30 Minute Interview

'Vibrant local industry with big dreams'

Indian pharma companies are going international. On the other hand MNCs are striving hard to gain a foothold in India. Utkarsh Palnitkar, Healthsciences Industry Leader, Ernst & Young talks to Sushmi Dey about the MNC approach to India.

What is the key to survival in a market like India?

Indian pharmaceutical companies have a presence in "branded" products largely in the domestic and a few semi-regulated markets. While larger brands usually prove more profitable for companies, high product concentration can significantly increase risks. Companies with significant exposure to mature or declining therapeutic segments would be exposed to higher degrees of risk. Companies that are able to update their product portfolios in line with the therapeutic needs of the market would experience more robust earnings. Companies with strong domestic marketing infrastructure would also be exploring in-licensing opportunities to augment their product pipelines.

Pharma MNCs with miniscule presence or with limited sales force would either have to build up a wide network or in-license to a partner with a strong muscle in that particular therapeutic area. In-licensing by pharma MNCs to tap into new pipelines from Indian drug discovery units seeking finances, creates a new business model. Moreover to sustain dominance in product category, MNCs would need to reduce the lead-time for new product introductions across the globe.

What are the obstacles that MNCs face in India?

The obstacles MNCs face have more to do with the nature of the market than anything else. Previously, multinational companies were deterred from market entry by the absence of patent protection, along with complicated bureaucracy, restrictive ownership requirements, high taxes, price controls and low per-capita health spending. Post-TRIPS implementation, Intellectual Property is no longer an issue.

What strategies are MNCs adopting to counter the threat posed by Indian MNCs?

Investing in R&D and bringing new products to the marketplace is an oft-repeated strategy by pharma MNCs. This enables clear identification of core competencies and outsourcing of all non-core activities, resulting in strategic sourcing. In a fiercely competitive market like India, the ability of pharmaceutical companies to continually add new products (internal pipeline/licensing) in line with the emerging demand patterns is the route adopted by MNCs to sustain growth momentum.

Collaborating for drug discovery, strategic sourcing and divesting manufacturing assets with a buyback business are some of the strategies increasingly used to work with Indian MNCs. To cite an example, the divestiture of its Mexico facility by Roche with baseload business enables two fierce competitors to collaborate and come together for realisation of synergies. Collaboration in identifying best practices and sharing the various steps in drug discovery, and competing on generics and in the market has been identified by all the leading MNC players and their Indian counterparts. For example, Ranbaxy has filed ANDAs against GSK but at the same time is collaborating in drug discovery efforts.

Is it a good strategy for pharma MNCs to partner with domestic companies for R&D?

Developing a completely new drug is an expensive and time-consuming process, requiring a very high level of resource commitment. While India offers significant benefits in terms of its low cost and highly trained manpower, most Indian companies are not in a position to take on the substantial investment risks involved in such a process. There are many Indian companies dedicating research to identifying potential NCEs. These NCEs are usually out-licensed at some stage to branded pharmaceutical majors with significantly higher levels of resources and risk-taking ability in exchange for milestone-based payments. This is a huge opportunity for pharma MNCs to introduce new products in their pipeline.

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