HMR BOOK VOL. 8

& PHARMA

BUSINESS

NIGERIA

DRUG SECURITYSECURITYSECURITY

Co la lev go eR

H se ea vil tth uc ca er xe E

VOLUME 8 Are Prescription Drug Prices High?

The Strategic Anchors For Drug Security

The Impact Investment

Gandhian Economics Of Capital Efficiency

WHO Pre-qualification

- made in Nigeria for the world MINFLOW

NAFDAC Activities- key to ensuring drug security in nigeria

PROMOTING THE QUALITY OF MEDICINES

Factory Address:

: THE STRATEGIC ANCHORS FOR DRUG SECURITY

4848C o n t e n t s

38 42

Healthcare Management Review Vol 8/Page 9

22 34The Strategic

Anchors For

Drug Security

Nafdac Activities

Key To Ensuring Drug Security In Nigeria

Playing

on the

Global Space

BLUE OCEAN philosophy

STRATEGIC IQInnovation. Marketing. Leadership

A transformational experience for result-focused

Pharmaceutical Products, Sales, and Business

Development Managers.

Master Class

Co la lev go eR

H se ea vilt th uc ca er xe E

R o v a C o l l e g e

of Healthcare ExecutivesE x e c u t i v e E d u c a t i o n

Lagos:- 7th - 9th Sept., 2015, Nigeria Pharma Manufacturers Expo 2015.

Abuja: 9th - 14th November, 2015, 88th Annual National Conference, of PSN

96

106


66 92

C o n t e n t s

Are

Prescription

Drug Prices

High?

112

Bank of Industry

The Health Sector: Challenges

& Opportunities

The Capital

Market 98

Gandhian

Economics Of

Capital Efficiency

129120Reverse

Pharmacology

Hands On The Present Eyes On The Future

CREDITS PMG-MAN

Pharmaceutical Society of NigeriaNAFDAC

PharmAccess May & Baker

Standards Organization of NigeriaBank 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 AdonriC.K Prahaled & R.A Mashelka

SENIOR EDITORSGodwin OdemijieMoji Makanjuola

INTERNATIONAL AFFAIRS BUREAU CHIEFVicky Akai Dare

DIRECTOR - EDITORIAL OFFICENkechi D. Abolo

MARKETING MANAGERZubby Onwumere

STAFF GRAPHIC DESIGNERKenneth Ameh

SCRIPT EDITORS

Therie EssienEdidiong Bassey Inyang

RCHE FACULTY ADVISORS

Prof. Rowland Ndoma-EgbaProf. Femi AdebanjoProf. Okey MbonuDr. Ibrahim Wada

Dr. Emmanuel C. Abolo Jnr.Dr. A Dutse

Dr. Kabiru MustaphaBarr. Charles OkeiMr. Fidel AnyannaMr. R. Mannason

EDITOR IN CHIEFEmmanuel C. Abolo

www.facebook.com/hmrecopy

S U P P O R T G R O U P S

Thefollowingorganizationhas

demonstratedtheircommitmentto

DrugSecurity&PharmaBusiness

inNigeria.

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

NA

TIO

NA

LH

EALTH INSURANC

ES

CH

EM

E

CHANCES OF A

BETTER FUTURE

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

healthsystem.Withoutthem,theeffortsofmostoftheotherinterventionsinthe

healthcaredeliverysystemareundermined.Withoutdoubtandfromexperienceof

theEbolaviruscrisis,self suf�iciency inmedicinesandvaccines isnowanational

securityconcern.

A critical intervention is urgently required to increase pharmaceutical

manufacturing in West Africa with Nigeria as the hub to provide 70% of the

requirementforlocalmedicines.TheFederalGovernmentofNigeriahasdirected

that in-country production capacitymust increase to 70%. It has amended and

addedtotheessentialdruglistamongstotherpolicyinterventions.Further,NAFDAC

havebeenempoweredtoleadanddrivetheprocessbyits�ightagainstfakedrugs

andsupportforaccreditationofWHO-cGMPofNigerianPharmaceuticalIndustries.

In recent years, the Nigerian Pharmaceutical Industry has demonstrated the

capacitytoproducesafe,ef�icacious,andqualitymedicines. ThePharmaIndustry

have taken proactive steps and has invested over N70b towards International

certi�icationsandfacilitiesupgradein5years.WiththesupportofNAFDAC,UNIDO,

andWHO, four companies haveWHO-cGMP certi�icatewith sevenmore in the

pipeline. There has been a slight shift in the R&D emphasis from imitative to

innovativeR&Dandanincreasedcompetenceinadvanceprocessengineering.

Despite these huge investments, the country still import essential medicines

contrarytotheNationalDrugPolicyandcapacityutilizationisbelow50%.


Consideringthehighriskofimport-dependency,thereisneedtoconsolidate

thegainsofthelast10yearsbyre-examming andre-enforcingallaspectsof

governmentpolicies,�inancinginterventions,incentives,andsustainsupport

forinternationalcerti�ication(WHO-cGMP)andfacilitiesupgrade.Togivethe

local entrepreneur a competitive edge, we should focus on protection,

adherencetoprocurementpolicies,delayinpayments,packagingofSMEsand

theroleofcapitalmarketinventurecapital.Thereisneedtoadaptproduct

developmenttorecentoperatingenvironmentwithcompetenciesinresource

optimizationandencourageBlueOceanPhilosophyforthosetryingtogeta

stepaheadofthecompetitionthroughvalueinnovation.

One importantcomponentofa functioninghealthsystem isanappropriate

medicinemanagementcycleandgooddistributionpracticewhichwillensure

uninterrupted supply of essential medicines. Group distribution should be

encouragedtoensureoptimizationofresources.

Critical to the success of Drug Security is the recognition that the

pharmaceuticalmanufacturingsysteminvolvesabroadarrayofplayersand

that strengthening the different component requires a broad range of

expertise. Consequently, the need for collaboration between parties is of

paramountimportance.Inviewofthis,buildingaconsortiumofpartnersis

recommended.

Together,wehavetomidwifethebirthofanewPharmaceuticalIndustry.

Emmanuel C. Abolo

Editor-in-Chief


espite government efforts to promoteDdomestic manufacturing, Nigeria

remains heavily rel iant on imported

pharmaceuticals. TherevisedNationalDrug

Policy(NDP),setatargetfor70%(involume)

ofthecountry's'demandformedicinestobe

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

hasexperiencedasteadyannualgrowthof10

–15percentsince2001(IFC).Furthermore,

�ive local drug manufacturers have WHO-

cGMP and many more are upgrading their

fac i l i t i es to comply wi th WHO pre-

quali�icationandWHO-cGMPrequirements.

Thiswillenablethecompaniespromotethe

medicinesmanufacturedlocallyinNigeriato

ECOWAScountriesandbeyond. Inaddition,

once pre-quali�ied, localmanufacturerswill

be able to participate in International

procurementtenderscalledbyInternational

developmentpartners. Consequently,the70

percenttargetsetbytheNationalDrugPolicy

shouldbeachievedby2020.

According to a survey by UNIDO, capacity

utilization within the sector in Nigeria is

about 40 per cent, meaning that there is a

largevolumeofunderutilizedmanufacturing

capacitywhich couldbe applied toproduce

newproductsupondemand.

70%70%


OPPORTUNITIES FOR LOCAL PHARMACEUTICAL

PRODUCTION TO ACHIEVE 70% (VOLUME) OF

NIGERIAN MARKET.

- Thestrongdemandandtheneedforimproved

management of infectious disease especially,

HIV/AIDs,Malaria,TB,andNeglectedchildhood

disease.

- Increasedresearchanddevelopmenteffortsat

the National Institute for Pharmaceutical

Research and Development (NIPRD) and

NationalUniversitiescanleadtotheemergence

of new therapeutic agents, nutraceuticals and

phytomedicines from Nigeria's abundant

indigenous biodiversity and traditional

medicines.

- PositiveEconomicgrowth in recentyearsand

macroeconomicstabilityarehelpingtoreduce

povertyandincreasepurchasingpower.

- The increasing visible and active National

AgencyforFoodandDrugAdministrationand

Control (NAFDAC) and, in particular, its

campaignagainstsubstandardhealthproducts

have shown a positive impact on reducing

counterfeitdrugstrade.

- Government Policy aiming to achieve local

productionof70percentofessentialmedicines.

- Governmentbanonimportsofsomeessential

medicinesforwhichthereisadequatedomestic

capacityandtechnicalskills.

- EstablishmentoftheNationalHealthInsurance

Scheme(NHIS)toprovideuniversalhealthcare

coverage, by 2015 will provide funds for the

requiredessentialmedicines.

- The local pharmaceutical industry has a

comparative advantage in providing remedies

forneglectedtropicaldiseases(NTD).

The following milestones when reached, will have a very

positive impact on the pharmaceutical business in Nigeria,

over the next 10 years.

- Improved distribution of medicines.

- Advances in Biotechnology.

- The Harmonization of medicine registration within

ECOWAS.

- WHO certification and prequalification of more

Nigerian pharmaceutical manufacturers.

- Development of pharmaceutical raw materials using

indigenous basic raw materials.

- New phytomedicines developed by NIPRD and

Universities registered by NAFDAC and licensed to

local pharmaceutical companies for commercial

production and global marketing.

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.


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

2. 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.

3. 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 effected.

Credit: PMG-MAN


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.

5. 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.

6. 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.


Providingadequatehealthcaretotheir

popu l a t i on rema in s a ma jo r

challenge forgovernments inAfricaand

Nigeriainparticular. Unsatisfactoryand

inadequateaccesstoessentialdrugsand

other healthcare commodities is a key

limitationthatimpactsonpeople'shealth

inmost 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)

areveryvaluabledevelopmentandhave

reduced the suffering and extended the

livesofmillionsofpeople indeveloping

regions.

However, reliance on donor funds is

clearly not sustainable in the long term

and there are many more diseases for

wh i ch pha rmaceu t i c a l s a re key

treatments and which access to quality

medicinesismuchlessadvanced.

Inresponsetotheseconsiderations,local

production of essential drugs is an

important component of a long term

solution to provision of adequate

healthcare in developing countries like

Nigeria.

Adequateaccesstodrugsisdependenton

both theaffordability andqualityof the

products. Unaffordable low quality

products are not the answer either.

Therefore,anindustrythatproduceshigh

qualitydrugsatcompetitivepricesmust

be the target when developing local

manufacturer of pharmaceuticals in

Nigeria.

The pharmaceutical sector is a complex

one, involving many different stake

ho l d e r s s u ch a s manu fa c t u re r s

themselves , Nat iona l regulators ,

governmentministries,wholesalers and

others. Developingtheindustryrequire

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

exampleoftheroleofstakeholderscanbe

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

substandardproducts.

GOVERNMENT SHOULD

PROVIDE THE ENVIRONMENT


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.

“It is important to manufacture

generic medicines in closer proximity

to where they are actually needed.”

Inthefaceofthesituation,andactionsby,

for example, regulators to reduce the

penetrationofthesecounterfeitproducts

would,aswellasbeingimportantfroma

healthperspective,alsobene�itthelocal

pharmaceuticalindustry.

Furthermore, quality requires upgraded

skills and equipment, so how can high

qualitybeproducedataffordableprices?

Th i s cha l l enge requ i res var ious

governmentministriestoworktogether

to establish the support to the industry

thatwillenableef�icientlocalcompanies

toinvestinhighqualityproduction.

However,thosecompaniesthatdoinvest

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

regulatorsisacriticalelementinsolving

theconundrum.

so how can high quality be produced at affordable prices?


uringthelastdecade,promotingsustainableDaccess to quality and affordablemedicines

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 inNigeriashallnotonly impactonthe

Nigeriahealthsystemanditscapacitytoprovide

medical products of priority to diseases of

HIV/Aids, Malaria, TB, and Neglected tropical

disease but will also contribute to the overall

socioeconomicdevelopmentofthesubregion.

The public sector will bene�it from improved

securityofsupplyandrobustregulatoryoversight

(feasibleduetoproximityofproduction)aswell

as providing a bas is f rom which novel

formulationsandnewproductscanbedeveloped

to tackle speci�ic diseases and treatment

challengesthatarepeculiartothenation.Asthe

global�inancedeepens,thesectorwillprovidethe

basis for sustainable treatment programs as

contributionsthatdonorsmakeplateausoreven

beginstodiminish. Thesectorcanalsomakea

contribution to economic growth through

enhanced exports, and reduced reliance on

importsonwhichwehavelimitedregulatoryover

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.

IndevelopingcountriessuchasIndiaandChina,

where there are �lourishing pharmaceutical

sectors,theindustryisreputedtobene�itfroma

numberofpolicymeasuresincludingprotection

through tariff regimes and procurement

preferences as well as direct support such as

interest subsidies, export credit, cheap utilities,

workingcredits,andtaxholidays. Consequently

imports to our country have often been

subsidizedthroughsigni�icantsupportfromtheir

respectivegovernments.

WhiletheFederalGovernmenthaveidentifiedthe

importance o f s t rengthen ing the loca l

manufacturing sector, there is often policy

incoherenceacrossgovernmentministries. This

creates an overall environment that is not

c onduc ive t o t h e deve l opmen t o f ou r

pharmaceuticalindustry.

Furthermore, there is the need to improve the

quality of products to which our people are

exposedacrosstheEssentialMedicineList(EML).

The impact of substandard production will be

mitigatedthroughensuringthatcriticalproducts

that would have ser ious publ i c hea l th

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, theyhavenotbeenable toaccess the

detailed technical know-how or investment

neededtoprogresstowardsthismark.

Increase the proportion of the population with access to

affordable essential drugs on a sustainable basis


However,thereareentitiesthatarehappywith

NAFDACcerti�icationandwillcontinuewiththe

currentstatus.

Theindustrydoesfaceseriouschallengesifitis

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

gradingprogramordesignnewplant,signi�icant

costsinvolvedintheproperdevelopmentofnew

p roduc t s , t h e a fo remen t i oned po l i c y

incoherence, and under developed supporting

industry.

The quality of pharmaceutical is a function of

many dimensions. Following production, the

regulationplaysakeyroleinensuringthatthe

product reaches the patient in appropriate

c ond i t i on t h rough ove r s i gh t o f g ood

distributions and whole selling practice. A

furtherpostproductionfunctionoftheregulator

is overseeing the market through pharmaco-

vigillance activities and the establishment of

adverseeventreportingmechanisms.

This is required to identify instances of sub

standardproducts reaching themarket so that

product recalls can be rapidly enacted and

counterfeit products identi�ied and removed

fromthemarket.

In addition to the challenges faced by the

industry,thereisunderutilizedopportunitiesto

assist and promote the development of

pharmaceuticalmanufacturersinNigeriaandfor

it to contribute to improved public health

outcomes. For example, the Trade Related

Aspectsof IntellectualPropertyRights (TRIPS)

�lexibilitieshavebeenunderutilized.

Key to the sustainability of manufacturing in

Nigeriaisthedegreetowhichourmanufacturers

can compete with imports. As pointed out,

remedyingthepolicyincoherencewillgosome

waytoimprovingcompetitivenessandachieving

ef�icientproductionbyusingmodernproduction

managementtechniquesthathasthecapacityto

increasecapacityutilizationofplants.

Critical to the success of drug security is the

re cogn i t i on t h a t t h e pha rmaceu t i c a l

manufacturingsysteminvolvesabroadarrayof

players and that strengthening the different

componentsrequiresabroadrangeofexpertise.

Consequently, the need for collaboration

between different parties is of paramount

importance. Inthisview,buildingaconsortium

ofpartiesisrecommended.

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.


