Indian pharmaceuticals Generic genius
Indian pharmaceuticals Generic genius
1,010 words
30 September 2000
The Economist
English
(c) The Economist Newspaper Limited, London [Year]. All rights reserved
AMONG India's 20,000 or so drug makers, Anji Reddy is the most visionary. He
decided long ago that Indian pharmaceutical firms could not prosper forever by
copying patented foreign inventions and selling them to India and the rest of
the poor world. So Dr Reddy's Group, his Hyderabad-based company, started coming
up with inventions of its own. It has licensed two new diabetics drugs to a
Danish firm, which is testing them on human subjects. That makes Dr Reddy's the
leader in the vaunted conversion of Indian drug firms from copycats to
innovators.
Sexy as they are, new drugs are not the only thing in Dr Reddy's mind. He is
thinking about the low-margin business of generics, drugs whose patents have
expired. In effect, Dr Reddy and others like him want to extend their
traditional business of reinventing drugs, minus the legalised piracy, to the
rich home markets of their inventors. He thinks Indian firms can capture a
quarter of the world market for generics, which is set to grow enticingly: drugs
with sales of $40 billion are likely to lose patent protection in the next three
years, says C. Visalakshi of Kotak Securities in Mumbai.
These hopes are not unfounded. Indian firms are accustomed to cut-throat
competition (there are some 40 Indian brands of Ranitidine, an anti-ulcer drug),
which is what awaits them in rich-country markets. Manufacturing costs are
perhaps two-thirds of rich-country levels, a big advantage in such a low-margin
business as generic drugs. "India is the best place in the world to manufacture
pharmaceuticals," declares Brian Tempest, president of Ranbaxy Laboratories,
India's largest drug maker.
That has not made India the world's preferred supplier. "Made in India" has been
no more a byword for quality in drugs than it has been in cars or consumer
electronics. American drug companies import raw materials from Indian
manufacturers, but few finished products such as pills.
The image of shoddiness is changing. To comply with the rules of the World Trade
Organisation, India will begin to protect product patents in 2005. That has
prompted big Indian drug firms not only to invent new drugs but increasingly to
adopt developed-country standards for making existing ones. Lupin Laboratories,
a Mumbai firm, claims to have the only factory in Asia that is certified sterile
(for injectible drugs) by America's Food and Drug Administration (FDA). Cipla, a
neighbouring company, has FDA approval to make ingredients for 15 years and is
now seeking it for finished products.
The drugs that emerge from these factories have to be FDA-compliant if they are
to be sold in America. Indian companies are pouncing on expiring patents and
filing abbreviated new drug applications (ANDAs)-the sort needed to sell
off-patent drugs in America-at a furious pace. Two Indian companies, Ranbaxy and
Wockhardt, were among the ten firms approved to sell Enalapril, a medicine for
high blood pressure that has American sales of over $900m.
Scrambling for a fix
Some wonder why Ranbaxy, Dr Reddy's and the rest should want to break into the
generics market. At $12 billion in America, it is worth only a small fraction of
the $125 billion drugs market. Every patent expiry triggers a scramble among
generics makers that sends prices crashing (that of Enalapril fell 95%). The
scramblers generally have bigger portfolios and better ties to wholesalers than
do Indian firms. Some Indian firms prefer the rewards and risks of inventing new
blockbusters to the thin recompense of producing sequels. While generics are a
"short-term opportunity, [they] fall short of the real creation of shareholder
value," says Swati Piramal, chief scientific officer of Nicholas Piramal, a
Mumbai-based drug firm.
Companies that disagree propose several ways around such hurdles. One is to fill
underpopulated niches rather than to copy bestsellers. Lupin has "not gone after
every product going off patent," says the head of its American operations,
Vinita Gupta. It concentrates instead on those, such as fancy antibiotics, to
which entry is restricted by "high technology barriers". Another strategy is to
give generics a novel twist, which could be as simple as masking the taste of a
bitter pill or as complex as finding new ways of delivering familiar drugs.
Cipla, for example, has worked out how to deliver an anti-incontinence drug via
a skin patch.
There are a number of ways to establish a presence on new ground. The commonest
is to piggyback on an American generics company, either as a supplier or as a
revenue-sharing partner. Cheminor, the part of Dr Reddy's Group that specialises
in selling generics to the rich world, has formed a series of alliances with
American generics firms. Wockhardt has a joint venture with New Jersey-based
Sidmak Laboratories, which markets two of its formulations; the two firms split
the profits evenly.
Ranbaxy, the most ambitious Indian firm in the international market, is using
most of these ploys. It has bought an American company; it is targeting
difficult-to-make products; and it is innovating, specialising in new ways to
control the release of a drug into a patient's system and thus reduce the number
of times he must take it.
But Ranbaxy wants to enter the major leagues as a generics company as well as an
inventor of patented drugs. To do that, it needs a drugs portfolio big enough to
attract the wholesalers and health-management groups that buy much of America's
generic supply. Building that has been expensive. With sales expected to be
$60m-70m this year, Ranbaxy is about to break even in America, says Mr Tempest.
A sign in the firm's American headquarters reads "This is the year we make
money." If the likes of Ranbaxy and Dr Reddy succeed, other Indian drug makers
are sure to follow.
(WebRubric)India's drug companies are training their sights on generics markets
in rich countries.
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