asking that government also play its role. The 2014 Access to Medicine Index assessment is based on measurements of pharmaceutical policies and practices that improve access to medicine. What is SKG pharm. doing in providing this access? SKG pharm's posi on in providing access is a very clear and a strong one; our mission statement is to exceed our customer's expecta ons in everything we do. Definitely, customer's

Healthcare Management Review Vol 8 /Page 31

The pharmaceutical manufacturing is a critical segment of our national life; it is much more beyond business. One of the cardinal points for me is provision of health care. So, if we fail in ensuring adequate health for our population, it is a major failure for me.

expecta ons cannot be discussed outside access. For SKG pharm, access is important. We recognise what is called disease profile and the therapeu c areas to play in our environment. For us, paediatric medicine is key because of the emphasis we place on children. We do not stop at manufacturing ethical products; we are also into well being products such as supplements. So ,SKG pharm covers a whole spectrum. To increase access for us, cost is cri cal. So, we try to make our products of good quality while factoring in affordability, which for us is a key parameter in improving access to medicine. The other issue has to do with distribu on. Is the drug going to be available when, where and in the configura on that people needs it? SKG pharm has a na onal opera on which covers the whole country to guarantees that our products are available to the medical prac oners, health prac oners and approved outlets. Are there programmes launched or that is to be launched to address specific diseases in Nigeria?

same me fulﬁls our business objec ves. That is why we cover quite a wide spectrum of therapeu c areas. Is there any therapeutic area you are working on as part of your corporate social responsibility? Diabetes is an issue that worries us. In last two years, SKG-pharm started to focus on the disease and is launching a full spectrum of war against diabetes. Aside launching two products in that category, the war against diabetes will span from educa on to awareness. Already our spectrum of SKG medical detailing team is presently campaigning on diabetes. In partnership with a number of government hospitals, we are sponsoring lectures and awareness campaigns on diabetes. Diabetes is a major area which we feel that Nigerians should pay a en on. We are focusing on it, not just as a business but also as a service to the society and that is why we are spending money and sponsoring seminars to create awareness of the disease.

As a pharmaceu cal company, we operate business models which are to tackle areas that are of beneﬁts to our environment while at the Healthcare Management Review Vol 8 /Page 32

NAFDAC ACTIVITIES KEY TO ENSURING

DRUG SECURITY IN NIGERIA NAFDAC is massively supporting local pharmaceutical production of medicines by building appropriate capacity to produce drugs locally that meet international standards and reduce dependence on imports. By this strategy, the Agency is pushing for pharmaceutical intervention funds in concert with the Bank of Industry (BOI) in addition to supporting local companies to attain WHO pre-qualiďŹ cation. Already four of the companies, Swipha Nigeria, Evans, May & Baker, and CHI Pharmaceuticals have attained the WHO-cGMP status preparation to pre-qualiďŹ cation of their products.

Healthcare Management Review Vol 8 /Page 34

Dr. Paul

Orhil

Director General NAFDAC

The recent International accreditation of two major laboratories of the National Agency for Food and Drug Administration and Control (NAFDAC) has boosted the country's chances of helping some pharmaceutical companies produce World Health Organization (WHO) pre-qualiďŹ ed products. Healthcare Management Review Vol 8 /Page 55

INTERNATIONAL ACCREDITATION OF NAFDAC'S LABORATORY BOOSTS WHO PRE-QUALIFICATION DRIVE. NAFDAC Mycotoxin Laboratory has been

It screens various drug samples at the same

accredited by the American Association of

time.

Laboratory Accreditation (AALA) with ISO17025. Similarly, the Food Laboratory and HPLC have equally been accredited by same organization. The Central Drug Laboratory, Yaba also received ISO/IEC

· Radio Frequency Identiﬁcation System (RFID): This is used for veri ication of regulated products and other sensitive documents.

1 7 0 2 5 : 2 0 0 5 a c c re d i t a t i o n , t h e i r s t

· Mobile Authentication Service (MAS): This

government laboratory, to receive such

uses Short Messaging Service (SMS). This

international recognition in Nigeria.

technology has put the power of detecting

The accreditation project was sponsored by United Nations industrial development Organization (UNIDO) and the American Association of Laboratory Accreditation and with the launch of these laboratories ,

counterfeit products in the hands of over 120million Nigerian cell phone users, thereby enrolling them in the ight against counterfeiting. Again, Nigeria is the irst country to deploy this technology.

NAFDAC has adapted a multifaceted and holistic approach in the ight against fake

SMALL BUSINESS SUPPORT

drugs and is also working tirelessly to ensure

In its eﬀorts to promote genuine Nigerian

t h a t m o re N i g e r i a n P h a r m a c e u t i c a l

businesses involved in the food/drug

companies attain WHO-c Gmp.

industry, NAFDAC set up a Small Business

USE OF CUTTING-EDGE TECHNOLOGIES.

Support Unit. The unit's mandate includes liaising with small businesses which want to

NAFDAC is currently spearheading global

eﬀorts in the use of cutting edge technologies

that they will understand the Agency's

to ight counterfeit drugs and other regulated

procedures and processes. NAFDAC has

products. These include;

made it easier for small business owners to

· Truscan: A hand held device used for on- the -

spot detection of counterfeit medicines.

t h e i r o f i c e s t h ro u gh e l e c t ro n i c ( E )

NAFDAC is the irst regulatory authority to use

registration. Through E-registration,

this device with huge success. It gained her

NAFDAC has reduced the number of hours

global acclaim.

and days small business owners spend in r e g i s t e r i n g a n d o b t a i n i n g N A F DA C

· Black Eye (Infra Red): Bench top equipment

certi icates.

developed in Israel, which uses Infra Red technology to detect counterfeit medicines. Healthcare Management Review Vol 8 /Page 36

W.H.O

Recommended Combination R

Playing on the Global Space CHI Pharmaceuticals Limited has given commitment to facilitating widespread availability of optimal, aďŹ&#x20AC;ordable and high-quality life saving treatment for child diarrhea in Nigeria and promoting Zinc Sulphate tablet along with low osmolality ORS.

Dr. Steve

Onya

CEO CHI Pharmaceutical Healthcare Management Review Vol 8 /Page 38

he issue of WHO pre-quali ication has

WHO and UN sponsored drug programs in

been a major challenge of Nigerian

N i g e r i a a n d e n t i r e A f r i c a . C H I

pharmaceutical industries and is of great

Pharmaceuticals Limited is the irst in Africa

concern to the Federal Government of Nigeria

and second globally to present Zinc Sulphate

because money and resources are being lost by

tablets to WHO for pre-quali ication

government for non –WHO pre-quali ication of

certi ication. This company is also the irst

our local pharmaceutical manufacturing

company globally to carry out palatability

companies.

clinical studies (acceptability) for Zinc Sulphate dispersible tablets for use in

In response to the Federal Government of

management of child hood acute diarrhea.

Nigeria’s call for increased local capacity in the

This has been fully acknowledged by WHO,

manufacture of essential medicines and the

USP and other international pharma auditors.

quest to play in the global space. In 2008 CHI Pharmaceuticals Limited, responded by

The company is holding scienti ic of ice in

building a modern WHO-cGMP complaints

Nigeria for Bayer Sheering Healthcare, Eli-

pharmaceutical plant, occupying a space of

Lilly, Merck Sharpe Dome (MSD), Sano i

over 5000 square meters which commenced

Aventis, Jansen Cilag, and Sevier. They are

production at the end of year 2012. This plant

currently seeking expansion into West Coast

has an installed capacity of 1.5billion tablets,

of Africa by the way of setting up businesses in

850 million encapsulation and dry powder 120

the other countries in the sub region.

million sachets annually. CHI Pharmaceuticals Limited has given This CHI plant is WHO-cGMP certi ied and is in

commitment to facilitating widespread

the process of product quali ication of Zinc

availability of optimal, aﬀordable and high-

Sulphate from WHO which will give them the

quality life saving treatment for child diarrhea

special advantage of being in the WHO list of

in Nigeria and promoting Zinc Sulphate tablet

suppliers and be able to bid for and supply

along with low osmolality ORS.

Healthcare Management Review Vol 8 /Page 39

BLUE OCEAN philosophy

Pharm. Olakunle

Ekundayo

Group Managing Director/CEO DrugďŹ eld Pharmaceuticals Ltd

Healthcare Management Review Vol 8 /Page 42

“We pride ourselves in always looking for opportunities in drug availability in healthcare where there are gaps and needs to be ﬁlled. We have always tried to make products available in areas where there is scarcity. This Blue Ocean thinking has been our philosophy all along. Therefore when we read in the newspapers that the United States Pharmacopoeia (USP) was asking Nigerian companies to express interest in producing Chlorhexidine, Digluconate 7.1% Gel, we quickly jumped at it.”

Healthcare Management Review Vol 8 /Page 43

CHLORXY-G (Chlorhexidine) Gel

HOW WE DID IT. In 2014, Drugﬁeld was celebrated for introducing Chlorxy-G (Chlorhexidine Gel) an innovative low cost product for prevention of umbilical cord infections in newborn and a drug said to be quite invaluable in Nigeria's quest to reduce infant mortality.

Before this product which has now helped to save the lives of several newborn babies was introduced, Nigeria was the number one in Africa with cases of umbilical cord infection and number four in the world.

e did it for a number of reasons.

One thing which we never imagined was

One, as at that time, we had four

that, as simple as the product is, it could put

products in gel form in our portfolio which

us in the limelight. By the time the USP

we manufactured locally. So we have a lot

visited Nigeria to look at the companies that

of experience in the manufacture of gel.

had shown interest, we already had the

The second reason is that since the product

packaging materials made. We were

was a United Nations (UN) commodity, we

already waiting to clear the raw materials at

thought “why not give it a shot to show how

the airport. They were pleasantly surprised

experienced we are to the global

that we moved so rapidly. It helped us in a

community?” The third reason is that we

lot of ways.

knew that the product could launch us into the international market and contribute to maternal and child healthcare in a way that could be positively effective.

We already had TSHIP (Targeted State High Impact Project's) support. TSHIP is an NGO ﬁnanced by the United States Agency Healthcare Management Review Vol 8 /Page 44

for International Development (USAID) and a

We then became the second country in the

few other world bodies working with

world and number one in Africa to produce

Chlorhexidine Gel imported from Nepal in a

Chlorhexidine Gel for umbilical cord care. We

few states in the North. They were using it in

were getting calls from all over the world. Calls

Sokoto and Bauchi states in umbilical cord

were coming from many of the NGOs and

care. The product was imported from Nepal

foundations. Many of them visited us. The

which was then the only country in the world

usage of the gel also received a boost in

producing it.

Nigeria, with states signing on to usage. We

We then became a kind of partners to USP and T S H I P. U S P w a s p r o v i d i n g g o o d manufacturing practice (GMP) coverage,

have sent samples to a few other countries like Kenya, Mali and Haiti based on the request they made to us.

looking at what we had on ground, and the

The Interest of Chlorhexidine Gel, attracted

necessary improvement we needed to make

the visit of Dr. Ado Yoba- a Ghanaian who

because the product is an international one.

works for USAID. After the tour of the Drugﬁeld

Before they came for their second visit, the product samples were ready and we sent one to their office in Washington DC. USP was happy and TSHIP was also very happy. Subsequently there was to be a world meeting of the different partners who were involved in Chlorhexidine development in May 2014 and TSHIP said we should come to be part of the meeting. They got Bill and Melinda Gate Foundation to co-finance the trip with us and we took the product along and introduced it at that meeting, Drugfield Pharmaceuticals was admitted into the world Chlorhexidine working

facility, he said he would talk to the Ghanaian government that Nigeria have the capacity to supply Chlorhexidine Gel for use in Ghana. He also said if the development of the product had taken place in Ghana, he was very sure that the government would have banned the use of methylated spirit and all manners of life threatening materials for the treatment of umbilical cord in newborns, and legislate that only Chlorhexidine Gel should be used in all hospital delivery rooms across the country. He wondered why Nigerian government had not done that.

group. Extracts of an interview granted to Pharmanews by the Group Managing Director/CEO of Drugﬁeld Pharmaceuticals Ltd revealed the Blue Ocean Philosophy of their organization. Healthcare Management Review Vol 8 /Page 45

WHO PRE-QUALIFICATION PROGRAMME FOR MEDICINES A United Nations global medicines quality assurance programme managed by WHO Aim: Increase the availability of quality assured medicines and building national capacity in technical assistance for sustainable manufacturing of quality medicines.

WHO pre-quali ication of medicines is a

for reproductive health and again in 2008, to

service provided by WHO to assess the

cover pre-quali ication of Zinc, for managing

quality, safety and ef icacy of medicinal

acute diarrhoea in children. At the end of

products. Originally, in 2001, the focus was

2012, the WHO List of Pre-quali ied

on medicines for treating HIV/AIDS,

M e d i c i n a l P r o d u c t s c o n t a i n e d 3 1 6

Tuberculosis and Malaria. In 2006, this was

medicines for priority diseases.

extended to cover medicines and products Healthcare Management Review Vol 8 /Page 46

Every year, billions of US dollars worth of

KEY OUTPUT

medicines are purchased by international procurement agencies for distribution in

The list of pre-quali ied medicinal products

resource-limited countries. Pre-quali ication is

used for HIV/AIDS, Malaria, Tuberculosis and

intended to give these agencies the choice of a

for Reproductive health produced by the

wide range of quality medicines for bulk

programme is used principally by United

purchase.

Nations agencies including UNAIDS and UNICEF to guide their procurement decisions.

In close cooperation with national regulatory

But, the list has become a vital tool for any

agencies and partner organizations, the pre-

agency or organization involved in bulk

quali ication programme aims to make quality

purchasing of medicines, be this at country

priority medicines available for the bene it of

level, or at international level, as demonstrated

those in need. This is achieved through its

by the Global Fund to Fight AIDS, Tuberculosis

evaluation and inspection activities, and by

and Malaria.

building national capacity for sustainable manufacturing and monitoring of quality

medicines.

KEY FACTS ·Every year, billions of US dollars worth of medicines are purchased by or through

international procurement agencies – such as UNICEF, the Global Fund to Fight AIDS, Tuberculosis and Malaria, and UNITAID – for distribution in resource-limited countries. ·The WHO Prequali ication of Medicines Programme (PQP) helps ensure that medicines

supplied by procurement agencies meet acceptable standards of quality, safety and ef icacy. ·At the end of 2012, the WHO List of Prequali ied Medicinal Products contained 316

medicines for priority diseases. ·WHO's list of prequali ied medicinal products is used by international procurement

agencies and increasingly by countries to guide bulk purchasing of medicines. ·PQP also prequali ies active pharmaceutical ingredients and quality control laboratories

Healthcare Management Review Vol 8 /Page 47

In addition to evaluation and inspection activities, PQP builds national capacity for sustainable manufacturing and monitoring of quality medicines, by organizing training and hands-on experience at the country-level.

INCREASING THE AVAILABILITY OF QUALITY-

CAPACIT Y BUILDING AND TECHNICAL

ASSURED MEDICINES

ASSISTANCE

PQP bases its activities on international

It also oďŹ&#x20AC;ers a three-month rotational post at

pharmaceutical standards for medicines quality,

WHO headquarters to national regulatory staďŹ&#x20AC;

safety and ef icacy. As well as pre-qualifying

from developing countries. By working closely

medicines, it also pre-quali ies pharmaceutical

with senior programme assessors, incumbents

q u a l i t y c o n t ro l l a b o ra t o r i e s a n d a c t ive

increase their technical expertise and enhance

pharmaceutical ingredients, and conducts

information exchange between their regulatory

c o n s i d e ra b l e a dvo c a c y fo r m e d i c i n e s o f

authority and PQP on their return to their home

guaranteed quality. Its long-term goal is to

country. Each of these activities promotes

increase the availability of quality-assured

communication between stakeholders on

medicines by assisting manufacturers to comply

pharmaceutical issues relating to quality.

with WHO standards and supporting regulatory authorities to implement them. It does not seek to

Additionally, PQP provides targeted technical

replace national regulatory authorities or national

assistance for manufacturers and quality

authorization systems for importation of

control laboratories. Assistance is delivered by

medicines.

specialists who are not involved in WHO prequali ication assessment or inspection activities, but who can conduct audits and training at country-level. This assistance is aimed at resolving speci ic technical problems.

Healthcare Management Review Vol 8 /Page 48

THE WHO PRE-QUALIFICATION OF MEDICINES PROCESS: P R E - Q UA L I F I C AT I O N CO N S I S T S O F F I V E

4. INSPECTION

COMPONENTS.

A t e a m o f i n s p e c t o r s v e r i i e s t h a t t h e m a n u f a c t u r i n g s i t e s f o r t h e i n i s h e d

1. INVITATION

p h a r m a c e u t i c a l p r o d u c t a n d i t s a c t i v e

The WHO Pre-quali ication of Medicines

pharmaceutical ingredient(s) comply with WHO

Programme (PQP), other UN agencies (UNAIDS

good manufacturing practice. They also verify that

and UNICEF) and UNITAID, issue an invitation to

any contract research organization that conducted

manufacturers to submit an expression of interest

any clinical studies relating to the submitted

(EOI) for product evaluation. Only products

product complies with WHO good clinical practice

included in an EOI are eligible for prequali ication.

and WHO good laboratory practice.