InterviewOkey Akpa, Managing Director/Chief

Execu�ve Officer, SKG Pharma Ltd, who is

also the Chairman, Pharmaceu�cal

M a n u f a c t u r e r s G r o u p o f t h e

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.”

Nigeria is an emerging hub for pharmaceutical

market expansion in Africa, how does PGM-

MAN intend to tap into this?

Nigeria has the poten�al to be the hub for

pharmaceu�cal manufacture in Africa. PMG-

MAN'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.

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

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.

Is it not cheaper to make drugs than to import

them?

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;

Okey Akpa


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.PMG-

MAN 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

w i t h o u t a n a d e q u a t e s u p p l y o f d r u g

requirements.

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.

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.

The incen�ves could come by way of necessary

tax rebates for those who are qualified and

patronage of locally made pharmaceu�cal

products by government agenc ies and

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?

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.

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.

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.

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.


How close is Nigeria to the quest of medicine

sufficiency from the perspective of PMG-MAN?

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.

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.

What is the way forward for PGM-MAN? What

are its resolutions for the year?

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.

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

DRUGS ARE

SECURITY ITEMS


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?

As a pharmaceu�cal company, we operate

business models which are to tackle areas that

are of benefits to our environment while at the

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.


NAFDAC ACTIVITIES

DRUG SECURITY IN NIGERIA KEY TO ENSURING

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-qualification. Already four of the

companies, Swipha Nigeria, Evans, May & Baker, and CHI

Pharmaceuticals have attained the WHO-cGMP status

preparation to pre-qualification of their products.


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-qualified products.Healthcare Management Review Vol 8

/Page 55

NAFDAC Mycotoxin Laboratory has been

accredited by the American Association of

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

17025:2005 accreditat ion , the � i rst

government laboratory, to receive such

internationalrecognitioninNigeria.

Theaccreditationprojectwassponsoredby

United Nations industrial development

Organization (UNIDO) and the American

AssociationofLaboratoryAccreditationand

with the launch of these laboratories ,

NAFDAC has adapted a multifaceted and

holistic approach in the �ight against fake

drugsandisalsoworkingtirelesslytoensure

that more Niger ian Pharmaceut ica l

companiesattainWHO-cGmp.

USEOFCUTTING-EDGETECHNOLOGIES.

NAFDAC is currently spearheading global

effortsintheuseofcuttingedgetechnologies

to�ightcounterfeitdrugsandotherregulated

products.Theseinclude;

· Truscan: Ahandhelddeviceusedforon-the-

spot detection of counterfeit medicines.

NAFDACisthe�irstregulatoryauthoritytouse

this device with huge success. It gained her

globalacclaim.

· Black Eye (InfraRed):Benchtopequipment

developed in Israel, which uses Infra Red

technologytodetectcounterfeitmedicines.

Itscreensvariousdrugsamplesatthesame

time.

· Radio Frequency Identification System

(RFID): This is used for veri�ication of

regulated products and other sensitive

documents.

· Mobile Authentication Service (MAS): This

uses Short Messaging Service (SMS). This

technology has put the power of detecting

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

countrytodeploythistechnology.

SMALLBUSINESSSUPPORT

In its efforts to promote genuine Nigerian

businesses involved in the food/drug

industry, NAFDAC set up a Small Business

Support Unit. The unit's mandate includes

liaisingwithsmallbusinesseswhichwantto

register their companies with NAFDAC so

that they will understand the Agency's

procedures and processes. NAFDAC has

madeiteasierforsmallbusinessownersto

registertheirproductswithinthecon�inesof

their of � ices through electronic (E)

registration. Through E-registration,

NAFDAC has reduced the number of hours

and days small business owners spend in

reg i s te r ing and ob ta in ing NAFDAC

certi�icates.

INTERNATIONAL ACCREDITATION OF NAFDAC'S

LABORATORY BOOSTS WHO PRE-QUALIFICATION DRIVE.


W.H.ORecommendedCombination

R

CHI Pharmaceuticals Limited has given

commitment to facilitating widespread availability

of optimal, affordable and high-quality life saving

treatment for child diarrhea in Nigeria and

promoting Zinc Sulphate tablet along with low

osmolality ORS.

Playing on the Global Space

Dr. Steve OnyaCEO CHI Pharmaceutical Healthcare Management Review Vol 8

/Page 38

he issue of WHO pre-quali�ication hasTbeen a major challenge of Nigerian

pharmaceutical industries and is of great

concerntotheFederalGovernmentofNigeria

becausemoneyandresourcesarebeinglostby

governmentfornon–WHOpre-quali�icationof

our local pharmaceutical manufacturing

companies.

In response to the Federal Government of

Nigeria’scallforincreasedlocalcapacityinthe

manufacture of essential medicines and the

questtoplayintheglobalspace.In2008CHI

Pharmaceuticals Limited, responded by

building a modern WHO-cGMP complaints

pharmaceutical plant, occupying a space of

over 5000 square meters which commenced

productionattheendofyear2012.Thisplant

hasan installedcapacityof1.5billion tablets,

850millionencapsulationanddrypowder120

millionsachetsannually.

ThisCHIplantisWHO-cGMPcerti�iedandisin

the process of product quali�ication of Zinc

SulphatefromWHOwhichwillgivethemthe

specialadvantageofbeing in theWHOlistof

suppliersandbeabletobidforandsupply

WHO and UN sponsored drug programs in

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

PharmaceuticalsLimitedisthe�irstinAfrica

andsecondgloballytopresentZincSulphate

tablets to WHO for pre-quali � ication

certi�ication. This company is also the �irst

company globally to carry out palatability

clinical studies (acceptability) for Zinc

Sulphate dispersible tablets for use in

management of child hood acute diarrhea.

This has been fully acknowledged byWHO,

USPandotherinternationalpharmaauditors.

The company is holding scienti�ic of�ice in

Nigeria for Bayer Sheering Healthcare, Eli-

Lilly, Merck Sharpe Dome (MSD), Sano�i

Aventis, Jansen Cilag, and Sevier. They are

currentlyseekingexpansionintoWestCoast

ofAfricabythewayofsettingupbusinessesin

theothercountriesinthesubregion.

CHI Pharmaceuticals Limited has given

commitment to facilitating widespread

availability of optimal, affordable and high-

qualitylifesavingtreatmentforchilddiarrhea

inNigeriaandpromotingZincSulphatetablet

alongwithlowosmolalityORS.


BLUE OCEAN philosophy

Pharm. Olakunle EkundayoGroup Managing Director/CEO

Drugfield Pharmaceuticals Ltd


“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.”


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.

We did it for a number of reasons.

One, as at that time, we had four

products in gel form in our portfolio which

we manufactured locally. So we have a lot

of experience in the manufacture of gel.

The second reason is that since the product

was a United Nations (UN) commodity, we

thought “why not give it a shot to show how

exper ienced we are to the global

community?” The third reason is that we

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.

One thing which we never imagined was

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

us in the limelight. By the time the USP

visited Nigeria to look at the companies that

had shown interest, we already had the

packaging materials made. We were

already waiting to clear the raw materials at

the airport. They were pleasantly surprised

that we moved so rapidly. It helped us in a

lot of ways.

We already had TSHIP (Targeted State

High Impact Project's) support. TSHIP is an

NGO financed by the United States Agency


for International Development (USAID) and a

few other world bodies working with

Chlorhexidine Gel imported from Nepal in a

few states in the North. They were using it in

Sokoto and Bauchi states in umbilical cord

care. The product was imported from Nepal

which was then the only country in the world

producing it.

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,

looking at what we had on ground, and the

necessary improvement we needed to make

because the product is an international one.

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

group.

We then became the second country in the

world and number one in Africa to produce

Chlorhexidine Gel for umbilical cord care. We

were getting calls from all over the world. Calls

were coming from many of the NGOs and

foundations. Many of them visited us. The

usage of the gel also received a boost in

Nigeria, with states signing on to usage. We

have sent samples to a few other countries like

Kenya, Mali and Haiti based on the request

they made to us.

The Interest of Chlorhexidine Gel, attracted

the visit of Dr. Ado Yoba- a Ghanaian who

works for USAID. After the tour of the Drugfield

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.

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.


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

service provided by WHO to assess the

quality, safety and ef�icacy of medicinal

products.Originally,in2001,thefocuswas

on medicines for treating HIV/AIDS,

TuberculosisandMalaria.In2006,thiswas

extendedtocovermedicinesandproducts

forreproductivehealthandagainin2008,to

coverpre-quali�icationofZinc,formanaging

acute diarrhoea in children. At the end of

2012, the WHO List of Pre-quali�ied

Medic ina l Products conta ined 316

medicinesforprioritydiseases.

WHOPRE-QUALIFICATION

PROGRAMMEFORMEDICINES


Every year, billions of US dollars worth of

medicines are purchased by international

procurement agencies for distribution in

resource-limitedcountries.Pre-quali�icationis

intendedtogivetheseagenciesthechoiceofa

wide range of quality medicines for bulk

purchase.

Inclosecooperationwithnational regulatory

agencies and partner organizations, the pre-

quali�icationprogrammeaimstomakequality

prioritymedicinesavailableforthebene�itof

those in need. This is achieved through its

evaluation and inspection activities, and by

building national capacity for sustainable

manufacturing and monitoring of quality

medicines.

KEY OUTPUT

The list of pre-quali�ied medicinal products

usedforHIV/AIDS,Malaria,Tuberculosisand

for Reproductive health produced by the

programme is used principally by United

Nations agencies including UNAIDS and

UNICEFtoguidetheirprocurementdecisions.

But, the list has become a vital tool for any

agency or organization involved in bulk

purchasing of medicines, be this at country

level,oratinternationallevel,asdemonstrated

bytheGlobalFundtoFightAIDS,Tuberculosis

andMalaria.

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,

TuberculosisandMalaria,andUNITAID–fordistributioninresource-limitedcountries.

·TheWHOPrequali�icationofMedicinesProgramme(PQP)helpsensurethatmedicines

suppliedbyprocurementagenciesmeetacceptablestandardsofquality,safetyandef�icacy.

·At the end of 2012, the WHO List of Prequali�ied Medicinal Products contained 316

medicinesforprioritydiseases.

·WHO's list of prequali�ied medicinal products is used by international procurement

agenciesandincreasinglybycountriestoguidebulkpurchasingofmedicines.

·PQPalsoprequali�iesactivepharmaceuticalingredientsandqualitycontrollaboratories


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-

ASSURED MEDICINES

PQP bases its activities on international

pharmaceutical standards formedicines quality,

safety and ef�icacy. As well as pre-qualifying

medicines, it also pre-quali�ies pharmaceutical

qual i ty control laborator ies and act ive

pharmaceutical ingredients, and conducts

considerable advocacy for medicines of

guaranteed quality. Its long-term goal is to

increase the availability of quality-assured

medicinesbyassistingmanufacturers tocomply

withWHO standards and supporting regulatory

authoritiestoimplementthem.Itdoesnotseekto

replacenationalregulatoryauthoritiesornational

authorization systems for importation of

medicines.

CAPACITY BUILDING AND TECHNICAL

ASSISTANCE

It also offers a three-month rotational post at

WHO headquarters to national regulatory staff

from developing countries. By working closely

with senior programme assessors, incumbents

increase their technical expertise and enhance

information exchange between their regulatory

authorityandPQPontheirreturntotheirhome

country. Each of these activities promotes

communication between stakeholders on

pharmaceuticalissuesrelatingtoquality.

Additionally, PQPprovides targeted technical

assistance for manufacturers and quality

controllaboratories.Assistanceisdeliveredby

specialistswhoarenotinvolvedinWHOpre-

quali�ication assessment or inspection

activities, but who can conduct audits and

training at country-level. This assistance is

aimedatresolvingspeci�ictechnicalproblems.


THE WHO PRE-QUALIFICATION OF MEDICINES PROCESS:PRE-QUALIF ICATION CONSISTS OF F IVE

COMPONENTS.

1. INVITATION

The WHO Pre-quali�ication of Medicines

Programme (PQP), other UN agencies (UNAIDS

andUNICEF)andUNITAID,issueaninvitationto

manufacturerstosubmitanexpressionofinterest

(EOI) for product evaluation. Only products

includedinanEOIareeligibleforprequali�ication.

TheinclusionofamedicineinanEOIisbasedon

oneormoreofthreecriteria:

·�It is listedontheWHOModelListofEssential

Medicines;

·�AnapplicationforitsadditiontotheModelList

hasbeensubmittedtotherelevantWHOExpert

Committee forassessment,and is likely tomeet

thecriteriaforinclusion(basedonpublichealth

need,comparativeeffectiveness,safetyandcost-

effectiveness);

·� It is recommended for use by a currentWHO

treatmentguideline.

2. DOSSIER SUBMISSION

Themanufacturerprovidesacomprehensiveset

ofdataaboutthequality,safetyandef�icacyofthe

productsubmittedforevaluation.Thisincludes:

·� Data on the purity of all ingredients used in

manufacture;

· Data on the �inished pharmaceutical product

(suchasinformationaboutstability);

·� Results of bioequivalence tests (clinical trials

conductedinhealthyvolunteers),unlesswaived.

3. ASSESSMENT

A team of assessors evaluates all the data

presented.Assessmentteams includeWHOstaff

andexpertsfromnationalregulatoryauthorities

worldwide.

4. INSPECTION

A team o f inspec tors ver i � i e s tha t the

manu 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

pharmaceut i ca l produc t and i t s ac t ive

pharmaceutical ingredient(s) complywithWHO

goodmanufacturingpractice.Theyalsoverifythat

anycontractresearchorganizationthatconducted

any clinical studies relating to the submitted

productcomplieswithWHOgoodclinicalpractice

andWHOgoodlaboratorypractice.

5. DECISION

If the product is found to meet the speci�ied

requirements,andtheassociatedmanufacturing

site(s)andcontractresearchorganization(s)are

compliant with WHO standards, the product is

addedto theWHO listofprequali�iedmedicinal

products.

TheWHOprequali�ication ofmedicines process

can take as little as threemonths, provided the

data presented are complete and demonstrate

thattheproductmeetsallrequiredstandards.If

dataareinsuf�icient,however,theprocesscantake

considerablylongersincethemanufacturermust

submitthenecessarydataforreassessment.

Toensurethatprequali�iedproductscontinueto

meet WHO speci�ications, PQP regularly re-

inspects manufacturing sites of prequali�ied

products.Italsoevaluatesanychanges(knownas

" va r i a t i on s " ) made t o s p e c i � i c a t i on s ,

manufacturing processes and quality control of

prequali�ied products, and conducts random

quality control tests on sampled prequali�ied

products.


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 WithoutWHOpre-quali�icationfortheNigeriandrugmanufacturingcompanies,the

companiescannotparticipateininternationaldrugsupplybiddingexercise/tender

that are sponsored by the Global Funds and other International development

arrangements.WiththecollaborativeeffortsofWHO,WAHO,NAFDACandtheLocal

drug companies under the umbrella of PMG-MAN, fourNigerian Pharmaceutical

companies-SwissPharmaNigerianLtd,ChiPharmaceuticalsNig.Ltd,EvansMedical

Plc, May & Baker Nig Plc- hasWHO GMP Certi�ication. Other companies in the

pipelineinclude;NeimethPharmaceuticals,JuhelNigLtd,AfrabchemLtd,Dailyneed

NigLtd,EmzorPharmaNigLtd,FidsonHealthcarePlcandPharmatexIndustriesLtd.

w ToobtaintheWHOpre-quali�icationiscapitalintensiveandthegovernmentisaware

ofthehugeexpenditureincurredbythelocaldrugIndustrytothetuneofabout$600

million USD in pursuance of this course. The government is considering certain

incentivessuchastaxholidaysandincreasedlevelofpatronageinordertoenablethe

localdrugindustrytorecoup.

