Today's top-tier Indian pharma companies will either cease toexist in their current form or find the way they conduct theirbusiness significantly altered, says Malvinder Mohan Singh, formerpromoter of Ranbaxy (and current group Chairman, Fortis Healthcareand Religare Enterprises). At first glance, this comment comesacross as little short of sensational. But then, Singh knows a thingor two about the Indian pharma landscape, having opportunisticallycashed out by selling his company to Japanese drug giant DaiichiSankyo in a deal valued at over Rs 9,000 crore. Also, a quick scanof the Indian pharmaceutical landscape reveals that an upheaval hasalready begun. What could have precipitated the unravelling of anindustry that, only ten years ago, was heralded as a future star?
On the home front, the problems are self-evident: Indian firmsare still nowhere near producing a new drug. In the generic drugspace most Indian players are focussed on generics firms have yet toclaw their way to the upper tiers of the global generic industryvalued at around $100 billion (Rs 4.8 lakh crore) and occupied bycompanies such as Teva and Watson. At one point, a decade or so ago,Indian generics were buoyant at the prospect of numerous drugs goingoff-patent, hoping to quickly capitalise by pushing out cheap,generic versions of them. What they did not anticipate were cannymoves by foreign pharma to protect their turf by churning out'authorised' generics, selling 'branded' (but not patented) versionsof their original drugs for higher prices and taking the battle tothe upstarts by also wading into the generics business.
If all of this weren't enough to produce bouts of anxiety amongstIndian firms, foreign pharma giants, struggling with growth rates of3-4 per cent in their own markets (the global pharma market isvalued at around $800 billion, US alone at $300 billion ) arestorming the citadel of Indian generics a market of $8 billion (Rs38,400 crore) but growing rapidly at around 14 per cent. India, withthe 4th largest pharma market in terms of volume and 13th in termsof value is obviously the place to be today. "Developing countrieslike India, with their growing middle class, represent a vitalopportunity for geographic expansion, given that only 35 per cent ofthe population has access to medicines, says Ranjit Shahani,President of the Organisation of the Pharmaceutical Producers ofIndia (OPPI) and the Vice President and Managing Director ofNovartis India. This means a rash of deals where MNCs are eitherlooking aggressively for acquisitions, or some kind of partnershipwith Indian firms.
Perhaps the biggest catalyst for Indian Pharma was the HatchWaxman Act in the US legislation passed in 1984 that, whileprotecting the intellectual property of innovators, also opened upopportunities for companies to develop safe and affordable generics.This transformed the US drug market and electrified genericcompanies including Indian ones. Firms like Teva, Sandoz and Mylanemerged as the biggies to beat in the generic game. Many Indianplayers, led by Ranbaxy, Dr Reddy's and others, also startedaggressively filing ANDAs (abbreviated new drug applications) in thelate 1990s, while chasing drugs that promised 180-day marketexclusivity. The flip side of all of this is that today, competitionin the US is cutthroat as the generics market has become heavilycommoditised, compelling Indian companies to acquire a globalfootprint especially in growth markets such as Latin America andAfrica instead of just relying on the US.
Singh says that he was able to read the tea leaves about thisimpending shake-out way back when he was meeting regularly with CEOsand chairmen of Big Pharma. "It was clear that they would need astrong presence in the emerging markets and build a model that seesthe coming together of innovation and generics, says Singh. Howaccurate was he? After the Daiichi Sankyo deal, Singh points outthat Sanofi picked up the largest branded generics company inCentral and Eastern Europe (Zentiva), one in Latin America (Medleyin Brazil), Shantha Biotechnics in India and is still scouting forothers. Moreover, GSK picked up a company in Egypt, in Pakistan(Bristol-Myers Squibb Pakistan), took a stake in a company in SouthAfrica (Aspen Pharmacare) and now has an alliance with Dr Reddy's.Pfizer largely seen as the one company not inclined to get cozy withgenerics now wants to enter the generics market as well. Merck, too,is talking about getting into biogenerics.