The inclusion of a medicine in an EOI is based on

5. DECISION

one or more of three criteria:

If the product is found to meet the speci ied

· It is listed on the WHO Model List of Essential

requirements, and the associated manufacturing

Medicines; · An application for its addition to the Model List has been submitted to the relevant WHO Expert Committee for assessment, and is likely to meet the criteria for inclusion (based on public health need, comparative eﬀectiveness, safety and costeﬀectiveness); · It is recommended for use by a current WHO treatment guideline.

site(s) and contract research organization(s) are compliant with WHO standards, the product is added to the WHO list of prequali ied medicinal products. The WHO prequali ication of medicines process can take as little as three months, provided the data presented are complete and demonstrate

2. DOSSIER SUBMISSION

that the product meets all required standards. If

The manufacturer provides a comprehensive set

data are insuf icient, however, the process can take

of data about the quality, safety and ef icacy of the

considerably longer since the manufacturer must

product submitted for evaluation. This includes: · Data on the purity of all ingredients used in manufacture; · Data on the inished pharmaceutical product (such as information about stability); · Results of bioequivalence tests (clinical trials conducted in healthy volunteers), unless waived.

submit the necessary data for reassessment. To ensure that prequali ied products continue to meet WHO speci ications, PQP regularly reinspects manufacturing sites of prequali ied products. It also evaluates any changes (known as " v a r i a t i o n s " ) m a d e t o s p e c i i c a t i o n s ,

3. ASSESSMENT

manufacturing processes and quality control of

A team of assessors evaluates all the data

prequali ied products, and conducts random

presented. Assessment teams include WHO staﬀ

quality control tests on sampled prequali ied

and experts from national regulatory authorities

products.

worldwide. Healthcare Management Review Vol 8 /Page 49

ISSUES, CONCERNS, & SOLUTIONS. “The Issue of WHO pre-qualification has been one of the major challenges of the Nigerian Local drug industries and is of great concern to government because money/resources are being lost by government for non-WHO pre-qualification of our local manufacturing companies.” w Without WHO pre-quali ication for the Nigerian drug manufacturing companies, the companies cannot participate in international drug supply bidding exercise/tender that are sponsored by the Global Funds and other International development arrangements. With the collaborative efforts of WHO, WAHO, NAFDAC and the Local drug companies under the umbrella of PMG-MAN, four Nigerian Pharmaceutical companies - Swiss Pharma Nigerian Ltd, Chi Pharmaceuticals Nig. Ltd, Evans Medical Plc, May & Baker Nig Plc- has WHO GMP Certi ication. Other companies in the pipeline include; Neimeth Pharmaceuticals, Juhel Nig Ltd, Afrabchem Ltd, Daily need Nig Ltd, Emzor Pharma Nig Ltd, Fidson Healthcare Plc and Pharmatex Industries Ltd. w To obtain the WHO pre-quali ication is capital intensive and the government is aware of the huge expenditure incurred by the local drug Industry to the tune of about $600 million USD in pursuance of this course. The government is considering certain incentives such as tax holidays and increased level of patronage in order to enable the local drug industry to recoup. With this International vote of con idence, it is expected that International procurers of essential medicines will improve the patronage of Nigerian/African-based pharmaceutical manufactures'' for medicines and other UN coordinated projects, including UN commission on life commodities. With the WHO-c GMP standard, Nigerian pharmaceutical sector is now playing in the global space and matching towards the enhancement of availability of good quality medicines in the healthcare delivery system of Nigeria. The world now awaits products such as Artemether-Lumefantine tablets, for Malaria, Lamividine tablets for HIV/AIDS, Levo laxine tablets for Tuberculosis, Zinc Sulphate tablets for treatment of diarrhea, Fluconazole injections, Cipro loxacine tablets and many more that are made-in- Nigeria drugs expected to be pre-quali ied by WHO in no distant time. Credit: WHO fact sheet No278 Healthcare Management Review Vol 8 /Page 50

I N T E R V I E W HMR Interview with Pharm. Olumide Akintayo (President, Pharmaceutical Society of Nigeria) on Drug Security & Pharma Business Nigeria

espite government eﬀorts to promote domestic manufacturing, Nigeria remains heavily reliant on imported pharmaceuticals. What is the missing link?

It is true that Nigeria remains heavily reliant on imported pharmaceuticals despite the revised National Drug Policy (NDP) 2004which states that 70 % (in volume) of Nigeria's demand for medicines has to be met by local drug manufacturers by 2008. Unsurprisingly, this target was not and is yet to be met. Many challenges exist which constitute the missing link. These include: ·

Capacity –Although there are dozens of pharmaceutical companies in Nigeria, there are not enough companies to cater for the population. In addition, several dosage forms e.g. intravenous luids, injections, vaccines & other complex pharmaceuticals are not manufactured in enough quantities (or not manufactured at all) for the needs of the population. Infrastructure challenges – Urgent attention is needed to create more railways, better road networks, ports and power-generating capacity across Nigeria. Poor infrastructure saps industrial productivity and leaves the country at a huge disadvantages

N i g e r i a d o e s n o t p r o d u c e A c t i v e Pharmaceutical Ingredients (APIs) which are the main component of pharmaceuticals. All APIs are imported and these represent over 50% of the total cost of production. This makes the inished product expensive, even more expensive than products from other developed and developing countries High cost of doing business in Nigeria o Cost of Fund is high o Access to Funds is dif icult o Unfavourable Interest rates Chaotic Drug Distribution Network o F r a g m e n t e d a n d c h a o t i c d r u g distribution which has led to a p r e p o n d e r a n c e o f f a k e a n d adulterated drugs, estimated at 17% - 30% of drugs in circulation. This is a major cause of treatment failure which may lead to death o Unlawful access to drugs in Nigeria creating increased risks for end users Low patronage as government and private i n s t i t u t i o n s p a t r o n i s e m e d i c i n e s manufactured in other countries Land market barriers – Distortions in the land market (including high stamp duties and cumbersome regulations) are a huge barrier to establishing manufacturing in Nigeria. Healthcare Management Review Vol 8 /Page 52

Labour& Skills barrier – There is a need to encourage re-skilling programs that will update the knowledge of Nigerian workers and make them more productive.

· ·

Is there a perception penalty in MADE-IN-NIGERIA pharmaceuticals in Nigeria and West Africa? If so what is the strategy to overcome it?

· · ·

Yes, there is a perception penalty in MADE-INNIGERIA pharmaceuticals. To overcome this, the following can be done: War against corruption Establish the appropriate policy mix that will address the continuing poor performance and limited growth in the manufacturing sector Ÿ Develop, implement and enforce global standards in the healthcare industry in general and the pharmaceutical industry in particular Ÿ Collaboration between agencies such as N a t i o n a l A g e n c y f o r Fo o d a n d D r u g Administration and Control (NAFDAC), National Institute for Pharmaceutical Re s e a rc h a n d D eve l o p m e n t ( N I P R D ) , Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMGMAN), Pharmaceutical Society of Nigeria (PSN), Nigerian Association of Industrial Pharmacists (NAIP). Nigeria Customs Service, National Primary Healthcare Development Agency (NPHCDA), Nigerian Investment Promotion Commission (NIPC), etc Ÿ Ÿ

What government interventions will achieve the greatest impact in pharmaceutical manufacturing in Nigeria? Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ

What general issues and trends represents opportunities for pharmaceutical manufactures in Nigeria in order to deliver on the vision of high quality aﬀordable essential medicines? Opportunities: · The Pharmaceutical industry is a valuable s o u r c e o f d o m e s t i c p r o d u c t i o n , accounting for a signi icant part of the Gross Domestic Production (GDP)

T h e P h a r m a c e u t i c a l i n d u s t r y contributions to employment and job growth Local production enhances selfsuf iciency in drug supply Local production facilitates technology transfer Local production saves foreign exchange Local production stimulates exports Investment in medicines relevant to the people and diseases of our nation: o Malaria medicines o A n t i - r e t r o v i r a l m e d i c i n e s (HIV/AIDS ) o Intravenous luids o Herbal Medicines o Medicines for Sickle cell diseases o M e d i c i n e s f o r N o n Communicable Diseases

Provision of critically needed infrastructure Good road networks Steady electricity supply Functional rail systems Portable telecommunications Ef icient energy provision Create conducive operating environments for entrepreneurs to thrive 0% duty Tariﬀ for Pharmaceutical Machinery Tax incentives Urgent implementation and enforcement of t h e re c e n t ly l a u n c h e d N a t i o n a l D r u g Distribution Guidelines (NDDGs). This will ultimately lead to the extinction of the drug market and unregistered drug premises, sanitising drug distribution and ultimately increasing life expectancy of Nigerians The Government working with GS1 (the nonpro it global organisation that designs and implements global standards for use in the supply chain of products and services) to implement Barcodes for all products manufactured in or imported into Nigeria Healthcare Management Review Vol 8 /Page 53

MADE IN NIGERIA FOR THE WORLD M I N F L O W Extract from HMR Business discussion with Dr. Joseph Odumodu (Director General of Standards Organization of Nigeria) on his new frontier: MINFLOW

Dr. Joseph Odumodu's New Song: Made-in-Nigeria for the World (MINFLOW) is aimed at Nigerians to upscale their games and deliver goods and services that the world community can buy: competition is real and the rule is universal. Only the best is good; only the best survive. Best quality goods and services deďŹ ne success and survival. Healthcare Management Review Vol 8 /Page 56

igeria desperately needs to diversify its economic base. This fact has been recognised in the Nigerian Industrial Revolution Plan. Diversi ication won't happen unless the country can sell its products amid ierce competition involving products of other countries that are already favourites; so standards hold the key to Nigeria's economic redemption and advancement. Standards Organisation of Nigeria as the National Standards Body is an essential part of the nation's Trade Development Infrastructure. Made in Nigeria can indeed sell, if made to sell. The problem is not in made-in-Nigeria, but in the standards driving our productions. Nigerian manufacturers have to be oriented to producing to the world's standards, as opposed to producing for Nigeria. We have to get out of the valley of export failure and out of the valley of rejection by the global market.

SON is de ining a new standardization strategy for Nigeria and aligning their eďŹ&#x20AC;orts and activities with government policies, because Nigerian products and services have to be good enough for the world. â&#x20AC;&#x2DC;Made-in-Nigeria for the World' - MINFLOW - is the spring board of Dr. Joseph Odumodu's second term and is deliverable with global standards that cut across frontiers - quality education and research, improved standard packaging and labelling, even governance that is needed to deliver global standard services. MINFLOW is going to be a checklist for relationships that cut across frontiers. It is a great dreamer's child of destiny that is bound to rede ine national economic fortunes for good because at the heart is the secret to the world market where only the best showcase and bid for market shares.

standards hold the key to Nigeria's economic redemption and advancement.

Dr. Joseph Odumodu

Director General Standards Organization of Nigeria

Healthcare Management Review Vol 8 /Page 57

Is that stress giving you

sleepless nights?

Combats anxiety, agitation episodes and psychoneurosis Manages sleep disorder Affords ease of combination with anti-hypertensive therapy Offers muscle relaxant and anti-convulsant action Encephale 1993 Sept-Oct. 19 (5) 547 -52

PHARMA CENTRE the journey to WHO-c GMP

he World Health Organisation (WHO) has certi ied May & Baker Nigeria Plc as one of the

pharmaceutical manufacturing companies that has met its current Good Manufacturing

Practice (c-GMP). The announcement which was formally communicated to the company recently by the World Health ruling body, caps a deliberate and sustained eďŹ&#x20AC;ort by the company to seek international accreditation and certi ication for its production processes and products.

The road to the WHO GMP certi ication began as far back as 2008 when May & Baker commenced the construction of a world class manufacturing facility at Ota, Ogun State. The facility which was commissioned

The facility, called the Pharmacentre was designed and positioned as the most modern pharmaceutical factory not only in Nigeria but also in the ECOWAS sub-region.

in 2011 by President Goodluck Jonathan was designed t o m e e t a l l r e q u i r e m e n t s o f i n t e r n a t i o n a l However, international status could only be conferred pharmaceutical manufacturing best practice, from on this facility through certi ication by international civil works to equipment installations, quality and regional regulatory authorities. In 2012, the assurance, input supply and production processes.

company formally applied to the WHO for GMP certi ication, a strategy that was in perfect harmony with the plans laid by the Pharmaceutical Healthcare Management Review Vol 8 /Page 60

Manufacturers' Group of the Manufacturers

May & Baker Nigeria Plc's Pharmacentre was

Association of Nigeria (PMG-MAN), the Federal

inspected by WHO experts four times between

Government of Nigeria through the Federal

2012 and 2014 in the course of mandatory and

Ministry of Health, the National Agency for Food

advisory inspections. In all inspections, positive

and Drug Administration & Control (NAFDAC)

reports were made about the Pharmacentre,

and the regional health authorities through the

w h i l e i m p r o v e m e n t s t o p r o c e s s e s ,

West African Health Organization (WAHO). All

documentation and further training were

these bodies were also concerned in assuring a

carried out. In September, 2014, the WHO inally

paradigm shift in the improvement of the quality

gave a nod to the company as having met the

of locally manufactured drugs within Nigeria and

requirements for GMP certi ication.

the sub-region. To the company, the recent achievement is not an The long-term goal is to increase the availability

end in itself but another motivation for further

of quality-assured medicines by assisting

attainments in the quest for excellent healthcare

manufacturers to comply with WHO standards

delivery in Nigeria. The Management and staďŹ&#x20AC; of

and supporting regulatory authorities to

May & Baker have by this con irmed that the

implement them. WHO also granted Nigerian

con idence and funds committed in the

pharmaceutical companies necessary technical

Pharmacentre will be used as a spring board to

assistance to ensure that this was achieved.

attain greater participation in both the local and international pharmaceutical markets. However

Nigerian pharmaceutical irms previously were not in a position to participate in international tenders for medicines against the three pandemics that require WHO prequali ication. Health experts identi ied this as a major constraint on the local supply of medicines, especially anti-retroviral (ARVs) drugs, antimalarial and anti-tuberculosis agents.

the journey to WHO pre-quali ication of products is not yet over as the company has already commence the next stage which will involve the presentation of speci ic products for prequali ication by WHO. It is hoped that speci ic products of the Pharmacenter will soon receive the WHO prequali ication Healthcare Management Review Vol 8 /Page 61

INTERVIEW Mr. Colin Cummings is the chairman/CEO Swiss Pharmaceutical Company Ltd. Swipha was established in 1976 and is the ďŹ rst pharmaceutical company in Nigeria to attain ISO 9001: 2000 and WHO-c GMP certiďŹ cation. He spoke to HMR on the importance of WHO -c GMP and the future of generic products and pharmaceutical manufacturing industries in Nigeria.

A situation when Nigeria has to depend entirely on other countries for its medicine supplies may actually be considered as a security issue.

Mr. Colin

Cummings Healthcare Management Review Vol 8 /Page 62

What is the future of Nigeria pharma manufacturing sector? What should be done diďŹ&#x20AC;erently ?

Is the pharma business threatened by biotech and nanotechnology?

The sector needs nurturing at this stage of its development. It is now time for consolidation, rationalisation and in some cases closure. Most of the companies are undercapitalised and to become WHO pre-quali ied cost a great deal. Most companies have to borrow, putting a great strain on resources and cash low and unless we get support, the local industry will not be local anymore. It will be dominated by foreign owned companies.

Biotech and nanotech are the future of where the industry will go. We will get there eventually as a natural progression of the market. Remember that most products currently manufactured by local companies are out of patent products, some over 20/30 years old, but they are still relevant in treating ailments of today. Also, the economic power of individuals will determine what is on demand. We have seen gradual but steady increase in the middle class group of the population which means that very soon we shall be experiencing a shift in the type of products people demand.

As a matter of top priority the government of the day must make interventions to ensure that the local pharmaceutical industry does not go down given the population of the country which is still growing. A situation when Nigeria has to depend entirely on other countries for its medicine supplies may actually be considered as a security issue. We need support in the form of grants - not loans, tax relief and most important oďŹ&#x20AC; all government patronage - including getting paid for goods supplied. What needs to be done is support from Government at the initial stage of upgrading the premises and systems and training of staďŹ&#x20AC;. This will ensure that the severe inancial strain that is put on the company when going for the prequali ication will be lessened. What is the future of generic market in an era where there is no void in the world .We are all part of the process , we all know one another's business? Very few local companies have any products which are not generic. We may sell some branded goods and even manufacture but, they will be under licence from the foreign owner of the brand. Keeping a patented product exclusive is gradually becoming impossible in the Global Market. We have a big disadvantage due to the country/West Africa having no petro chemical industry so we have no active or excipient ingredients produced locally, all are imported. Even the materials for packaging are all imported. This is why we again need government support and protection against foreign competition.

If you look at how I.T. has impacted in the country over the last few years, it shows that we will be able to embrace, work with and innovate with biotech and nanotech when we need to.

What is also happening in the shopping arena (supermarkets vs. the older model) is a pointer to how things will turn out. How are you repositioning Swipha to exploit the changes in your upgraded facility ? With the WHO-c GMP Certi ication, we can now bid for contracts that require the manufacturer to show that their facility and products meet International standards and quality. It also means that contracts the government would have had to award to foreign companies due to local ones not being able to show the required standards is now obsolete and a company such as Swipha can ful ill all the requirements, meaning that there is no reason for not patronising ourselves. This ills the country's goal of local content in contracts of this nature. So with this as a background, we are reaching out to (State/Federal) Government Agencies as well as non-Governmental organisations. We hope that we will be patronised by these, although it is one year on and no major patronage has come, we are still hopeful.

Healthcare Management Review Vol 8 /Page 63

PLUS

Are Prescription Drug Prices High? Case Study Merck & Co Inc

The innovation-based pharmaceutical industry is committed to improving the quality of healthcare through pharmaceutical research. That commitment must extend to keeping prescription drug prices at reasonable levels, for good new therapies are useless if patients cannot access them. If a pharmaceutical company can meet these demands of the market – innovation and reasonable pricing – proﬁts will follow.

he US pharmaceutical industry has been criticised because

its products are perceived to be too expensive, yet

prescription medicines remain the least expensive form of therapy. At this time, we are experiencing a dramatic increase in the risks and costs of pharmaceutical research and development (R&D). Healthcare Management Review Vol 8 /Page 66

P Roy Vagelos Merck & Co Inc Pharmaceutical companies must set responsible prices if patients are to have access to important new medicines The US pharmaceutical industry continues to lead

according to a new study by investigators at Tufts

the world in the discovery and development of

University, it takes 12 years, from synthesis to

important new medicines because it assumes greater inancial risk and invests more of its sales dollars in R&D than virtually any other industry. Where such risk is posed, there must continue to be the potential for pro its. Pharmaceutical companies must set responsible prices, must keep price increases down, and must help improve access to important medicines. In the pharmaceutical industry, the odds against success, whether statistical or inancial, are

regulatory clearance, to bring a prescription drug to market in America. The average cost, which includes discovery and development, for one prescription medicine is $231 million. Historically, in the United States, when a irm has invested and worked against the odds to discover, develop, and market a new medicine, the irm has been free to charge a price that would produce rewards for investors. In recent years, however, pharmaceutical companies have come under mounting criticism for their prices.

daunting. Most research projects fail. On average, Healthcare Management Review Vol 8 /Page 67

COST-EFFECTIVENESS OF PHARMACEUTICALS. Although the primary goal of pharmaceutical

not take an H2 antagonist. The reason is that

research is to save lives and ease suﬀering, it can

patients not taking an H2 antagonist have a much

also save healthcare dollars. In 1990 alone, for

higher incidence of hospitalisation and surgery

example, the projected cost of cardiovascular

than patients who do. Other studies show that

disease and stroke to the US economy was $95

antibiotics save money by shortening hospital

billion, including the costs of hospital days,

stays.

disability days, and $33 billion in medical care expenditures, not to mention the countless potential years of life lost before the age of 65; for Acquired Immune De iciency Syndrome (AIDS) including the loss of productivity, the estimated 1990 cost was $26 billion. In 1989, cancer cost the nation $100 billion, and Alzheimer's disease cost $80 billion. Even if each of the medicines that may eventually be found to prevent or treat t h e s e d i s e a s e s b e c o m e s a t re m e n d o u s commercial success and generated $1 billion a year in sales (only three medicines did that in 1989), patient costs for the medicines would be far less than the costs of the diseases.