With this International vote of con�idence, it is expected that International procurers of

essentialmedicineswillimprovethepatronageofNigerian/African-basedpharmaceutical

manufactures''formedicinesandotherUNcoordinatedprojects,includingUNcommission

onlifecommodities.WiththeWHO-cGMPstandard,Nigerianpharmaceuticalsectorisnow

playingintheglobalspaceandmatchingtowardstheenhancementofavailabilityofgood

qualitymedicinesinthehealthcaredeliverysystemofNigeria.

The world now awaits products such as Artemether-Lumefantine tablets, for Malaria,

LamividinetabletsforHIV/AIDS,Levo�laxinetabletsforTuberculosis,ZincSulphatetablets

fortreatmentofdiarrhea,Fluconazoleinjections,Cipro�loxacinetabletsandmanymorethat

aremade-in-Nigeriadrugsexpectedtobepre-quali�iedbyWHOinnodistanttime.

Credit: WHO fact sheet No278


HMR Interview with Pharm. Olumide Akintayo

(President, Pharmaceutical Society of Nigeria)

on Drug Security & Pharma Business Nigeria

· 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

PharmaceuticalIngredients(APIs)whichare

themain componentofpharmaceuticals.All

APIs are importedand these representover

50% of the total cost of production. This

makes the �inished product expensive, even

more expensive than products from other

developedanddevelopingcountries· HighcostofdoingbusinessinNigeria

o CostofFundishigho AccesstoFundsisdif�iculto UnfavourableInterestrates

· ChaoticDrugDistributionNetworko Fragmented and chaot i c drug

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

adulterateddrugs,estimatedat17%-

30%ofdrugsincirculation.Thisisa

majorcauseoftreatmentfailurewhich

mayleadtodeatho Unlawful access to drugs in Nigeria

creatingincreasedrisksforendusers· 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 em e d i c i n e s

manufacturedinothercountries· Landmarketbarriers–Distortionsintheland

market (including high stamp duties and

cumbersomeregulations)areahugebarrier

toestablishingmanufacturinginNigeria.

espite government efforts to promote domestic Dmanufacturing, 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

NationalDrugPolicy(NDP)2004whichstatesthat70

%(involume)ofNigeria'sdemandformedicineshas

to be met by local drug manufacturers by 2008.

Unsurprisingly,thistargetwasnotandisyettobemet.

Many challenges existwhich constitute themissing

link.Theseinclude:

· Capacity –Although there are dozens of

pharmaceutical companies in Nigeria, there

are not enough companies to cater for the

population.Inaddition,severaldosageforms

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.· Infrastructurechallenges–Urgentattentionis

needed to createmore railways, better road

networks, ports and power-generating

capacity across Nigeria. Poor infrastructure

saps industrial productivity and leaves the

countryatahugedisadvantages

I N T E R V I E W


· Labour&Skillsbarrier–Thereisaneedto

encouragere-skillingprogramsthatwill

update the knowledge of Nigerian

workersandmakethemmoreproductive.

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,thereisaperceptionpenaltyinMADE-IN-

NIGERIApharmaceuticals.Toovercomethis,

thefollowingcanbedone:

Ÿ WaragainstcorruptionŸ Establishtheappropriatepolicymixthatwill

addressthecontinuingpoorperformanceand

limitedgrowthinthemanufacturingsectorŸ Develop, implement and enforce global

standardsinthehealthcareindustryingeneral

andthepharmaceuticalindustryinparticularŸ Collaboration between agencies such as

Nat iona l Agency for Food and Drug

Administration and Control (NAFDAC),

National Institute for Pharmaceutical

Research and Development (NIPRD),

Pharmaceutical Manufacturers Group of the

Manufacturers Association of Nigeria

(PMGMAN),PharmaceuticalSocietyofNigeria

(PSN), Nigerian Association of Industrial

Pharmacists(NAIP).NigeriaCustomsService,

National Primary Healthcare Development

Agency (NPHCDA), Nigerian Investment

PromotionCommission(NIPC),etc

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:· ThePharmaceuticalindustryisavaluable

source o f domes t i c p roduc t i on ,

accounting for a signi�icant part of the

GrossDomesticProduction(GDP)

· T h e P h a rm a c e u t i c a l i n d u s t r y

contributions to employment and job

growth· Loca l product ion enhances se l f -

suf�iciencyindrugsupply· Local production facilitates technology

transfer· Localproductionsavesforeignexchange· Localproductionstimulatesexports· Investment inmedicines relevant to the

peopleanddiseasesofournation:o Malariamedicineso An t i - re t rov i ra l med i c i ne s

(HIV/AIDS)o Intravenous�luidso HerbalMedicineso MedicinesforSicklecelldiseaseso M e d i c i n e s f o r N o n -

CommunicableDiseases

What government interventions will achieve the

greatest impact in pharmaceutical manufacturing

in Nigeria?

Ÿ ProvisionofcriticallyneededinfrastructureŸ GoodroadnetworksŸ SteadyelectricitysupplyŸ FunctionalrailsystemsŸ PortabletelecommunicationsŸ Ef�icientenergyprovisionŸ Createconduciveoperatingenvironmentsfor

entrepreneurstothriveŸ 0%dutyTariffforPharmaceuticalMachineryŸ TaxincentivesŸ Urgent implementation and enforcement of

the recently launched National Drug

Distribution Guidelines (NDDGs). This will

ultimately lead to the extinction of the drug

market and unregistered drug premises,

sanitising drug distribution and ultimately

increasinglifeexpectancyofNigeriansŸ TheGovernmentworkingwithGS1(thenon-

pro�it global organisation that designs and

implements global standards for use in the

supply chain of products and services) to

implement Barcodes for al l products

manufacturedinorimportedintoNigeria


MADE IN NIGERIA

FOR THE WORLD

M I N F L O W

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 define success and survival.

ExtractfromHMRBusinessdiscussionwithDr.JosephOdumodu

(DirectorGeneralofStandardsOrganizationofNigeria)

onhisnewfrontier:MINFLOW


Nigeria desperately needs to diversify its

economic base. This fact has been

recognisedintheNigerianIndustrialRevolution

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

redemptionandadvancement.

Standards Organisation of Nigeria as the

NationalStandardsBodyisanessentialpartof

thenation'sTradeDevelopmentInfrastructure.

MadeinNigeriacanindeedsell,ifmadetosell.

Theproblemisnotinmade-in-Nigeria,butinthe

standards driving our productions. Nigerian

manufacturershavetobeorientedtoproducing

to the world's standards, as opposed to

producingforNigeria.Wehavetogetoutofthe

valleyofexportfailureandoutofthevalleyof

rejectionbytheglobalmarket.

SONisde�ininganewstandardizationstrategy

for Nigeria and aligning their efforts and

activities with government policies, because

Nigerianproductsandserviceshavetobegood

enoughfortheworld.

‘Made-in-NigeriafortheWorld'-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

packagingandlabelling,evengovernancethatis

needed to deliver global standard services.

MINFLOW is going to be a checklist for

relationships that cut across frontiers. It is a

greatdreamer'schildofdestinythatisboundto

rede�ine national economic fortunes for good

becauseat theheart is thesecret to theworld

marketwhereonlythebestshowcaseandbidfor

marketshares.

Dr.JosephOdumodu

DirectorGeneralStandardsOrganizationofNigeria

standards hold the key to Nigeria's economic redemption

and advancement.


Combats anxiety, agitation episodes and psychoneurosis

Offers muscle relaxant and anti-convulsant action

Manages sleep disorder

Affords ease of combination with anti-hypertensive therapy

Encephale 1993 Sept-Oct. 19 (5) 547 -52

Is that stress giving you sleepless nights?

P H A R M A C E N T R Ethe journey

to WHO-c GMP

heWorldHealthOrganisation(WHO)hascerti�iedMay&BakerNigeriaPlcasoneoftheTpharmaceuticalmanufacturing companies thathasmet itscurrentGoodManufacturing

Practice(c-GMP).Theannouncementwhichwasformallycommunicatedtothecompanyrecently

bytheWorldHealthrulingbody,capsa deliberateandsustainedeffortbythecompanytoseek

internationalaccreditationandcerti�icationforitsproductionprocessesandproducts.

Theroad to theWHOGMPcerti�icationbeganas far

back as 2008 when May & Baker commenced the

constructionofaworldclassmanufacturingfacilityat

Ota,OgunState.Thefacilitywhichwascommissioned

in2011byPresidentGoodluckJonathanwasdesigned

to meet a l l requ i rements o f in terna t iona l

pharmaceutical manufacturing best practice, from

civil works to equipment installations, quality

assurance,inputsupplyandproductionprocesses.

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.

However,internationalstatuscouldonlybeconferred

on this facility through certi�ication by international

and regional regulatory authorities. In 2012, the

company formally applied to the WHO for GMP

certi�ication, a strategy thatwas in perfect harmony

withtheplanslaidbythePharmaceutical


Manufacturers' Group of the Manufacturers

AssociationofNigeria(PMG-MAN),theFederal

Government of Nigeria through the Federal

MinistryofHealth,theNationalAgencyforFood

and Drug Administration & Control (NAFDAC)

andtheregionalhealthauthoritiesthroughthe

West African Health Organization (WAHO). All

thesebodieswerealsoconcernedinassuringa

paradigmshiftintheimprovementofthequality

oflocallymanufactureddrugswithinNigeriaand

thesub-region.

Thelong-termgoalistoincreasetheavailability

of quality-assured medicines by assisting

manufacturers to complywithWHOstandards

and supporting regulatory authorities to

implement them. WHO also granted Nigerian

pharmaceutical companies necessary technical

assistancetoensurethatthiswasachieved.

Nigerianpharmaceutical�irmspreviouslywere

not inapositiontoparticipate 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, anti-

malarialandanti-tuberculosisagents.

May & Baker Nigeria Plc's Pharmacentre was

inspectedbyWHOexperts four timesbetween

2012and2014inthecourseofmandatoryand

advisoryinspections.Inallinspections,positive

reports were made about the Pharmacentre,

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

documentation and further training were

carriedout.InSeptember,2014,theWHO�inally

gave a nod to the company as havingmet the

requirementsforGMPcerti�ication.

Tothecompany,therecentachievementisnotan

endinitselfbutanothermotivationforfurther

attainmentsinthequestforexcellenthealthcare

deliveryinNigeria.TheManagementandstaffof

May & Baker have by this con�irmed that the

con�idence and funds committed in the

Pharmacentrewillbeusedasaspringboardto

attaingreaterparticipationinboththelocaland

internationalpharmaceuticalmarkets.However

thejourneytoWHOpre-quali�icationofproducts

is not yet over as the company has already

commencethenextstagewhichwillinvolvethe

presentation of speci�ic products for pre-

quali�ication byWHO. It is hoped that speci�ic

productsofthePharmacenterwillsoonreceive

theWHOprequali�ication


Mr. Colin Cummings is the chairman/CEO Swiss Pharmaceutical Company Ltd.

Swipha was established in 1976 and is the first pharmaceutical company in

Nigeria to attain ISO 9001: 2000 and WHO-c GMP certification. He spoke to

HMR on the importance of WHO -c GMP and the future of generic products

and pharmaceutical manufacturing industries in Nigeria.

INTERVIEW

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 CummingsHealthcare Management Review Vol 8

/Page 62

What is the future of Nigeria pharma manufacturing

sector? What should be done differently ?

The sector needs nurturing at this stage of its

development. It is now time for consolidation,

rationalisationandinsomecasesclosure. Mostof

thecompaniesareundercapitalisedandtobecome

WHO pre-quali�ied cost a great deal. Most

companieshavetoborrow, puttingagreatstrain

on resources and cash �low and unless we get

support, the local industry will not be local

anymore. Itwillbedominatedbyforeignowned

companies.

Asamatteroftopprioritythegovernmentofthe

daymust make interventions to ensure that the

local pharmaceutical industry does not go down

given thepopulationof thecountrywhich isstill

growing. AsituationwhenNigeriahastodepend

entirely on other countries for its medicine

suppliesmayactuallybeconsideredasasecurity

issue.

Weneedsupportintheformofgrants-notloans,

tax relief andmost importantoffall government

patronage - including getting paid for goods

supplied. Whatneedstobedoneissupportfrom

Government at the initial stage of upgrading the

premisesandsystemsandtrainingofstaff.Thiswill

ensurethatthesevere�inancialstrainthatisputon

thecompanywhengoing for theprequali�ication

willbelessened.

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?

Veryfewlocalcompanieshaveanyproductswhich

arenotgeneric. Wemaysellsomebrandedgoods

and even manufacture but, they will be under

licence from the foreign owner of the brand.

Keepingapatentedproductexclusiveisgradually

becoming impossible in the Global Market. We

haveabigdisadvantageduetothecountry/West

Africa having no petro chemical industry so we

havenoactiveorexcipient ingredientsproduced

locally, all are imported. Even thematerials for

packagingareallimported. Thisiswhyweagain

needgovernmentsupportandprotectionagainst

foreigncompetition.

Is the pharma business threatened by biotech and

nanotechnology?

Biotechandnanotecharethefutureofwherethe

industrywillgo. Wewillgetthereeventuallyasa

naturalprogressionofthemarket.Rememberthat

most products currently manufactured by local

companiesareoutofpatentproducts,someover

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.Wehaveseengradualbutsteadyincrease

inthemiddleclassgroupofthepopulationwhich

means thatverysoonweshallbeexperiencinga

shiftinthetypeofproductspeopledemand.

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

(supermarketsvs.theoldermodel)isapointerto

howthingswillturnout.

How are you repositioning Swipha to exploit the

changes in your upgraded facility ?

WiththeWHO-cGMPCerti�ication,wecannowbid

forcontractsthatrequirethemanufacturertoshow

thattheirfacilityandproductsmeetInternational

standardsandquality.Italsomeansthatcontracts

thegovernmentwouldhavehadtoawardtoforeign

companiesduetolocalonesnotbeingabletoshow

the required standards is now obsolete and a

company such as Swipha can ful�ill all the

requirements,meaningthatthereisnoreasonfor

notpatronisingourselves. This�illsthecountry's

goaloflocalcontentincontractsofthisnature.So

withthisasabackground,wearereachingoutto

(State/Federal) Government Agencies as well as

non-Governmentalorganisations.Wehopethatwe

willbepatronisedbythese,althoughitisoneyear

onandnomajorpatronagehascome,wearestill

hopeful.


PLUSPLUS

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.

heUSpharmaceuticalindustryhasbeencriticisedbecauseTits products are perceived to be too expensive, yet

prescriptionmedicinesremaintheleastexpensiveformoftherapy.

Atthistime,weareexperiencingadramaticincreaseintherisks

andcostsofpharmaceuticalresearchanddevelopment(R&D).


Pharmaceutical companies must set responsible prices if

patients are to have access to important new medicines

P Roy VagelosMerck & Co Inc

according toanewstudyby investigatorsatTufts

University, it takes 12 years, from synthesis to

regulatoryclearance,tobringaprescriptiondrugto

marketinAmerica.Theaveragecost,whichincludes

discovery and development, for one prescription

medicineis$231million.

Historically, in theUnited States,when a �irm has

investedandworkedagainst theodds todiscover,

develop,andmarketanewmedicine, the �irmhas

been free to charge a price that would produce

rewardsforinvestors.

Inrecentyears,however,pharmaceuticalcompanies

havecomeundermountingcriticismfortheirprices.

TheUSpharmaceutical industry continues to lead

the world in the discovery and development of

important new medicines because it assumes

greater �inancial riskand investsmoreof its sales

dollarsinR&Dthanvirtuallyanyotherindustry.

