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The
Indian Pharmaceutical Industry: Beyond 2005
Going
by the industry trends, post 2005, Indian companies would be research
outfits for MNCs or powerful players in niche segments with unmatchable
price competitiveness, says Rajiv Kshirsagar
The
pharmaceutical industry is a lifeline industry that plays a very
crucial role in building a strong human capital of a country and
is very essential for economic growth and development. Today, it
is at the top end of India’s science-based industries with
wide ranging capabilities in the complex field of drug manufacture
and technology. The contribution of the pharmaceutical industry
towards a nation’s growth cannot be undermined.
The
Indian pharmaceutical industry supplies essential drugs to consumers
at much lower prices than any of its counterparts in the world.
For e.g. prices of cardio-vascular drugs in India such as Atenolol
and Enalapril are 25-30 times less than the US prices. This fact
is particularly significant in a country where availability of inexpensive
medicines is crucial to the healthcare for the masses.
The
pharmaceutical industry in India being highly fragmented has a wide
range of over 100,000 drugs, (which includes vitamins, antibiotics,
antibacterials, cardio-vascular drugs etc). Nearly 80 per cent of
the manufacturers have sales less than Rs 100 crores. The top ten
companies in the industry control around 31 per cent of the market.
Now, let us take into consideration the primary aspects having impact
on the pharmaceutical industry post-2005 policy regime.
Technology
- The Vital Component
The
manufacturing technology forms the backbone of not only the primary
process involving the production of various bulk drugs from the
raw materials and the intermediates, but also the secondary process
involving the conversion of bulk drug into formulations.
Formulations
with a new delivery system or a highly specialized system like the
multi-cell-multilayer microdialysis cell technology or timed release
etc. are highly technology intensive. In the years to come, this
technological component is certainly going to be the driving force
in the pharmaceutical industry.
In
the post-2005 era also technological component is expected to play
a vital role in terms of delivering the drugs at the exact site
in the human body, thus potentiating their action with the least
of the adverse effects. Technology has always played a significant
role in improving the patient’s compliance. It is certainly
expected to do so in future.
R&D
- The Survival Kit
With
the introduction of new, strict patent laws in 2005, the Indian
pharmaceutical industry will no longer take the advantage of the
reverse engineering that has been its strength. In spite of this,
India should be able to meet its January 1, 2005 commitment for
product patents. Exclusive Marketing Rights (EMR) mechanism is being
implemented and should make some significant Intellectual Property
(IP) protection available even sooner. Both houses of Parliament
have considered the proposed IP legislation.
Discovery
Research
With
just few years to go before product patent bill implementation in
India, only two discovery research projects of Indian origin have
moved to phase I/II, and even they are an improvement on existing
targets. While this is no different than the path Japan travelled
in the 1975-90 period, Indian companies will need to do much more,
and faster, to gain a fighting chance for a position on global pharma
arena.
Not
surprisingly, only five Indian companies have undertaken serious
R&D investments, and even they are necessarily meagre, given
the limited profitability and the low value of the rupee. Much of
the ‘‘research’’ efforts are still focussed
on analog research, as that is not only financially affordable,
but also what the current skill level would allow.
While
India is very strong in process chemistry, biology and applied biochemistry
will require government-academia-private sector initiatives as well
as enormous investments. But the start in the short five years or
so has been quite encouraging, and the outlook is very bright indeed,
given the very talented and highly educated workforce and increasingly
global resource base of the selected companies.
D-factor
of R&D
Clinical
Research Complements R&D Initiation: R&D requires two distinct
sets of skills. Research or discovery skills call for an established
infrastructure and a tripartite collaboration between the private
sector, academia and the government. This will clearly take some
time for India to fully establish; though the ‘new science’
of biotechnology should eliminate many wheels that it should not
have to reinvent.
Clinical
development: The ‘D’ of R&D, offers more near term
opportunities, due to the availability of large patient populations
for many major diseases plus well run hospitals in major cities
that can adopt GCP standards that meet the US FDA requirements.
Leading western clinical research organizations (CROs) are setting
up shop in India. In brief, CRO activity is ideally suited for India,
especially for the more costly phase II and phase III trials. In
addition, many large selling drugs are going off-patent through
2006, opening up window for ANDA filing as well.
Domestic
pharma players
The
domestic players came into prominence only after the government’s
intervention in 1970 in the form of recognizing process patents.