Benign enlargement of the prostate gland aﬀects at least 50 per cent of men over the age of 50. Today, for those in the advanced stages of the condition, surgery is the only option and more than 400,000 prostate operations per year are performed in the United States, with a mortality rate of approximately 1 per cent and a cost of nearly $3 billion. At Merck, after 15 years of development, a promising new enzyme inhibitor to control this condition is awaiting marketing a p p r o v a l f r o m t h e U S Fo o d a n d D r u g Administration (FDA). The drug is designed to i n h i b i t t h e s y n t h e s i s o f a h o r m o n e , dihydrotestostrone, that is associated with

Viral diseases of childhood provide striking

prostate growth, thereby hopefully shrinking the

example of the cost-eﬀectiveness of modern

enlarged prostate. Because regression of the

pharmaceuticals. In 1983, the nation's health bill

enlarged prostate is maintained and data

for measles, mumps, and rubella vaccination

suggest that Proscar can halt the progression of

programmes came to $100 million. According to

the disease, a long-term study is planned to

the US Public Health Service, the cost of these

demonstrate reduction in the need for prostate

diseases, in contrast to the cost of preventing

surgery.

them, would have been $1.4 billion. Studies suggest that Medicaid expenditures for patients taking anti-ulcer medicines, the H2 Antagonists Cimetidine and Ranitidine, may be 70 per cent less than for ulcer patients who do

One of the most diﬃcult challenges faced in marketing a new prescription medicine is the question of how much to charge for it. What is its value to society? and to the individual patient? Healthcare Management Review Vol 8 /Page 68

PRICING AND PROFITABILITY in Merck & Co Inc In terms of pricing I can speak only for Merck

are working at any one time to develop scores of

because it is the only company whose pricing

investigational compounds and to invent

procedures I am familiar with and because anti-

hundreds more. In less than 6 weeks, they work 1

trust laws prohibit any intercompany pricing

Million hours. It is impossible for us to pull out the

discussions or practices. One of the most diﬃcult

costs of the successful projects that contribute,

challenges faced in marketing a new prescription

directly or indirectly, to the discovery and

medicine is the question of how much to charge

development of the rare compound that

for it.

What is its value to society and to the

eventually becomes a prescription medicine. It is

individual patient? If cost eﬀectiveness were the

also impossible for us to isolate costs for all of the

ﬁ n a l a r b i t e r of p r i c i n g d e c i s i o n s , m o s t

individual projects that fail. What we do know is

pharmaceutical prices could justiﬁably be much

that, on an industry-wide basis, counting all of the

higher than they are. At Merck, it is important to

investments in the failed and successful projects, it

establish prices for our products that will produce

costs $231 million, on average, to bring one new

an appropriate return on our research investment

prescription medicine to market in the United

and maximise patient access. If the price is too

States.

high and the patient cannot aﬀord the medicines, we have not fulﬁlled our reason for existence.

Prices of existing therapies and competitive products already on the market are another

The basic principle governing the free enterprise

consideration in establishing the price of a new

system is that free and unrestrained competition

medicine. When we introduced the anti-ulcer

should force fair prices. The more segmented the

medicine Famotidine to the US market in 1986, the

industry, the truer that is, and the pharmaceutical

average price charged to the patient for one

industry, led by Merck with a 9.3 per cent US

40mg tablet, the usual daily dose, was $1.89, which

market share and a 4.9 per cent worldwide share,

was comparable to the average prices of $1.83 for

is highly competitive.

Cimetidine and $2 for Ranitidine for equivalent dosage strengths.

Research and development costs are a major consideration in setting the price of a new

For medicines that the company believes are

medicine. In general, the more expensive the

clearly superior to earlier products, we do charge

research project, the higher should be the price of

more.

the resultant medicine. But the costs of R&D for a particular medicine are diﬃcult to determine. At Merck, for example, over 4500 people in research

The special nature of its products demands that the pharmaceutical industry, more than perhaps any other be responsive to social needs. Healthcare Management Review Vol 8 /Page 69

Such was the case, in 1987, when we introduced

and this methodology does not factor in the

Lovastatin, which the FDA had placed on the fast

l e n g t h y t i m e p e r i o d re q u i re d f o r d r u g

track for regulatory approval. The $1.57 a day cost

development.

to the average patient represented a premium

model makes the ROA number for the

over the $1.19 a day average patient cost in 1987

pharmaceutical industry appear high when

for Gemﬁbrozil, the most widely prescribed

compared to ROAs for other industries.

Consequently, the accounting

cholesterol-lowering agent at that time. In order to provide a more realistic picture of When pricing a new medicine, we also have to

returns for research-intensive industries, an

consider the number of years of patent protection

economic ROA model, based on one developed

remaining. We always set out to price our

by Kenneth Clarkson at the University of Miami

products at similar levels from country to country.

may be used. In this Model, gross assets include

But variations in government price controls,

R&D expenditures, which are capitalised and

exchange rates, dates of new drug approval,

amortised on the theory that a ﬁrm's R&D

healthcare ﬁnancing practices, and other factors

expenditures to develop new products are part of

tend to result in diﬀerent prices for diﬀerent

the ﬁrm's economic asset base. Cash ﬂow is also

countries. Above all, the company assumes a

adjusted to reﬂect the capitalisation of R&D. This

responsibility to make its products available to

economic ROA model would lower the ROA

people who need them. So in countries where we

results for any industry, but the eﬀect would be

believe prices for innovative medicines are set

greatest for the research-intensive ones.

unfairly low, we try to market our medicines at those prices while lobbying for a change in the government's pricing policy. The perception of high prices leads to a perception of excessive returns, but an examination of the industry's profitability brings about a more realistic perspective. Return on Assets (ROA) is the measure of cash flow as a percentage of gross assets and is an accepted measure of profitability for most industries. The 1989 average ROA for eight leading US-based healthcare companies was approximately 16 per cent.

This percentage was based on an

accounting methodology that considers research to be an expense rather than an assets,

INCREASING RISK AND COSTS OF PHARMACEUTICAL R&D The latest estimate of the cost of bringing a new medicine to market, $231 million, is almost double the amount, adjusted for inﬂation, determined 9 years ago. The reasons for the sharp increase suggested by the authors of the study are that the new research technologies are expensive, and the diseases for which treatments are being sought are complex. Approximately one-half of the $231 million is the total cost for work on failed compounds plus all the R&D costs, from researcher s' salaries to new laborator y equipment, for one successful compound.

Healthcare Management Review Vol 8 /Page 70

Innovative pharmaceutical companies are in business to make money, as well as to market new medicines, and, unless they do both, ﬂow of new medicines would be reduced. At the same time, a pharmaceutical company should recognize the importance of exercising price restraint.

The other half is the capitalised expenditure, or the so-called opportunity cost of having funds tied

a company is to keep pace with R&D investment and the cost of capital.

up during the 12-year period of development. In 1975, the year I joined Merck, the Chief Compounding the risk and ﬁnancial cost of

Executive Oﬃcer was concerned that for some

bringing a drug to market is the shorter product

time, the company had introduced few important

life cycle of new prescription medicines. Generic

new medicines in the United States, despite

drugs gained easier, faster entry to the market

having spent approximately $500 million dollars

with the passage of the Drug Price Competition

on R&D in the previous 10 years. But he did not cut

and Patent Term Restoration Act of 1984. But an

back, instead, he increased the R&D budget. The

even greater impact on the average market life of

company had been experiencing what industry

a breakthrough compound has come from the

analysts call a "dry spell", but the terms can be

rapid introduction of so-called follow-up

misleading because it implies that research has

medicines, which are chemically diﬀerent from the

been unproductive.

breakthrough compound but are based on the same mechanism of action. They are introduced after the breakthrough drug has been shown to be safe and eﬀective and can compete with it before its patent expires.

In Merck's case, in 1975, the discovery work and much of the development work had been done for several important new medicines, and the Chief Executive was conﬁdent of their eventual marketing. The result of the company 's

Seven out of ten marketed prescription medicines

persistence - the paradox of the high - risk

do not recoup the average cost of R&D. An

pharmaceutical business is that the route to

analysis of total sales performance of 100 new

success is to invest more - was the introduction of

chemical entity medicines introduced from 1970 to

a number of important new products for arthritis,

1979 showed that the medicines barely recouped

hospital infections, glaucoma, and muscle spasms.

the total of the R&D investments. If the economic

Another so-called "dry spell" occurred for the

performance of the anti-ulcer drug Tagamet

company from 1979 to 1985 with few product

(cimetidine) is removed, the result for the entire

introductions. This was followed by an

portfolio is lower than the cost of R&D. A highly

unprecedented ﬂow of new products, culminating

successful breakthrough product is necessary if

in the introduction of Lovastatin in 1987. Healthcare Management Review Vol 8 /Page 71

IMPROVING PATIENT ACCESS TO MEDICINES THE CASE OF IVERMECTIN FOR ONCHOCERCIASIS Innovative pharmaceutical companies are in

Special eﬀorts must be made to get important

business to make money, as well as to market

medicines to the poor in developing countries. In

new medicines, and, unless they do both, ﬂow of

1987, Merck announced that we would donate

new medicines would be reduced. At the same

our breakthrough medicine Ivermectin, for the

time, a pharmaceutical company should

control of river blindness (Onchocerciasis),

recognize the importance of exercising price

wherever it is needed for as long as it is needed.

restraint.

In most cases, a single yearly treatment with Ivermectin would prevent the ravages of

Merck announced a goal of keeping future price increases within the rate of inﬂation in the United States and of generally limiting price actions to one per year, given stable market conditions and government policies that are supportive of innovation. Responsible pricing and distribution practices can help ensure that patients can

onchocerciasis, a centuries-old parasitic disease that now aﬀects an estimated 18 million people – primarily in West and Central Africa but also in Central America – and threatens 85 million more. This eﬀective and well-tolerated drug has been called one of the most important breakthroughs in tropical medicine in the 20th century.

obtain the medicines they need. The special nature of its products demands that the

Merck did not set out originally to give the

pharmaceutical industry, more than perhaps any

product away; however, most of the people who

other be responsive to social needs.

need it are poor and live in remote places. After months of discussions with International aid

Merck also announced the Equal Access to Medicines Programme aimed at overcoming the current lack of availability of some important medicines to poor people.

organizations that were prospective buyers, we realized that the process of obtaining funding for purchases of Ivermectin would take too long. Meanwhile, people were suﬀering and sometimes going blind.

Special eﬀorts must be made to get important medicines to the poor in developing countries. Healthcare Management Review Vol 8 /Page 72

SAVING LIVES & SAVING MONEY

More than a million people are covered by

people in remote areas of the world, and the

Ivermectin treatment programme to date. But the

question of what impact the donation would have

medicines must somehow reach millions more. If

on research for tropical

we can reach a suﬃcient number of people, the

donation be a disincentive to other ﬁrms? Since

disease can be controlled as a major public health

making the donation decision, we have heard no

problem. In theory, river blindness could even be

criticism.

diseases. Would the

eradicated, provided it were possible to have every person harbouring the parasite take Ivermectin

The innovation-based pharmaceutical industry is

annually for at least 10 years. Merck is committed to

committed to improving the quality of healthcare

trying.

t h ro u g h p h a rm a c e u t i c a l re s e a rc h . T h a t commitment must extend to keeping prescription

When Merck management was debating whether

drug prices at reasonable levels, for good new

to donate Ivermectin for the control of river

therapies are useless if patients cannot access

blindness, we considered many factors, including

them. If a pharmaceutical company can meet

the loss of potential revenues, the major marketing

these demands of the market – innovation and

challenge involved in getting the medicine to

reasonable pricing – proﬁts will follow.

Razigi was bitten by a blackﬂy and developed a disease called Onchocerciasis, or river blindness.

Healthcare Management Review Vol 8 /Page 73

Customers always have rela onships with brands.

What products do you have absolute advantage?

....in rela onships, there are boundaries and expecta ons ....how do you iden fy and manage them?

What values are people looking for in your organiza on, products or services?

What are you selling? What are the core values of your organiza on?

...What is your brand purpose? ...What are the func onal, societal, and emo onal beneďŹ t of your product?

Why should customers prefer your products?

Healthcare Management Review Vol 8 /Page 74

What corporate values do you want to represent?

Do you have a desire for impact? ...exerting the maximum impact on the society through your products/services?

What is the purpose of your organiza on beyond manufacturing and sales of pharmaceu cal products?

What brand value will create a stronger brand associa on in your organiza on?

What is your value zone? ....the place where value is created for the customer. ...the interface with the customer.

EXPLOITING THE MARKET SPACE

What are the opportuni es in this market for pharmaceu cal companies with the right products oďŹ&#x20AC;ered in the right way and at the right prices? ...what is the right product? ...what is the right price? ...what is the right way?

Healthcare Management Review Vol 8 /Page 75

S U S TA I N A B L E Capable of being continued or maintained with minimal long -term effects on the environment.

Healthcare Management Review Vol 8 /Page 76

SUSTAINABLE MANUFACTURING The creation of manufactured products that use processes that minimize negative environmental impacts, conserve energy and natural resources, are safe for employees, communities, and consumers and are economically sound. US Department of Commerce â&#x20AC;&#x201C; Sustainable Manufacturing Initiative.

Healthcare Management Review Vol 8 /Page 77

Creating Sustainable Value-based Organization Sustainable Manufacturing is a concept that’s getting a lot of attention these days, but what exactly does it mean? Sustainability is commonly de ined as meeting the needs of the current generation without compromising the ability of future generations to do the

Abolo

Dr. Paul CEO, Ecologistics Inc

same. When we translate this concept to pharmaceutical manufacturing processes, we develop manufacturing processes that are designed to use less energy, little to no water, fewer raw materials, and produce zero waste.

he current placing of sustainability is

organizations from two dimensions: top to

supported by the strategic shift in the way

bottom; and bottom-up by engaging cross-

organizations' performance is evaluated. “Doing

functional task forces, project teams and

well by doing good” has become an index for

building team sessions as prerequisite tools.

measuring how well organizations are doing as

This design advocates for leveraging on

c u s t o m e r s , e m p l o y e e s , i n v e s t o r s a n d

collective intelligence of a whole business

stakeholders have come to adopt this mindset.

system by engaging a much larger group –

This direction is responsible for the extension of

leading to involvement of a larger-scale

the expectations of organizations beyond their

con iguration of the whole stakeholders.

expertise to include practices and activities that have become leading forces for creation of

Managing operations in an environmentally and

s u s t a i n a b l e v a l u e s i n o r g a n i z a t i o n s .

socially responsible manner – sustainable

Consequently, organizations have become

manufacturing – is no longer just nice–to–have,

forerunners and partners in search of economic,

but a business imperative. Companies across the

ecological and social solutions to problems

world face increased cost in materials, energy,

within and outside the domain of the business.

and compliance coupled with higher expectations of customers, investors and local

The strength-based approach to creating

communities.

valued-based organizations penetrates the Healthcare Management Review Vol 8 /Page 78

ECOLOGY

ECONOMICS

Materials & Energy Water & Air Flora & Fauna Habitat & Food Place & Space Constructions & Settlements Emission & Waste

Production & Resourcing Exchange & Transfer Accounting & Regulation Consumption & Use Labour & Welfare Technology & Infrastructure Wealth & Distribution

Organization & Governance Law & Justice Communication & Movement Representation & Negotiation Security & Accord Dialogue & Reconciliation Ethics & Accountability

Engagement & Identity Recreation & Creativity Memory & Projection Belief & Meaning Gender & Generations Enquiry & Learning Health & Wellbeing

Vibrant Good Highly Satisfactory Satisfactory + Satisfactory SatisfactoryHighly Unsatisfactory Bad Critical

POLITICS

C U LT U R E

CIRCLES OF SUSTAINABILITY Many businesses have already started to take

customers and the communities where you

important steps towards green growth – ensuring

operate. Failure brings with it high costs – ines,

their development is economically and

penalties, local unrest and customers choosing to

environmentally sustainable.

Their pioneering

go elsewhere. Success, on the other hand, can save

experiences largely show that environmental

you money, helps build a reputation, attracts

improvements go hand-in-hand with proﬁt making

investment, spurs innovation, secures loyal

and improved compe

customers and brings in repeat business.

veness.

Sustainable manufacturing is all about minimizing the diverse business risks inherent in any manufacturing opera on while maximizing the new opportuni es that arise from improving your processes and products. The economic, environmental and social aspects embraced by the concept are illustrated in the diagrams.

....organizations entrench sustainability in their organizational design activities through design thinking. These organizations have achieved this connection through this process that include interactions in society by addressing social and environmental Energy Conservation

Reduce Pollutants and CO Emissions What goes into “Sustainable Manufacturing”?

These days, doing business built on good environmental practice is increasingly becoming essential in the eyes of investors, regulators,

Water Conservation

Waste Reduction

Healthcare Management Review Vol 8 /Page 79

Manufacturing systems

& competitiveness

The economics of pharmaceutical manufacturing are more complex than is perhaps generally realized.