Wheresuchriskisposed,theremustcontinuetobe

thepotentialforpro�its.Pharmaceuticalcompanies

must set responsible prices, must keep price

increases down, andmust help improve access to

importantmedicines.

In the pharmaceutical industry, the odds against

success, whether statistical or �inancial, are

daunting.Mostresearchprojectsfail.Onaverage,


Although the primary goal of pharmaceutical

researchistosavelivesandeasesuffering,itcan

alsosavehealthcaredollars. In1990alone, for

example, the projected cost of cardiovascular

diseaseandstroketotheUSeconomywas$95

billion, including the costs of hospital days,

disabilitydays,and$33billion inmedicalcare

expenditures, not to mention the countless

potentialyearsoflifelostbeforetheageof65;for

AcquiredImmuneDe�iciencySyndrome(AIDS)

includingthelossofproductivity,theestimated

1990costwas$26billion.In1989,cancercost

thenation$100billion,andAlzheimer'sdisease

cost $80billion. Even if each of themedicines

thatmayeventuallybefoundtopreventortreat

these diseases becomes a tremendous

commercial successandgenerated$1billiona

year in sales (only threemedicinesdid that in

1989),patientcostsforthemedicineswouldbe

farlessthanthecostsofthediseases.

Viral diseases of childhood provide striking

example of the cost-effectiveness of modern

pharmaceuticals.In1983,thenation'shealthbill

for measles, mumps, and rubella vaccination

programmescameto$100million.Accordingto

theUSPublicHealth Service, the cost of these

diseases, in contrast to the cost of preventing

them,wouldhavebeen$1.4billion.

StudiessuggestthatMedicaidexpendituresfor

patients taking anti-ulcer medicines, the H2

AntagonistsCimetidineandRanitidine,maybe

70percentlessthanforulcerpatientswhodo

COST-EFFECTIVENESS OF

PHARMACEUTICALS.

not take an H2 antagonist. The reason is that

patientsnottakinganH2antagonisthaveamuch

higherincidenceofhospitalisationandsurgery

thanpatientswhodo.Otherstudiesshowthat

antibiotics savemoney by shortening hospital

stays.

Benignenlargementoftheprostateglandaffects

at least50percentofmenovertheageof50.

Today, for those in the advanced stages of the

condition,surgery istheonlyoptionandmore

than400,000prostateoperationsperyearare

performedintheUnitedStates,withamortality

rateof approximately1per cent anda cost of

nearly $3 billion. At Merck, after 15 years of

development,apromisingnewenzymeinhibitor

tocontrol thiscondition isawaitingmarketing

approva l f rom the US Food and Drug

Administration (FDA).Thedrug isdesigned 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 rmone ,

dihydrotestostrone, that is associated with

prostategrowth,therebyhopefullyshrinkingthe

enlarged prostate. Because regression of the

enlarged prostate is maintained and data

suggestthatProscarcanhalttheprogressionof

the disease, a long-term study is planned to

demonstratereductionintheneedforprostate

surgery.

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?


In terms of pricing I can speak only for Merck

because it is the only company whose pricing

procedures I am familiar with and because anti-

trust laws prohibit any intercompany pricing

discussions or practices. 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? If cost effectiveness were the

final arb i ter of pr ic ing dec is ions , most

pharmaceutical prices could justifiably be much

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

establish prices for our products that will produce

an appropriate return on our research investment

and maximise patient access. If the price is too

high and the patient cannot afford the medicines,

we have not fulfilled our reason for existence.

The basic principle governing the free enterprise

system is that free and unrestrained competition

should force fair prices. The more segmented the

industry, the truer that is, and the pharmaceutical

industry, led by Merck with a 9.3 per cent US

market share and a 4.9 per cent worldwide share,

is highly competitive.

Research and development costs are a major

consideration in setting the price of a new

medicine. In general, the more expensive the

research project, the higher should be the price of

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

PRICING AND PROFITABILITY

in Merck & Co Inc

are working at any one time to develop scores of

investigational compounds and to invent

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

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

costs of the successful projects that contribute,

directly or indirectly, to the discovery and

development of the rare compound that

eventually becomes a prescription medicine. It is

also impossible for us to isolate costs for all of the

individual projects that fail. What we do know is

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

investments in the failed and successful projects, it

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

prescription medicine to market in the United

States.

Prices of existing therapies and competitive

products already on the market are another

consideration in establishing the price of a new

medicine. When we introduced the anti-ulcer

medicine Famotidine to the US market in 1986, the

average price charged to the patient for one

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

was comparable to the average prices of $1.83 for

Cimetidine and $2 for Ranitidine for equivalent

dosage strengths.

For medicines that the company believes are

clearly superior to earlier products, we do charge

more.

The special nature of its products demands that

the pharmaceutical industry, more than perhaps

any other be responsive to social needs.


Such was the case, in 1987, when we introduced

Lovastatin, which the FDA had placed on the fast

track for regulatory approval. The $1.57 a day cost

to the average patient represented a premium

over the $1.19 a day average patient cost in 1987

for Gemfibrozil, the most widely prescribed

cholesterol-lowering agent at that time.

When pricing a new medicine, we also have to

consider the number of years of patent protection

remaining. We always set out to price our

products at similar levels from country to country.

But variations in government price controls,

exchange rates, dates of new drug approval,

healthcare financing practices, and other factors

tend to result in different prices for different

countries. Above all, the company assumes a

responsibility to make its products available to

people who need them. So in countries where we

believe prices for innovative medicines are set

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,

and this methodology does not factor in the

lengthy t ime per iod required for drug

development. Consequently, the accounting

model makes the ROA number for the

pharmaceutical industry appear high when

compared to ROAs for other industries.

In order to provide a more realistic picture of

returns for research-intensive industries, an

economic ROA model, based on one developed

by Kenneth Clarkson at the University of Miami

may be used. In this Model, gross assets include

R&D expenditures, which are capitalised and

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

expenditures to develop new products are part of

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

adjusted to reflect the capitalisation of R&D. This

economic ROA model would lower the ROA

results for any industry, but the effect would be

greatest for the research-intensive ones.

I N C R E A S I N G R I S K A N D C O S T S O F

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

researchers ' sa lar ies to new laborator y

equipment, for one successful compound.


The other half is the capitalised expenditure, or

the so-called opportunity cost of having funds tied

up during the 12-year period of development.

Compounding the risk and financial cost of

bringing a drug to market is the shorter product

life cycle of new prescription medicines. Generic

drugs gained easier, faster entry to the market

with the passage of the Drug Price Competition

and Patent Term Restoration Act of 1984. But an

even greater impact on the average market life of

a breakthrough compound has come from the

rapid introduction of so-called follow-up

medicines, which are chemically different from the

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.

Seven out of ten marketed prescription medicines

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

analysis of total sales performance of 100 new

chemical entity medicines introduced from 1970 to

1979 showed that the medicines barely recouped

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

performance of the anti-ulcer drug Tagamet

(cimetidine) is removed, the result for the entire

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

successful breakthrough product is necessary if

a company is to keep pace with R&D investment

and the cost of capital.

In 1975, the year I joined Merck, the Chief

Executive Officer was concerned that for some

time, the company had introduced few important

new medicines in the United States, despite

having spent approximately $500 million dollars

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

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

company had been experiencing what industry

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

misleading because it implies that research has

been unproductive.

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

persistence - the paradox of the high - risk

pharmaceutical business is that the route to

success is to invest more - was the introduction of

a number of important new products for arthritis,

hospital infections, glaucoma, and muscle spasms.

Another so-called "dry spell" occurred for the

company from 1979 to 1985 with few product

introduct ions. This was fol lowed by an

unprecedented flow of new products, culminating

in the introduction of Lovastatin in 1987.

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.


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.

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

obtain the medicines they need. The special

nature of its products demands that the

pharmaceutical industry, more than perhaps any

other be responsive to social needs.

Merck also announced the Equal Access to

Medicines Programme aimed at overcoming the

current lack of availability of some important

medicines to poor people.

Special efforts must be made to get important

medicines to the poor in developing countries. In

1987, Merck announced that we would donate

our breakthrough medicine Ivermectin, for the

control of river blindness (Onchocerciasis),

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

In most cases, a single yearly treatment with

Ivermectin would prevent the ravages of

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.

Merck did not set out originally to give the

product away; however, most of the people who

need it are poor and live in remote places. After

months of discussions with International aid

organizations that were prospective buyers, we

realized that the process of obtaining funding for

purchases of Ivermectin would take too long.

Meanwhi le, people were suffer ing and

sometimes going blind.

IMPROVING PATIENT

ACCESS TO MEDICINES

THE CASE OF IVERMECTIN FOR ONCHOCERCIASIS

Special efforts must be

made to get important

medicines to the poor in

developing countries. Healthcare Management Review Vol 8/Page 72

More than a million people are covered by

Ivermectin treatment programme to date. But the

medicines must somehow reach millions more. If

we can reach a sufficient number of people, the

disease can be controlled as a major public health

problem. In theory, river blindness could even be

eradicated, provided it were possible to have every

person harbouring the parasite take Ivermectin

annually for at least 10 years. Merck is committed to

trying.

When Merck management was debating whether

to donate Ivermectin for the control of river

blindness, we considered many factors, including

the loss of potential revenues, the major marketing

challenge involved in getting the medicine to

people in remote areas of the world, and the

question of what impact the donation would have

on research for tropical diseases. Would the

donation be a disincentive to other firms? Since

making the donation decision, we have heard no

criticism.

The innovation-based pharmaceutical industry is

committed to improving the quality of healthcare

through pharmaceut ica l 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.

Razigi was bitten by a blackfly

and developed a disease

called Onchocerciasis, or

river blindness.

SAVING LIVES

& SAVING MONEY


What are you selling?...What is your brand purpose?...What are the func�onal, societal, and emo�onal benefit of your product?

What values are people looking for in your

organiza�on, products or services?

Customers always have rela�onships with brands.....in rela�onships, there are boundaries and expecta�ons....how do you iden�fy and manage them?

Why should customers prefer your products?

What are the core values of your organiza�on?

What products do you have absolute advantage?


What corporate values do you want to represent?

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.

What is the purpose of your organiza�on beyond

manufacturing and sales of pharmaceu�cal products?

Do you have a desire for impact?

...exerting the maximum impact on the society through your products/services?

EXPLOITING THE MARKET SPACE

What are the opportuni�es in this market for pharmaceu�cal companies with the right products offered in the right way and at the right prices?...what is the right product?...what is the right price?...what is the right way?


Capable of being continued or maintained with minimal long -term effects on the environment.

S U S T A I N A B L E


SUSTAINABLE

MANUFACTURINGThe 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 –

Sustainable Manufacturing Initiative.


Creating Sustainable

Value-based Organization

he current placing of sustainability isTsupportedbythestrategicshiftintheway

organizations'performanceisevaluated.“Doing

well by doing good” has become an index for

measuringhowwellorganizationsaredoingas

cus tomers , employees , inves tors and

stakeholdershavecometoadoptthismindset.

Thisdirectionisresponsiblefortheextensionof

theexpectationsoforganizationsbeyondtheir

expertisetoincludepracticesandactivitiesthat

have become leading forces for creation of

sus t a inab l e va lues i n o rgan i za t i ons .

Consequently, organizations have become

forerunnersandpartnersinsearchofeconomic,

ecological and social solutions to problems

withinandoutsidethedomainofthebusiness.

The strength-based approach to creating

valued-basedorganizationspenetratesthe

organizations from two dimensions: top to

bottom; and bottom-up by engaging cross-

functional task forces, project teams and

building team sessions as prerequisite tools.

This design advocates for leveraging on

collective intelligence of a whole business

system by engaging a much larger group –

leading to involvement of a larger-scale

con�igurationofthewholestakeholders.

Managing operations in an environmentally and

socially responsible manner – sustainable

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

but a business imperative. Companies across the

world face increased cost in materials, energy,

and comp l i ance coup led w i th h ighe r

expectations of customers, investors and local

communities.

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

generationwithoutcompromisingtheabilityof futuregenerationstodothe

same. When we translate this concept to pharmaceutical manufacturing

processes,wedevelopmanufacturingprocesses thataredesigned touse less

energy,littletonowater,fewerrawmaterials,andproducezerowaste.

Dr. Paul AboloCEO, Ecologistics Inc


customers and the communities where you

operate. Failure bringswith it high costs – �ines,

penalties, localunrestandcustomerschoosingto

goelsewhere.Success,ontheotherhand,cansave

you money, helps build a reputation, attracts

investment, spurs innovation, secures loyal

customersandbringsinrepeatbusiness.

....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

Many businesses have already started to take

important steps towards green growth – ensuring

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

environmentally sustainable. Their pioneering

experiences largely show that environmental

improvements go hand-in-hand with profit making

and improved compe��veness.

Sustainable manufactur ing is a l l 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.

These days, doing business built on good

environmental practice is increasingly becoming

essentialintheeyesofinvestors,regulators,

What goes into

“Sustainable

Manufacturing”?

Waste

Reduction

Energy

Conservation

Water

Conservation

Reduce

Pollutants

and CO

Emissions

VibrantGoodHighly SatisfactorySatisfactory + Satisfactory Satisfactory-Highly Unsatisfactory BadCritical

ECONOMICS Production & ResourcingExchange & TransferAccounting & RegulationConsumption & Use Labour & WelfareTechnology & InfrastructureWealth & Distribution

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

POLITICS

Materials & Energy Water & Air

Flora & Fauna Habitat & Food Place & Space

Constructions & Settlements Emission & Waste

ECOLOGY

Engagement & IdentityRecreation & Creativity

Memory & Projection Belief & Meaning

Gender & GenerationsEnquiry & Learning Health & Wellbeing

CULTURE

CIRCLES OF SUSTAINABILITY


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 efficiency of productionHealthcare Management Review Vol 8

/Page 80

he increased investment andToperatingcostinvolvedinsetting

up and running a GMP compliant

facilitydonotmeanthatinternational

standardproduction inNigeriaor in

Africa cannot be competitive or that

very large manufacturing plants are

required to achieve cost effective

production.

Unpublished research commissioned

by UNIDO indicates that �ixed cost

assoc ia ted wi th upgrades are

generally directly correlated to the

output of the facility such that

technical economies of scale are not

particularlysigni�icantbeyondcertain

fairly low volumes. In fact, it is an

establishedwisdomthatacapacityof

1.5 billion tablets is necessary for

competitiveproductionborneoutby

theanalysis.

Further signi�icance of �ixed costs

means thatcapacityutilizationhasa

crucialimpactonthecostofeachunit

o f product ion . The nature of

pharmaceuticalproductionisthatitis

a batch process where different

products aremanufacturedwith the

same machinery. Change over time

requiredbetweenbatchesofdifferent

products representdown timewhen

assets are not being productively

utilized.

Machine down time can also occur

where a production line is not

balanced. Forexample,onepieceof

equipmentmayhaveagreateroutput

perunitoftimethananotherleading

toabottlenecksituationwherethe

machine with the greater output

remains idle for periods of time.

Downtimecanalsooccurduetobreak

down of equipment but preventive

maintenanceprogramscanminimize

theimpactofthis.

Modern business practices have

evolvedmethodsbywhichdowntime

of equipment can be kept to a

minimum and capacity utilization

optimized. This can for example

involve campaigning batches of the

sameproduct so that limitedchange

overtimeisrequired.

Thedegreetowhichcampaigningcan

take place to achieve ef�iciency of

production is to some extent also a

function of the market (size and

procurement agreements). Another

impo r t an t c omponen t o f t h e

economics of production is working

capital requirements, in which

inventorycarryingcosts(inputs,work

in progress, and retained �inal

products)arecritical.

The above comments refer to the

manufacturingofapprovedproducts.

However, thecostofdevelopingnew

product is signi�icant, particularly if

bioequivalence studies are required.

