India: Bigger Pharma
Goregaon is a suburb of Bombay that's best known for its Bollywood studios. But there's more than moviemaking going on there. Just 100 meters off the Western Express Highway is the tree-lined road to a sprawling red-and-gray contemporary building. This is the new $20 million, 30,000-square-meter research and development center of Indian pharmaceutical company Nicholas Piramal India Ltd. -- the largest such facility in India. Inside, the building is cheerful and high-tech, staffed with 250 young scientists earnestly poring over chemical formulations in pursuit of new treatments for diseases from cancer to malaria.
Looking for the next area of science and technology where India will challenge the West -- that is, for the next Bangalore? Pharmaceuticals may be it. Nicholas Piramal -- annual revenues, $350 million -- runs one of four pharma research centers that have sprung up in India in recent months. The country now has more than 50 drug research centers, and more are expected this year. The reason: India's new patent protection law, which brings Indian legislation in line with World Trade Organization norms.
The law took effect in late March -- and its passage means Indian companies can no longer ignore the patents of multinational drug companies and produce unlicensed generics, as they have done for 30 years. What Indian pharma companies hope to do instead is develop and sell around the world both licensed generics and their own branded, patented drugs. Thus the spate of new research facilities. "Indian companies are no longer going to be just copycats," says Dr. Swati A. Piramal, the director of the Piramal center. "We want to take our rightful place at the head table with the developed nations."
Can India go from being a renegade drug producer -- albeit one that delivered AIDS drugs cheaply to needy nations -- to a competitor with the likes of Pfizer Inc. (PFE ) and GlaxoSmithKline PLC (GSK )? Executives at India's biggest drug companies are convinced it can. A $9 billion industry today, Indian pharma will grow to $25 billion by 2010. According to research by London-based researcher Global Insight, Indian drugmakers will have a 33% share of the global generics market by 2007, compared with 4% today. Swati Piramal says her company will have five to eight new patented drugs, including treatments for cancer and diabetes, ready for clinical trials by 2008. Other big players such as $1.2 billion-in-revenue Ranbaxy Laboratories Ltd. and $450 million Dr. Reddy's Laboratories Ltd. (RDY ) are also aggressively expanding into patented drugs. In the fiscal year ended in March, 2004, a total of 855 drug patents were filed by Indian companies, up from virtually zero 10 years ago, according to India's Ministry of Science & Technology. Perhaps most important, India has in pharma what it has in info tech -- thousands of well-trained specialists who bring home wages a third or less of those in the West.
But India's transition from pariah to the mainstream player will be a difficult one. First, the repeal of restrictions on foreign investment under WTO, combined with the new patent law, means that multinationals will invade India in force. Merck & Co. (MRK ) and Bristol-Meyers Squibb Co. (BMY ), which left India years ago because they were unable to protect their patents, are returning. GSK, which already has 5.9% of the Indian market, plans to launch several antibiotic, cancer, and cardiovascular products in India this year. "The Indian generics companies know the best times are behind them," says GSK CEO Jean-Pierre Garnier. Novartis is planning to market its latest cancer drugs and immunosuppressants for kidney and liver transplants. "We will launch aggressively," says Novartis India Ltd. (NVS ) Chairman Ranjit Shahani.
India's drugmakers will be duking it out with the multinationals both locally and globally, especially in generics. The global market for generic products is already crowded with new players, from Israel's Teva Pharmaceutical Industries Ltd. (TEVA ) to Novartis subsidiary Sandoz (NVS ). In India's domestic market, there are 10,000 small companies producing hundreds of copycat patented drugs for local use. "In this new patent era," says Ajit Dangi, director general of the Organization of Pharmaceutical Producers of India, "unless Indian companies can rapidly change their business model from imitation to innovation, by 2010 there will be just 500 to 1,000 companies."
Gearing up to create a global industry is also expensive. Ranbaxy's profits in 2004 were flat at $164 million, due largely to a $200 million expansion of its manufacturing facilities and R&D centers locally, plus construction of a new plant in Brazil. Big Indian companies continue to spend millions challenging the patents of Western pharma companies, so they can make generic versions for export more quickly. Ranbaxy, for instance, is challenging Pfizer's Lipitor, whose original patent is due to expire in 2010, in a Delaware court. If the court rules in Ranbaxy's favor, it will be money well spent. If not, the Indian company will have suffered a major setback.
Some are convinced that in a pitched battle with Big Pharma, India loses. Yusuf Hamied, chairman of $420 million Cipla Ltd., India's largest AIDS drug producer, predicts that by 2015 patented drugs made by multinational corporations will make up 60% of the medicines sold in India. "The MNCs will do predatory pricing and wipe us out," he says.
The optimists scoff at such doomsday scenarios. Indian drug executives note that the industry already sells $1.15 billion worth of drugs in the competitive U.S. and European markets, all of them generics. India has 74 U.S. Food & Drug Administration-approved pharmaceutical manufacturing facilities, more than any other country outside the U.S. And Indian pharma has upped its R&D spending from 4% of revenues five years ago to 8% today. Between now and 2013, an estimated $60 billion worth of drugs will go off patent around the world -- an opportunity India's generics producers are ready to exploit. As for patented medicines, India will benefit from low costs. Research in India costs 40% less than in the U.S. The cost of developing a drug from scratch in India could be as low as $100 million: It's up to $1 billion in the West.
And Indian companies that can't beat Big Pharma will join it. Several Indian drugmakers have already struck outsourcing deals with multinationals to produce generic and patented drugs. Nicholas Piramal, for instance, has $500 million worth of contracts over the next eight years to manufacture compounds for companies including Allergan (AGN ), Advanced Medical Optics (AVO ), and Novartis. "Indian companies are trying everything," says Ajay Sharma, pharma analyst at brokerage CLSA in Bombay. "They are learning and earning."
Once they have learned, the best of the Indian companies will declare their independence. "In the future, we want to be a discovery-led company, an innovator company," says Satish Reddy, CEO of Dr. Reddy's Labs. A pharma juggernaut from India? Not yet. But India will definitely be a player.
By Manjeet Kripalani in Bombay