Key to the

competitiveness of the industry is the efďŹ ciency of production Healthcare Management Review Vol 8 /Page 80

he increased investment and operating cost involved in setting up and running a GMP compliant facility do not mean that international standard production in Nigeria or in Africa cannot be competitive or that very large manufacturing plants are required to achieve cost eďŹ&#x20AC;ective production. Unpublished research commissioned by UNIDO indicates that ixed cost a s s o c i a t e d w i t h u p g r a d e s a r e generally directly correlated to the output of the facility such that technical economies of scale are not particularly signi icant beyond certain fairly low volumes. In fact, it is an established wisdom that a capacity of 1.5 billion tablets is necessary for competitive production borne out by the analysis. Further signi icance of ixed costs means that capacity utilization has a crucial impact on the cost of each unit o f p ro d u c t i o n . T h e n a t u re o f pharmaceutical production is that it is a batch process where diďŹ&#x20AC;erent products are manufactured with the same machinery. Change over time required between batches of diďŹ&#x20AC;erent products represent down time when assets are not being productively utilized. Machine down time can also occur where a production line is not balanced. For example, one piece of equipment may have a greater output per unit of time than another leading to a bottle neck situation where the

machine with the greater output remains idle for periods of time. Down time can also occur due to break down of equipment but preventive maintenance programs can minimize the impact of this. Modern business practices have evolved methods by which downtime of equipment can be kept to a minimum and capacity utilization optimized. This can for example involve campaigning batches of the same product so that limited change over time is required. The degree to which campaigning can take place to achieve ef iciency of production is to some extent also a function of the market (size and procurement agreements). Another i m p o r t a n t c o m p o n e n t o f t h e economics of production is working capital requirements, in which inventory carrying costs (inputs, work in progress, and retained inal products) are critical. The above comments refer to the manufacturing of approved products. However, the cost of developing new product is signi icant, particularly if bioequivalence studies are required. Companies can buy dossiers on the open market and go through a technology transfer process to set up production in their facility. However, the cost of high quality dossiers can run to $100,000 and more.

Healthcare Management Review Vol 8 /Page 81

THE EFFICIENCY OF PRODUCTION During the past few decades, many industrial companies have attempted to achieve manufacturing excellence. They have had at their disposal any number of methodologies and theories, quality initiatives, and costreducing concept. But few companies have made much headway. Manufacturing strategies - decisions related to siting, designing, and running factories - are often the same as they were 10 or 20 years ago. Plants often look and feel as they did then. Programs intended to improve performance, such as "Six Sigma" seem to ebb away, without producing the desired results. Sometimes it seems as though the harder manufacturers try to improve, the worse they perform. They are many such stories in manufacturing today. Executives do all the right things to improve operations, but somehow get out performed on cost, quality, or delivery. They may turn to bench marking exercises, but those are rarely meaningful. Low-cost competitors appear with prices that can't be completely explained by lower wages. As a last resort, companies out source production, and thus erode their own company's competence in it. Gradually, manufacturing is treated more and more as an outcast, and plant communities become disenfranchised. We call this condition ‘Manufacturing Myopia’. It is akin to the ‘Marketing Myopia’-

when companies de ine their brands too narrowly. Today, myopia is even more prevalent and dangerous in manufacturing than it was in marketing four decades ago. Like marketing myopia, manufacturing myopia is caused by isolation; it is the i n e v i t a b l e o u t c o m e o f k e e p i n g manufacturing strategies contained to the functional or even plant level, with little or no connection to the enterprise wise strategies. Every business should de ine itself through the interests of its market, not its own production priorities. BUILDING AWARENESS Surprisingly few major multinational or large-scale manufacturing companies have been able to break free of this trap. The cure for manufacturing myopia is 20/20 vision - that is, the cultivation of awareness about manufacturing costs and means. Companies can sharpen their own ability, to see their operations more clearly and redesign them more lexibly. For companies that achieve this kind of manufacturing prowess, the manufacturing function is no longer seen primarily as a cost center, ripe for cutbacks or outsourcing. Instead, the ability to produce higher-quality goods at lower prices in a more lexible manner is a component of their long-term competitive strategy and a central, dependable part of their identity.

Healthcare Management Review Vol 8 /Page 82

There is a staggering level of under investment in business process innovation as compared with product innovation

This involves two major commitments; irst, dedication of resources to building awareness. Leaders can peel back the layers of their own manufacturing operations and those of their competitors so that processes, advantages and disadvantages can be viewed more clearly. This means becoming more aware of a company's unique technological capabilities, the unful illed potentials of each plant (for reaching the appropriate markets), and the speci ic drivers responsible for their costs. Many manufacturers look at cost data primarily as justi ication and leverage for continually trimming expenses, rather than as a source of insights about scale, capital spending, labour deployment, technology, logistics, and supply chain ef iciency - all critical factors in measuring how well a company's manufacturing processes stack up against the competition. Toyota's manufacturing competence, widely admired for many years, stems in large part from the company's insistence on building inegrained awareness of every facet of production, at all levels of the company. The second commitment is patience, demonstrated by investing in the time and resources to address manufacturing productivity as a long-term, organizationwide strategic imperative and not as an isolated operational or functional issue. Plant managers are often expected to show the same fast pace of change as marketing,

inance, and procurement, where 6 to 18 month transformations are feasible. But those metrics don't apply to manufacturing eďŹ&#x20AC;orts, where improving results requires a very diďŹ&#x20AC;erent set of time frames. At m o s t c o m p a n i e s , t h e re a re fo u r dimensions of manufacturing in which highly visible data and analysis, projected farther into the future, can yield both shortterm gain and long-term advantage: technological distinctiveness, network sophistication, in-plant transformation, and labour modernization. TECHNOLOGICAL DISTINCTIVENESS One of the irst places to eliminate myopia is in the design, engineering, or purchasing of manufacturing technology. (This is called the "inherent" dimension of manufacturing, because it involves the physical nature of the products and the processes that create them). There is a staggering level of under investment in business process innovation as compared with product innovation.

NETWORK SOPHISTICATION Most companies organize their production and supply operations on a project-byproject basis. Unfortunately, we observe that there is little cooperation among companies within a Healthcare Management Review Vol 8 /Page 83

MANUFACTURING

supply chain to jointly optimize plant networks, another potentially lucrative example of lexible footprints. In the outdoor equipment industry and in basic chemicals, some companies have shared parts of their production capacity, sometimes spinning oďŹ&#x20AC; manufacturing. But capacity pooling is a rarity outside those two industries. IN-PLANT TRANSFORMATION It is now more than 30 years since the notion of manufacturing excellence - variously attributed to the Toyota production system, s o c i o - t e c h n i c a l s y s t e m s , q u a l i t y management, lean manufacturing, and highperformance systems - became widely known in Europe and the United States. By now, particularly every manufacturing manager can tell you about pokayoke, kanban, or selfsteering teams. But plants that have successfully implemented the manufacturing practices that produce ef icient and optimal operations are few and far between. And most of these are green ield sites: previously undeveloped locations where elite processes could be designed into the factory from the beginning.

In a so-called brown ield site (an established factory with a long-standing workforce), one may often ind high ixed costs or blatant overstaf ing. Installing "intelligent tools," "lean solutions," or "high-performance systems" will not solve these problems. If there are already more workers than work to d o , i m p r o v i n g p r o d u c t i o n s p e e d o r throughput will not lead to higher level of productivity, in part because overcapacity breeds "process creep," in which workers and managers merely overlay the new work rules and practices on top of their old routines. D e s p i te k n ow i n g t h i s , a l l to o o f te n , manufacturers myopically push a "lean" program through plants that are overstaďŹ&#x20AC;ed and have a high share of non-value-added work. We call this the fat ballerina syndrome: Only slimmed-down organizations stand a chance of performing smart moves. Companies also are often greedy or formulaic when it comes to assigning improvement objectives to plants. It's not atypical for a factory manager to be told to save 10 percent of ixed costs, while improving output and quality by 20 percent.

The competitive advantage of process optimization remains high, in part, because of t h e w o e f u l l y p o o r r e c o r d o f t h e manufacturing industry in general.

Healthcare Management Review Vol 8 /Page 84

MANIFESTO FOR MANUFACTURERS

A company seeking to overcome its manufacturing myopia may ind the task daunting at irst, but easier over time. The goal is not to " ix" manufacturing, but to build the capacity for long-term and medium-term manufacturing management among engineers, suppliers, and staff (building unionized staff), and to redesign the technology to the advantage of these capabilities and augment them. There are no universal rules for doing this because each manufacturer has a unique combination of in-house capabilities, labour histories, supply chain relationships, market demands, and technological innovations. A holistic manufacturing strategy emerges only from an analysis that assesses the critical operational data buried in the four dimensions of manufacturing design: inherent, structural, systemic, and realized. Even in the best of circumstances, it is tricky to distinguish the effects of individual manufacturing drivers. For instance, how much advantage does a competitor gain from operating continuous instead of batch processes, and how does that balance out the disadvantage it has maintaining smaller plants with greater indirect and overhead requirements? Manufacturing, inance, and

research and development executives can't answer such questions in isolation from one another; they need regular opportunities to think and strategize together. Companies that are willing to invest in a long-term change cycle discover that the learning curve in manufacturing is nonlinear. Even though the investment may be ready, measurable improvement is typically slow at irst and accelerates over time. It may take ive years to cross the initial threshold of a new production system, but after that irst experience, the capacity for changing technology grows rapidly - in part because the technologies themselves become more lexible, and in part because employees develop the skills and knowledge to deploy new production machines more ef iciently. Over the past 20years,manufacturing managers have learned that even the most eﬀective supply chain management will not lead to results unless these capabilities are implemented - not just within the function, but at the level of the executive suite. In a confrontational competitive environment, the choice is engaging in manufacturing competence as the core of your corporate identity - or continuing to pay the price of myopia.

Healthcare Management Review Vol 8 /Page 85

As already pointed out, the economics of

Rough estimate based on this analysis

pharmaceutical manufacturing are more

indicate that productivity levels could be

complex than is perhaps generally realized.

improved by around 30%.

Key to the competitiveness of the industry is the eﬃciency of production. Various principles on achieving eﬃciency have been developed in countries like Japan, and the United States of America over the last few decades (across industry sectors) and they include approaches such as lean manufacturing, Total Productive Maintenance (TPM), six sigma and the Toyota Production System (TPS). UNIDO conducted a pilot work with the aim of understanding how such approaches could impact on the competitiveness of the pharmaceutical industry in Africa.

However, the potential improvement will depend on the starting point of the company. One organization interviewed in the course of the research claimed to have been able to improve output fivefold through optimizing production scheduling process, instituting a change management process, and training all employees on the imperatives for quality and efficiency of production. There is then a substantial scope to improve a competitiveness of production through implementing approaches such as (TPM). However, actually realizing the benefits of such

The unpublished report provides evidence

approaches requires expertise, 'buy in' across

that substantial eﬃciency gains could be

the organization from senior management to

achieved if Japanese–style production

production staﬀ and embedding of a culture of

approaches were to be introduced

eﬃcient production.

The learning cur ve in manufacturing is nonlinear Healthcare Management Review Vol 8 /Page 86

MY GREATEST CHALLENGE

Mazi. SAM OHUABUNWA Fmr. CEO Neimeth

t was the challenge of Buy-Over of Pﬁzer Plc. It was an ac vity, which didn't have guidance. The greater challenge was making the company survive a er the buy-over. This was a company that operated in this country for 40 years under mul na onal management and all of a sudden it became a mono-na on and you now have a Nigerian company. Because we were employees at ﬁrst, we didn't understand all the challenges that were involved in taking a company at that level.

While it divested, we remained like a vassal, we were given licence to produce and market and we were given exclusive distribu on rights to market their products. We had agreement to manufacture some of their brands. We shall get raw materials from them and they would ﬁx the price and we shall sell their products and they would ﬁx royalty. For many, we were labouring to meet every obliga on. There was always something to say that you were not mee ng up.

I became CEO of Pfizer in 1993 and became Chairman/CEO in 1994. I was being evaluated in what they called, “income before alloca on” they didn't evaluate me on financial issues, which was handled by Pfizer Treasury, New York. I didn't realise it.

In 2000, I took a decision that I was going to walk out of those rela onships, by developing our own brands that we were not going to depend on Pfizer brands again. From 2005 to 2010, I invested heavily in research and development in building up our own brands. The moment I completed this and brought the company to be on its feet, having its own brands and products and no longer paying royalty, buying materials from open markets, nobody fixing prices for us, that was when I offered to re re in 2011.

We closed this deal on May 4, 1997, and May 5, Pﬁzer wrote a le er to all that it no longer owned shares, and the next morning all the banks wrote that they wanted all their facili es. The company could have gone bankrupt but it took the grace of God and goodwill for us to survive and began to grabble with funding the company and establishing our own ﬁnancial credibility, bringing in new investors and eventually changing the outlook of the company.

That was the greatest challenge I have had in my career being able to make Neimeth dependent and reliable.

Healthcare Management Review Vol 8 /Page 88

DISAPPEARING COMPARISMS

THESE DAYS THERE IS NO WAY TO AVOID THE WORLD ... we are all part of the process, as we all know one another's business

convergence and connectivity Healthcare Management Review Vol 8 /Page 89

IS COMMODITIZATION A DEADLY GAME?

usiness people across a wide range of

belt; and now its back to growth - but this time

industries have increasingly begun to

with pro itability.

identify maturation and commoditization as emerging challenges. Whether because of

Executives are raising the bar on themselves,

globalization, maturing technologies, ease of

which is a good thing. To meet their goals,

imitation, decreasing barriers to entry, open

however, they must ind ways to distinguish their

standards in technology markets, or pressures

o ďŹ&#x20AC; e r i n g s . T h e y a re t h re e i n t e r re l a t e d

from customers who are themselves being

approaches to diďŹ&#x20AC;erentiation:- Innovation,

squeezed, more companies are feeling the

Deepening of customer relationships, and

intensity of price competition leading many to

Bundling of products and services.

describe their business as commodity markets. It is one thing if you have inherent cost

Innovation has long been the primary basis of

advantage, but most companies don't and for

advantage, indeed, if you have a unique irst

them commoditization is a deadly game.

mover product or services, you can get far ahead of the competition.The most dramatic top-line

When you're constantly scrambling to make

growth opportunities come from inding new

your margins, you have to strain to think about

ways to make, do or sell. But it is getting harder to

top line. Everyone wants to ind ways to grow,

stand out through product innovation alone and

but real power lies in doing so pro itably - and it

the advantages, when they occur, are becoming

takes serious work.

more ephemeral - so we come to the second diďŹ&#x20AC;erentiation tactic: sharpening organisational

Ten years ago, everyone talked about top-line

focus on customers.

growth; then the focus became tightening the Credit:Rajay Gulati Healthcare Management Review Vol 8 /Page 90

They are three interrelated approaches to differentiation:- Innovation, Deepening of customer relationships, and Bundling of products and services.

This approach can help a company distinguish

concrete customer needs. By providing value

itself in a number of ways, from creating new

that is more than the sum of its parts, an

products or services for speci ic customer

integrated oﬀering can de lect the price

segments to personalizing service.

pressure that arise when you compete with others on product or service attribute alone.

A shift in emphasis from products to customers can be challenging, as it might entail

While initiatives to provide solutions are

fundamental change in a company’s structure,

gaining popularity in a range of industries, the

process, and ultimately, culture. None the less,

organizational adjustments required can be

even industries that have relied primarily on

monumental. For any of these diﬀerentiation

product innovation are discovering the

vehicle, execution is critical. In many

importance of gearing their organizational

companies, unfortunately, 'Innovation',

processes more directly to the needs of end

customer focus, and solutions, are rhetorical

customers. For instance, although the

claims lacking substance. But organizations

pharmaceutical industry has traditionally been

that have moved from rhetoric to action have

driven by the development of unique drugs,

found that delivering on these claims can be

marketed primarily to clinicians, companies

quite a stretch. If your company is organized by

such as Eli lilly and P izer have begun investing

products, for example, how do you reorient

heavily in consumer out reach. Becoming more

employees to think more broadly about

customer oriented is in vogue in other

customer needs? How do you train a sales force

industries as well.

that's accustomed to selling transactions to selling bundled products and services?

Hospitals are described as a long underserved customer segment and they have to be treated

It is important to remember that growth comes

as a distinct market. Stemming from this greater

in many forms and takes patience; it is episodic

focus on consumers, the third approach to

in nature. You may make a big jump forward

diﬀerentiation is to blend products and

through acquisition and then grow slowly and

services, thus providing "SOLUTIONS" to

steadily through internal innovations or alliances, the key is to be ready to act on whatever type of opportunities that arise. Healthcare Management Review Vol 8 /Page 91

THE HEALTH SECTOR: Challenges and Opportunities Many healthcare professionals in Nigeria deal with the limitations of the healthcare sector on a daily basis. This aďŹ&#x20AC;ects not only the level of care they can give their customers, but also the sustainability of their business. New developments in the ďŹ eld are providing opportunities for growth, innovation and quality improvement in healthcare. Healthcare Management Review Vol 8 /Page 92

Trust and quality are major limiting factors in the Nigerian healthcare market, ....you cannot ﬁnd a bank willing to lend money to improve healthcare delivery at the hospital.....“The only ﬁnancial institutions that would consider providing credit, charged such a high interest rate that there was no point in going ahead with it. The low quality of healthcare in the country is also leading to medical tourism to other countries and loss of revenue for us.”

igeria's health sector continues to struggle to meet the healthcare demands of the expanding population. Limiting factors include inadequate inancing and infrastructure, lack of standards and enforcement, household poverty, insuf icient risk pooling and low quality of healthcare services. These p r o b l e m s a l s o t r i c k l e d o w n t h e p h a r m a c e u t i c a l s u p p ly c h a i n , f ro m manufacturers, wholesalers and the pharmacy, down to patients who ind themselves paying a higher price for medicines of unclear quality. Although 20-30% of healthcare spending is 1 on medicines and for Africa, medicine spending is expected to reach USD 30 billion 2 in 2016 , the size of individual markets is under debate. Estimates for Nigeria range from 200 billion Naira3 to 340 billion Naira4, an indication of how opaque, weakly regulated and fragmented the market is. Despite their crucial role in healthcare provision, medicines are not always readily available or accessible and doctors and pharmacists face numerous constraints in their work.