Companies can buy dossiers on the

open market and go through a

technologytransferprocesstosetup

productionintheirfacility. However,

the cost of high quality dossiers can

runto$100,000andmore.


Duringthepastfewdecades,manyindustrial

companies have attempted to achieve

manufacturingexcellence.Theyhavehadat

theirdisposalanynumberofmethodologies

and theories, quality initiatives, and cost-

reducingconcept. Butfewcompanieshave

made much headway. Manufacturing

strategies - decisions related to siting,

designing,andrunningfactories-areoften

thesameas theywere10or20yearsago.

Plantsoften lookandfeelastheydidthen.

Programsintendedtoimproveperformance,

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

theyperform.

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,

manufacturingistreatedmoreandmoreas

anoutcast,andplantcommunitiesbecome

disenfranchised.

We call this condition ‘Manufacturing

Myopia’.Itisakintothe‘MarketingMyopia’-

when companies de�ine their brands too

narrowly. Today, myopia is even more

prevalent anddangerous inmanufacturing

than itwas inmarketing fourdecadesago.

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

functionalorevenplantlevel,withlittleor

no connection to the enterprise wise

strategies.

Everybusinessshouldde�ineitselfthrough

the interests of its market, not its own

productionpriorities.

BUILDING AWARENESS

Surprisingly few major multinational or

large-scale manufacturing companies have

beenabletobreakfreeofthistrap.Thecure

formanufacturingmyopiais20/20vision-

that is, the cultivation of awareness about

manufacturingcostsandmeans.Companies

can sharpen their own ability, to see their

operationsmoreclearlyandredesignthem

more �lexibly. For companies that achieve

this kind of manufacturing prowess, the

manufacturing function is no longer seen

primarilyasacostcenter,ripeforcutbacks

or outsourcing. Instead, the ability to

producehigher-qualitygoodsatlowerprices

inamore�lexiblemannerisacomponentof

their long-term competitive strategy and a

central,dependablepartoftheiridentity.

THE EFFICIENCY

OF PRODUCTION


Thisinvolvestwomajorcommitments;�irst,

dedication of resources to building

awareness.Leaderscanpeelbackthelayers

oftheirownmanufacturingoperationsand

thoseoftheircompetitorssothatprocesses,

advantages and disadvantages can be

viewedmoreclearly. Thismeansbecoming

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

driversresponsiblefortheircosts.

Many manufacturers look at cost data

primarily as justi�ication and leverage for

continuallytrimmingexpenses,ratherthan

as a sourceof 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

manufacturingcompetence,widelyadmired

formanyyears,stemsinlargepartfromthe

company's insistence on building �ine-

grained awareness of every facet of

production,atalllevelsofthecompany.

The second commitment is patience,

demonstratedbyinvestinginthetimeand

resources to address manufacturing

productivity as a long-term, organization-

wide strategic imperative and not as an

isolated operational or functional issue.

Plantmanagersareoftenexpectedtoshow

thesamefastpaceofchangeasmarketing,

�inance, and procurement, where 6 to 18

month transformations are feasible. But

thosemetricsdon'tapplytomanufacturing

efforts,whereimprovingresultsrequiresa

verydifferentsetoftimeframes.

At most companies , there are four

dimensions of manufacturing in which

highly visible data and analysis, projected

fartherintothefuture,canyieldbothshort-

term gain and long-term advantage:

technological distinctiveness, network

sophistication, in-plant transformation,and

labourmodernization.

TECHNOLOGICAL DISTINCTIVENESS

Oneofthe�irstplacestoeliminatemyopiais

inthedesign,engineering,orpurchasingof

manufacturing technology. (This is called

the"inherent"dimensionofmanufacturing,

becauseitinvolvesthephysicalnatureofthe

products and the processes that create

them). Thereisastaggeringlevelofunder

investment inbusinessprocess innovation

ascomparedwithproductinnovation.

NETWORK SOPHISTICATION

Mostcompaniesorganizetheirproduction

and supply operations on a project-by-

projectbasis.

Unfortunately,weobservethatthereislittle

cooperationamongcompanieswithina

There is a staggering level of under

investment in business process innovation

as compared with product innovation


supply chain to jointly optimize plant

networks, another potentially lucrative

exampleof�lexiblefootprints.Intheoutdoor

equipment industry and inbasic chemicals,

some companies have sharedparts of their

productioncapacity,sometimesspinningoff

manufacturing. But capacity pooling is a

rarityoutsidethosetwoindustries.

IN-PLANT TRANSFORMATION

Itisnowmorethan30yearssincethenotion

of manufacturing excellence - variously

attributed to theToyotaproductionsystem,

s o c i o - t e c h n i c a l s y s t em s , q u a l i t y

management,leanmanufacturing,andhigh-

performancesystems-becamewidelyknown

in Europe and the United States. By now,

particularly every manufacturing manager

cantellyouaboutpokayoke,kanban,orself-

steering teams. But plants that have

successfullyimplementedthemanufacturing

practicesthatproduceef�icientandoptimal

operations are few and far between. And

mostofthesearegreen�ieldsites:previously

undevelopedlocationswhereeliteprocesses

couldbedesigned into the factory fromthe

beginning.

The competitive advantage of process

optimizationremainshigh,inpart,becauseof

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

manufacturingindustryingeneral.

Inaso-calledbrown�ieldsite(anestablished

factorywithalong-standingworkforce),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

therearealreadymoreworkersthanworkto

do , improving product ion speed or

throughput will not lead to higher level of

productivity, in part because overcapacity

breeds"processcreep,"inwhichworkersand

managersmerelyoverlaythenewworkrules

and practices on top of their old routines.

Despite knowing this , a l l too often ,

manufacturers myopically push a "lean"

programthroughplantsthatareoverstaffed

and have a high share of non-value-added

work.

Wecallthisthefatballerinasyndrome:Only

slimmed-downorganizationsstandachance

ofperformingsmartmoves.

Companiesalsoareoftengreedyorformulaic

when it comes to assigning improvement

objectives to plants. It's not atypical for a

factorymanagertobetoldtosave10percent

of �ixed costs, while improving output and

qualityby20percent.

MANUFACTURING


A company seeking to overcome its

manufacturing myopia may �ind the task

dauntingat�irst,buteasierovertime. The

goal is not to "�ix" manufacturing, but to

build the capacity for long-term and

medium-termmanufacturingmanagement

among engineers, suppliers, and staff

(buildingunionizedstaff),andtoredesign

the technology to the advantage of these

capabilitiesandaugmentthem.

Therearenouniversalrulesfordoingthis

because each manufacturer has a unique

combination of in-house capabilities,

labourhistories,supplychainrelationships,

market demands, and technological

innovations. A holistic manufacturing

strategyemergesonlyfromananalysisthat

assessesthecriticaloperationaldataburied

in the four dimensions of manufacturing

design: inherent, structural, systemic, and

realized.

Eveninthebestofcircumstances,itistricky

to distinguish the effects of individual

manufacturingdrivers. For instance,how

much advantage does a competitor gain

fromoperatingcontinuousinsteadofbatch

processes, andhowdoes thatbalanceout

thedisadvantageithasmaintainingsmaller

plantswith greater indirect andoverhead

requirements?Manufacturing,�inance,and

researchanddevelopmentexecutivescan't

answersuchquestionsinisolationfromone

another;theyneedregularopportunitiesto

thinkandstrategizetogether.

Companies that are willing to invest in a

long-term change cycle discover that the

learning curve in manufacturing is

nonlinear.Eventhoughtheinvestmentmay

be ready, measurable improvement is

typicallyslowat�irstandacceleratesover

time. It may take �ive years to cross the

initial threshold of a new production

system,butafter that �irstexperience, the

capacity for changing technology grows

rapidly - in part because the technologies

themselves become more �lexible, and in

partbecauseemployeesdeveloptheskills

andknowledge todeploynewproduction

machinesmoreef�iciently.

Over the past 20years,manufacturing

managershavelearnedthateventhemost

effectivesupplychainmanagementwillnot

leadtoresultsunlessthesecapabilitiesare

implemented-notjustwithinthefunction,

butattheleveloftheexecutivesuite. Ina

confrontational competitive environment,

the choice is engaging in manufacturing

competenceas the coreofyour corporate

identity-orcontinuingtopaythepriceof

myopia.

MANIFESTO FOR MANUFACTURERS


As already pointed out, the economics of

pharmaceutical manufacturing are more

complex than is perhaps generally realized.

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.

The unpublished report provides evidence

that substantial efficiency gains could be

achieved if Japanese–style production

approaches were to be introduced

Rough estimate based on this analysis

indicate that productivity levels could be

improved by around 30%.

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

approaches requires expertise, 'buy in' across

the organization from senior management to

production staff and embedding of a culture of

efficient production.

T h e l e a r n i n g c u r v e i n

manufacturing is nonlinear


t was the challenge of Buy-Over of Pfizer Plc. It was Ian 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.

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.

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.

�

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.

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.

That was the greatest challenge I have had in my

career being able to make Neimeth dependent and

reliable.

MY GREATEST CHALLENGE Mazi. SAM OHUABUNWA

Fmr. CEO Neimeth


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

c o n v e r g e n c e a n d c o n n e c t i v i t yHealthcare Management Review Vol 8

/Page 89

belt;andnowitsbacktogrowth-butthistime

withpro�itability.

Executives are raising the bar on themselves,

which is a good thing. To meet their goals,

however,theymust�indwaystodistinguishtheir

offer ings . They are three interre lated

approaches to differentiation:- Innovation,

Deepening of customer relationships, and

Bundlingofproductsandservices.

Innovationhas longbeen theprimarybasisof

advantage, indeed, if you have a unique �irst

moverproductorservices,youcangetfarahead

of the competition.Themost dramatic top-line

growth opportunities come from �inding new

waystomake,doorsell.Butitisgettingharderto

standoutthroughproductinnovationaloneand

theadvantages,whentheyoccur,arebecoming

more ephemeral - so we come to the second

differentiationtactic:sharpeningorganisational

focusoncustomers.

Credit:RajayGulati

usiness people across a wide range ofBindustries have increasingly begun to

identify maturation and commoditization as

emerging challenges. Whether because of

globalization, maturing technologies, ease of

imitation, decreasing barriers to entry, open

standards in technologymarkets, orpressures

from customers who are themselves being

squeezed, more companies are feeling the

intensityofpricecompetition leadingmany to

describetheirbusinessascommoditymarkets.

It is one thing if you have inherent cost

advantage, but most companies don't and for

themcommoditizationisadeadlygame.

When you're constantly scrambling to make

yourmargins,youhavetostraintothinkabout

topline. Everyonewantsto�indwaystogrow,

butrealpowerliesindoingsopro�itably-andit

takesseriouswork.

Ten years ago, everyone talked about top-line

growth;thenthefocusbecametighteningthe

IS COMMODITIZATION

A DEADLY GAME?


Thisapproachcanhelpacompanydistinguish

itself inanumberofways, fromcreatingnew

products or services for speci�ic customer

segmentstopersonalizingservice.

Ashiftinemphasisfromproductstocustomers

can be chal lenging, as i t might entai l

fundamentalchangeinacompany’sstructure,

process,andultimately,culture.Nonetheless,

even industries that have relied primarily on

product innovation are discovering the

importance of gearing their organizational

processes more directly to the needs of end

customers. For instance, although the

pharmaceuticalindustryhastraditionallybeen

driven by the development of unique drugs,

marketed primarily to clinicians, companies

suchasElilillyandP�izerhavebeguninvesting

heavilyinconsumeroutreach.Becomingmore

customer oriented is in vogue in other

industriesaswell.

Hospitalsaredescribedasalongunderserved

customersegmentandtheyhavetobetreated

asadistinctmarket.Stemmingfromthisgreater

focus on consumers, the third approach to

differentiation is to blend products and

services,thusproviding"SOLUTIONS" to

concrete customer needs. By providing value

that is more than the sum of its parts, an

integrated offering can de�lect the price

pressure that arise when you compete with

othersonproductorserviceattributealone.

While initiatives to provide solutions are

gainingpopularityinarangeofindustries,the

organizational adjustments required can be

monumental. Foranyof thesedifferentiation

vehicle , execution is crit ical . In many

companies, unfortunately, 'Innovation',

customer focus, and solutions, are rhetorical

claims lacking substance. But organizations

thathavemoved fromrhetoric toactionhave

found that delivering on these claims can be

quiteastretch.Ifyourcompanyisorganizedby

products, for example, how do you reorient

employees to think more broadly about

customerneeds?How do you train a sales force

that's accustomed to selling transactions to

selling bundled products and services?

Itisimportanttorememberthatgrowthcomes

inmanyformsandtakespatience;itisepisodic

innature. Youmaymakeabig jumpforward

throughacquisitionandthengrowslowlyand

steadily through internal innovations or

alliances, the key is to be ready to act on

whatevertypeofopportunitiesthatarise.

They are three interrelated approaches

to di f ferent iat ion:- Innovat ion,

Deepening of customer relationships,

and Bundling of products and services.


THE HEALTH SECTOR:

Challenges

Opportunities

and

Many healthcare professionals in Nigeria deal

with the limitations of the healthcare sector on

a daily basis. This affects not only the level of

care they can give their customers, but also

the sustainability of their business. New

developments in the field are providing

opportunities for growth, innovation and

quality improvement in healthcare.Healthcare Management Review Vol 8

/Page 92

igeria's health sector continues toNstruggle 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 em s a l s o t r i c k l e d own t h e

pharmaceutical supply chain , from

manufacturers, wholesalers and the

pharmacy, down to patients who �ind

themselves paying a higher price for

medicinesofunclearquality.

Although20-30%ofhealthcarespendingis1

on medicines and for Africa, medicine

spendingisexpectedtoreachUSD30billion2

in 2016 , the size of individualmarkets is

underdebate. Estimates forNigeria range3 4from200billionNaira to340billionNaira ,

an indication of how opaque, weakly

regulatedandfragmentedthemarketis.

Despite their crucial role in healthcare

provision,medicinesarenotalwaysreadily

available or accessible and doctors and

pharmacists face numerous constraints in

theirwork.

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.”

AccordingtotheIFC's“BusinessofHealthin

A f r i c a Repo r t ”, t h e r e g i on n e ed s

USD25-30billion innew investmentover

ten years. About half of the investment

opportunities are expected to be in

hea l thcare prov is ion , fo l lowed by

distributionandretail,pharmaceuticaland

medicalproductmanufacturing,insurance,

andmedical education. As the investment

riskremainshigh,currentinvestmentsring

inatonlya fractionof that.Andgiventhe

long payback periods for healthcare

infrastructure projects and the low

purchasingpowerof thepopulations they

serve,thecommercialprivatesectorisnot

likelytoaddressthisissuealone,especially

inAfrica'shighinterestrateenvironment.

Whilelackof�inancingisamajorproblem,

governments, donors and investors are

starting to see that the road to universal

healthcoveragebeginswithstrengthening

the healthcare system as a whole. This

means increasing quality, trust and

transparency in the sector. Only thenwill

investorsstarttoseeopportunitiesinstead

ofrisksandwillcostofcapitaldecrease.

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)


he Pfizer Founda�on launched its impact Tinves�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.

PARTNERSHIP

FOR INVESTING

IN HEALTH

Pfizer Foundation support for Africa Health Infrastructure Fund

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 l ike PharmAccess which are providing affordable, sustainable capital and technical exper�se to foster local innova�on in health care access and delivery.


Oneof theorganizationsdrivingchange in the

healthcare system in Africa is PharmAccess,

which has set up many publ ic -pr ivate

partnershipstodevelopandimplementquality

standards, build trust and attract investments.