If foreign competition wasn't already tightening the screws onIndian pharma, other developments have dragged these former high-fliers down to earth. Glenmark Pharmaceuticals has faced two majorsetbacks in the last year its trial for 'Oglemilast', aimed attreating patients with chronic obstructive pulmonary disease (COPD)didn't achieve satisfactory results; it also had to suspend clinicaldevelopment of GRC 6211, which was to treat osteoarthritis pain.Even more damaging, the Rs 4,300-crore Sun Pharma faced some heat inJune this year when the US Food and Drug Administration (USFDA)seized drugs manufactured by its US subsidiary Caraco PharmaceuticalLaboratories at its Michigan facilities for "repeated manufacturingstandards violations . Reports suggest that Caraco isn't the onlyone at the receiving end of the FDA's wrath. "The regulatoryenvironment is far more rigorous than was hitherto imagined, saysUtkarsh Palnitkar, Partner, Ernst & Young India.
India, of course, will remain a hot zone for companies peddlingdrugs, but how will Indian companies fare in this new landscape?"India will continue to play a key role in the global pharmaceuticallandscape in R&D (innovation and generics), manufacturing and in theglobal generic market as a provider of high quality, cost effectivemedicines, says Singh. "But will it be Indian companies who willplay a key role? That is a question which is up for grabs, he adds.E &Y's Palnitkar says that global pharma have the choice of lookingat Indian companies either as contract manufacturing organisations(CMOS) or as acquisition targets. However, he thinks thatacquisitions may be cumbersome, due to existing contracts withcompetitor global pharma firms.
Others feel that the sheer expanse of the generics market inIndia and the expertise of Indian firms in catering to this marketmake these firms indispensable. "If you look at the genericcompanies globally, Indian companies are one of the biggest in theworld and have the scale and the footprint to be able to partner aglobal company, says Dr Hasit Joshipura, MD, GSK India and VP, SouthAsia, GSK. That to him is one reason why GSK tied up with Dr Reddy'sin India for catering to its emerging markets needs. Some, likeWockhardt, are not even interested in a partnership. "We havereceived offers but I am not interested in selling out as I believethat there is a great opportunity ahead, says Habil Khorakiwala,Chairman ,Wockhardt. (At the time of writing, Pfizer was reported tobe taking a close look at Wockhardt's biotech business.) His logicis simple but compelling. "In 2001, about 80 per cent of theindustry's global growth in dollar terms came from the developedcountries. In 2008, 84 per cent of the growth came from emergingmarkets. There is a tectonic shift taking place. Today, emergingmarkets contribute 21 per cent of the global pharma industry. Innext 20-25 years, it will be 50 per cent. In this emerging marketreality, India plays an important role, he adds.
So what will Indian pharma look like in five years? We take alook at Wockhardt whose problems including huge debt because ofacquisitions and currency hedges gone horribly awry are emblematicof many Indian firms today (see Saving Wockhardt, pg 116). Itsfortunes could very well inform how Indian Pharma evolves. Anotherfeature explores a lessheralded stalwart of the pharma landscape,Mankind (see The New Face of Indian Pharma, pg 120), which throughits unusual business model, has been able to take the battle toglobal as well as local generics.
Whichever way you look at it, for Indian pharma to keep abreastof the rapidly changing dynamics of this global industry, they needto grow right build scale, file more ANDAs and enter both newtherapies and new markets. This means adopting both value as well asscale as a strategy, according to a recent Morgan Stanley report,and targeting what the report calls "higher hanging fruit difficultmarkets (Japan, Latin America, Africa), complex generics (controlledrelease, combination drugs, hormones) and incremental innovation(new molecules, novel drug delivery systems, better-targetted drugs)which are substantially more high-value products than lowmargingenerics. This may be a tall order for Indian Pharma, but in orderto survive and come out on top in the years ahead, any other plan ofaction may be a prescription for a quick demise.