According to the IFC's “Business of Health in A f r i c a R e p o r t ”, t h e r e g i o n n e e d s USD 25-30 billion in new investment over ten years. About half of the investment opportunities are expected to be in h e a l t h c a r e p r o v i s i o n , f o l l o w e d b y distribution and retail, pharmaceutical and medical product manufacturing, insurance, and medical education. As the investment risk remains high, current investments ring in at only a fraction of that. And given the long payback periods for healthcare infrastructure projects and the low purchasing power of the populations they serve, the commercial private sector is not likely to address this issue alone, especially in Africa's high interest rate environment. While lack of inancing is a major problem, governments, donors and investors are starting to see that the road to universal health coverage begins with strengthening the healthcare system as a whole. This means increasing quality, trust and transparency in the sector. Only then will investors start to see opportunities instead of risks and will cost of capital decrease.

1 WHO. The Pursuit of Responsible Use of Medicines: Sharing and Learning from Country Experiences, Technical Report 2012 2 IMS. Africa: A ripe opportunity, 2011 3 Business Monitor International, 2015 4 1.8 billion USD according to IMS (Africa: A Ripe Opportunity, 2011)

Healthcare Management Review Vol 8 /Page 93

PARTNERSHIP FOR INVESTING IN HEALTH

Pﬁzer Foundation support for Africa Health Infrastructure Fund

he Pﬁzer Founda on launched its impact inves ng strategy in fall 2013 with the inten on to broaden the use of its resources to magnify public health impact. The goal of its impact inves ng strategy, is to improve healthcare delivery and access for low income popula ons by suppor ng healthcare entrepreneurs and enterprises and fostering local innova on. To date, the Pﬁzer Founda on has implemented this strategy using two approaches: inves ng in funds that seek to generate social impact, and providing cataly c grant capital to develop the pipeline of social entrepreneurs and support their growth. It priori zes partnering with organiza ons with established experience in delivering impact and demonstrated ability to support entrepreneurs. Healthcare Management Review Vol 8 /Page 94

The Pfizer Founda on and PharmAccess share a commitment to improving access to affordable, quality health care in Africa. The Founda on was excited to build on its exis ng partnership with PharmAccess by suppor ng the launch of its new fund, the Africa Health Infrastructure Fund. The Founda on provided a cataly c grant to establish and support the ongoing opera ons of AHIF. The Founda on sees this as a great opportunity to support organiza ons like PharmAccess which are providing affordable, sustainable capital and technical exper se to foster local innova on in health care access and delivery.

THE AFRICA HEALTH INFRASTRUCTURE FUND One of the organizations driving change in the healthcare system in Africa is PharmAccess, wh i c h h a s s e t u p m a ny p u b l i c - p r iva t e partnerships to develop and implement quality standards, build trust and attract investments. Its award winning Medical Credit Fund combines loans to small and medium sized healthcare providers with support to improve business and quality using the internationally recognized Safe Care standards.

PharmAccess will complement its activities with a new fund, the Africa Health Infrastructure Fund. The Fund will cater to the demand for larger and more lexible loans and extend its reach to other players in the health sector, including suppliers to the health sector and medical education institutes. The Africa Health Infrastructure Fund will combine its loans with access to funds for tailor-made business and quality improvement.

One of the diﬀerentiating factors of this new fund is its ability to deploy more lexible and longer term inancial instruments in return for social impact. Healthcare delivery organizations cannot only gain access to capital, but will also bene it from training in good management practices and quality standards. In the same way, improved manufacturing and distribution practices will help the ef iciency of other players in the healthcare system, fortifying the supply chain. By building better businesses and by increasing investors’ trust in the sector, new d e v e l o p m e n t s l i k e t h e A f r i c a H e a l t h Infrastructure Fund can prove instrumental in setting in motion an upward spiral for the healthcare system in Nigeria. This is an approach that empowers entrepreneurs and healthcare professionals to create their own success.

As part of its impact investing strategy, the P izer Foundation has provided the Africa Health Infrastructure Fund with a catalytic grant to help e s t a b l i s h o p e ra t i o n s . W i t h t h i s g ra n t , PharmAccess and the P izer Foundation are strengthening their shared commitment to improving access to aﬀordable, quality healthcare in Africa.

Healthcare Management Review Vol 8 /Page 95

Bank of Industry ...re-positioning the Nigerian Pharmaceutical manufacturing industries to attain global standards with speci ic reference to WHO- cGMP certi icate. So far, the sector has enjoyed ﬁnancing from the Bank to the tune of over N7billion.

he Bank of Industry's contribution to the

Nigeria Plc that the Bank's support to these

growth of the Nigerian pharmaceutical

indigenous pharmaceutical companies was to

industry has been impactful in re-positioning

better position them to meet international

the industry to attain global standards. Already,

standards, with speci ic reference to the cGMP

the Bank is close to meeting its target of getting

certi ication by the World Health Organisation

six companies, who are on the books of the

(WHO), which will help them compete

B a n k , c e r t i i e d b y t h e Wo r l d H e a l t h

favourably with other global pharmaceutical

Organisation as being compliant with the codes

companies. He added that the tour revealed the

of Good Manufacturing Practice (cGMP), as

impressive progress made by the bene iciary

three companies: Swiss Pharma Nigeria

companies, including the fact that they had

Limited, Evans Medical Plc, and May & Baker

been able to secure certi ication.

Nigeria Plc have already been certi ied, while a fourth, Daily Need Industries Limited is set to

“This visit is to see how much impact the

be inspected in 2016.

companies have made utilizing the facility. We are pleased the companies have become fully

The Managing Director/CEO, Mr. Rasheed

certi ied and concluded the upgrading

Olaoluwa said during a facility tour of Swiss

processes. We took a tour of the premises, and I

Pharma Nigeria Limited and May & Baker

was amazed at the amount of eﬀorts and Healthcare Management Review Vol 8 /Page 96

Mr. Rasheed Olaoluwa Managing Director/CEO Bank of Industry

investments that have gone in to assuring the

empowerment of the National Agency for Food

highest quality in terms of the air quality,

and Drugs Administration and Control

quality of products from raw materials coming

(NAFDAC). So far, the sector has enjoyed

in, the handling, the processing, the packaging,

inancing from the Bank to the tune of over

the entire process is of international standardâ&#x20AC;?,

N7billion.

he noted. The industry is the biggest in West Africa, Other key milestones of the Bank's intervention

responsible for 60 percent of the medicines

into the sector include the increase in average

consumed in the ECOWAS region, and has a

production capacity of assisted companies

market size of $717million growing at a rate of

from 55% to 80%; the improvement in research

1 2 p e rc e n t a n n u a l ly, a c c o rd i n g t o t h e

and development which has aided assisted

Pharmaceutical Manufacturers' Group of the

companies to invest in more complex product

Manufacturers' Association of Nigeria (PMG-

lines, including production of anti-retroviral

MAN). The sector is a huge employer of labour,

drugs and easily injectable drugs; increased

with over 600,000 people working there, and

foreign exchange saving as a result of reduction

its export potential is considered high, as

of dependence on imported pharma products;

evidenced by the attraction of investments into

as well as the modernisation and

the sector in excess of N300billion Healthcare Management Review Vol 8 /Page 97

THE CAPITAL MARKET AS A WINDOW FOR FINANCING PHARMA INDUSTRY IN NIGERIA TO CREATE DRUG SECURITY

David Imaﬁdon

ADONRI

Pharmacist, Chartered Stoke Broker and Investment Consultant ( Chief Execu ve Oﬃcer Highcap Securi es Limited)

Healthcare Management Review Vol 8 /Page 98

One of the cardinal reason for the failure was the mismatch in their ﬁnancial structure. There were several instances of the use of short term funds to ﬁnance long term projects and also many cases of undercapitalization.

ith favorable government policies that will make the

Pharmaceutical Industry proﬁtable, investment funds from

the Capital Market can be easily attracted to the industry. In the

absence of an enabling environment, Nigeria has lost sizeable proportion of capital formed in the Pharmaceutical Industry. Several manufacturing companies have collapsed in the sector. Evidence of shrinkage abounds in the stock market where the number of Pharmaceutical companies listed on The Nigerian Stock Exchange has declined sharply. The sector is also one of the least profitable in the Stock Market. Other than the challenges of operating in a hostile manufacturing environment, most of the enterprises are architects of their own misfortune. Most of them were heavily reliant on short term debt to finance their medium to long term investments. They were just accidents waiting to happen. Long term capital formation aided by favorable public policies can lead to domestication of the input-output value chain of Nigeria's Pharmaceutical industry if the Capital Market is adopted as the main vehicle for financing the Industry. This will prevent past mistakes of mismatch in financing and solve the problem of undercapitalization.

Healthcare Management Review Vol 8 /Page 99

here is a common saying that Health is Wealth. Only a healthy work force can create wealth. Currently in West Africa, the economies of Liberia and Sierra Leone are facing serious challenges in wealth crea on due to the scourge of Ebola epidemic. As a result of its basic importance to human existence, any society that neglects its healthcare delivery system does so at its own peril. The situa on can be worsened if society fails to recognize the cri cal role of the Pharmaceu cal industry which provides several vital resources required for effec ve service delivery. The Nigerian healthcare system is far from the ideal set by WHO. The country has a fairly well developed human capacity to drive a good system but relies heavily on costly imports to provide the necessary materials input. Virtually all medical equipment, laboratory equipment, surgical instruments, consumables, disposables, devices, dressings and reagents are imported. Local drug produc on is the only area that contributes a bit of input domes cally to Nigeria's healthcare system. Paradoxically, the Pharmaceu cal industry which contributes reasonably well to the country's healthcare system is also heavily dependent on importa on of almost all its inputs to survive. Food and Drugs go together. As basic necessi es of life, food & drugs security is cardinal goal pursued by every responsible government in the world. Any na on that fails to a ain reasonable self sufficiency in food & drugs produc on could be at the mercy of its adversaries for survival. For instance in 2014, when Nigeria was in dire need of assistance to combat the raging spread of Ebola virus, the U.S turned down the country's request for supply of an Ebola drugs. The drive towards self sufficiency in drugs produc on in Nigeria will require great efforts at massive Capital Forma on in the Chemicals and Pharmaceu cal Industries. In the area of manufacturing, the Pharmaceu cal

Industry is one of the fairly well established sectors of the Nigerian economy. According to 2014 first quarter sta s cs from Nigerian Bureau of Sta s cs (NBS), the Chemicals and Pharmaceu cal industries combined, contributed about 0.04 % to na onal GDP. Some me in the past, the Nigerian Pharmaceu cal Industry was a major source of supply of drugs across West and Central Africa. Following the damage to its reputa on suffered in the 2nd republic during import licensing era coupled with emergence of fake drugs, Nigeria lost grip of the Sub regional market. Although NAFDAC has since restored sanity to the industry, new challenges have emerged preven ng it from a aining its pre eminent posi on. In the area of community prac ce, Nigerian Pharmacists and Patent Medicine Dealers are the drivers of capital Forma on. Prohibi ve laws in the past that restricted foreigners from par cipa ng in retail trade enabled Nigerians to control and dominate Community Pharmacy. However, due to their weak financial state, these enterprises are seldom organized into formidable enterprises. It is in manufacturing that the Nigerian Pharmaceu cal industry has witnessed massive Capital Forma on. This was spearheaded by several world renowned Mul na onal Pharmaceu cal companies that established manufacturing plants in Nigeria right from the colonial era. Their long term capital came in as foreign direct investment while working capital was sourced from local banks. Capital Forma on in the manufacturing sector by many State governments and domes c entrepreneurs proved fu le as most of the enterprises failed to stand the test of me. One of the cardinal reasons for the failure was the mismatch in their financial structure. There were several instances of the use of short term funds to finance long term projects and also many cases of undercapitaliza on. Healthcare Management Review Vol 8 /Page 100

Access to enough capital appropriate in type, volume and cost is a vital necessity for developing a world class Pharmaceu cal Industry in Nigeria. Despite inevitability of all factors of produc on, the role of capital has come to be recognized as the pivot around which other factors revolve. Capital required by businesses to prosper consists of short term, medium term and long term credits ﬁnanced by debt funds, debt-equity funds and equity funds.

facili es, by type, requires long term funds to finance procurement of the fixed assets which they need for produc on. This type of credit is also required by them to finance research and development necessary for innova ve growth. These needs have long gesta on and takes me to pay back. Due to lack of foresight, fund users have con nued to suffer cri cal errors in judgment by securing inappropriate credits that compounds the woes of their businesses.

Short term funds have tenors of less than two years. They are debt funds borrowed from the Money Market / Banks, repayable with accrued Interest within the tenor of the facili es. Due to the short term maturity proﬁle of short term funds, they are used to ﬁnance working capital by businesses.

Evidences abound in the use of short term credits to ﬁnance long term projects mainly by indigenous entrepreneurs in the Pharmaceu cal Industry, resul ng in ﬁnancial mismatch. Many industrial enterprises in Nigeria caught up in this mess are belabored with huge recurrent debt servicing obliga ons that have diminished their resources available for work.

Medium term credits have tenors longer than short term credits but less than five years. Above five years tenor are classified as long term credits in vola le economies like ours, otherwise, in stable economies they are ten years and above. Medium to long term credits are u lized mainly for development purposes. They are derived from equity, debt-equity and debt funds. They are used to finance fixed assets and other ac vi es with long gesta on period in businesses. Medium to long term credits are obtained from the Capital Market. Startups in the manufacturing industry and manufacturers pursuing expansion of physical

The drive towards self suﬃciency in drugs produc on in Nigeria will require great eﬀorts at massive capital forma on in the chemicals and pharmaceu cal industries Healthcare Management Review Vol 8 /Page 101

Another source of fragility in the manufacturing industry is undercapitaliza on. Inadequate capital in terms of volume reduces the capacity of enterprises to compete and withstand shocks. Pertaining to the cost of credit, several manufacturers have become uncompe ve due to the high mul ple digit Interest rates charged on their facili es. Meanwhile, foreign compe tors in the same ﬁeld borrow at lower single digit Interest rate. They also have easy access to near cost free equity capital to acquire capital goods.

CAPITAL MARKET AS FINANCING WINDOW Most of the ﬁnancing challenges faced by manufacturers in the Pharmaceu cal Industry can be addressed through the Capital Market. Capital Forma on through the Capital Market takes place in the Primary Market. This is where savers and borrowers or users of funds meet for business transac ons. The ins tu onal and legal framework for raising capital in the Primary Market is provided by Market Operators under the supervision of Regulators.

consumma ng business combina on in Nigeria is regulated at the apex by Securi es & Exchange Commission. Capital raising from the Inves ng Public otherwise called Public Issue that will ul mately be listed on a Stock Exchange is regulated by the Exchange. A cardinal goal of these regulators is Investor p ro te c o n . T h e i n st r u m e nt s u s e d b y companies (Issuers) to raise capital are called securi es. Issuance of securi es in the Primary Market can take any of the following forms: OFFER FOR SUBSCRIPTION

Market Operators who intermediate in the process of capital raising includes Issuing Houses, Trustees, Underwriters, Stockbrokers, Registrars, Solicitors, Repor ng Accountants, Auditors and Receiving Agents (Banks). The en re process of raising medium to long term capital from the inves ng public or

These are direct issues to the inves ng public by ﬂoa ng a number of shares (Equity) or debenture stocks / corporate bonds (Debt). The proceeds of Issue go to the Issuing Company (Issuer). Such funds are used to ﬁnance expansion projects or moderniza on of Healthcare Management Review Vol 8 /Page 102

Access to enough capital appropriate in type, volume and cost is a vital necessity for developing a world class Pharmaceutical Industry in Nigeria. Despite inevitability of all factors of production, the role of capital has come to be recognized as the pivot around which other factors revolve. Capital required by businesses to prosper consists of short term, medium term and long term credits ﬁnanced by debt funds, debt-equity funds and equity funds.

infrastructure and also fund part of working capital. OFFER FOR SALE A public oﬀer of shares in a company by existing shareholders. This method is also used by Underwriters to dispose of shares acquired (warehoused) in the course of underwriting new issues. The proceeds go to the sellers of such shares. RIGHTS ISSUE This is a method of raising new equity capital by means of oﬀer to buy more shares made to existing shareholders in proportion to their existing holdings, at concessionary prices. Many companies use this method to re inance

short term debt servicing obligations. In addition, restriction of the offer to existing shareholders ensures undiluted ownership. Rights Issue may be made at the discretion of the Directors. It does not need approval of members in a general meeting. It also does not require the publication of prospectus which is mandatory under an offer for subscription. This keeps the cost of issuance at a barest minimum. PLACING This is an arrangement whereby a new issue of shares or bonds is directly offered to selected individuals or institutional investors. If at conclusion of the placing, the number of members of the company remains under 50, thus maintaining its status as a private company, the offer is termed a Private Placement. Healthcare Management Review Vol 8 /Page 103

ADVANTAGES OF THE CAPITAL MARKET T h e C a p i t a l M a r ke t p r o v i d e s a v e n u e f o r manufacturers to effect op mal financing and capital broadening. Manufacturers are generally involved in produc on of goods. In a con nuously changing market environment where con nuous innova on is necessary, the need for steady investment in capital goods or fixed assets cannot be overemphasized. Due to long gesta on or payback period for investment in fixed assets, their acquisi on should be financed with long term funds or credits. The Capital Market is the best place to obtain this type of fund. Depending on objec ves of the Industrialist and his financial composi on, the credit can be structured to take into account the peculiarity of the project; the overall goal being to minimize the financial risk of the business. Unlike Bank or Money Market credits, funds raised through equity issues are available to Industrialists for perpetual use. Also, unlike Bank credits in which Principal and Interest must be repaid at regular intervals within their tenors, only biannual Interest is paid on Capital Market debt un l maturity when the Principal is redeemed. It enables the fund user to retain higher volume of the fund than would otherwise be possible if short term credits were used. Also, as a result of the single obligor limit imposed on Banks, there is a limit to the volume of credit a Bank can grant each customer. However, except small companies listed on the Alterna ve Securi es Market (ASeM), companies listed on the main market of The Nigerian Stock Exchange have no limit on the volume of funds they can raise. In terms of cost of funds, the Capital Market is much cheaper than the Money Market. Equity fund is technically cost free save for voluntary dividends expected by shareholders when profit is made. Payment of dividend is at the discre on of Directors. Due to the higher risks a endant to longer tenors of debt funds obtained from the Capital Market, the cost of fund is slightly higher because of

the inbuilt risk premium. However, when the me value of money is factored in and with availability of the fund in larger volume, it is generally considered cheaper and most suitable for manufacturers. Recourse to the Capital Market for finance played a major role in the emergence of Dangote Industries Plc as a global en ty. DAAR Communica ons Plc, owners of AIT, survived liquida on by its short term creditors when they refinanced through the Capital Market. CONDITIONS FOR ACCESSING THE CAPITAL MARKET Only Public Limited Liability Companies (Plc) can access the Capital Market to raise funds. Unlike Private Companies, PLCs have no restric on on transferability of their shares. This enables shareholders to exit their investment (without disrup ng opera ons of the Issuer) through secondary market windows provided by Stock Exchanges or Over the Counter Market. For Issuing Companies that intend to undertake public quota on of their securi es by lis ng on the Stock Exchange, they must meet the lis ng requirements. The Nigerian Stock Exchange has different lis ng requirements for its Alterna ve Securi es Market (ASeM) for SMEs, Main Equi es Market, Bond Market and Deriva ves Market. A er lis ng, to remain listed, the Issuing Companies must comply with the Post Lis ng requirements of The Nigerian Stock Exchange. Details of the Lis ng and Post Lis ng requirements are available on the website of The Nigerian Stock Exchange. The prospec ve Issuer is also under obliga on to meet the condi ons set out in the Investment & Securi es Act (ISA) of 2007 and those under the Rules and Regula ons of the Securi es & Exchange Commission (SEC). Stockbrokers are responsible for sponsoring the applica on by companies to list their securi es on the Stock Exchange.