ItsawardwinningMedicalCreditFundcombines

loans to small and medium sized healthcare

providerswithsupporttoimprovebusinessand

qualityusingtheinternationallyrecognizedSafe

Carestandards.

Oneofthedifferentiatingfactorsofthisnewfund

isitsabilitytodeploymore�lexibleandlonger

term �inancial instruments in return for social

impact. Healthcare delivery organizations

cannotonlygainaccesstocapital,butwillalso

bene�it from training in good management

practicesandqualitystandards.Inthesameway,

improved manufacturing and distribution

practiceswillhelptheef�iciencyofotherplayers

in the healthcare system, fortifying the supply

chain. By building better businesses and by

increasing investors’ trust in the sector, new

deve l opmen t s l i ke t h e A f r i c a Hea l t h

Infrastructure Fund can prove instrumental in

setting in motion an upward spiral for the

healthcaresysteminNigeria.Thisisanapproach

that empowers entrepreneurs and healthcare

professionalstocreatetheirownsuccess.

PharmAccess will complement its activities

withanewfund,theAfricaHealthInfrastructure

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

medicaleducationinstitutes.TheAfricaHealth

InfrastructureFundwillcombineitsloanswith

access to funds for tailor-made business and

qualityimprovement.

Aspartofitsimpactinvestingstrategy,theP�izer

Foundation has provided the Africa Health

InfrastructureFundwithacatalyticgranttohelp

establ ish operat ions . With this grant ,

PharmAccess and the P�izer Foundation are

strengthening their shared commitment to

improving access to affordable, quality

healthcareinAfrica.

THE AFRICA HEALTH INFRASTRUCTURE FUND


BankofIndustry...re-positioningtheNigerianPharmaceutical

manufacturingindustriestoattainglobalstandards

withspeci�icreferencetoWHO-cGMPcerti�icate.

TheBankofIndustry'scontributiontothe

growth of the Nigerian pharmaceutical

industryhasbeen impactful in re-positioning

theindustrytoattainglobalstandards.Already,

theBankisclosetomeetingitstargetofgetting

six companies, who are on the books of the

Bank , ce r t i � i ed by the Wor ld Hea l th

Organisationasbeingcompliantwiththecodes

of Good Manufacturing Practice (cGMP), as

three companies: Swiss Pharma Nigeria

Limited,EvansMedicalPlc, andMay&Baker

NigeriaPlchavealreadybeencerti�ied,whilea

fourth,DailyNeedIndustriesLimitedissetto

beinspectedin2016.

The Managing Director/CEO, Mr. Rasheed

Olaoluwa said during a facility tour of Swiss

PharmaNigeriaLimitedandMay&Baker

Nigeria Plc that the Bank's support to these

indigenouspharmaceutical companieswas to

better position them to meet international

standards,withspeci�icreferencetothecGMP

certi�icationbytheWorldHealthOrganisation

(WHO), which will help them compete

favourably with other global pharmaceutical

companies.Headdedthatthetourrevealedthe

impressive progressmade by the bene�iciary

companies, including the fact that they had

beenabletosecurecerti�ication.

“This visit is to see how much impact the

companieshavemadeutilizingthefacility.We

arepleased thecompanieshavebecome fully

certi�ied and concluded the upgrading

processes.Wetookatourofthepremises,andI

wasamazedattheamountofeffortsand

So far, the sector has enjoyed

financing from the Bank to

the tune of over N7billion.


investmentsthathavegoneintoassuringthe

highest quality in terms of the air quality,

qualityofproductsfromrawmaterialscoming

in,thehandling,theprocessing,thepackaging,

theentireprocessisofinternationalstandard”,

henoted.

OtherkeymilestonesoftheBank'sintervention

intothesectorincludetheincreaseinaverage

production capacity of assisted companies

from55%to80%;theimprovementinresearch

and development which has aided assisted

companiestoinvestinmorecomplexproduct

lines, including production of anti-retroviral

drugs and easily injectable drugs; increased

foreignexchangesavingasaresultofreduction

ofdependenceonimportedpharmaproducts;

aswellasthemodernisationand

empowermentoftheNationalAgencyforFood

and Drugs Administration and Control

(NAFDAC). So far, the sector has enjoyed

�inancing from the Bank to the tune of over

N7billion.

The industry is the biggest in West Africa,

responsible for 60 percent of the medicines

consumed in the ECOWAS region, and has a

marketsizeof$717milliongrowingatarateof

12percent annual ly, according to the

Pharmaceutical Manufacturers' Group of the

Manufacturers' Association of Nigeria (PMG-

MAN).Thesectorisahugeemployeroflabour,

withover600,000peopleworkingthere,and

its export potential is considered high, as

evidencedbytheattractionofinvestmentsinto

thesectorinexcessofN300billion

Mr. Rasheed Olaoluwa

Managing Director/CEO

Bank of Industry


THE CAPITAL MARKET AS A WINDOW FOR

FINANCING PHARMA INDUSTRY IN NIGERIA

TO CREATE DRUG SECURITY

David Imafidon Pharmacist, Chartered Stoke Broker

and Investment Consultant

( Chief Execu�ve Officer Highcap Securi�es Limited)

ADONRI


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 WPharmaceutical 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.


here is a common saying that Health is TWealth. 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

s e v e ra l w o r l d r e n o w n e d M u l � n a � o n a l

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.


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

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.

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.

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

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.

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.

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.

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

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

protec�on. The inst ruments used by

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

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


infrastructure and also fund part of working

capital.

OFFER FOR SALE

Apublicofferofsharesinacompanybyexisting

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

suchshares.

RIGHTS ISSUE

Thisisamethodofraisingnewequitycapitalby

means of offer to buy more shares made to

existing shareholders in proportion to their

existing holdings, at concessionary prices.

Manycompaniesusethismethodtore�inance

short term debt servicing obligations. In

addition, restriction of the offer to existing

shareholders ensures undiluted ownership.

RightsIssuemaybemadeatthediscretionof

the Directors. It does not need approval of

membersinageneralmeeting.Italsodoesnot

requirethepublicationofprospectuswhichis

mandatoryunderanofferforsubscription.This

keepsthecostofissuanceatabarestminimum.

PLACING

Thisisanarrangementwherebyanewissueof

sharesorbondsisdirectlyofferedtoselected

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.

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.


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 fo 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

“ THE EARTH PROVIDES

ENOUGH TO SATISFY MAN'S

NEED, BUT NOT EVERY MANS

GREED”

Mahatma Gandhi

GANDHIAN

ECONOMICS of capital efficency

- 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.


radi�onal innova�on is heading for Tobsolesce - because parameters have

completely changed - and it wil l take

unsuspec�ng organiza�ons with it. Most

innova�on programs are bui lt 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-for-

money 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 cross-

border 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.

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.

IMMITATION

INNOVATION


·� 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.

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.

Two, the Indian economy did not start growing un�l

the 1990s, so local companies are small. For

e x a m p l e s , i n 2 0 0 8 I n d i a ' s t h e n l a r g e s t

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-for- money products

and services by changing the price-performance

equa�on.

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.

C A P I T A L E F F I C I E N C Y


MY GOAL IS INCLUSIVE GROWTH:

CEOsofPharmacompaniesmustdevelopadeep

commitmenttoinclusivegrowth,whichwillforce

themtothinkofunservedcustomers,betheyrural

poor or urban poor. A focus on inclusion

challengesexecutivestopushpriceperformance

envelopes to ensure affordability, and to think

aboutincreasingscaletolowercosts.Thestarting

pointhastobethedesiretoservemorepeople.

Though, companiesoften startbyasking: “given

ourcost structure,whichsegmentscanweserve?

“TheyShouldask:Giventhatweneedtocaterfor

theunderserved,whatshouldourcoststructurebe?

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 imens ions : for example , he lp ing poor

individuals and enabling patients to buy cheap

medicines.Theseleadersalsoengagewithproject

teams constantly, providing safety net that

protects the team from self-doubt during

despondenttimesandmoderatesovercon�idence.

· I MUST SET STRETCH TARGETS: CEOs must

establishambitiousgoalsandcleartimeframesfor

CEOs must follow five cardinal principles to get

Innovation right today: They must say:

achieving them.Companies shouldask: “What is

our man-on-the-moon project?'' as they do in

India'sboardrooms:''WhatisourNanoProject?''

Bycreatingaspirationsthatliebeyondtheexisting

resourcesorcurrentapproachestothedeliveryof

products, CEOs will compel executives to be

innovative and entrepreneurial. The Mismatch

betweenaspirationsandresourcesistheessence

of entrepreneurship. Executives then have only

two choices. Leverage existing resources in new

ways,orchangetherulesofthegameentirely.

· WE MUST LEARN TO INNOVATE EVEN WHEN

FACED WITH CONSTRAINTS: GandhianInnovators

startbyacceptingthatthereareconstraints.That

won'tgoaway,leadersmustforceteamstowork

withinself-imposedboundariesthatstemfroma

deepunderstandingofcustomers.Thatwillresult

inanovel,outside-inviewofinnovation.

·OUR FOCUS SHOULD BE ON PEOPLE:

None of the successful organizations studied

explicitlydiscussed shareholderwealthorpro�it

maximization.Theirinnovationprojectshadtobe

pro�itableandbuildshareholderwealth,ofcourse,

but the focus was always on customers. The

language inside their organizations was about

customers as people, supplies as partners, and

employeesasinnovators.

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?


Gandhian innovators solve problems in two

key ways: by acquiring or developing

technologies and by altering business

models or capabilities

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 enter-

prises 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

growth, establishing a clear vision, setting stretch targets, exercising entrepre-

neurial creativity within constraints and focusing on people, not just profit or

shareholders wealth

1. Develop a deep commitment to serving the unserved

2. Ar�culate and embrace a clear vision

3. Set very ambi�ous goals to foster an entrepreneurial spirit

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

5. Focus on people, not just shareholder wealth and profits.

CreditC.K PrahaladR.A Masheller


INDIAINDIAINDIATHE IMPORTANCE OF

GOVERNMENT POLICY

IN INDUSTRIAL GROWTH


ver the past 40 years or so the Indian pharmaceutical sector witnessed Orapid 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.


Introduction of the allopathic form of

medicine.

Noproductionunitinthecountry

ForeignCoysexportedRawmaterialsfrom

India,transformeditinto�inishedproducts

andimporteditbacktoIndia.

In spite of sincere efforts by a handful of

entrepreneurstoestablishindigenouscompanies,

drugproductioninIndiawaslowandcouldhardly

meet 13% of total medicine requirement of the

country.

Theindigenousindustry,howeverreceivedimpetus

duringthesecondworldwarduetothefallinthe

supply of drugs from foreign companies, many

moreIndiancompanieswereestablished.Withthe

entryofnew�irmsinthemarkettheproductionof

drugsincreasedrapidlyandindigenous�irmswere

abletosatisfyabout70%ofthecountry'smedical

requirement.

Concerned about the lack of manufacturing

facilitiesandguidedbytheperceptionthat'foreign

technology'was an important component for the

growth of the pharmaceutical sector, the

Government of India in its Industrial Policy

Statementof1948decidedtotakealiberalattitude

towards Multi National Companies (MNCs) and

allowedthemtoestablishplantswithoutfacingthe

hurdle of licensing agreements. Such liberal

attitudeofthegovernmenttowardsMNCsledtoa

free�lowofforeigncapitalandthesectorwitnessed

rapid growth. As noted by the Pharmaceutical

EnquiryCommitteeof1954,thedrugproductionof

India witnessed a 3.5 times growth in the

productionfromjustRs.10corein1947toaboutRs.

35corebytheendof1952

However,inspiteoftheprogressmadebythesector,

it was observed that foreign companies did not

establish any production unit in India, but were

engagedinassemblingbulkdrugs (importedfrom

theircountry)formanufacturingthe�inalproduct

FIRST EPOCH OF DEVELOPMENT (1850 -1945)

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.

SECOND EPOCH OF DEVELOPMENT

(1945 - Late 1970s)


MNCswerenotkeentoestablishproductionunitsin

thecountrybecause theproductionofbulkdrugs

required investment in plant and machinery

whereasimportingbulkdrugsandprocessingthem

into the formulation was an easier and more

pro�itable business. To overcome the structural

weakness that the sectorwas suffering from, the

governmentinitsindustriallicensingpolicyof1956

made it mandatory for foreign multinational

companiestoestablishtheirproductionunitinthe

countryandproducedrugsfromthebasicstage.

Thepharmaceutical industrywasalso includedin

the core group of industries for the purposes of

licensingbecauseofthe'highsocialvalue'contentof

medicinal products. Accordingly, the license was

granted under the supervision of the Director

General of Technical Development (DGTD) for

settingupanewunitorexpansionoftheexisting

units,keepingintoaccountthemedicinalneedfor

the country. In order to ful�i l l regulatory

requirements, many foreign companies started

theirproductioninIndia.

During this period, a large number of domestic

companiesalsoenteredthemarketmainlydueto

governmentsupportundertheIndustrialLicensing

Actandstartedproducingawiderangeofproducts.

The Four EPOCHS of the INDIAN Pharmaceutical Industry

First - 1850 - 1945

Second - 1945 -to the Late 1970s

Third - early 1980s - to early1990s

Fourth - early 1990s -To present time.

Between1952and1962,drugproductions in the

industry increased fromRs.35crore toaboutRs.

100 crore.Besides, the capital investment for the

sectorwasaboutRs.56crorein1962ascompared

toitsvalueofRs.23crorein1952.

ROLEOFPUBLICSECTORUNITSANDRESEARCH

INSTITUTES

Another note-worthy achievement of this period

was the establishment of two public sector units

(PSUs)theHindustanAntibioticsLtd(HAL)in1954

and the Indian Drugs and Pharmaceuticals Ltd

(IDPL)in1961tostarttheproductionofdrugsfrom

its basic stage. HAL was established to produce

antibioticwiththeassistanceofWHOandUNICEF.It

was the �irst company in India to manufacture a

number of antibiotic drugs like Penicillin,

Streptomycin Sulfate, Ampicillin Anhydrous, and

Gentamicinfromthebasicstage.

The technology required to produce these drugs

were imported mainly from a large number of

foreigncompanieswhichwerethenadaptedtothe

localconditionassistedbytheinhouseR&Dwingof

the company.Apart fromPSUs, thepublic funded

researchinstitutealsoplayedapivotalroleinthe


growth of the sector. The government created a

numberofresearchinstitutesundertheguidanceof

theIndianCouncilofMedicalResearch(ICMR)and

the Council of Scienti�ic and Industrial Research

(CSIR)topromotethetechnologicaladvancementof

thecountry.

ThePublicEnterprisesandResearchInstitutesalso

played a key role in enriching the human capital

endowment t ha t was neces sa ry fo r t he

pharmaceutical sector of the country to �lourish.

Almostalltheentrepreneursofthebigcompanies

(aboutone-thirdofthe200largecompanies)have

workedinIDPLproductionortheR&Dwingatsome

pointoftimeortheother.Thenecessaryskillthatis

required for reverseengineeringwasacquiredby

entrepreneurs of the pharmaceutical industry

through their long-term associations with public

sectorunits,which is fundamental to theproduct

andprocessdevelopmentforthisindustry.

By early 1970s due to favorable government

policies, the domestic industry had grown

considerablyfromastateofnon-existence.In1952,

thetotalturnoverforthesectorwasaroundRs.32

crore.

The Amendment of Pa ten t Law and the

Implementation of the New Drug Policy (The Second

Epoch of Development)

Concernedbythehighpriceofmedicinesandthe

lack of domestic infrastructure, the government

constitutedtheHathiCommitteein1974'toprobe

intotheproblemsandsuggestarationaldrugpolicy

thatwouldmeetthemedicinalneedsofthecountry'.