The market, as viewed by the players in this segment, has three
broad segments, namely, the patented segment, the generic segment
and the branded formulations segment.
The
patented segment covers drugs that are under patents in regulated
markets and yet has a market in areas where process patents are
recognized. The generic segment includes drugs that are off-patent
and can gain entry into regulated markets in the same form as it
is manufactured in India. The branded formulations are products,
which are from in-house R&D facilities, received through a New
Drug Discovery System.
The
R&D function among the Indian pharma companies is still at a
very nascent stage. Even well entrenched players allocate as low
as 2.5 per cent of their total turnover towards Research and Development
expenses. This fares poorly with multi-national pharma companies
whose R&D accounts for as large as 15 to 20 per cent of their
total turnover.
With
India having signed the WTO agreement, the road is all set for the
recognition of product patents. The domestic pharma players have
initiated investments on research facilities to counter the new
regime. The key players in in-house research are Cipla, Dr Reddy’s
and Ranbaxy. Though R&D, as a percentage of turnover of these
companies have not crossed the five per cent mark, efforts have
been taken to achieve this landmark figure in the next couple of
years.
The
future course of action in the domestic segment is either a take-over
by a MNC/powerful Indian pharma player or act as in-licensing partners.
In-licensing is either purchase of rights to market a product that
another company has discovered and developed or undertaking the
development and marketing of a product that another company discovered.
Western
generic market entry to drive near-term growth: At least two Indian
companies are now ready to file ANDAs the moment a major product
goes off patent. Over the next three years many Indian companies
are going to play an active role in a large number of such opportunities.
Indian pharmaceutical company managements are now experienced and
bold enough to accept the inevitable patent battles with innovator
companies. Companies have acquired manufacturing facilities in developed
countries, and have prominent presence in many smaller countries
to sell branded generics. This is a major shift from earlier emphases
on Russia, Africa and such less developed markets. The resulting
rapid cashflow growth should accelerate Indian pharmaceutical companies’
global expansion, as well as the necessary investments in R&D.
Key
negatives
Generic
Generic: While many negatives plague the Indian pharmaceutical industry,
the recent penetration of the rock-bottom low priced ‘‘generic
generics’’ have caused the prices and margins to erode
for many companies. It is now common to have a dozen brands of a
large molecule in about six months of its introduction in the western
markets. Cut-throat competition now faces more damaging competition
as ‘‘generic generic’’ is sold to the end consumer
at the same price as branded generics, but the expense of the manufacturer,
while wholesalers continue to earn their usual 40 per cent margin.
This is likely to be a transitory consolidation process, where the
strong will eventually emerge stronger.
The
Advantage Post 2005
Indian
pharma companies have a unique cost advantage that facilitates in
the production of drugs at 1/20th of the cost incurred in other
developed economies. The key ingredient - the cost of manpower -
is unthinkably low, enabling in the low cost manufacture of drugs.
This could be extended to research function, which is again, manpower
intensive. Scientists for R&D in India could be hired at 15
- 20 per cent of the cost prevailing in US.
Even
accounting for higher levels of uncertainties among Indian companies
to bring about blockbuster drugs, the low costs in conducting research
makes them at par with the pharma companies in developed economies.
There the uncertainty is relatively low but the cost of overall
research is astronomically high due to bloated costs of research
inputs.
Going
by these trends, the signals are very clear in the industry. Companies
in India could either be research outfits for MNCs or would become
powerful players in niche segments with unmatchable price competitiveness.
Contract Research (CR) is already in vogue in India.
The
sector is poised with a mammoth challenge of providing health care
to the second most populous country of the world. Pharma companies,
be they domestically bred or from international parentage, have
increasingly realized the significance of challenges lying ahead.
Time is ripe to bring out hidden potential for both survival and
also sustenance. The industry is poised to see more consolidations
and mergers in the years to come. Such activities would give way
to the industry’s maturity.
The
future would also see the various participants of the industry -
practitioners, chemists, clinics, hospitals and consumers - becoming
more organized with duties and responsibilities clearly defined.
Pharmaceuticals would be one of the most happening sector in the
next decade, globally in general and in India in particular, with
advent of these trends.
The
writer Rajiv Kshirsagar is marketing manager, Kopran Ltd, Mumbai.
E-mail: rajivksh@yahoo.com
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