Healthcare Management Review Vol 8 /Page 104

GANDHIAN ECONOMICS of capital eﬃcency

“ THE EARTH PROVIDES ENOUGH TO SATISFY MAN'S NEED, BUT NOT EVERY MANS GREED” Mahatma Gandhi

Disrupting Business Models

Modifying Organizational Capabilities

Creating Or Sourcing New Capabilities

Indian Entrepreneurs have a penchant for undertaking small projects using capital carefully. They have changed their approach to scale since 1991, but they maintain an unwavering focus on capital efﬁciency.

Healthcare Management Review Vol 8 /Page 106

IMMITATION INNOVATION

The Mismatch between aspirations and resources is the essence

of entrepreneurship.

Executives then have only two choices. Leverage existing resources in new ways, or change the rules of the game entirely.

radi onal innova on is heading for obsolesce - because parameters have completely changed - and it will take unsuspec ng organiza ons with it. Most innova on programs are built on the assump ons of inﬂuence and abundance. The more, the be er. Striving for big margins is Business School 101. However, we see shaken consumers all over the world asking for inexpensive or value-formoney products and services. We see the developing worlds demanding environment friendly products and services. Aﬀordability and sustainability, not premium pricing and abundance, should drive innova on today. Companies can respond to the challenge by developing strategies that allow them to create more products with fewer resources and sell them cheaply. The search for lower manufacturing costs and fresh sources of talent will increase pressure on them to globalize, leading to more-complex knowledge chains, supply chains, and crossborder interdependencies. At the same me the new process will make products and services accessible to a greater number of consumers. “Learning to do more with less for more people should be the innovator’s dream”.

GANDHIAN INNOVATION AND CAPITAL EFFICIENCY Studies have shown how Indian companies and organiza ons innovate, o en backed by government. Some are established companies, and others are start-ups. They aren't conﬁned to a few industries - they run the gamut of manufacturing and services, including drug development and healthcare. They are all radically innova ve. To innovate along the Indian line there are two variables to analyze. One is, of course the source of technologies involved. They can be bought; adapted or synthesized in a fresh way; or built ab ini o. The other key factor is the organiza on’s capabili es which means the competencies, knowledge, and skills that the company must apply in order to be successful. At one end of this spectrum, companies can disrupt business models by using exis ng capabili es but at a lower cost. At the other, they can create en rely new capabili es. Those in the middle modify capabili es. The two-way classiﬁca on leads to three types of Ghandhian innova on.

Healthcare Management Review Vol 8 /Page 107

· Disrupting Business Models: Several Indian companies have used Western technologies but created business models that have completely altered the industry’s economics. · Modifying Organizational Capabilities: Other Indian companies have synthesized several technologies and, as a result, altered their capabili es - such as design skills or speedily development of resources on a large scale · Creating or Sourcing New Capabilities: Indian entrepreneurs have focused not only on building disrup ve business models and honing exis ng capabili es but also on crea ng or acquiring new capabili es to solve problems, which o en requires technology development- or a collabora ve approach to obtaining technical exper se.

Two, the Indian economy did not start growing un l the 1990s, so local companies are small. For examples, in 2008 India's then largest Pharmaceu cal company, Rambaxy made $800 million in revenues- 60 mes less than the $48.2 billion Pfizer brought in and nine mes less than what the U.S. giant budgeted for research. Indian entrepreneurs have a penchant for undertaking small projects using capital carefully. They have changed their approach to scale since 1991, but they maintain an unwavering focus on capital eﬃciency. Three, local companies know that while India has both rich and poor people, catering only for the rich limits their market. Most target the aspiring middle class family, which lives on $5,000 a year. As a result, they're forced to develop value-formoney products and services by changing the price-performance equa on.

C A P I TA L E F F I C I E N C Y Contextual factors have undoubtedly facilitated the growth of Ghandhian innova on in India. One, the country's poli cal leaders experimented with socialism for more than four decades, which kept-out foreign capital and technologies par cularly from the U.S., but spurred local Inven on. Indian engineers, backed by government funding, developed nuclear weapons, rockets, imaging techniques and super compu ng by depending only on their ingenuity.

Four, entrepreneurs - the most important drivers of Indian's innova on mind-set - have had the audacity to ques on perceived wisdom. With increasing frequency, these leaders are rejec ng established ways of doing business in favour of new prac ces. The mix of minuscule research budgets, small size, low prices, and big ambi ons has created the need to think and manage diﬀerently. However, it could be wrong to conclude that only companies in India can develop Gandhian innova ons. Enterprises anywhere in the world can do so by modifying the philosophical underpinning for their innova on processes.

Healthcare Management Review Vol 8 /Page 108

CEOs must follow ﬁve cardinal principles to get Innovation right today: They must say:

MY GOAL IS INCLUSIVE GROWTH: CEOs of Pharma companies must develop a deep commitment to inclusive growth, which will force them to think of unserved customers, be they rural poor or urban poor. A focus on inclusion challenges executives to push price performance envelopes to ensure aﬀordability, and to think about increasing scale to lower costs. The starting point has to be the desire to serve more people. Though, companies often start by asking: “given our cost structure, which segments can we serve? “They Should ask: Given that we need to cater for the underserved, what should our cost structure be? MY VISION SHOULD BE UNAMBIGUOUS: Leadership is crucial to building Gandian innovations. All cases reveal articulated clear visions of what they want to accomplish. In addition, their visions always have a human d i m e n s i o n s : f o r e x a m p l e , h e l p i n g p o o r individuals and enabling patients to buy cheap medicines. These leaders also engage with project teams constantly, providing safety net that protects the team from self-doubt during despondent times and moderates overcon idence. · I MUST SET STRETCH TARGETS: CEOs must establish ambitious goals and clear time frames for

achieving them. Companies should ask: “What is our man-on-the-moon project?'' as they do in India's board rooms: ''What is our Nano Project? '' By creating aspirations that lie beyond the existing resources or current approaches to the delivery of products, CEOs will compel executives to be innovative and entrepreneurial. The Mismatch between aspirations and resources is the essence of entrepreneurship. Executives then have only two choices. Leverage existing resources in new ways, or change the rules of the game entirely. · WE MUST LEARN TO INNOVATE EVEN WHEN FACED WITH CONSTRAINTS: Gandhian Innovators start by accepting that there are constraints. That won't go away, leaders must force teams to work within self-imposed boundaries that stem from a deep understanding of customers. That will result in a novel, outside-in view of innovation. ·OUR FOCUS SHOULD BE ON PEOPLE: None of the successful organizations studied explicitly discussed shareholder wealth or pro it maximization. Their innovation projects had to be pro itable and build shareholder wealth, of course, but the focus was always on customers. The language inside their organizations was about customers as people, supplies as partners, and employees as innovators.

Consider one constant management compliant: “ At the price levels in these markets we cannot make profits”. This assumes that companies can't lower cost structures, that they can't reduce operating margins, that there is no price elasticity, and that poor people don't have much use for the product. The Indian innovators simply said: “What if we change the way we operate to reduce cost and focus on return on capital employed, not just on operating margins? If we reduce prices enough and make our products available to the poor, won't there be explosive growth as they quickly find uses for and buy our offerings? Healthcare Management Review Vol 8 /Page 109

Develop a deep commitment to serving the unserved

Ar culate and embrace a clear vision

Set very ambi ous goals to foster an entrepreneurial spirit

Accept that constraints will always exist, and crea vely operate within them.

Focus on people, not just shareholder wealth and proﬁts.

Aﬀordability and Sustainability are replacing premium pricing and abundance as innovation drivers, but few executives know how to cope with the shift. -

Companies must make their oﬀerings accessible to a greater number of people by selling them cheaply and must develop more products and services with fewer resources.

Westerners are struggling to tackle this challenge, but some enterprises in developing countries, particularly in India, are showing the way by practicing three types of Gandhian Innovation: -Disruptive business models -Modifying organizational capabilities -Creating or sourcing new capabilities

Companies anywhere in the World can follow suit by striving for inclusive Credit C.K Prahalad R.A Masheller

growth, establishing a clear vision, setting stretch targets, exercising entrepreneurial creativity within constraints and focusing on people, not just proﬁt or shareholders wealth

Gandhian innovators solve problems in two key ways: by acquiring or developing technologies and by altering business models or capabilities Healthcare Management Review Vol 8 /Page 110

INDIA THE IMPORTANCE OF GOVERNMENT POLICY IN INDUSTRIAL GROWTH Healthcare Management Review Vol 8 /Page 112

ver the past 40 years or so the Indian pharmaceutical sector witnessed rapid growth and transformation. From a mere volume of just Rs. 10 core

in 1947, the industry registered a sales turnover of about US $ 5.5 billion in 2004 with an annual growth rate of about 17%. The ﬂexible provisions of the Patent Act of 1970 and other supportive policies of the government of India played an instrumental role in the growth and development of this industry.

Given the importance of public policies in inﬂuencing the present structure of the industry, HMR reviews in brief, the important policy changes that inﬂuenced the positive growth of the Indian Pharmaceutical industries.

Healthcare Management Review Vol 8 /Page 113

Reviewing some of the important policy changes pertaining to the pharmaceutical sector in India, reveals the pivotal role of government policies in the growth and development of this sector overtime. Particularly, the absence of product patents, assured the market for life saving drugs, and protection from foreign competition, helped the growth of this industry. Positive externalities from the public sector and the research units enabled ﬁrms to gain competence in process engineering and maintain a competitive edge in the international market. In spite of high competition, the Indian pharmaceutical industry is one of the most proﬁtable industries.

FIRST EPOCH OF DEVELOPMENT (1850 -1945)

Introduction of the allopathic form of medicine. No production unit in the country Foreign Coys exported Raw materials from India, transformed it into inished products and imported it back to India.

In spite of sincere eﬀorts by a handful of entrepreneurs to establish indigenous companies, drug production in India was low and could hardly meet 13% of total medicine requirement of the country.

SECOND EPOCH OF DEVELOPMENT (1945 - Late 1970s) Concerned about the lack of manufacturing facilities and guided by the perception that 'foreign technology' was an important component for the growth of the pharmaceutical sector, the Government of India in its Industrial Policy Statement of 1948 decided to take a liberal attitude towards Multi National Companies (MNCs) and allowed them to establish plants without facing the hurdle of licensing agreements. Such liberal attitude of the government towards MNCs led to a free low of foreign capital and the sector witnessed

The indigenous industry, however received impetus

rapid growth. As noted by the Pharmaceutical

during the second world war due to the fall in the

Enquiry Committee of 1954, the drug production of

supply of drugs from foreign companies, many

India witnessed a 3.5 times growth in the

more Indian companies were established. With the

production from just Rs. 10 core in 1947 to about Rs.

entry of new irms in the market the production of

35 core by the end of 1952

drugs increased rapidly and indigenous irms were able to satisfy about 70% of the country's medical requirement.

However, in spite of the progress made by the sector, it was observed that foreign companies did not establish any production unit in India, but were engaged in assembling bulk drugs (imported from

Healthcare Management Review Vol 8 /Page 114

their country) for manufacturing the inal product

The Four EPOCHS of the INDIAN Pharmaceutical Industry First

1850

- 1945

Second

1945

-to the Late 1970s

Third

early 1980s

Fourth

early 1990s -To present time.

- to early1990s

MNCs were not keen to establish production units in

Between 1952 and 1962, drug productions in the

the country because the production of bulk drugs

industry increased from Rs. 35 crore to about Rs.

required investment in plant and machinery

100 crore. Besides, the capital investment for the

whereas importing bulk drugs and processing them

sector was about Rs. 56 crore in 1962 as compared

into the formulation was an easier and more

to its value of Rs. 23 crore in 1952.

pro itable business. To overcome the structural weakness that the sector was suďŹ&#x20AC;ering from, the government in its industrial licensing policy of 1956

ROLE OF PUBLIC SECTOR UNITS AND RESEARCH INSTITUTES

made it mandatory for foreign multinational companies to establish their production unit in the

Another note-worthy achievement of this period

country and produce drugs from the basic stage.

was the establishment of two public sector units (PSUs) the Hindustan Antibiotics Ltd (HAL) in 1954

The pharmaceutical industry was also included in the core group of industries for the purposes of licensing because of the 'high social value' content of medicinal products. Accordingly, the license was granted under the supervision of the Director General of Technical Development (DGTD) for setting up a new unit or expansion of the existing units, keeping into account the medicinal need for

and the Indian Drugs and Pharmaceuticals Ltd (IDPL) in 1961 to start the production of drugs from its basic stage. HAL was established to produce antibiotic with the assistance of WHO and UNICEF. It was the irst company in India to manufacture a number of antibiotic drugs like Penicillin, Streptomycin Sulfate, Ampicillin Anhydrous, and Gentamicin from the basic stage.

the country. In order to ful ill regulatory requirements, many foreign companies started

The technology required to produce these drugs

their production in India.

were imported mainly from a large number of foreign companies which were then adapted to the

During this period, a large number of domestic companies also entered the market mainly due to government support under the Industrial Licensing Act and started producing a wide range of products.

local condition assisted by the in house R&D wing of the company. Apart from PSUs, the public funded research institute also played a pivotal role in the Healthcare Management Review Vol 8 /Page 115

The technology required to produce these drugs were imported mainly from a large number of foreign companies which were then adapted to the local condition assisted by the in-house R&D wing of the company.

growth of the sector. The government created a

T h e A m e n d m e n t of Pa t e n t L a w a n d t h e

number of research institutes under the guidance of

Implementation of the New Drug Policy (The Second

the Indian Council of Medical Research (ICMR) and

Epoch of Development)

the Council of Scienti ic and Industrial Research (CSIR) to promote the technological advancement of the country.

Concerned by the high price of medicines and the lack of domestic infrastructure, the government constituted the Hathi Committee in 1974 'to probe

The Public Enterprises and Research Institutes also

into the problems and suggest a rational drug policy

played a key role in enriching the human capital

that would meet the medicinal needs of the country'.

e n d o w m e n t t h a t w a s n e c e s s a r y f o r t h e

Recommended by the Committee's report, the

pharmaceutical sector of the country to lourish.

government amended the Patent Act of 1970 and

Almost all the entrepreneurs of the big companies

enacted the Foreign Exchange Regulation Act

(about one-third of the 200 large companies) have

(FERA) 1973 in its New Drug Policy(NDP) of 1978.

worked in IDPL production or the R&D wing at some point of time or the other. The necessary skill that is required for reverse engineering was acquired by entrepreneurs of the pharmaceutical industry through their long-term associations with public sector units, which is fundamental to the product and process development for this industry.

The Patent Act of 1970 recognized only process patents. The life of the patent was also reduced signi icantly from 16 to 5 years from the date of sealing or 7 years from the date of illing a complete application, whichever is shorter; in other words, the maximum period of patent was 7 years. Further, in the amended Act an MNC could patent only one

By early 1970s due to favorable government

process. FERA was implemented to compel MNCs to

policies, the domestic industry had grown

manufacture high technology bulk drugs.

considerably from a state of non-existence. In 1952, the total turnover for the sector was around Rs. 32 crore.

It was laid down in Section 29 that FERA companies, i.e., foreign companies with an equity holding of more than 40% and engaged in the production of Healthcare Management Review Vol 8 /Page 116

Because of the competence gained by the Indian pharmaceutical companies in process engineering, the Indian companies also emerged as the major players in the domestic market.

only formulation products or bulk drugs not

The other signi icant outcomes were fall in the

involving 'high-technology', should reduce their

prices of the medicines and the introduction of a

equity holding to 40% or below. For FERA

large number of generic versions of patented

companies, licenses would be granted only when

products. The drug policy of 1978 was, however,

the companies provide 50% of bulk drugs to non-

revised in 1986 to dilute the mechanism of check

associated formulators, and the ratio of value of bulk

and control with respect to the production of certain

drugs used in own manufacture to the value of total

categories of drugs. NDP 1986 also regularized the

formulation production would not exceed 1:5.

production of a large number of drugs that were

The corresponding igures for domestic irms were about 1:10. In addition, the NDP of 1978 had reservation for the domestic manufacturer for the production of various categories of drugs.

earlier questionable on regulatory grounds. This was done to encourage greater participation of private players in the production of drugs, because the public sector started to suďŹ&#x20AC;er from industrial sickness due to the lack of proper commercial

Economies of scale, technology and pricing of

orientation.

products are the deciding factors for the production

THE THIRD EPOCH OF DEVELOPMENT

of drugs. The Patent Act of 1970 and the changes in domestic regulation virtually curbed the monopoly of MNCs. Adopting the lexible provisions of the

The Phase of Liberalization, De-Control and Product Patent .

amended patent act, indigenous companies started

The growth impetus that the sector received during

imitating the patented product and could eventually

the 1980s continued even in the 1990s. The

come out with better processes for the same

pharmaceutical sector witnessed a consistent

product. The FERA and the NDP of 1978 also

growth of around 16% from 1995 onward. The bulk

restricted the activities of MNCs.

drug and the formulation sector also experienced a

It is, therefore, not surprising to ind that the share of MNCs dropped from 70% to about 50% by the late 1980s. The industry also embarked on the path of high growth during this period.

growth rate of between 15% and 20% during this period. Because of the competence gained by the Indian pharmaceutical companies in process engineering, the Indian companies also emerged as the major players in the domestic market. This Healthcare Management Review Vol 8 /Page 117

resulted in a further fall in the share of MNCs in the

competence in manufacturing high quality products

country. The country also gained reputation in the

that also have demand in the international market,

international market as low cost producer. The

paradoxically, the Indian market is also looded with

number of production units in the Indian

spurious drugs to a large extent. To control spurious

pharmaceutical sector also increased from 1,752 in

drugs, the government incorporated Schedule M in

1952â&#x20AC;&#x201C;1953 to 20,053 in the year 2000â&#x20AC;&#x201C;2001.

the Drugs and Cosmetic Act in 1995 that lays down

However, there was a shift in the regulatory framework under which the sector was operating.