Recommended by the Committee's report, the

government amended thePatentAct of1970and

enacted the Foreign Exchange Regulation Act

(FERA)1973initsNewDrugPolicy(NDP)of1978.

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

sealingor7yearsfromthedateof�illingacomplete

application,whicheverisshorter;in otherwords,

themaximumperiodofpatentwas7years.Further,

intheamendedActanMNCcouldpatentonlyone

process.FERAwasimplementedtocompelMNCsto

manufacturehightechnologybulkdrugs.

ItwaslaiddowninSection29thatFERAcompanies,

i.e., foreign companies with an equity holding of

morethan40%andengagedintheproductionof

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.


The other signi�icant outcomes were fall in the

prices of themedicines and the introduction of a

large number of generic versions of patented

products. The drug policy of 1978was, however,

revised in1986todilute themechanismofcheck

andcontrolwithrespecttotheproductionofcertain

categoriesofdrugs.NDP1986alsoregularizedthe

production of a large number of drugs thatwere

earlier questionable on regulatory grounds. This

was done to encourage greater participation of

privateplayersintheproductionofdrugs,because

thepublic sector started to suffer from industrial

sickness due to the lack of proper commercial

orientation.

THE THIRD EPOCH OF DEVELOPMENT

ThePhaseofLiberalization,De-ControlandProduct

Patent.

Thegrowthimpetusthatthesectorreceivedduring

the 1980s continued even in the 1990s. The

pharmaceutical sector witnessed a consistent

growthofaround16%from1995onward.Thebulk

drugandtheformulationsectoralsoexperienceda

growthrateofbetween15%and20%duringthis

period. Because of the competence gained by the

Indian pharmaceutical companies in process

engineering,theIndiancompaniesalsoemergedas

themajorplayersinthedomesticmarket.This

only formulation products or bulk drugs not

involving 'high-technology', should reduce their

equity holding to 40% or below. For FERA

companies, licenseswould be granted onlywhen

thecompaniesprovide50%ofbulkdrugstonon-

associatedformulators,andtheratioofvalueofbulk

drugsusedinownmanufacturetothevalueoftotal

formulationproductionwouldnotexceed1:5.

Thecorresponding�iguresfordomestic�irmswere

about 1:10. In addition, the NDP of 1978 had

reservationforthedomesticmanufacturerforthe

productionofvariouscategoriesofdrugs.

Economies of scale, technology and pricing of

productsarethedecidingfactorsfortheproduction

ofdrugs.ThePatentActof1970andthechangesin

domesticregulationvirtuallycurbedthemonopoly

of MNCs. Adopting the �lexible provisions of the

amendedpatentact,indigenouscompaniesstarted

imitatingthepatentedproductandcouldeventually

come out with better processes for the same

product. The FERA and the NDP of 1978 also

restrictedtheactivitiesofMNCs.

Itis,therefore,notsurprisingto�indthattheshare

ofMNCsdroppedfrom70%toabout50%bythelate

1980s.Theindustryalsoembarkedonthepathof

highgrowthduringthisperiod.

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.


resultedinafurtherfallintheshareofMNCsinthe

country.Thecountryalsogainedreputationinthe

international market as low cost producer. The

number of production units in the Indian

pharmaceuticalsectoralsoincreasedfrom1,752in

1952–1953to20,053intheyear2000–2001.

However, there was a shift in the regulatory

frameworkunderwhichthesectorwasoperating.

Aspartoftheliberalizationpolicy,theGovernment

ofIndiaintheNewDrugPolicyof1994and2002

abolishedthe licensingrequirementforentryand

expansionof �irms.Further,100% inward foreign

direct investment has been allowed under the

automaticapprovalofRBIandautomaticapproval

fortechnologicalcollaborationhasbeenapproved.

Further,freeimportofformulations,bulkdrugsand

intermediaries are allowed. The government also

implementedcertainrulesinitsNewDrugPolicyfor

producerstofollowgoodmanufacturingpractices

andproducequalityproducts.

Concern about quality medicine was high on the

agendaofthegovernment,becausetheWHOstudy

reported (2007) that about 35% of fake drugs

producedintheworldcomefromIndia,whichalso

hadaspuriousdrugmarketworthRs.4,000crore.

Thus,while,ontheonehand,Indiahasshownits

competenceinmanufacturinghighqualityproducts

thatalsohavedemandintheinternationalmarket,

paradoxically,theIndianmarketisalso�loodedwith

spuriousdrugstoalargeextent.Tocontrolspurious

drugs,thegovernmentincorporatedScheduleMin

theDrugsandCosmeticActin1995thatlaysdown

GoodManufacturing Practices (GMP) at par with

WHOstandards.

Apart from the changes in domestic policies,

perhaps the most controversial and debated

regulatorychangesrelatetotheamendmentofthe

PatentActof1970.To recall, thePatentLawwas

amendedundertheWTOcompulsiontorecognize

productpatentfrom2005onward.

This was implemented in three successions: The

�irstversionofitwasimplementedin1995inwhich

the'mail-box'systemwasrecognized.

On January 1, 2000, a second amendment was

introduced. Its key issues re-de�ined patentable

subject matter, extended the term of patent

protectionto20yearsandamendedthecompulsory

licensingsystem.

A third amendment of patent law was made on

January1,2005tointroduceproductpatentregime

in areas, including pharmaceuticals that were

hithertocoveredbyprocesspatentsonly.

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


"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."

REVERSE

PHARMACOLOGY


any Indian companies have invested in Mdeveloping 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

startsinaLaboratoryandmovestoaclinicthrougha

complex system of validation and testing, as we all

know.Thiscantake10to12yearsandcancostmore

than $ 1billion. In order to identifymedicinesmore

quickly and cheaply, Indian policy makers and

scientistsaretryingtoreversetheprocess.Theyare

asking, “what happens if instead of going from

laboratories toclinics,companieswent fromclinics to

laboratoriesandthenbacktoclinics”?Theideaistouse

clinical and quantitative data to develop target

formulations that undergo preclinical and clinical

researchtrials.

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.

Monoclonalantibodytreatmentswhichcost$15,000-

20,000foracourse,areeffectivebutbeyondthereach

ofmostIndians.

Wh en L u p i n , o n e o f I n d i a ' s we l l - k n own

pharmaceuticalcompanies,announceditsinterestin

developingherbal-basedmedicines,apractitionerofa

traditional branch of Indian medicine called 'Sidha'

approachedthecompanywithacureforPsoriasis.On

thebasisofknowledgehandeddowninhisfamilyfrom

generations,heclaimedthatthejuiceofthe'Argemone

Mexicana' (Mexican poopy) would cure the disease

completely.

Therewasnoclinicalevidencefortheclaim,butLupin

collaborated with the practitioner, developed a

formulation,andstarted the �irst trial inearly2000.

Dermatologistusedquantitativemeasuressuchasthe

Psoriasis Area and Severity Index to assess success.

Patientswhotooktheherbalmedicinenotonlywere

curedbutalsodidnotsufferarelapseforthenextthree

years.

InJanuary2003,thegovernmentofferedtofundthe

nextstageoftheprojectandarrangedpartnershipwith

two-state-owned research organization, the Central

DrugResearchInstituteandtheNationalInstituteof

Pharmaceutical Education and Research. These

organisations developed the drug in three phases,

according to US Food and Drug Administration

guidelines.

The�irststepwastoIdentifytheactiveelementstogain

insightsintohowthetreatmentworkedandtocreatea

safeoralantipsoratic formulationthatwould leadto

curativeandpreventivetherapy.Oncethesafetyand

toxicity studies were complete, the Drug Controller

GeneralofIndiaapprovedthedrugfortrials.Thekey

objective at that point was to determine the right

dosagelevels.Thedosagewentthroughaclinicalstudy

thatusedhealthyadultsinthe�irst-phase.

In thesecondphase,whichended inApril2007, the

safety and ef�icacy of three different dosage were

testedonpatientswithmoderate to severPsoriasis.

Lupin completed the third phase- the � inal

multicentric, randomized, paralled-group studies- in

March2010,andlaunchedthedrugbytheendofMarch

2010.Sofar,theIndiancompanyhasspent$10million

and eight years to develop a cure for Psoriasis - a

fractionofthemoneyandtimeitwouldhavenormally

taken. Moreover, treating the disease with LUPIN's

drug will cost $100 per patient, compared with

$15,000intheUS.

Ingeneral,theIndianmarketislargevolumeandlowin

valuecomparedwiththeU.S.Forexample,P�izersells

Lipitorfor90centsinIndia,asopposedto$2.70inthe

U.S, because the India equivalent, Rambaxy's

Atorvastin,sellsfor90cents.

Unsurprisingly, reverse pharmacology is gaining

ground,with localcompanieschasingmultiple leads

fortreatingCancer,Arthritis,Hypertension,Diabetes,

andOsteoporosis,amongotherhealthproblems.

Credit: C.K Prahalad & R.A, Mashelkar



Pharmaceutical Manufacturing in 2050 will look very different from today

and will be virtually unrecognized from that of 30 years ago. Successful

firms 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.


Constantadaptabilitywillpervadeallaspectsofmanufacturing,fromresearchanddevelopment

to innovation, production processes, supplier andcustomer interdependencies, and lifetime productmaintenanceandrepair.Productsandprocesseswillbesustainable,withbuilt-inreuse,remanufacturingandrecyclingforproductsreachingtheendoftheiruseful lives. Closed loop systems will be used toeliminate energy and water waste and to recyclephysicalwaste.

Thesedevelopmentswillfurtheremphasisethekeyroleofphysicalproductioninunlockinginnovativenewrevenuestreams,particularlyas�irmsembrace‘servitisation' andmanufacturersmake use of theincreasing pervasiveness of 'Big Data' to enhancetheircompetitiveness.

Inthepublicsector,policyframeworksthataffectthemanufacturing sector directly and indirectly willneed to recognize the extended nature of valuecreation and the new ways it is being developed.Publicplanningcirclesshouldmatchthetimescalesof�irms'ownlongtermplanningrequirements.Andit will be important that �lows of highly skilledworkers and Patient Capital support to promotecriticalmassinsmallandmediumsizedenterprisesareallinternationallycompetitive.

The implications forpharmaceuticalmanufactures

andtheNigeriangovernmentaresubstantial. Some

businessarealreadyadaptingtoworldclass(with

WHO –cGMP), but many are not positioned to

succeed in a future world where greater

opportunities will be balanced by greater

competition. Nigerianeeds toradicallychange its

approach to providing a constant and consistent

framework within which all �irms aspire and

prosper.

Abusiness–as–usualapproachwillnotdeliverthat

outcome. Othereconomiesarealreadyahead,and

catchingupwillrequireanadaptivecapacitythatthe

Nigerian government is currently demonstrating.

Achieving th is i s essent ia l , as the future

compe t i t iveness and hea l th o f N i ge r i an

pharmaceutical manufacturing will affect many

other parts of the economy through its numerous

linkages.

The key message is that there is no easy or

immediateroutetosuccess,butactionneedstostart

nowtobuildonexistingsupport,andtofocusand

rebalanceit forthefuture.Aboveall,policydesign

willneedtoaddressentiresystemeffects.

Itwillalsobecrucialtoaddressthecurrentimage

associated with manufacturing. Here government

and industry should work together to further

promoteandmarkettheopportunitiesforcareersin

manufacturingindustriesatalllevelsofeducation.

Financialchallengesforthesectorincludeashortage

of risk capital. This is particularly evident as a

funding gap between research and ear ly

developmentand the funding forproofof concept

thatisusuallyrequiredbeforethemarketstepsin.

There is also a shortage of funding for applied

researchanddevelopmentinsomeareas.

Theimportanceofpharmaceuticalmanufacturingto

the Niger ia economy is incontrovert ib le .

Manufacturingisnolongerjustaboutproduction,it

isamuchwidersetofactivitiesthatcreatevaluefor

Nigeriaandbene�itsawidersociety.Pharmaceutical

manufacturing includes signi�icant innovation. It

creates jobs that are both highly skilled and well

paid. It also contributes to the rebalancingof the

economywithitsstrongroleonexportsandimport

substitutions.

MANUFACTURING VALUE CHAIN

Pharmaceut ical manufactur ing is changing

profoundly, creating major new sources of revenue

and value beyond the production and sale of

products.

Manufacturinghastraditionallybeenunderstoodas

theproductionprocessinwhichrawmaterialsare

transformed into physical products through

processesinvolvingpeopleandotherresources.Itis

nowclearthatphysicalproductionisatthecentreof

awidermanufacturingvaluechain.Pharmaceutical

Manufacturesareincreasinglyusingthiswidervalue

chaintogeneratenewandadditionalrevenue,with

productionplayingacentralroleinallowingother

valuecreatingactivitiestooccur.


WHAT ARE THE LIKELY CHANGES?

Technology will play a central role in driving

change.Someofthevaluebeingcreatedin2050will

b e d e r ived f rom who l ly unan t i c i p a t ed

breakthroughsbutmanyof the technologies that

will transform manufacturing, such as additive

manufacturing, are already establishedor clearly

emerging. Important pervasive and secondary

technologies including ICT, sensors, advanced

materialsandroboticswhenintegratedintofuture

products and networks will collectively facilitate

fundamentalshiftsinhowproductsaredesigned,

made,offeredandultimatelyusedbyconsumers.

Mass personalisation of low-cost products, on

demand: The historic split between cheap mass

producedproductscreatingvaluefromeconomies

ofscaleandmoreexpensivecustomisedproducts

will be reduced across a wide range of product

types.Technologiessuchasadditive

manufacturing, new materials, computer-

controlled tools, biotechnology, and green

chemistry will enable wholly new forms of

personalisation. Direct customer input to design

will increasingly enable companies to produce

customisedproductswiththeshortercycle-times

and lower costs associated with standardisation

andmassproduction.

Digitised manufacturing value chains: Pervasive

computing, advanced software and sensor

technologies have much further to go in

transforming value chains. They will improve

customer relationship management, process

control, product veri�ication, logistics, product

traceability and safety systems. Theywill enable

greater design freedom through the uses of

simulation,andtheywillcreatenewwaystobring

customersintodesignandsuppliersintocomplex

productionprocesses.

“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 .” Roger Connor,

President of Global Manufacturing and Supply, GlaxoSmithKline plc


Future approaches to policy depend strongly on

recognizing thatpharmaceuticalmanufacturing is

part of an extended system, which requires a

responsefromgovernmentthatcutsacrosspolicy

departments. This requires a system based

approach that takes full account of the linkage

between science, technology, innovation and

industrialpolicies.

The result is the need for more integrated

coordinationbygovernmentacrosspolicydomains

andgovernmentdepartments,thatmakesiteasier

t o an t i c i pa te t he po ten t i a l un in tended

consequences of policies, and to identify where

intervention would achieve the greater impact.

Suchapproachshouldhelptoavoidtheadoptionof

selectivepoliciesbasedonnarrowobjectives that

mightinadvertentlyholdbacksustainablegrowth,

and which are more a feature of the current

approachwhichdevolvespolicymakingtodifferent

governmentdepartmentswithdifferent rolesand

agendas.

Alookoutto2050revealsthetransformationwhich

will occur in the pharmaceutical manufacturing

sector and the environment inwhich it operates.

Thesechangeswillpresentmajoropportunitiesfor

Nigerian pharmaceutical industries to develop

competitivestrengthsinnewandexistingareas,but

will also present considerable challenges and

threats, not least through increases in global

competition.

The Nigerian government needs to act in three

systemicareasto:

- 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.

Policiesandmeasuresalsoneedtobedevelopedto

supportpharmaceuticalindustriesasitbecomes:

- Faster, more responsive and closer to customers.

- Exposed to new market opportunities.

- More sustainable.

- Increasingly dependent on highly skilled workers.

Thereisneedtofocuson:

- 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.

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 fulfill their potentials and contribute 70% of required medicines.

Adaptedfrom:ANe ManufacturerswVersionforUK


he Idea: Alaix had spent years runningTbusinesses inside large companies. ButwhenP�izerdecidedtospinoffhisdivisioninanIPO, the soon-to-be CEO embarked on anintensivetrainingregimentoprepareforaverydifferentrole.

Formostofmycareer,Ididn'taspiretobetheCEOofaU.S.publiccompany.IwasborninSpainand spent the � irst few decades of myprofessionallifethere.Iwasa�inancespecialist:Iworked as an auditor and a controller. I wasemployed by a bank, and then by TexasInstruments,andthenbyPolaroid.ButIdecidedI wanted to build on my �inance career andbecomemoreof a generalmanager, running abusinesswithinalargecorporation.

At that point Imoved into the pharmaceuticalindustry.FirstIworkedatRhone-PoulencRorer(whichlaterbecamepartofSano�i-Aventis

through a merger), and I was sent to run itsoperation in Belgium. Then I moved toPharmacia as the president of its business inSpain.WhenP�izerboughtPharmacia,in2003,IwasaskedtorelocatetoitsU.S.headquartersasthe president in charge of a large section ofEuropethatstretchedfromPortugaltoRussia.

I enjoyed the broad scope of those generalmanagement jobs. In my �irst role at P�izer, Ilearned to navigate a large organization andadvocate for the opportunities inmy region. Ialso gained suf�icient experience to manage abusiness across different cultures and with ahighlevelofcomplexity.

In2006,whenP�izeraskedmetorunitsanimalhealthdivision,itwasagreatopportunitytotakeonamoreglobalroleandexpandthescopeofmyresponsibilities to new areas such as R&D,business development, and new productmarketing.


HANDS ON THE PRESENT

eyes on the future

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

Juan Ramón Alaix

Case Study:

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.

Atthetime,Ididn'tanticipatethatitmightleadtoaCEOjob.But�iveyearslaterP�izerlaunchedastrategicreviewto�indopportunitiestocreatevalue for shareholders, andoneof theoptionswastospinofftheanimalhealthbusinessinanIPO.TheCEOofP�izertoldmethattheIPOwaslikely—andthatIhadbeenselectedtobecomethe future CEO of the new company if ithappened.

We talked about how very different that jobwould be from the ones I'd held before. I'dprovedthatIcouldrunabusiness,butthatdidn'tnecessarilymeanIhadtheskillstobeaCEO.Iwould have to develop them. Because the IPOprocessmighttake18to24months,weagreedthatthiswouldbeacrucialperiodinwhichtocon�irmthatIcouldleadthenewcompany.

As a general manager, I'd had plenty ofexperiencebuilding teamsandcommunicatingwith employees and customers, but as CEO Iwo 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 rcommunicating our strategy to the outsideworld—including the media, analysts, andinvestors. Employees and customers alreadyknowagooddealaboutyourbusiness,butotherconstituencies may know nothing. ThesophisticatedexternalcommunicationskillsthataCEOmusthavewouldbeespeciallyimportantinthemonthsleadinguptotheIPO.Duringourroadshow,Iwouldbetellingthecompany'sstoryto analysts and potential investors, and theiropinion of our strategy would have a directimpactonthevalueofourstockoffering.


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.

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.

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


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.

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-on-

one 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

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 trainers taught me specific delivery

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 cont inue 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

Noonerisestothetopjobwithoutcommunicatingwellinfrontofacrowd.Butonceyoustepintoanewrole,thenatureofyourcommunicationchallengesmaychange.HBRaskedNancyDuarte,aleadingpresentationsexpert,whatmakesaCEO'scommunicationsuccessful.

Why does a CEO have to communicate differently from other C-suite executives?

Morethanmostofthem,CEOshavetobemotivators—ofemployees,partners,investors,andcustomers—whichalters the toneofwhat they say.Theyenvisiona futureandmustbepersuasiveenoughtochangepeople'sbeliefsandbehaviortoseethatfuturerealized.ManyCEOsusestoriestocreateastrongemotionalconnectionthatinspiresaction.CEOsarecalledontocommunicatemuchmorefrequentlyandwithawidervarietyofaudiences,andtheirmessagesmustresonatewithalltheirimportantstakeholders.

What mistakes do new CEOs make in communicating?

Iseetwoasthemostcommon.First,CEOsarereallybusy,sosomeskimponthetimetheyspend getting communications right. This mistake manifests in a variety of ways—forinstance,theCEOmaysoundlikehe'sreadingfromascriptifhehasn'tlearnedthematerialwell enough todeliver it conversationally. Failing toprepare adequately is shortsighted,becausecommunicatingbadlyoftencreatesadditionalproblems,andtimemustbespentmanagingthem.

Second, some new CEOs fail to realize that the position requires them to elevate theircommunicationsandleavesomeofthedetailstosubordinates.Forinstance,aCEOwhocameupthrough�inancemayneedto learntopassoncertainquestionseven ifheknowstheanswers,becauseit'sbettertolettheCFOprovidethedetails.Particularlyonearningscalls,CEOssometimeslapseintotheiroldrolesorjumpinwhenitwouldbebettertodefertoasubordinate.

Do new CEOs have trouble finding the right voice?

Somedo.Iseesomenewleaderswhowanttocopythestyleofanotherleaderorspeakertheyadmire. I've lost track of how many CEOs have asked me to help them learn to givepresentations thewaySteve Jobsdid. Ineverycasemyresponsehasbeenthatvery fewpeoplecanpullthatoff,sothey'ddobettertodeveloptheirownstyle.ParticularlyforCEOs,whomayhavelessday-to-daycontactwiththeiraudiencesthanteamleadersorotherlower-levelmanagersdo,it'simportanttobepersonalandauthentic—togivepeopleasenseofwhotheyreallyare.

COMMUNICATING

AS A CEO


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

economist would say that the customer receives almost no

marginal utility from that performance improvement.”

Credit: Scott. D. Anthony. et al.


t the heart of the Disruptive AInnovation 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

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

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

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.

H a v e t h e y m e t y o u r

expectations? If not, why not?

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.

· 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.


OVERSHOOTING

CUSTOMERS

Eli Lilly's failed efforts to create even purer Insulin

demonstrate the impact of overshooting. Many

diabetics use Insulin everyday to help maintain the

appropriate level of blood glucose. Historically,

Insulin was manufactured from the ground-up

pancreases of cows and pigs. For most of the twentieth

century, manufactures focussed on increasing Insulin's

purity. In 1925 impurities stood at fifty thousand parts

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

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

primarily as a result of investment and development by

Eli Lilly the world's leading Insulin manufacture.

Despite the purity that Eli Lilly had been able to

achieve, animal Insulins were still slightly different

from human Insulin. A fraction of 1 per cent of diabetic

patients built up a resistance in their immune systems

when treated with animal Insulin, so Lilly contracted

with Genentech to create genetically altered bacteria

that could produce Insulin proteins that were 100 per

cent pure and equivalent to human Insulin. After

investing nearly $1 billion dollars in the effort, Lilly

introduced its ''Humulin'' brand Insulin to the

marketplace at a 25 per cent price premium over other

Insulin products.

The market was not excited about Humulin. Sales

growth was disappointingly slow, and Lilly found it

difficult to sustain a premium price for the product. In

retrospect a Lilly researcher noted, “the market was

not terribly dissatisfied with pork Insulin”. In fact, it

was pretty happy with it. Lilly had spent a significant

sum of money and organizational resources creating a

product that overshot the demand.

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

reliable product and therefore weren't willing to pay

more for an Insulin that, while technically superior, had

no meaningful impact on the management of their

condition.

Humulin 7030 3mL


Case Study: Insulin

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'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.

As is always the case, overshooting create both

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.

NovoPen 5 insulin pen by Novo Nord

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.


hen George Fisher took the helm of Kodak in 1993 (having just led a specular Wturnaround 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

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.

THE POWER OF

ASSOCIATIVE THINKING

George Fisher

WHY DID FISHER

FAIL

?

CASE STUDY


Externalstakeholdersare,ifanything,evenmore

reluctant to accept anewconceptualizationof a

company'sidentityorofthestrategicpossibilities

inherent in an industry. Their reluctance often

feedsbackintothecompanyandcausemanagers

t o abandon p rom i s i ng n ew d i re c t i on s

prematurely.Whyisitdif�icultforexternalplayers

toacceptanewstrategiclandscape?

Theproblem,againiswithcognitiveprocess.The

stakeholders have a set way of organizing and

interpretingtheindustry. ResearchbyMIT'sEzra

Zuckerman shows that the further away a new

strategytakesa�irmfromitshistoricalidentity,the

more the strategy is discounted by �inancial

analystsandotherinstitutionalplayers.Andthis

negative reaction from external stakeholders

affects firm's competitive behavior: Research by

the University of Minnosota’s Mary Benner

suggests that when firms meet such resistance,

theytendtoshyawayfromtheirintenttopursue

thenewinitative.

GEORGE FISHER AND KODAK Thefactthatastrategicleaderisabletomakethe

cognit ive leap required to see a distant

opportunity does not mean that the rest of the

organizationisalsoabletomaketheleap.Getting

otherstoseewhatheorshesees-andembraceit-

isextremelydif�icult(Itismucheasiertopersuade

anorganizationtopursueincremental,lessrisky

opportunities, in fact, that's what organizations

aresetupfor)Whenthecognitiveshiftrequiresa

changeina�irm'sidentity,theresistanceiseven

morestubborn,especiallywhentheidentityhasa

longhistoryandisinfusedwithmoralvalue.Inthe

wordsofStanford'sJamesMarch,alivinglegendin

the study of organizations, “ if a leader tries to

march toward s t range des t inat ions , the

organizationislikelytode�lecttheeffort”.

Persuading a workforce that the company's

historicalidentityneedstobereconceptualizedis

themostdif�icultofthemanyhurdlesaleadermay

need to clear in bringing along internal

stakeholders. For instance, a �irmmay have to

acquireunfamiliarcapabilitiesorkeytalent,and

thoseactivities,too,areproblematic.


Firmsinanindustrytypicallyclusteraroundafewstrategicpropositions,andtheintensecompetitiononthoseoccupiedmountaintopsmakeithardfor� irms to gain attractive returns. SuperiorOpportunitieslieonunoccupiedmountaintops:Yetbecause those opportunities “Cognitively distant”-far from the status quo- strategists have troublerecognizing and acting on them.Competitionthereforeisweak.

Most Managers are trained to analyze economicfo rces when they want to i den t i f y newopportunities. But that approach usually won'tuncoverthekindsofideasthatoverturnthestatusquo.Recentresearchonhumancognitionsuggeststhat leaders would do better to use associativethinking to spot, act on, and legitimize distanceopportunities.Theyshouldlearntomakeanalogieswithbusinessinotherindustries.Executivesshouldexplorewaystojumpstartassociationthinkingandbringstakeholdersalongonthejourney.

THE POWER OF ASSOCIATIVE THINKING

“Themorethatcognitivescientistsstudyourmentalprocesses, the more evidence they �ind that theprimary way we make sense of the world is bycomparing unfamiliar things with things we havealreadyexperiencedandclassi�iedinourlong-termmemory. Our minds do this intuitively, withoutconsciousprompting”.

Because associations are fundamental to humancognition,managerswhouseassociativethinkinginthe work on Innovation and strategy can gain adif�icult-to-imitate advantage. Developingdisciplined approaches to matters of humancognitionisnoeasytask-we'reonlybeginningtounderstandhowtheyworkinmanagerialsettings.

Butitispossibletostructureexercisesinassociativethinking - for example care-based reasoning,analogy, and pattern recognition - that helpmanagers combine Intuitive associations withrationalanalysis.

“The Best Strategic Opportunities are cognitively distant and thus the

most difficult to spot”.

LIMITATIONS ON STRATEGIC LEADERS

Ability to spot, act on, and legitimize distantopportunities stem from a common root: Thechallenges of managing one's own and otherpeople's mental representations. George Fisherfailed to persuade Kodak employees that theirrepresentationofthecompanyasa�ilmcompanywasoutdated.

In most cases the failure was directly related towhether strategic leader couldmanage theirownand others mental representations. Associativethinkingcanhelpstrategic leadermanagementalrepresentations. When we are faced with a newsituation,ourbrainsautomatically search forandretrievefromlong-termmemorypastexperiencesortypesofexperiencesthathavesomesimilarity.Onceevoked,thesementalstructuresmovetothefrontofourconsciousness.

DouglasHostadter,amajorcontributordescribesitthisway:Thementalstructuremovesfrom“beingasleepintherecessesoflong-termmemorytogailydancing on theminds center-stage. They becomethebasisonwhichwerepresentandinterpretthenew situation. Brain research shows thatassociations are central to thinking- and arein�luencedbybasic,attitudes,andemotionalstate.

Why isAssociations souseful in identifyingdistantopportunit ies? Referring to the two mainperspectivesofstrategicthinking.The�irstistouselocal,deductivereasoning.Porter'sfiveforcesframework exempli�ies this approach: It imposesdisciplineandsimplifiesassumptionsthathelpthestrategist identify likely future scenarios anddeduce an appropriate strategic solution. Thesecondapproachiscenteredonassociations.Here,the strategist compares a business situationwithsomething else she has experienced directly orindirect ly. She then forms a new mentalrepresentationthatrecaststhecurrentsituationintermsoftheolderone.


Whereas deductive reasoning is extremelyinformation thirsty, associative thinkingrequiresonlythatthestrategistidentifyafewparallels between two situations. There's asecond,andinmyopinionmoreimportant,reason that associative processes are, incertainsituations,amorepowerfulbasisforidentifyingdistantopportunities.

AnalyticalframeworkslikePorter's,areusedwidelybycorporatestrategistsandstrategicconsultantsalike.Theproblemis,theyresultinsharedmentalrepresentationsthatleadscompanies to the same places: Industryplayers identify and act on the sameopportunities.Tobreakthisequilibrium,thestrategists must cultivate genuinely novelrepresentations of the competitive space, -youcreateadifferentpictureof the reality.Th i s a l lows you to re in terpre t thecompetitive landscape in a new powerfulway.

AssociativeThinkingalsosupportstheworkof persuading an organization or externalstakeholdersthatanewopportunitymakessense.Humanbeingsarewalkingassociativemachines. Employees responding to astrategic leader’s new idea will makeassociationswhethertheyareawareofitornot . Kodak and employees s implycategorizeditas photographybusiness-Forthem,filmwasgood,andcameraswerebad.

FisherhadagreatstrategyforKodak,buthisrhetoric“we'reapicturecompany,notjusta�ilmcompany”islikelytohavetouchedthewrongnerve,evokingthe�ilm-cameradichotomyandpushinghisstrategytothewrongsideofthatdivide.

Strategists are often exhorted to “thinkoutside the box”. Indeed, a lot of what isstrategically relevant is cognitively distant.Buttheideathatpeoplecansimplydecidetothinkdifferently fromtheway theyhave inthepast,orfromthewaytheircompetitorsdo,isdelusional.Theyneedtoolsthatbringanewdimensionofpsychologicalinsighttothestrategistsrole.Usingstructuralassociativethinking,leaderscanlearnhowtodealwiththe cognit ively distant and developtechniques for reconceptualization's of abusiness.

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

CreditGiovanniGavettiHealthcare Management Review Vol 8/Page 141

AtEmzor,wearecommttedtoconsistentlyprovidingHealthcare

productsthatareAffordable,AvailableandEffecctive

“

”Dr. Stella Okoli, OON

Founder and Group Managing Director, Emzor Pharmaceutical Industries Limited

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