Good Manufacturing Practices (GMP) at par with WHO standards.

As part of the liberalization policy, the Government

Apart from the changes in domestic policies,

of India in the New Drug Policy of 1994 and 2002

perhaps the most controversial and debated

abolished the licensing requirement for entry and

regulatory changes relate to the amendment of the

expansion of irms. Further, 100% inward foreign

Patent Act of 1970. To recall, the Patent Law was

direct investment has been allowed under the

amended under the WTO compulsion to recognize

automatic approval of RBI and automatic approval

product patent from 2005 onward.

for technological collaboration has been approved. Further, free import of formulations, bulk drugs and intermediaries are allowed. The government also

This was implemented in three successions: The irst version of it was implemented in 1995 in which the 'mail-box' system was recognized.

implemented certain rules in its New Drug Policy for producers to follow good manufacturing practices and produce quality products.

On January 1, 2000, a second amendment was introduced. Its key issues re-de ined patentable

Concern about quality medicine was high on the

subject matter, extended the term of patent

agenda of the government, because the WHO study

protection to 20 years and amended the compulsory

reported (2007) that about 35% of fake drugs

licensing system.

produced in the world come from India, which also had a spurious drug market worth Rs. 4,000 crore. Thus, while, on the one hand, India has shown its

A third amendment of patent law was made on January 1, 2005 to introduce product patent regime in areas, including pharmaceuticals that were hitherto covered by process patents only.

HMR noticed that there was a gradual shift in public policy from the regime of control and process patents to a regime of decontrol and product patents. These changes in policy had a far-reaching effect on the behaviour of the Indian pharmaceutical industry. Adapted From: M.Mazumbar: Performance of Pharmaceutical Companies in India Healthcare Management Review Vol 8 /Page 118

REVERSE PHARMACOLOGY

"The Pharmaceutical company Lupin reversed the usual drug development process - that is, it gathered clinical data before running Lab test - to create an affordable treatment for Psoriasis. It came up with an effective formulation for a fraction of the money and time it would have normally taken." Healthcare Management Review Vol 8 /Page 120

any Indian companies have invested in developing new products or services, but their goal is usually to create inexpensive offerings on shoestring budgets. They succeed only because they challenge conventional techniques. Traditionally, the development of Pharmaceuticals starts in a Laboratory and moves to a clinic through a complex system of validation and testing, as we all know. This can take 10 to 12 years and can cost more than $ 1billion. In order to identify medicines more quickly and cheaply, Indian policy makers and scientists are trying to reverse the process. They are asking, “what happens if instead of going from laboratories to clinics, companies went from clinics to laboratories and then back to clinics”? The idea is to use clinical and quantitative data to develop target formulations that undergo preclinical and clinical research trials. For example, around 2 per cent of the world’s population suffers from Psoriasis - a recurring in lammatory skin disorder and patients spend approximately $15 Billion a year on treatments. Monoclonal antibody treatments which cost $15,00020,000 for a course, are effective but beyond the reach of most Indians. W h e n L u p i n , o n e o f I n d i a ' s w e l l - k n o w n pharmaceutical companies, announced its interest in developing herbal-based medicines, a practitioner of a traditional branch of Indian medicine called 'Sidha' approached the company with a cure for Psoriasis. On the basis of knowledge handed down in his family from generations, he claimed that the juice of the 'Argemone Mexicana' (Mexican poopy) would cure the disease completely. There was no clinical evidence for the claim, but Lupin collaborated with the practitioner, developed a formulation, and started the irst trial in early 2000. Dermatologist used quantitative measures such as the Psoriasis Area and Severity Index to assess success. Patients who took the herbal medicine not only were cured but also did not suffer a relapse for the next three years.

In January 2003, the government oﬀered to fund the next stage of the project and arranged partnership with two-state-owned research organization, the Central Drug Research Institute and the National Institute of Pharmaceutical Education and Research. These organisations developed the drug in three phases, according to US Food and Drug Administration guidelines. The irst step was to Identify the active elements to gain insights into how the treatment worked and to create a safe oral antipsoratic formulation that would lead to curative and preventive therapy. Once the safety and toxicity studies were complete, the Drug Controller General of India approved the drug for trials. The key objective at that point was to determine the right dosage levels. The dosage went through a clinical study that used healthy adults in the irst- phase. In the second phase, which ended in April 2007, the safety and ef icacy of three diﬀerent dosage were tested on patients with moderate to sever Psoriasis. L u p i n c o m p le te d t h e t h i rd p h a se - t h e i n a l multicentric, randomized, paralled-group studies- in March 2010, and launched the drug by the end of March 2010. So far, the Indian company has spent $10 million and eight years to develop a cure for Psoriasis - a fraction of the money and time it would have normally taken. Moreover, treating the disease with LUPIN's drug will cost $100 per patient, compared with $15,000 in the US. In general, the Indian market is large volume and low in value compared with the U.S. For example, P izer sells Lipitor for 90 cents in India, as opposed to $2.70 in the U.S, because the India equivalent, Rambaxy's Atorvastin, sells for 90 cents. Unsurprisingly, reverse pharmacology is gaining ground, with local companies chasing multiple leads for treating Cancer, Arthritis, Hypertension, Diabetes, and Osteoporosis, among other health problems. Credit: C.K Prahalad & R.A, Mashelkar Healthcare Management Review Vol 8 /Page 121

Healthcare Management Review Vol 8 /Page 122

Pharmaceutical Manufacturing in 2050 will look very different from today and will be virtually unrecognized from that of 30 years ago. Successful ďŹ rms will be capable of rapidly improving their physical and intellectual infrastructures to exploit changes in technology as manufacturing becomes faster, more responsive to changing global market and closer to customers. A look out to 2050 reveals the transformation which will occur in the pharmaceutical manufacturing sector and the environment in which it operates. These changes will present major opportunities for Nigerian pharmaceutical industries to develop competitive strengths in new and existing areas, but will also present considerable challenges and threats, not least through increases in global competition. Healthcare Management Review Vol 8 /Page 123

onstant adaptability will pervade all aspects of manufacturing, from research and development to innovation, production processes, supplier and customer interdependencies, and lifetime product maintenance and repair. Products and processes will be sustainable, with built-in reuse, remanufacturing and recycling for products reaching the end of their useful lives. Closed loop systems will be used to eliminate energy and water waste and to recycle physical waste. These developments will further emphasise the key role of physical production in unlocking innovative new revenue streams, particularly as irms embrace ‘servitisation' and manufacturers make use of the increasing pervasiveness of 'Big Data' to enhance their competitiveness. In the public sector, policy frameworks that aﬀect the manufacturing sector directly and indirectly will need to recognize the extended nature of value creation and the new ways it is being developed. Public planning circles should match the time scales of irms' own long term planning requirements. And it will be important that lows of highly skilled workers and Patient Capital support to promote critical mass in small and medium sized enterprises are all internationally competitive. The implications for pharmaceutical manufactures and the Nigerian government are substantial. Some business are already adapting to world class (with WHO –cGMP), but many are not positioned to s u c c e e d i n a f u t u re wo r l d w h e re g re a t e r opportunities will be balanced by greater competition. Nigeria needs to radically change its approach to providing a constant and consistent framework within which all irms aspire and prosper. A business–as–usual approach will not deliver that outcome. Other economies are already ahead, and catching up will require an adaptive capacity that the Nigerian government is currently demonstrating. A c h i ev i n g t h i s i s e s s e n t i a l , a s t h e f u t u re c o m p e t i t i v e n e s s a n d h e a l t h o f N i g e r i a n pharmaceutical manufacturing will aﬀect many other parts of the economy through its numerous linkages.

The key message is that there is no easy or immediate route to success, but action needs to start now to build on existing support, and to focus and rebalance it for the future. Above all, policy design will need to address entire system eﬀects. It will also be crucial to address the current image associated with manufacturing. Here government and industry should work together to further promote and market the opportunities for careers in manufacturing industries at all levels of education. Financial challenges for the sector include a shortage of risk capital. This is particularly evident as a f u n d i n g g a p b e t w e e n r e s e a r c h a n d e a r ly development and the funding for proof of concept that is usually required before the market steps in. There is also a shortage of funding for applied research and development in some areas. The importance of pharmaceutical manufacturing to t h e N i g e r i a e c o n o my i s i n c o n t rove r t i b l e . Manufacturing is no longer just about production, it is a much wider set of activities that create value for Nigeria and bene its a wider society. Pharmaceutical manufacturing includes signi icant innovation. It creates jobs that are both highly skilled and well paid. It also contributes to the rebalancing of the economy with its strong role on exports and import substitutions. MANUFACTURING VALUE CHAIN Pharmaceutical manufacturing is changing profoundly, creating major new sources of revenue and value beyond the production and sale of products. Manufacturing has traditionally been understood as the production process in which raw materials are transformed into physical products through processes involving people and other resources. It is now clear that physical production is at the centre of a wider manufacturing value chain. Pharmaceutical Manufactures are increasingly using this wider value chain to generate new and additional revenue, with production playing a central role in allowing other value creating activities to occur. Healthcare Management Review Vol 8 /Page 124

WHAT ARE THE LIKELY CHANGES? Technology will play a central role in driving

manufacturing, new materials, computer-

change. Some of the value being created in 2050 will

controlled tools, biotechnology, and green

b e d e r i v e d f r o m w h o l l y u n a n t i c i p a t e d

chemistry will enable wholly new forms of

breakthroughs but many of the technologies that

personalisation. Direct customer input to design

will transform manufacturing, such as additive

will increasingly enable companies to produce

manufacturing, are already established or clearly

customised products with the shorter cycle-times

emerging. Important pervasive and secondary

and lower costs associated with standardisation

technologies including ICT, sensors, advanced

and mass production.

materials and robotics when integrated into future products and networks will collectively facilitate fundamental shifts in how products are designed, made, oﬀered and ultimately used by consumers.

Digitised manufacturing value chains: Pervasive computing, advanced software and sensor technologies have much further to go in transforming value chains. They will improve

Mass personalisation of low-cost products, on

customer relationship management, process

demand: The historic split between cheap mass

control, product veri ication, logistics, product

produced products creating value from economies

traceability and safety systems. They will enable

of scale and more expensive customised products

greater design freedom through the uses of

will be reduced across a wide range of product

simulation, and they will create new ways to bring

types. Technologies such as additive

customers into design and suppliers into complex production processes.

“Looking to the future, we recognise that transformational change is required and emerging technologies present an opportunity to create a paradigm shift, allowing us to manufacture medicines faster, greener and at a lower cost. Manufacturing has become increasingly critical in the pharmaceutical sector and will require more agility to respond to patient needs, more flexibility to bring production closer to customers, as well as increases in efficiency and sustainability. This will underpin high quality standards and ensure new medicines are affordable for patients around the world. The prize is significant and it is imperative that industry and government work together to seize this opportunity and secure a leading position .” Healthcare Management Review Vol 8 /Page 125

Roger Connor, President of Global Manufacturing and Supply, GlaxoSmithKline plc

A SYSTEM BASED APPROACH FOR THE FUTURE It is essential for government and industry to work together to forge new policy frameworks and develop measures so that Nigerian pharmaceutical manufacturers are able to fulďŹ ll their potentials and contribute 70% of required medicines. Future approaches to policy depend strongly on recognizing that pharmaceutical manufacturing is part of an extended system, which requires a response from government that cuts across policy departments. This requires a system based approach that takes full account of the linkage between science, technology, innovation and industrial policies. The result is the need for more integrated coordination by government across policy domains and government departments, that makes it easier t o a n t i c i p a t e t h e p o t e n t i a l u n i n t e n d e d consequences of policies, and to identify where intervention would achieve the greater impact. Such approach should help to avoid the adoption of selective policies based on narrow objectives that might inadvertently hold back sustainable growth, and which are more a feature of the current approach which devolves policy making to diďŹ&#x20AC;erent government departments with diďŹ&#x20AC;erent roles and agendas. A look out to 2050 reveals the transformation which will occur in the pharmaceutical manufacturing sector and the environment in which it operates. These changes will present major opportunities for Nigerian pharmaceutical industries to develop competitive strengths in new and existing areas, but will also present considerable challenges and threats, not least through increases in global competition.

The Nigerian government needs to act in three systemic areas to: - Exploit new forms of intelligence to gain sharper insights into the sector and where value is being created. - Take a more targeted approach to supporting pharmaceutical industries, based on a system wide understanding of science, technology, innovation and industrial policies. - Adapt and build innovative new institutional capability for the future.

Policies and measures also need to be developed to support pharmaceutical industries as it becomes: - Faster, more responsive and closer to customers. - Exposed to new market opportunities. - More sustainable. - Increasingly dependent on highly skilled workers.

There is need to focus on: - The role of institutional infrastructures and systems in supporting industry. - The need for increasing the availability and quality of long term, (or patient) capital. - The role of a national belief in value creation in facilitating industrial success.

Adapted from: A New Version for UK Manufacturers Healthcare Management Review Vol 8 /Page 126

he Idea: Alaix had spent years running businesses inside large companies. But when P izer decided to spin oﬀ his division in an IPO, the soon-to-be CEO embarked on an intensive training regimen to prepare for a very diﬀerent role. For most of my career, I didn't aspire to be the CEO of a U.S. public company. I was born in Spain and spent the irst few decades of my professional life there. I was a inance specialist: I worked as an auditor and a controller. I was employed by a bank, and then by Texas Instruments, and then by Polaroid. But I decided I wanted to build on my inance career and become more of a general manager, running a business within a large corporation. At that point I moved into the pharmaceutical industry. First I worked at Rhô ne-Poulenc Rorer (which later became part of Sano i-Aventis

through a merger), and I was sent to run its operation in Belgium. Then I moved to Pharmacia as the president of its business in Spain. When P izer bought Pharmacia, in 2003, I was asked to relocate to its U.S. headquarters as the president in charge of a large section of Europe that stretched from Portugal to Russia. I enjoyed the broad scope of those general management jobs. In my irst role at P izer, I learned to navigate a large organization and advocate for the opportunities in my region. I also gained suf icient experience to manage a business across diﬀerent cultures and with a high level of complexity. In 2006, when P izer asked me to run its animal health division, it was a great opportunity to take on a more global role and expand the scope of my responsibilities to new areas such as R&D, business development, and new product marketing.

Healthcare Management Review Vol 8 /Page 128

HANDS ON THE PRESENT eyes on the future

Case Study:

The CEO of Zoetis on How He Prepared for the Top Job Juan Ramón Alaix

Every leader has a recipe for success. For me, preparation is most important. I believe in overpreparing, even though it's time-consuming. Part of preparation is being humble enough to accept feedback. The time I spend getting ready for a challenge and the openness I have to coaching are investments that always pay me back.

At the time, I didn't anticipate that it might lead to a CEO job. But ive years later P izer launched a strategic review to ind opportunities to create value for shareholders, and one of the options was to spin oﬀ the animal health business in an IPO. The CEO of P izer told me that the IPO was likely—and that I had been selected to become the future CEO of the new company if it happened. We talked about how very diﬀerent that job would be from the ones I'd held before. I'd proved that I could run a business, but that didn't necessarily mean I had the skills to be a CEO. I would have to develop them. Because the IPO process might take 18 to 24 months, we agreed that this would be a crucial period in which to con irm that I could lead the new company.

As a general manager, I'd had plenty of experience building teams and communicating with employees and customers, but as CEO I w o u l d a l s o h a v e r e s p o n s i b i l i t y f o r communicating our strategy to the outside world—including the media, analysts, and investors. Employees and customers already know a good deal about your business, but other constituencies may know nothing. The sophisticated external communication skills that a CEO must have would be especially important in the months leading up to the IPO. During our road show, I would be telling the company's story to analysts and potential investors, and their opinion of our strategy would have a direct impact on the value of our stock oﬀering.

Healthcare Management Review Vol 8 /Page 129

It was also valuable to have an outsider listen to my concerns and challenge me to think differently. When you're a business leader, your time is often spent mostly with colleagues and subordinates, and you miss the challenge of an independent opinion. My mentor raised issues I hadn't considered. He would ask questions and challenge me to examine my choices. These structured conversations forced me to do a disciplined analysis to answer his questions.

To prepare for my role at Zoetis, which is the name we'd chosen for the new company, I started an aggressive training program that lasted nearly 18 months. I'm a big believer in preparation and the need for training, no matter where you are in your career or how high in a corporation you've already risen. This process was crucial in helping me feel comfortable by the time the IPO took place. THE MENTOR The process began with the HR department, where I worked to define my development plan. The first thing we decided was that I would benefit from mentoring by an experienced CEO from outside Pfizer. A company called Merryck, which arranges such mentorships, put me through a series of tests and assessments to identify skill gaps. We agreed that the objective of mentoring wasn't to change my leadership style, which had proved successful. Nor were we focused on my general management abilities. Rather, we intended to identify specific aspects of the CEO job in which I lacked experience or particular skills that I wanted to work on.

Merryck proposed several mentor candidates, and I chose the former CEO of a big European company. His experience would complement conversations I would be having throughout my training with the CEOs of other U.S. companies.

He and I began by spending two days on a retreat. We talked about all the ways that being a CEO was different from leading a business unit. We talked about the specific stakeholders who would have an influence on the future success of Zoetis. Then we talked about how best to communicate with each stakeholder group. After the retreat, we usually spoke at least once a month. Sometimes we met face-to-face, whether I was in Europe or he was in the United States. Sometimes we talked by phone. We typically spent a few hours each month in conversation.

There was no big aha moment in these discussions, but I found them really valuable. Remember that during this time I was still running the business as I'd always done, and I was also spending a lot of time ﬁguring out the new structure for our organization after the IPO. Once we separated from Pﬁzer, we would need our own corporate functions, governance model, culture, and so forth. Between running the business and planning for the IPO, I could easily have avoided the work of preparing for the CEO job on the grounds that I was too busy. Having regular appointments with my mentor prevented that.

It was also valuable to have an outsider listen to my concerns and challenge me to think diﬀerently. When you're a business leader, your time is often

Healthcare Management Review Vol 8 /Page 130

spent mostly with colleagues and subordinates, and you miss the challenge of an independent opinion. My mentor raised issues I hadn't considered. He would ask questions and challenge me to examine my choices. These structured conversations forced me to do a disciplined analysis to answer his questions.

convey, to help people understand the strategy for an animal health business. One of the challenges of the spinoff was that the analysts who covered Pfizer and the investors who owned Pfizer shares knew a great deal about the human health business but had never paid much attention to the animal health business. I needed to demonstrate that the two are very different.

THE COMMUNICATIONS TRAINER The second person who was important in helping me was a communications expert who'd been recommended by our internal public relations team. He and I spent a lot of time discussing the very diﬀerent formats in which a CEO needs to communicate - many of which I had little experience with. You have to be comfortable doing both TV interviews and print interviews. You have to be able to skillfully deliver a keynote address, talk with a small group, or meet one-onone with a key investor. You have to handle both the scripted and the Q&A parts of an earnings call, which I'd never done before. It was hard work. I ended up using two trainers over the course of my preparation. One of them joined my team for a while. He watched me in small meetings and at large town hall style events and gave me a lot of feedback.

Our work wasn't focused on delivery alone - we also needed to hone the message I wanted to

The trainers taught me speciﬁc deliver y techniques that I now use regularly, such as nonverbal communication, speaking simply about complicated issues, and paying attention to pacing while speaking. During the training all my presentations were videotaped; we'd watch the tapes together and continue to make improvements.

The process of separating from a larger company is fairly unusual, and during my training I met four or ﬁve CEOs who'd gone through it. One thing I learned from them is that it can be challenging to manage the evolving relationship with the company from which you're separating. In most cases the former parent company will continue to be a supplier, a shareholder, or a customer, or you'll have service agreements with it - and even though you've been doing business together for a long time, the relationship and priorities change. It's an issue I hadn't expected, but those veterans were right.

A lot of people, when they reach a certain age, are reluctant to accept training. That's not true for me - I'm very open to it. I'd had communication training over my career, but the preparation for our IPO was much more intensive. Before I did my ﬁrst TV interview, for instance, I probably spent more than eight hours doing mock interviews. I believe that the key to success in communication is preparation. By the time I gave the ﬁrst road-show pitch to investors, I'd rehearsed it at least 40 times. Healthcare Management Review Vol 8 /Page 131

COMMUNICATING AS A CEO No one rises to the top job without communicating well in front of a crowd. But once you step into a new role, the nature of your communication challenges may change. HBR asked Nancy Duarte, a leading presentations expert, what makes a CEO's communication successful. Why does a CEO have to communicate differently from other C-suite executives? More than most of them, CEOs have to be motivators—of employees, partners, investors, and customers—which alters the tone of what they say. They envision a future and must be persuasive enough to change people's beliefs and behavior to see that future realized. Many CEOs use stories to create a strong emotional connection that inspires action. CEOs are called on to communicate much more frequently and with a wider variety of audiences, and their messages must resonate with all their important stakeholders. What mistakes do new CEOs make in communicating? I see two as the most common. First, CEOs are really busy, so some skimp on the time they spend getting communications right. This mistake manifests in a variety of ways—for instance, the CEO may sound like he's reading from a script if he hasn't learned the material well enough to deliver it conversationally. Failing to prepare adequately is shortsighted, because communicating badly often creates additional problems, and time must be spent managing them. Second, some new CEOs fail to realize that the position requires them to elevate their communications and leave some of the details to subordinates. For instance, a CEO who came up through inance may need to learn to pass on certain questions even if he knows the answers, because it's better to let the CFO provide the details. Particularly on earnings calls, CEOs sometimes lapse into their old roles or jump in when it would be better to defer to a subordinate. Do new CEOs have trouble finding the right voice? Some do. I see some new leaders who want to copy the style of another leader or speaker they admire. I've lost track of how many CEOs have asked me to help them learn to give presentations the way Steve Jobs did. In every case my response has been that very few people can pull that off, so they'd do better to develop their own style. Particularly for CEOs, who may have less day-to-day contact with their audiences than team leaders or other lowerlevel managers do, it's important to be personal and authentic—to give people a sense of who they really are. Healthcare Management Review Vol 8 /Page 132

OVERSHOOTING CUSTOMERS “Overshooting occurs when an incremental improvement no longer provides meaningful beneﬁts to a customer, making that customer unwilling to pay for that improvement. An Credit: Scott. D. Anthony. et al.

economist would say that the customer receives almost no marginal utility from that performance improvement.” Healthcare Management Review Vol 8 /Page 134

R E F L E C T I O N Consider a product you use every day. Are performance dimension available for which you would not be willing to pay higher prices?

Look back at your company's recent new-product launches. Have they met your expectations? If not, why not?

t the heart of the Disruptive Innovation model is the concept of overshooting, that is providing too much performance for a given number of customers. Overshooting occurs when a product or service has performance that a customer does not need, and therefore doesn't value. An overshot customer is one who cannot use and does not value further performance improvements along particular dimensions. There are six important aspect to remember about overshooting: Overshooting means that a given group of customers are unwilling to pay premium prices for further improvements along a given performance dimension. Talking to customers; analysing price, margin, and share; and zeroing in on new

Sit with a colleague to talk about those you consider to be your 'worst 'customers. Why are they your worst customers? Think about how an entrepreneur might see opportunity instead of challenges.

product introductions can be important ways to spot overshooting. 路 In overshot circumstances, companies should consider investing in overlooked performance dimensions, consolidating the market, or introducing a game-changing business model innovation. Spotting overshooting requires intuition and judgement; signs that tend to become crystal clear only after it is too late to take action Be precise about customer group and performance dimensions. It is rare that all customers are overshooting along all dimensions There are rarely conclusive evidence of overshooting. Act like a forensic analyst, analysing multiple pieces of evidence before coming to a conclusion.

Healthcare Management Review Vol 8 /Page 135

OVERSHOOTING CUSTOMERS Humulin 7030 3mL

li Lilly's failed efforts to create even purer Insulin

that could produce Insulin proteins that were 100 per

demonstrate the impact of overshooting. Many

cent pure and equivalent to human Insulin. After

diabetics use Insulin everyday to help maintain the

investing nearly $1 billion dollars in the effort, Lilly

appropriate level of blood glucose. Historically,

introduced its ''Humulin'' brand Insulin to the

Insulin was manufactured from the ground-up

marketplace at a 25 per cent price premium over other

pancreases of cows and pigs. For most of the twentieth

Insulin products.

century, manufactures focussed on increasing Insulin's purity. In 1925 impurities stood at ﬁfty thousand parts

The market was not excited about Humulin. Sales

per million (ppm), dropping to ten thousand ppm by

growth was disappointingly slow, and Lilly found it

1950. By 1980 impurities had dropped to only ten ppm,

difﬁcult to sustain a premium price for the product. In

primarily as a result of investment and development by

retrospect a Lilly researcher noted, “the market was

Eli Lilly the world's leading Insulin manufacture.

not terribly dissatisﬁed with pork Insulin”. In fact, it was pretty happy with it. Lilly had spent a signiﬁcant

Despite the purity that Eli Lilly had been able to

sum of money and organizational resources creating a

achieve, animal Insulins were still slightly different

product that overshot the demand.

from human Insulin. A fraction of 1 per cent of diabetic patients built up a resistance in their immune systems

Most consumers of Insulin didn't want or need a more

when treated with animal Insulin, so Lilly contracted

reliable product and therefore weren't willing to pay

with Genentech to create genetically altered bacteria

more for an Insulin that, while technically superior, had no meaningful impact on the management of their condition. Healthcare Management Review Vol 8 /Page 136

Case Study: Insulin

NovoPen 5 insulin pen by Novo Nord

While Humulin sales proved disappointing, a much smaller Danish Insulin maker, Novo Nordisk, correctly identiﬁed an undershot performance dimension in the same market: convenience. The company developed a line of Insulin pens, which made it much more convenient for diabetic patients to take their Insulin. Conventionally, people with diabetes had to carry a syringe, draw a precise amount of Insulin out of a vial, hold up the needle, and ﬂick the syringe several times to dislodge air bubbles. Usually they then had to repeat the process to draw a second type of Insulin from a different vial. Only at that point could they inject themselves with the Insulin.

Novo was able to command a 30 per cent price premium per unit of Insulin. The success of the company's pens and premixed cartridges helped the company increase its share of the world market substantially, and do it profitably. The convenience of the pen brought many more diabetic patients into Insulin-using market, especially in Europe. Both Eli Lilly and Novo Nordisk had satisfied the mainstream market's need for Insulin purity. Regulators assured the reliability of both brands. When the market's need for reliability had been satisfied, the basis of competition shifted to convenience, and the company that delivered a more convenient product benefited. As is always the case, overshooting create both

Novo's pen simpliﬁed the process. It held a cartridge that contained a mixture of the two types of Insulin, so that users simply had to run a small dial to the amount of Insulin they needed to inject, put the pen's needle under the skin, and press a button. The Novo pen reduced what had been a one-to two- minute process to ten seconds. For diabetic patients taking Insulin everyday, or even multiple times a day, this increase in efﬁciency represented a meaningful advance.

opportunities and threats. Speciﬁcally, an incumbent in an overshot situation should seek to invest in diﬀerent performance dimensions and consider a consolidation play to remove increasingly unnecessary industry capacity. An incumbent or an entrant looking to create a new growth business should think about changing the game by developing an innovative business model that better meets the needs of overshot customer. Healthcare Management Review Vol 8 /Page 137

THE POWER OF ASSOCIATIVE THINKING

George

Fisher CASE STUDY

hen George Fisher took the helm of Kodak in 1993 (having just led a specular turnaround of Motorola), he realized that the firm's greatest opportunity was in

digital cameras. He envisioned a radical strategic redirection. The problem was, the organization held an entrenched view of the photography industry and it's own position: In photography, there were cameras and there was film. The organization firmly believed that Kodak was a film company. Thus, even though

WHY DID FISHER FAIL

Kodak had about the best digital-camera technology available Worldwide, the organization couldn't make the leap to seeing itself as a camera company. When Fisher launched his strategy, he probably did not suﬃciently appreciate the distance between his vision and Kodak's sense of itself. The company's Managers, especially its middle managers, complied signiﬁcantly but ultimately resisted Fisher's redirection. As a result, despite his strategic acumen and managerial ability, a frustrated Fisher left the company a few years after his arrival. Healthcare Management Review Vol 8 /Page 138

GEORGE FISHER AND KODAK The fact that a strategic leader is able to make the

External stakeholders are, if anything, even more

cognitive leap required to see a distant

reluctant to accept a new conceptualization of a

opportunity does not mean that the rest of the

company's identity or of the strategic possibilities

organization is also able to make the leap. Getting

inherent in an industry. Their reluctance often

others to see what he or she sees- and embrace it-

feeds back into the company and cause managers

is extremely dif icult (It is much easier to persuade

t o a b a n d o n p r o m i s i n g n e w d i r e c t i o n s

an organization to pursue incremental, less risky

prematurely. Why is it dif icult for external players

opportunities, in fact, that's what organizations

to accept a new strategic landscape?

are set up for) When the cognitive shift requires a change in a irm's identity, the resistance is even

The problem, again is with cognitive process. The

more stubborn, especially when the identity has a

stakeholders have a set way of organizing and

long history and is infused with moral value. In the

interpreting the industry. Research by MIT's Ezra

words of Stanford's James March, a living legend in

Zuckerman shows that the further away a new

the study of organizations, “ if a leader tries to

strategy takes a irm from its historical identity, the

m a r c h t o w a r d s t r a n g e d e s t i n a t i o n s , t h e

more the strategy is discounted by inancial

organization is likely to de lect the eﬀort”.

analysts and other institutional players. And this negative reaction from external stakeholders

Persuading a workforce that the company's

aﬀects firm's competitive behavior: Research by

historical identity needs to be reconceptualized is

the University of Minnosota’s Mary Benner

the most dif icult of the many hurdles a leader may

suggests that when firms meet such resistance,

need to clear in bringing along internal

they tend to shy away from their intent to pursue

stakeholders. For instance, a irm may have to

the new initative.

acquire unfamiliar capabilities or key talent, and those activities, too, are problematic. Healthcare Management Review Vol 8 /Page 139

“The Best Strategic Opportunities are cognitively distant and thus the most diﬃcult to spot”. Firms in an industry typically cluster around a few strategic propositions, and the intense competition on those occupied mountain tops make it hard for irms to gain attractive returns. Superior Opportunities lie on unoccupied mountain tops: Yet because those opportunities “Cognitively distant”- far from the status quo- strategists have trouble recognizing and acting on them.Competition therefore is weak.

Ability to spot, act on, and legitimize distant opportunities stem from a common root: The challenges of managing one's own and other people's mental representations. George Fisher failed to persuade Kodak employees that their representation of the company as a ilm company was outdated.

Most Managers are trained to analyze economic f o r c e s w h e n t h e y w a n t t o i d e n t i f y n e w opportunities. But that approach usually won't uncover the kinds of ideas that over turn the status quo. Recent research on human cognition suggests that leaders would do better to use associative thinking to spot, act on, and legitimize distance opportunities. They should learn to make analogies with business in other industries. Executives should explore ways to jump start association thinking and bring stakeholders along on the journey.

In most cases the failure was directly related to whether strategic leader could manage their own and others mental representations. Associative thinking can help strategic leader manage mental representations. When we are faced with a new situation, our brains automatically search for and retrieve from long-term memory past experiences or types of experiences that have some similarity. Once evoked, these mental structures move to the front of our consciousness.

THE POWER OF ASSOCIATIVE THINKING “ The more that cognitive scientists study our mental processes, the more evidence they ind that the primary way we make sense of the world is by comparing unfamiliar things with things we have already experienced and classi ied in our long-term memory. Our minds do this intuitively, without conscious prompting”. Because associations are fundamental to human cognition, managers who use associative thinking in the work on Innovation and strategy can gain a dif icult-to-imitate advantage. Developing disciplined approaches to matters of human cognition is no easy task - we're only beginning to understand how they work in managerial settings. But it is possible to structure exercises in associative thinking - for example care-based reasoning, analogy, and pattern recognition - that help managers combine Intuitive associations with rational analysis.

LIMITATIONS ON STRATEGIC LEADERS

Douglas Hostadter, a major contributor describes it this way: The mental structure moves from “being asleep in the recesses of long-term memory to gaily dancing on the minds center-stage. They become the basis on which we represent and interpret the new situation. Brain research shows that associations are central to thinking- and are in luenced by basic, attitudes, and emotional state. Why is Associations so useful in identifying distant opportunities? Referring to the two main perspectives of strategic thinking. The irst is to use local, deductive reasoning. Porter's five forces frame work exempli ies this approach: It imposes discipline and simplifies assumptions that help the strategist identify likely future scenarios and deduce an appropriate strategic solution. The second approach is centered on associations. Here, the strategist compares a business situation with something else she has experienced directly or i n d i re c t ly. S h e t h e n fo r m s a n e w m e n t a l representation that recasts the current situation in terms of the older one. Healthcare Management Review Vol 8 /Page 140

Whereas deductive reasoning is extremely information thirsty, associative thinking requires only that the strategist identify a few parallels between two situations. There's a second, and in my opinion more important, reason that associative processes are, in certain situations, a more powerful basis for identifying distant opportunities. Analytical frameworks like Porter's, are used widely by corporate strategists and strategic consultants alike. The problem is, they result in shared mental representations that leads companies to the same places: Industry players identify and act on the same opportunities. To break this equilibrium, the strategists must cultivate genuinely novel representations of the competitive space, - you create a diﬀerent picture of the reality. T h i s a l l o w s y o u t o r e i n t e r p r e t t h e competitive landscape in a new powerful way. Associative Thinking also supports the work of persuading an organization or external stakeholders that a new opportunity makes sense. Human beings are walking associative machines. Employees responding to a strategic leader’s new idea will make associations whether they are aware of it or n o t . K o d a k a n d e m p l o y e e s s i m p l y categorized it as photography business- For them, film was good, and cameras were bad.

Fisher had a great strategy for Kodak, but his rhetoric “we're a picture company, not just a ilm company” is likely to have touched the wrong nerve, evoking the ilm-camera dichotomy and pushing his strategy to the wrong side of that divide. Strategists are often exhorted to “think outside the box”. Indeed, a lot of what is strategically relevant is cognitively distant. But the idea that people can simply decide to think diﬀerently from the way they have in the past, or from the way their competitors do, is delusional. They need tools that bring a new dimension of psychological insight to the strategists role. Using structural associative thinking, leaders can learn how to deal with t h e c o g n i t ive ly d i s t a n t a n d d eve l o p techniques for reconceptualization's of a business.

They can learn how to induce others to make similar reconceptualization's by evoking the right associations with this new psychological concept of strategic leadership, the cognitively distant is within reach.” All mental processes including associative thinking, are diﬃcult to manage, for several reasons. They're neither visible nor tangible. They usually operate below the threshold of awareness. Repetition makes them habitual, ingrained, and almost hardwired. And it is diﬃcult to make rigorous inferences about outcomes they might cause.

Kodak and employees simply categorized it as a photography business; For them, film was good, and cameras were bad. Fisher had a great strategy for Kodak, but his rhetoric- “we're a picture company, not just a ﬁlm company”- is likely to have touched the wrong nerve, evoking the film-camera dichotomy and pushing his strategy to the wrong side of that divide Healthcare Management Review Vol 8 /Page 141

Credit Giovanni Gavetti

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